HOUSE RESOURCES STANDING COMMITTEE March 26, 1998 1:14 p.m. MEMBERS PRESENT Representative Bill Hudson, Co-Chairman Representative Scott Ogan, Co-Chairman Representative Beverly Masek, Vice Chair Representative Fred Dyson Representative Joe Green Representative William K. (Bill) Williams Representative Reggie Joule MEMBERS ABSENT Representative Ramona Barnes Representative Irene Nicholia COMMITTEE CALENDAR HOUSE BILL NO. 393 "An Act relating to contracts with the state establishing payments in lieu of other taxes by a qualified sponsor or qualified sponsor group for projects to develop stranded gas resources in the state; providing for the inclusion in such contracts of terms making certain adjustments regarding royalty value and the timing and notice of the state's right to take royalty in kind or in value from such projects; relating to the effect of such contracts on municipal taxation; and providing for an effective date." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 393 SHORT TITLE: DEVELOP STRANDED GAS RESOURCES SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR Jrn-Date Jrn-Page Action 02/11/98 2280 (H) READ THE FIRST TIME - REFERRAL(S) 02/11/98 2281 (H) OIL & GAS, FINANCE 02/11/98 2281 (H) 2 FISCAL NOTES (DNR, REV) 02/11/98 2281 (H) GOVERNOR'S TRANSMITTAL LETTER 02/19/98 (H) O&G AT 11:00 AM CAPITOL 124 02/19/98 (H) MINUTE(O&G) 02/24/98 (H) O&G AT 10:00 AM CAPITOL 124 02/24/98 (H) MINUTE(O&G) 02/26/98 (H) O&G AT 10:00 AM CAPITOL 124 02/26/98 (H) MINUTE(O&G) 03/03/98 (H) O&G AT 10:00 AM CAPITOL 124 03/05/98 (H) MINUTE(O&G) 03/09/98 2578 (H) RES REFERRAL ADDED 03/10/98 (H) O&G AT 10:00 AM CAPITOL 124 03/10/98 (H) MINUTE(O&G) 03/12/98 (H) O&G AT 10:00 AM CAPITOL 124 03/12/98 (H) MINUTE(O&G) 03/19/98 (H) O&G AT 10:00 AM CAPITOL 124 03/19/98 (H) MINUTE(O&G) 03/24/98 (H) O&G AT 10:00 AM CAPITOL 124 03/24/98 (H) MINUTE(O&G) 03/24/98 (H) O&G AT 5:00 PM CAPITOL 124 03/24/98 (H) MINUTE(O&G) 03/26/98 (H) O&G AT 10:00 AM CAPITOL 124 03/26/98 (H) MINUTE(O&G) 03/26/98 2749 (H) O&G RPT 1DP 5NR 03/26/98 2750 (H) DP: HODGINS; NR: BUNDE, OGAN, ROKEBERG, BRICE, KEMPLEN 03/26/98 2750 (H) 2 FISCAL NOTES (DNR, REV) 2/11/98 03/26/98 2750 (H) REFERRED TO RESOURCES 03/26/98 (H) RES AT 1:00 PM CAPITOL 124 WITNESS REGISTER REPRESENTATIVE MARK HODGINS Alaska State Legislature Capitol Building, Room 110 Juneau, Alaska 99801 Telephone: (907) 465-3779 POSITION STATEMENT: Sponsor of HB 393. WILSON CONDON, Commissioner Department of Revenue P.O. Box 110400 Juneau, Alaska 99811-0400 Telephone: (907) 465-2300 POSITION STATEMENT: Provided a presentation on HB 393. JIM JOHNSON, Development Manger - Alaska Region North America Production Division Phillips Petroleum Company P.O. Box 1967 Telephone: (713) 669-2968 POSITION STATEMENT: Provided testimony in support of HB 393. ACTION NARRATIVE TAPE 98-38, SIDE A Number 001 CO-CHAIRMAN SCOTT OGAN called the House Resources Standing Committee meeting to order at 1:14 p.m. Members present at the call to order were Representatives Hudson, Ogan, Masek, and Green. Representatives Williams, Joule and Dyson arrived at 1:15 p.m., 1:16 p.m., and 1:30 p.m., respectively. HB 393 - DEVELOP STRANDED GAS RESOURCES CO-CHAIRMAN OGAN announced the only order of business today would be House Bill Number 393, "An Act relating to contracts with the state establishing payments in lieu of other taxes by a qualified sponsor or qualified sponsor group for projects to develop stranded gas resources in the state; providing for the inclusion in such contracts of terms making certain adjustments regarding royalty value and the timing and notice of the state's right to take royalty in kind or in value from such projects; relating to the effect of such contracts on municipal taxation; and providing for an effective date." CO-CHAIRMAN OGAN called on Representative Mark Hodgins, sponsor of the bill. Number 019 REPRESENTATIVE MARK HODGINS, Alaska State Legislature, stated the House Oil and Gas committee passed out CSHB 393(O&G), AS AMENDED, version 0-GH2006\L, this morning. The committee held extensive public hearings and debates looking at what is best for Alaskans and Alaska. The gist of the bill is to enable legislation to allow the administration to form a contract with a sponsor group that would go forward and look at building a trans-Alaska gas pipeline. It would bring the gas that is on the North Slope, approximately 37 trillion cubic feet, down to tidewater. The energy transmitted down the gas line would enable the Alaskans along the line and in Southcentral an abundance of energy over the next 60 to 70 years. Revenues would be created by the royalties and taxes earned. The municipalities would also share in some of the taxes earned. There would be thousands of jobs created. The revenue source looked at on the North Slope indicates that there is approximately $150 billion worth of gas. The state's take in terms of taxes is approximately $12 billion. The federal government's take in terms of taxes is approximately $26 billion. The project right now is not profitable. The bill takes a look at payments in lieu of taxes. "The idea being that if the state gives up a little bit, if the people defer some of the state taxes for a holiday of some period of time, that...that would make the cash flow portion and thus the financing and the profitability of this pipeline a little bit better." The state owns 12.5 percent of the resource. It is not only a taxing and regulation authority but an owner of the resources. It is important to keep in mind that it is a for-profit project. The producers, sponsors, companies, and individuals that would be involved in the project depend on a profit. The people of the state are depending on the legislature to help the project come forward for the revenue, jobs and spin-offs it would create. Number 106 CO-CHAIRMAN OGAN asked Representative Hodgins whether the $12 billion in state taxes would be royalties and taxes. Number 116 REPRESENTATIVE HODGINS replied it would be taxes. CO-CHAIRMAN OGAN asked Representative Hodgins whether it would be royalties and taxes combined. REPRESENTATIVE HODGINS replied it would be taxes. Royalties would be above taxes. The project has the potential of going for 30 to 50 years. Taxes would be ad valorem, severance, business, and etc. Number 136 REPRESENTATIVE JOE GREEN referred to page 2, line 14, and asked Representative Hodgins whether the phrase "at least the next decade" would mesh with the expected timing of the gas pipeline now. Earlier, the timing was expected to be 2002 and 2003, then it moved to 2006 and 2007. He also wondered whether the concept is to give some deference to severance taxes and royalties without specifying it in the bill. Number 171 REPRESENTATIVE HODGINS replied yes the taxes need to be considered. The cost of the gas line is not known. The next step would be for the sponsor group to come forward with some preliminary engineering ideas, time lines, and costs at which point the taxation situation could be looked at. The bill would enable an idea for taxes and for the administration to sit down and look at the alternatives then bring them back to the legislature for ratification. In terms of the ten-year period of time, testimony from producers has indicated that they could be as early as 2007 or 2008, if everything goes without flaws. It would be a little bit later before gas actually flows down the line and the cash registers start ringing. Number 195 REPRESENTATIVE GREEN stated the purpose of the bill is to say, "Hey state these are the things that we need to be looking at in order to--I mean conceivably things that will happen in order to get this line built so that the state ultimately will gain from the royalty it owes and the jobs it'll create and all those good things that that major project would bring. But, there's nothing in here that we're committing to--neither--we have no schedule, we don't talk about it...It's just conceptually, we may have to give a little in royalty, we may have to give a little in taxes, defer--eliminate them for a while, take a holiday. It's a wake up call rather than a commitment." Number 211 REPRESENTATIVE HODGINS replied, "Yes." This is enabling legislation to allow the administration to go forward with negotiations. A proposed contract would be submitted to the legislature for ratification or be sent back for further negotiations. Number 218 CO-CHAIRMAN OGAN entertained a motion to adopt CSHB 393(O&G), with the attached amendment (version 0-GH2006\L). Number 228 REPRESENTATIVE BEVERLY MASEK made a motion to adopt CSHB 393(O&G), version 0-GH2006\L, with the attached amendment, for consideration. There being no objection, it was so adopted. Number 234 CO-CHAIRMAN OGAN called on Commissioner Wilson Condon from the Department of Revenue. Number 277 WILSON CONDON, Commissioner, Department of Revenue, stated the original bill, HB 393, was introduced by Governor Tony Knowles. The House Special committee on Oil and Gas spent several weeks working on the bill and the department has worked closely with Representative Hodgins's staff to prepare a committee substitute. The proposed committee substitute is designed as a framework to bring back to the legislature the issue of which fiscal system would be appropriate to develop the North Slope gas resource. He referred to a flow chart and stated there are three key elements. What is stranded gas, what is a qualified project, and what does it take to be a qualified sponsor of a qualified project. Stranded gas is uneconomic or uncompetitive to develop. A project that would develop and market 500 billion cubic feet (bcf) of stranded gas over a 20-year period and make it available to local communities, if appropriate and economical. A qualified sponsor is someone with an intent to own an equity interest in the project: own some or all of the stranded gas, have a right to purchase some or all of the stranded gas, have the major permits necessary to construct the project, or have the financial strength to build the project. COMMISSIONER CONDON stated the bill would authorize and require the executive branch to put together a fiscal system constructed around the notion of payments in lieu of taxes. The payments would then come back before the legislature in the form of a contract and piece of authorizing legislation. It would not authorize the executive branch to sign it, but rather instructs the executive branch on how to put together a proposal to bring back to the legislature. The legislature would either authorize or reject the proposal. COMMISSIONER CONDON stated someone interested in developing stranded gas would put together a proposal and apply. The proposal would come before the commissioners of revenue and natural resources to determine whether it actually is a project and not a "fly-by-night scheme." The commissioner of revenue must answer the following questions: Is the gas stranded? Do the proposers meet the standards for a qualified sponsor? Is the proposal a qualified project? The commissioner of natural resources must answer the following questions: Does the project plan provide for diligent development? Is there a satisfactory plan for providing gas to local communities? If the answer to the five questions is yes, then the commissioners would be responsible for putting together the package to come before the legislature. The commissioner of revenue would put together a fiscal package with respect to the payments in lieu of taxes, Alaska hire, gas for local communities, royalty arrangements, and sharing of revenues generated with local communities. The bill would also authorize the establishment of the Municipal Advisory Group. The commissioner of revenue would notify the group with respect to the development of municipal revenue sharing terms and issues affecting them during negotiations. The commissioner of natural resources would negotiate the terms of the royalties, provide a method for valuing the gas for royalties, and modify the rights of the state to take royalties in-kind rather than in-value. COMMISSIONER CONDON stated when the commissioner of revenue completes the contract, it would be made open for review by the public and legislature. There would be a period of legislative review before being submitted for final review and approval. After the initial review, there would be an opportunity to make modifications, if necessary. The proposal would then be submitted to the governor. The governor would then submit the proposed contract, along with legislation, to the legislature. The legislature would then determine whether to approve it or not. Number 458 CO-CHAIRMAN OGAN announced Representative Dyson joined the meeting some time ago. Number 462 REPRESENTATIVE GREEN asked Commissioner Condon whether there would be a similar flow chart for the environmental consequences of another line. Does it provide for an advisory position? Number 470 COMMISSIONER CONDON replied it is a business proposition. It is meant to provide a responsible framework for a business deal. The state would still have to do its environmental job. Number 482 REPRESENTATIVE GREEN asked Commissioner Condon what would happen if snags were hit along the way. Number 489 COMMISSIONER CONDON replied it would move along irrespective of whatever kind of environmental difficulties did or did not arise. It is a process to develop a set of proposed economic arrangements. COMMISSIONER CONDON noted that Commissioner John Shively is participating via teleconference in Anchorage in order to answer any questions in regards to the royalties. Number 504 REPRESENTATIVE BILL WILLIAMS asked Commissioner Condon whether the legislative review process would be timed while the legislature is in session. COMMISSIONER CONDON replied, "We would have to do that, yes." Number 510 REPRESENTATIVE MASEK referred to page 4, line 8, and asked Commissioner Condon to talk about the phrase "establishing a fiscal regime that reduces the risks and improves the economies of a stranded gas development project". Number 518 COMMISSIONER CONDON replied Dr. Pedro H. van Meurs concluded, as part of a consulting study, that the fiscal system the state has in comparison to other people's resources is relatively uncompetitive because it is front-end loaded: the state takes its share out of the front end. In terms of improving the economics, Dr. van Meurs recommended that the state try to take its share of the rent in the later years thereby sharing in the risks when the economics are not good. It tends to be a more stable arrangement because if things turn out to be good then the state gets a share of the "bonanza," people feel they have gotten a fair deal, and there isn't the political pressure to change the fiscal system over the life of the project. It increases the willingness of those to become investors and lowers the threshold to make an investment in the project. Number 563 REPRESENTATIVE MASEK stated Commissioner Condon did not answer her question. She wondered how much would the state give away in taxes and royalties to reduce the risk and improve the economics. Number 568 COMMISSIONER CONDON replied the bill would not give anything away. The bill would provide a framework that would require the executive branch to come back with a proposal that might or might not give something away. It would require the executive branch to respond to an application and bring a proposal to the legislature for consideration. Number 582 REPRESENTATIVE HODGINS stated Dr. van Meurs has indicated there would be a 2 percent reduction on the state's side. If that was the case, the state is looking at a $12 billion take totaling $260 million to $270 million. "You have to keep in mind that the economics of this project through the ramp-up process and some of the testimony that we had over the year has been that this project is very, extremely cost heavy on the front end. And, one of the considerations would be--return on investment would be--private sector would be looking at. The return on the investment is real susceptible to the front-end cost. The project of laying out the amount of dollars it would take to build this line, and it has been suggested approximately $15 billion at this point, the amount of money that would be needed to...to...to start this project is further complicated by the taxes that would be involved in the front end and so by deferring those tax holiday or to a later date when the cash registers starts, when the gas actually starts flowing, when the revenues flow, enables this project to go forwards. The way this project is presented now, we will not have a project. If it's at $15 billion the economy is such that there's better investments for these investors throughout the world. We would not have a project and then our gas would indeed be stranded up on the North Slope as the state's share." Number 608 REPRESENTATIVE MASEK stated the way the section is written would give quite a bit of power to the executive branch to develop and implement a contract to recover and transfer the natural gas. Number 616 CO-CHAIRMAN BILL HUDSON referred to the Municipal Advisory Group, and asked whether it would include all of the communities along the line or within a given region. He wondered whether the gas would be made available to those communities as part of the overall contract. Number 626 REPRESENTATIVE HODGINS replied the language in the bill indicates economic proximity. For example, a spur line drawn to Cook Inlet, and a substation to service Valdez, would be taken up in economic proximity and would be available under the intent language in the bill. CO-CHAIRMAN HUDSON stated the revenue sharing would be to offset the burden of the cost to the communities along the line. REPRESENTATIVE HODGINS stated the "pipeline mayors" have indicated that they are comfortable with getting the project to go forward. They have also indicated their needs and willingness to accept some of the socioeconomic impacts of the project - more schools, more services, more people coming to their communities - as long as they can recoup deferred dollars in the form of a tax holiday, for example, they would be very, very supportive of the project. Number 657 CO-CHAIRMAN HUDSON stated the gas belongs to all of the people of Alaska, therefore, he would like to see an equitable sharing of the resource. Certainly, some communities would get wonderful energy and fuel benefits. He would like to see Kodiak and Southeast be considered in the final analysis, if revenue sharing is one of the major elements of the contractual relationship. Number 665 REPRESENTATIVE REGGIE JOULE stated so much of resource development is tied to the Asian markets. He wondered whether those markets have been looked at and what type of impact would they have. Number 673 REPRESENTATIVE HODGINS stated Dr. van Meurs testified that the economic turmoil in the East would not negatively impact but positively impact Alaska as a supplier of liquid natural gas to Japan, Korea and Taiwan. Number 689 COMMISSIONER CONDON stated, if the project was in place today, the price of gas would be low. Nobody would do a project like this without entering into it for the long-term, however. The delivered price would likely be tied in to the price for.... TAPE 98-38, SIDE B Number 000 COMMISSIONER CONDON continued. Low prices would have a revenue effect on the project. There are some competitors that are badly affected by the current economic difficulties in Asia, particularly Indonesia because it is a source of gas and a competitor. Number 022 REPRESENTATIVE WILLIAMS asked Commissioner Condon how he came up with the qualifications for a qualified sponsor or qualified sponsor group. Number 038 COMMISSIONER CONDON replied the intent of the qualifications is to ensure that the sponsor or group sponsor is serious and has the economic strength and interest to put a project together. REPRESENTATIVE WILLIAMS asked Commissioner Condon, whether a sponsor or group sponsor would have to have a net worth of at least 33 percent of the estimated cost, in order to buy 10 percent of the stranded gas. COMMISSIONER CONDON replied, "No." A qualified sponsor or qualified sponsor group would have to intend to own an equity interest in the project and meet one or more of the additional criteria spelled out in the bill. Number 085 REPRESENTATIVE GREEN asked Commissioner Condon whether he sees anything to inhibit the state taking gas in-kind. COMMISSIONER CONDON replied the bill authorizes the state to limit and change its right to take gas in-kind. REPRESENTATIVE GREEN replied the bill does not inhibit it, but future negotiations might. Number 123 REPRESENTATIVE MASEK referred to page 5, lines 20-21, "(3) use reasonable efforts to contract with qualified Alaska businesses when their performance is competitive with regard to price, quality, and availability." , and asked what criteria would be used to determine whether an Alaskan company is eligible to receive special treatment for subcontracting. Number 140 COMMISSIONER CONDON stated the provision is a statement of intent by the legislature in terms of what it wants to see accomplished. There is a provision dealing with Alaska hire, and "Alaska business" is defined on pages 14-15. Number 175 REPRESENTATIVE HODGINS stated the constitutionality of local hire is handled better through a contract instead of legislation. "We talked about the definition and the definition we can use anything we want to and that's just a way of us keeping score as to which companies are adhering more to our wishes. And, then we can bring political pressure or individual pressure on those companies to raise the amount of what we feel are Alaskan residents to their employment schemes, for their employment roles. Basically, constitutionally we have a difficult time of...of putting the threshold too low and excluding a lot of folks. I think our best and probably most capable way of making sure that Alaskan are employed is the responsibility that I think the Oil and Gas committee will take on as far as making certain of the training requirements that the...the job specialties, the requirements that the employer will have for employees and making sure that we have the trained Alaskans to...to fulfill those jobs. Other than...other than that it's very difficult to exclude somebody from Washington state or other states that come up here to work. We've talked about a lot of different schemes. Basically, the best one is having a well trained Alaskan workforce. And, I believe that will be the responsibility of the legislature to make sure that that happens." Number 212 REPRESENTATIVE MASEK stated she would still like to know what criteria would be used in the intent language to decide who is competitive and eligible to receive a contract in reference to a reasonable effort - "(3) use 'reasonable efforts' to contract with qualified Alaska businesses when their performance is competitive with regard to price, quality, and availability.", page 5, lines 20-21. Number 234 COMMISSIONER CONDON stated the term "reasonable" is often used by the legislature in many different contexts. The language should be changed, if the legislature has any other kind of effort in mind. Number 255 CO-CHAIRMAN OGAN referred to page 15, line 21, "(ii) resident fishing, hunting, or trapping license under AS 16;", and asked Commissioner Condon whether the language should read "qualifies for a license and domiciled for 12 months." It is a pretty tight description of a resident. Number 268 COMMISSIONER CONDON replied it would be a good change. Currently, it means that a person would have to get a license in order to get a job. It would not change the legal requirement of reporting who is or isn't a resident, but it would remove a potential problem. Number 293 REPRESENTATIVE HODGINS asked Co-Chairman Ogan what his intention is for the bill. CO-CHAIRMAN OGAN replied he would like to move it out next week. REPRESENTATIVE HODGINS replied the timeliness of getting the bill out is very important in order to get it through the House Finance committee as part of the budget process. It was worked extensively in the House Oil and Gas committee. Number 315 CO-CHAIRMAN OGAN replied the bill is a priority of his. CO-CHAIRMAN OGAN asked Commissioner Condon what would happen if the legislature rejected the contract negotiated by the administration. Number 331 COMMISSIONER CONDON replied the bill does not have any provision that requires a report to the legislature, until a tentative set of arrangements have been agreed upon. There is an opportunity to make changes to the contract before it goes to the legislature. CO-CHAIRMAN OGAN asked Commissioner Condon, if the legislature voted to not go ahead with the contract, would the administration renegotiate. COMMISSIONER CONDON replied it might, but the bill does not address that. CO-CHAIRMAN OGAN stated it would be prudent for the bill to address that. COMMISSIONER CONDON replied it would not necessary. It would not be precluded, but it does not need to be required. Number 358 CO-CHAIRMAN OGAN referred to page 11, Section 43.82.210, (1) - (9), and stated it gives the commissioner of revenue the ability to adjust oil and gas production taxes, oil and gas exploration taxes, oil and gas pipeline transportation property taxes, oil and gas conservation taxes, Alaska net income taxes, municipal sales and use taxes, municipal special assessments, comparable taxes or levies imposed by the state or municipality after the effective date, and other state or municipal taxes. This is a heck of a lot of authority delegated to the commissioner of revenue, even though the legislature has to sign off on it. He asked Commissioner Condon why he should be given all that authority, and why is the language talking about "oil" and gas taxes when this is a gas bill. Number 398 COMMISSIONER CONDON replied the bill would no authorize the modification of any oil taxes. According to the bill drafters, it is the product of how the bill needs to be drafted. "Oil and gas" is the proper name used in the chapters that authorize these taxes. Sections 43.82.020 and 43.82.210 only authorize the development of a proposal for stranded gas. In terms of the commissioner's authority, it is only a to-do list of things to consider. It does not give the commissioner authority to change or excuse anybody from any of the taxes. Number 434 CO-CHAIRMAN OGAN asked Commissioner Condon to state for the record that there is nothing in the bill that would give him the authority to consider changing taxes on oil. Number 437 COMMISSIONER CONDON replied, as a citizen of the state, he has the authority to consider changing the taxes on oil, but it won't amount to a "hill of beans" just considering it. He doesn't have the authority to change taxes on anything under the bill and he is not instructed by the bill to come before the legislature with a proposal to change oil taxes. Number 445 CO-CHAIRMAN OGAN stated the language gives the commissioner the expressed authority to negotiate oil and gas taxes. COMMISSIONER CONDON replied, in his opinion, there is no ambiguity. It does not authorize a proposal on oil taxes. It happens to be the proper name used in the chapters pertaining to taxes and gas. COMMISSIONER CONDON stated, "No, it doesn't have a damn thing to do with oil, except that its got the three letter word that says 'oil' there." CO-CHAIRMAN OGAN stated he knows the intent of the bill doesn't deal with oil, but a lawyer somewhere might decide that it does mean oil. COMMISSIONER CONDON replied he would flunk his bar exam then. Number 483 CO-CHAIRMAN HUDSON asked Commissioner Condon whether there could be a change in oil taxes without the legislature making them. COMMISSIONER CONDON replied, "You're absolutely right." That is also true of gas taxes. CO-CHAIRMAN HUDSON asked Commissioner Condon whether that is true for any other monetary term because in essence it is an appropriation, the purpose of the legislature. COMMISSIONER CONDON replied, "Correct." Number 495 REPRESENTATIVE WILLIAMS referred to page 16, line 17, and wondered whether there is anyway to loop the interest to the qualifications under Section 43.82.110. COMMISSIONER CONDON replied yes it is possible. REPRESENTATIVE WILLIAMS asked Commissioner Condon whether there is any problem with that. COMMISSIONER CONDON repled, "I don't believe so." A qualified sponsor is one or more enterprise applying to put together the project. The minimum qualifications apply to the entire group. This says subject to the contract and with the approval of the commissioner parties can be added to or taken out of the sponsor group. It is common in all kinds of commercial deals. REPRESENTATIVE WILLIAMS stated he is a little bit leery of this and will look at it further. Number 543 CO-CHAIRMAN OGAN referred to page 25, line 18, "If a provision of this chapter conflicts with another provision of state or municipal law, the provision of this chapter governs." This is the reason why he is concerned about it affecting oil and gas. He asked Commissioner Condon whether it is fairly standard. COMMISSIONER CONDON replied, "Yes." He said, "If you're passing a piece of legislation that you want to establish the rules of the game, you want to make sure there isn't something that's gonna come in from a (indisc.) that will change those rules." Number 558 CO-CHAIRMAN OGAN stated the bill gives the commissioner of revenue a lot of authority to negotiate contracts that would affect municipalities. He asked Commissioner Condon what process does he envision to address the concerns of municipalities. Number 569 COMMISSIONER CONDON replied the bill would establish a Municipal Advisory Group. The commissioner of revenue would be required to keep the group informed, and seek its advise in regards to municipal sharing. CO-CHAIRMAN OGAN called on Jim Johnson from Houston. Number 589 JIM JOHNSON, Development Manger - Alaska Region, North America Production Division, Phillips Petroleum Company, testified via teleconference in Texas. Phillips has been interested in evaluating opportunities to participate in a North Slope gas project including a trans-Alaska gas pipeline system, liquid natural gas facilities, and shipping elements. In that regard, Phillips is supportive of this legislation. There is potential for commercialization of North Slope gas. The progress will require the evaluation of the cost of a gas line, marketing arrangements, tax and regulatory structures. The bill provides a means to address the tax and regulatory structures. It enables the issues to be addressed and provides the extra push for the project. CO-CHAIRMAN OGAN asked the committee members to familiarize themselves with the bill for the next meeting. It is an important issue. Number 635 REPRESENTATIVE HODGINS stated it is important to keep in mind that this is enabling legislation to allow a contract to go forward. Concerns of any authority given to the administration or small group of folks are generally well founded, but in this case anything produced will have to come back to the legislature for ratification. "I'm not sure that the concerns that have been voiced by some members of this body as to the absolute power that would result--I don't believe those concerns are valid for the fact that this contract would have to come back to this body for ratification. And, I think it's important to remember that if all 60 of us were involved in the negotiation process we wouldn't come up with a contract. And the basis of this enabling legislation is to look at some alternatives to determine if this is going to be a cost effective job, if this is going to be profitable. If it is not going to be profitable, it is not gonna be built. If it's not built, the state's share of the natural gas on the North Slope will stay there till some other technology comes along or until some time in the near or distant future. To give an idea, right now the North Slope has proven to be approximately 37 trillion cubic feet. If we can get this pipeline online and get this project I think we'll find that there will be two to three times that amount of natural gas up there. To give you an idea as to what 37 trillion cubic feet would do for the people of the state of Alaska, our share of that thru the royalty percentage would be approximately 4 trillion cubic feet. Four trillion cubic feet is more gas than has been used in Cook Inlet since its inception. I can guarantee you that the jobs that have been created in the Cook Inlet basin from the use of natural gas, the export of it, the heating of the Southcentral Alaska has been extremely beneficial. Extremely beneficial to Alaskans. I know that the impact that we're going to be talking about will impact virtually every community in the state, but we must remember that if we load too much dollar amount for a revenue dedication on the front end of this project, this project will probably never get built. And, we can hand a lot of socioeconomic impacts on it, we can hand a lot of revenue sharing, we can hang a lot of other items that will cost dollars that will actually stop this project from going forward. The decision that we have to make at this level is decide if we want to see this project continue on any further. If we don't want to see this project continue on any further, then I would suggest that we no do anything with this bill. If there is a hope and a pray and a chance that this project can go and it will be profitable not only for the business that are involved in it, but for the people of Alaska then I think it's our direct responsibility to carry forward and search that out. There is no hidden agenda in this enabling legislation. It's simply go forward, make a contract, come back, we'll say yes or no. If we say no then you'd better go forward and do another one. And that's the simplicity of it and to draw any other conclusions tends to fog the real essence of the contract with unknown fears and speculation of event that...that probably will not happen or could not happen. I would urge you to take a hard look at this. Make the changes that you deem are appropriate. Take the testimony that is important to the people of the state of Alaska and with due diligence go forward with this piece of legislation at your earliest convenience." REPRESENTATIVE MASEK stated it is important to look at what the state can do, but it is not necessary to hurry because of the price of oil today. The resources are valuable to the state and there will probably be some development in the future. She is not comfortable with the bill. Many changes are needed. She is not sure whether this is the time for it. She doesn't want the state to rush into something that it may regret. ADJOURNMENT Number 685 CO-CHAIRMAN OGAN adjourned the House Resources Standing Committee meeting at 2:45 p.m.