Legislature(2005 - 2006)CAPITOL 120
06/02/2006 10:00 AM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| HB2003 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB2002 | TELECONFERENCED | |
| *+ | HB2003 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
June 2, 2006
10:30 a.m.
MEMBERS PRESENT
Representative Lesil McGuire, Chair
Representative Tom Anderson
Representative John Coghill
Representative Pete Kott
Representative Peggy Wilson
Representative Les Gara
Representative Max Gruenberg
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Nancy Dahlstrom
COMMITTEE CALENDAR
HOUSE BILL NO. 2003
"An Act establishing the Alaska Natural Gas Pipeline Corporation
to finance, own, and manage the state's interest in the Alaska
North Slope natural gas pipeline project and relating to that
corporation and to subsidiary entities of that corporation;
relating to owner entities of the Alaska North Slope natural gas
pipeline project, including provisions concerning Alaska North
Slope natural gas pipeline project indemnities; establishing the
gas pipeline project cash reserves fund in the corporation and
establishing the Alaska natural gas pipeline construction loan
fund in the Department of Revenue; making conforming amendments;
and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 2002
"An Act conferring original jurisdiction on the Alaska Supreme
Court for the purpose of providing judicial review of a contract
executed under the Alaska Stranded Gas Development Act, and
setting the time in which a contract developed under that Act,
or a statute of limitations regarding that contract, must be
legally challenged; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 2003
SHORT TITLE: NATURAL GAS PIPELINE CORPORATION
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
05/31/06 (H) READ THE FIRST TIME - REFERRALS
05/31/06 (H) JUD, FIN
06/02/06 (H) JUD AT 10:00 AM CAPITOL 120
WITNESS REGISTER
STEVEN B. PORTER, Deputy Commissioner
Office of the Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Presented a general overview of HB 2003 on
behalf of the administration, and responded to questions.
LOUISIANA W. CUTLER, Attorney at Law
Preston Gates & Ellis, LLP
Anchorage, Alaska
POSITION STATEMENT: Presented a sectional analysis of HB 2003
on behalf of the administration, and responded to questions.
ACTION NARRATIVE
CHAIR LESIL McGUIRE called the House Judiciary Standing
Committee meeting to order at 10:30:49 AM. Representatives
McGuire, Coghill, Kott, Gara, and Gruenberg were present at the
call to order. Representatives Anderson and Wilson arrived as
the meeting was in progress. Representative Dahlstrom was also
in attendance.
HB 2003 - NATURAL GAS PIPELINE CORPORATION
10:30:52 AM
CHAIR McGUIRE announced that the only order of business would be
HOUSE BILL NO. 2003, "An Act establishing the Alaska Natural Gas
Pipeline Corporation to finance, own, and manage the state's
interest in the Alaska North Slope natural gas pipeline project
and relating to that corporation and to subsidiary entities of
that corporation; relating to owner entities of the Alaska North
Slope natural gas pipeline project, including provisions
concerning Alaska North Slope natural gas pipeline project
indemnities; establishing the gas pipeline project cash reserves
fund in the corporation and establishing the Alaska natural gas
pipeline construction loan fund in the Department of Revenue;
making conforming amendments; and providing for an effective
date."
REPRESENTATIVE GARA spoke briefly on another topic.
10:32:24 AM
STEVEN B. PORTER, Deputy Commissioner, Office of the
Commissioner, Department of Revenue (DOR), relayed that he would
be providing a general overview of HB 2003 and that Ms. Cutler
would be providing details of individual sections.
10:33:10 AM
LOUISIANA W. CUTLER, Attorney at Law, Preston Gates & Ellis,
LLP, in response to questions, distributed a copy of the
governor's transmittal letter, which contained a bit of a
sectional analysis, and offered to create a formal sectional
analysis for later distribution to members.
REPRESENTATIVE GARA questioned whether the legislature's
consultants have provided the legislature with any memorandums
regarding HB 2003.
[There was brief discussion regarding other legislation.]
MS. CUTLER indicated that the [consulting firm] of Greenberg
Traurig, LLP, has provided such a memorandum to her law firm,
which would be willing to work with the consulting firm
regarding the concerns outlined in that memorandum, which was
written by Phillip C. Gildan on May 23, 2006, to Joe Balash,
staff to the Legislative Budget and Audit Committee.
MR. PORTER added that once that was done, he and Ms. Cutler
could bring back amendments intended to address any remaining
concerns that the consulting firm had.
[Members expressed a desire to speak directly with the
consultants and Mr. Balash.]
MR. PORTER went on to explain that HB 2003 will create an Alaska
Natural Gas Pipeline Corporation ("ANGPC") that will hold and
finance an ownership interest in an Alaska gas pipeline and that
will participate in the decision-making aspects of moving such a
project forward, thus allowing Alaska to become a corporate
partner - in a proposed Pipeline Project Mainline Limited
Liability Company (LLC) Entity ("Mainline LLC") - with the three
corporations involved in the Alaska Stranded Gas Fiscal Contract
("ASGF Contract"): BP Exploration (Alaska) Inc.; ConocoPhillips
Alaska, Inc.; and ExxonMobil Alaska Production, Inc. Even
though the ANGPC will be a public corporation, the goal is to
make it is much like a private entity, and as commercial an
entity, as possible because, from a decision-making standpoint,
the four corporations must function as a single entity in order
to move a project of this magnitude forward, and, via the ANGPC,
the state will ensure that it is effectively positioned to look
after the public's interest while still being part of a very
commercial entity.
10:41:38 AM
MR. PORTER said that furthermore, the aforementioned Mainline
LLC must be as stable as possible so that all four partners will
know with whom they are working for at least the next 10 years
or, if possible, for the life of the project. To this end, the
ANGPC will have a stable board consisting of two commissioners -
one from the Department of Revenue (DOR), and one from the
Department of Transportation & Public Facilities (DOT&PF) - and
five board members with staggered six-year terms who can only be
dismissed for cause, with the purpose being to create a
financial entity rather than a political entity. The ANGPC will
be exempt from the Open Meetings Act so as to be able to respond
quickly to its Mainline LLC partners on particular issues that
arise, but the intent, nonetheless, is for the ANGPC board to
have regular public meetings in order to keep the public
informed, and, to that end, will set up policies and procedures
for conducting such meetings.
MR. PORTER said:
Another thing that we've found, in negotiating with
private corporations, is [that] in their world,
everything is confidential unless they decide to make
it public. In our world, everything is public unless
we decide to make it confidential. And that's a bit
of a conflict, ... [and] the private entities ... are
struggling with how to deal with that relationship.
So what we have recommended is that we ... [be]
subject to the Public Records Act but that we have
specific exemptions, and we've listed them ... [in
proposed AS 41.42.520(a)].
MS. CUTLER mentioned that HB 2003 contains exemptions to both
the Public Records Act and the Open Meetings Act, and that she
would be providing more details of those exemptions during her
presentation of the bill's individual sections.
MR. PORTER indicated that HB 2003 will create an environment
wherein the information that private corporations normally keep
private will stay private, and the information that the state
normally keeps public will stay public; thus, by partnering with
the state, the private corporations won't loose the
confidentiality rights that they normally have. In response to
a question, he relayed that the Mainline LLC will own the
pipeline itself and that the ANGPC will be the [state-owned]
corporation that is the Alaska partner in the Mainline LLC.
[There was a brief discussion regarding what types of statutes
are currently listed in Title 41.]
10:48:47 AM
MR. PORTER mentioned that if the ANGPC is established but then
changed in the future, "the producers" - the other three
corporations/owners of the [Mainline LLC] - want to ensure that
their contractual benefits will be maintained. For example,
should the legislature decide in the future that the ANGPC no
longer has any confidentiality rights and that all information
should be made public, this would result in a materially adverse
change to the ANGPC's ability to perform its functions as a
partner in the Mainline LLC; therefore, HB 2003 provides that
any such change could result in the ANGPC's losing its voting
rights or its rights to receive confidential information.
REPRESENTATIVE GRUENBERG, noting that private corporations can
easily change their internal structure via a resolution by its
board of directors, asked what protection the state will have
under HB 2003 should one of the other partners effect a
substantial change to itself.
MR. PORTER said that issue had been discussed, and offered his
belief that the fact that the other three corporations can only
transfer to certain types of entities will "kind of" protect the
state. All four partners should have the same type of
confidentiality obligations, he opined, and so the only question
that could arise would be whether a partner violated its
confidentiality responsibilities; under HB 2003, the penalties
for doing so would be the same regardless of which partner it
was. He seemed to indicate that the state won't be penalized
unless state statutes are changed in the future such that the
ANGPC will no longer be able to meet its confidentiality
obligations as set out in the contract.
MS. CUTLER added that her understanding is that the producers
feel that they, as private entities - particularly assuming that
they are organized under the corporation laws of Delaware - feel
that they need to have as much stability as possible when
dealing with a public corporation such as the one being
established via this legislation. She surmised that the
legislature also understands the importance of having stability.
And although addressing issues of confidentiality is one of the
main motivations for seeking certain protections, it is not the
only one.
MR. PORTER offered his belief that the three private
corporations would be amenable to being subject to the
aforementioned penalties - losing voting rights or rights to
receive confidential information - because they would never
change their corporate bylaws such that all their information
becomes public.
10:56:25 AM
MS. CUTLER, in response to a question, said that that particular
language is located on page 11, lines 2-9, under proposed AS
41.42.210(a)(22), which reads:
(22) except for a statutory change made by initiative
or in response to a final nonappealable court order,
to agree that as part of an agreement to form an owner
entity of the project that its voting rights and its
access to confidential information otherwise provided
for under the terms of the agreement may be restricted
if this chapter is amended or another statute is
enacted, and that law has a material adverse effect on
the corporation's ability to perform its obligations
under such an agreement; however, the corporation may
not agree to any terms that attempt to limit the
legislature's authority to exercise police powers of
the state;
MR. PORTER mentioned that the bill also contains provisions
dealing with indemnification; provisions exempting the ANGPC
from the state's procurement code - though the ANGPC's budget
would be subject to legislative appropriation; and provisions
pertaining to cash reserve funds. He indicated that the equity
of the ANGPC will be funded via a general fund appropriation and
"a project financing" with federal loan guarantees; such will
allow for the financing of the project with the other three
entities, though each might ultimately do "member-level
financing," which will necessitate the state having a certain
level of flexibility with regard to various financing
methodologies.
MR. PORTER noted that [the ANGPC] will have the right to create
subsidiaries for the purposes of managing the ANGPC's
responsibilities. For example, under the project itself,
several entities such as a gas treatment plant (GTP), an
"upstream theater pipeline," or an entity that would own the
portion of the gas pipeline that passes through Canada might
need to be created as separate corporations with the same owner
- that owner being the ANGPC.
REPRESENTATIVE GRUENBERG asked whose laws would control the
Canadian portion of Alaska's gas pipeline: would it be Alaska
state law, federal law, Canadian law, or specific Canadian
provincial or territorial law. He also raised the issue of
[renvoi], indicating that the question may become one of "who
decides who decides."
REPRESENTATIVE GARA noted that the administration is proposing
that the Mainline LLC be governed by Delaware law.
MS. CUTLER relayed that she and other members of her law firm
are the principal drafters of the provisions of HB 2003 that
pertain to the ANGPC. She explained that the ANGPC will be the
public corporation - similar to the Alaska Housing Finance
Corporation (AHFC), the Alaska Industrial Development and Export
Authority (AIDEA), the Alaska Railroad Corporation (ARRC), the
Alaska Permanent Fund Corporation (APFC) - that will perform
various functions for state government separate and independent
from state government so that liabilities and revenues
[resulting from the project] are insulated from the general fund
(GF). The ANGPC will hold a membership interest in the Mainline
LLC, resulting in a 20 percent equity interest in the whole
pipeline project. Furthermore, the ANGPC may hold interest,
either directly or through its subsidiaries, in other aspects of
the project. Via the ANGPC, the state will build, manage, and
operate the physical function of the pipeline; the ANGPC,
however, will not be responsible for selling any "gas in-kind"
it might receive.
11:09:23 AM
MS. CUTLER said the "findings section" of the legislation is
important because it will lay out the reasoning behind
establishing the ANGPC to begin with; so, notwithstanding any
dislike the legislature may have for such provisions, [her firm]
feels that it is important to provide "findings" which support
the purpose of the ANGPC, because such language could play a
role in any future litigation engendered by the project.
REPRESENTATIVE GRUENBERG observed that courts generally don't
think that legislative findings carry much weight. So if these
findings are to carry the same weight in court as court
findings, they must have evidentiary backing and the record must
contain that information. Furthermore if the findings in the
bill are meant to be cited by a court in any ensuing litigation,
the legislation ought to specifically say that the legislature
intends the findings to be accorded particular and unusual
weight for specific reasons, and then list those reasons.
Otherwise, a court might well dismiss the legislative findings.
REPRESENTATIVE GARA acknowledged that findings are often merely
the "findings" of a bill's sponsor and not actually anything
[that can be proven]. He characterized a lot of the findings in
HB 2003 as debatable, and thus he is inclined to just get rid of
them; for example, finding (9) claims that it is in the best
interest of the state to acquire an ownership interest in a gas
pipeline and that participating in the financing of such a
pipeline will maximize benefits to Alaskans, and he is not sure
that all legislators would agree with that finding, considering
it, as well as some of the other findings, to be more opinion
than fact. Therefore, he remarked, he would prefer to not make
findings more binding on the courts.
REPRESENTATIVE GRUENBERG clarified that his thought is that each
finding should be addressed/explained by Ms. Cutler and then the
committee can decide whether to eliminate it or retain it.
CHAIR McGUIRE asked whether it is the governor's position that
HB 2003 needs to contain the findings currently listed.
MS. CUTLER expressed a preference for continuing to include all
of the findings so as to demonstrate the rationale behind
establishing the ANGPC. She suggested that legislative findings
don't necessarily have to be factual, but acknowledged that it
would be good if a majority of the legislature believed that
acquiring an ownership interest in the gas pipeline would be in
the best interest of the state.
11:16:32 AM
CHAIR McGUIRE remarked that when it comes right down to it, the
important issue for the legislature to address is the
establishment of the ANGPC, noting that many legislators may
feel that findings are "fluff" and could as easily be expressed
in the form of a press release or a sponsor statement. She
suggested that Ms. Cutler consider whether keeping all the
findings in the bill is worth having to take the time to justify
each finding to the point where a majority of the committee is
satisfied with retaining it.
MS. CUTLER acknowledged that point, but reiterated that her firm
feels it is important to articulate the reasoning behind
establishing the ANGPC, specifically that it is in the best
interest of the state to acquire an ownership interest and to go
out and finance a portion of the pipeline and to participate in
the construction of the project.
REPRESENTATIVE GARA pointed out that finding (9) also claims
that it will be in the best interest of the state to take gas
in-kind rather than tax it, and yet the legislature's
consultants have stated that doing so will likely result in less
money for the state. He said that he doesn't want debatable
findings included in the bill, and that he doesn't think the
findings are that important to the bill, particularly if the
legislature doesn't really believe in them.
MS. CUTLER then referred to Section 2, which inserts a new
Chapter 42 into Title 41. Specifically, proposed AS 41.42.010
establishes the ANGPC and contains typical public corporation
language, which ensures that it is both an instrumentality of
the state and legally separate from the state. Proposed AS
41.42.015 contains typical dissolution language, though one
difference is that the ANGPC cannot be dissolved as long as it
has bond notes or other kinds of financing or contractual
obligations outstanding.
REPRESENTATIVE GARA noted that proposed AS 41.42.010 specifies
that the ANGPC gets to set the pay for its members, and relayed
that he is concerned about that because he doesn't want a state-
owned corporation to be able pay huge sums to its own board
members.
MS. CUTLER clarified that [proposed 41.42.040] establishes an
honorarium of $400 for each day or part of a day [of work] for
the public board members, and provides for payment of per diem.
She reiterated that the language in proposed AS 41.42.010 is
typical with respect to the state's other public corporations.
In response to further comments, she also clarified that the
ANGPC will be setting the pay scale for the executive director
and staff, and pointed out that the ANGPC's operating budget
will still be subject to legislative approval.
11:24:15 AM
REPRESENTATIVE NANCY DAHLSTROM, Alaska State Legislature,
offered her understanding that the Senate intends to amend the
provision pertaining to the honorarium rates and per diem, and
intends to clarify whether a board member would receive money if
participating in meetings via teleconference.
REPRESENTATIVE GRUENBERG noted that proposed AS 41.42.015
specifies that the board may dissolve the ANGPC but that the
dissolution is not effective until the legislature confirms it.
MS. CUTLER reiterated that that is a typical provision for
public corporations. In response to a question, she said the
intention is that the ANGPC would never be left without a board.
MS. CUTLER referred to proposed AS 41.42.020, which pertains to
the membership of the board of directors, and in response to a
question noted that subsection (b) specifies that the
commissioners listed in subsection (a)(1) and (2) may, in
writing, appoint designees if they find they are unable to
attend a meeting.
REPRESENTATIVE GRUENBERG expressed a preference for allowing a
commissioner to appoint a permanent designee, rather than
requiring a commissioner to provide something in writing
authorizing a designee every time he/she can't attend a meeting.
He suggested adding the words, "or the commissioner's designee"
to proposed AS 41.42.020(a)(1) and proposed AS 41.42.020(a)(2).
MR. PORTER agreed to investigate what the language looks like
for other public corporations that allow for permanent
designees.
MS. CUTLER went on to mention that the five public members of
the board of directors will be chosen from the private sector
and will be expected to have recognized competence and wide
expertise in the oil and gas industries or the finance,
investments, or other business management related fields. The
goal is to have board members that really understand the oil and
gas industry and the financing of mega projects, and it is
extremely important that this board be as successful as possible
in an apolitical fashion and in an appropriately independent
manner; she reiterated that board members can only be dismissed
for cause and will be appointed for six-year staggered terms so
as to provide stability.
11:32:52 AM
REPRESENTATIVE WILSON turned attention to proposed AS
41.42.020(c), which references AS 39.05.055(3), and asked
whether that latter statute specifies that board members shall
be non-political. She noted that proposed AS 41.42.020 doesn't
appear to specify such. "How is it going to happen if it's not
in there," she asked.
MS. CUTLER clarified that AS 39.05.055(3) pertains to the
staggering of a board's initial members, and acknowledged that
she's not ever seen the term "apolitical" used in statute as a
criteria for board membership.
MR. PORTER noted that proposed AS 41.42.020(a)(3)(A) says in
part:
(a) The corporation shall be governed by a board of
directors consisting of ...
(3) five public members appointed by the governor who
(A) do not hold any other state or federal office,
position, or employment, either elective or
appointive, except as a member of the armed forces of
either the United States or this state;
MS. CUTLER said that she was using the term "apolitical" in a
broader sense, and suggested that having members serve very long
terms and specifying that they can only be dismissed for cause
is likely to result in board members making decisions in an
apolitical fashion. She also suggested that not having board
members confirmed by the legislature is one of the attributes of
a board that is expected to function independently.
MR. PORTER, in response to a question, surmised that the key
factor in whether someone is appointed is whether he/she will
have the desired expertise, rather than whether he/she is
specifically apolitical.
REPRESENTATIVE KOTT referred to the language in proposed AS
41.42.020(a)(3)(A) that says a public board member could serve
as a member of the armed forces of either the United States or
Alaska, and asked whether it would create a conflict if a public
member of the board were also a member of the Air National
Guard, for example, and thus able to draw both a state per diem
check and a federal pay check.
11:36:47 AM
MS. CUTLER said she would research that issue further, but
mentioned that this language was merely copied from other
statutes.
REPRESENTATIVE GARA suggested that perhaps there should be a
requirement that a public board member not have donated to a
particular party or gubernatorial candidate in the previous 10
years, or a requirement that a public board member not be an
employee of or have a contract with any of the other Mainline
LLC partners. He also mentioned that a state employee might
have much to offer as a public board member but would be
precluded from doing so under the bill's current language.
REPRESENTATIVE GRUENBERG suggested that they remove the language
that would allow a member of the armed forces to serve on the
ANGPC's board of directors, characterizing it as inappropriate
to have active duty military personnel serving on this kind of
board, particularly given that active duty military personnel
already have important responsibilities to fulfill. He also
noted that the term, "recognized competence and wide experience"
is a subjective term open to interpretation by the governor.
MS. CUTLER acknowledged that point, but posited that if someone
was appointed but did have those qualifications, the argument
could be made that there had been a violation of the statute.
REPRESENTATIVE GRUENBERG asked whether those holding local
office should also be excluded from the board.
MS. CUTLER said that would be a policy call for the legislature
to make.
REPRESENTATIVE GRUENBERG asked why the legislature shouldn't
confirm appointees to this board. He also questioned whether
doing so would be constitutional.
MS. CUTLER noted that the AHFC, the AIDEA, and the APFC do not
require legislative confirmation, though the Alaska Natural Gas
Development Authority (ANGDA) and the ARRC do, so that too is a
policy call.
MR. PORTER, in response to a question, explained that they'd
looked at different models, and had simply decided to choose one
that didn't require legislative confirmation.
REPRESENTATIVE DAHLSTROM too noted that if active duty military
personnel were appointed as board members, they might get
deployed and thus wouldn't be able to participate in board
meetings, even via teleconference.
MR. PORTER, in response to a question, offered his understanding
that the designees referenced in proposed AS 41.42.020(b) could
be appointed in advance. In response to another question, he
relayed that the thought was that a seven-member board was of
sufficient size to be both effective and retain enough
expertise.
11:48:31 AM
MS. CUTLER turned attention to proposed AS 41.42.030 and
explained that it pertains to the actual meetings of the board,
and described the quorum requirements listed therein as typical.
She said that although the board is required to meet at least
four times a year, she expects that it will meet more often than
that, particularly during the project's inception. She referred
to proposed AS 41.42.030(b)-(d) and said these provisions are
intended to ensure that the board is able to function
efficiently; proposed AS 41.42.030(b)-(d) read:
(b) The board shall meet at the call of its chair.
(c) The board may meet and conduct business by
teleconference. A meeting conducted by the board by
teleconference has the same legal effect as a meeting
in person.
(d) AS 44.62.310 - AS 44.62.312 do not apply to
meetings of the corporation. The board shall adopt a
policy and procedures for conducting one or more of
its meetings in public each year.
MS. CUTLER assured the committee that proposed AS 41.42.030(d),
the Open Meetings Act exemption, is not intended to keep from
the public information that should be shared, and that the board
will be adopting policies and procedures for conducting one or
more of its meetings in public every year; additionally, the
Legislative Budget and Audit Committee has audit authority over
the ANGPC, the ANGPC's operating budget is subject to
legislative approval, and an annual report is required. She
indicated that some of the technical requirements of the Open
Meetings Act could create problems; for example, one such
requirement is that reasonable notice be given, and yet the
courts have never expressly determined what such entails.
Instead the courts have only indicated that what constitutes
"reasonable" notice will depend on the how complicated or
controversial an issue is. Given that the ANGPC will be dealing
with some pretty big decisions, even if the proposed bill
specifies a specific notice period, it could still potentially
run afoul of the Open Meetings Act.
MS. CUTLER said that additionally, the Open Meetings Act
requires that notice be given in accordance with the entity's
regular practice, and for the ANGPC, this may vary as the
project progresses. For example, during the construction phase
of the project, in order to satisfy its obligations to the
Mainline LLC, the ANGPC may need to meet very frequently and on
very short notice. She acknowledged that [this exemption for
the Open Meetings Act] is an unusual feature for a public
corporation, though the ARRC has similar language. With regard
to the issue of executive sessions, although the Open Meetings
Act allows public corporations to go into executive session, the
courts have not been particularly clear about what issues can be
dealt with in executive session.
MS. CUTLER reiterated that the proposed exemption to the Open
Meetings Act is not intended to keep information from the
public; rather, the board will adopt policies and procedures
regarding when meetings will be open to the public and when they
won't, but won't be tied to the restrictions imposed by the Open
Meetings Act and the court's interpretations of that Act.
11:54:44 AM
REPRESENTATIVE GARA asked Ms. Cutler to consider drafting
language that would allow members of the public to request
information from the board. He sought assurance that nothing in
HB 2003 or the ASGF Contract will allow the board to change the
state's rights and duties as listed in the Mainline LLC
[agreement] without some sort of state oversight.
MR. PORTER said the board can do nothing to change the ASGF
Contract, which will outline the state' ownership rights
regarding royalties and taxes; however, with regard to the
Mainline LLC agreement, there will be points in time when the
board of the ANGPC, which, again, is a partner in the Mainline
LLC, will have to make decisions regarding ownership issues.
For example, should the state ultimately want to have less
ownership/equity interest in the project, the board must retain
the flexibility to effect such a change.
REPRESENTATIVE GARA said that since the state is taking on 20
percent of the risk, he wants to ensure that the state gets the
maximum it can from the sale of any interest. He asked who gets
to make the final decision regarding the sale of such interest.
MR. PORTER said the ANGPC's board would make that decision.
MS. CUTLER mentioned that HB 2003 doesn't explicitly say that,
but the state's interest in the project will be held by the
ANGPC, and so the board is the entity that will be making those
types of decisions, not the governor. She posited that if ever
the board does decide to sell part [or all] of the state's
interest, there will be hearings regarding that process. Again,
the idea behind the bill is to set up a separate and independent
corporation that will perform "this function" on behalf of the
state; therefore, the decisions will be made by the board of
that corporation.
12:01:22 PM
MS. CUTLER mentioned that language on page 22, lines 12-13,
states that neither the ANGPC nor an owner entity of the project
is subject to the Open Meetings Act.
REPRESENTATIVE DAHLSTROM relayed she has concerns with regard to
board members of the ANGPC being able to vote via
teleconference, and noted that the bill doesn't specify any
residency requirements for the public members of the ANGPC
board.
CHAIR McGUIRE announced that the committee would recess for
lunch.
1:19:10 PM
CHAIR McGUIRE called the House Judiciary Standing Committee
meeting back to order. Representatives McGuire, Kott, Wilson,
Gruenberg, and Coghill were present at the call back to order.
Representative Gara arrived as the reconvened meeting was in
progress. Representative Dahlstrom was also in attendance.
MS. CUTLER, in response to earlier comments, acknowledged that
HB 2003 does allow meetings to be conducted by teleconference.
MR. PORTER mentioned that Senate committee members had concerns
about just one or two board members controlling the decision-
making process. However, what must be remembered is that the
ANGPC board won't be making decisions on its own; instead, there
will essentially be four separate boards making decisions
jointly with each other. Another thing to consider is that
technology has advanced to the point that meetings can be
successfully conducted without participants necessarily being in
the same location; furthermore, there could be the issue of
members needing to be able to meet and vote on issues very
quickly but not being able to travel to a particular meeting
location, though the latter would be the preference.
MS. CUTLER, on the issue of the bill's lack of residency
requirements, said that any Canadian subsidiary entity of the
Mainline LLC might impose Canadian residency requirements and
therefore it might be best to not stipulate that every member of
the ANGPC's board be a U.S. citizen. She also offered her
belief that there are no constitutional requirements of such,
but noted that some other state-owned corporations specify that
there be a geographical balance among board members or that at
least some - or certain - members be [Alaska] residents or, as
does HB 2003, that members simply have expertise in certain
fields.
REPRESENTATIVE DAHLSTROM acknowledged that perhaps there are
only a handful of persons in the world with the necessary
expertise and thus the board might not necessarily consist
solely of Alaskan or even U.S. citizens.
MR. PORTER said the focus thus far has been on the expertise
members ought to have, but the administration is assuming that
it would be seeking Alaskans as board members, though it might
be good to have a board member "with some Canadian expertise."
REPRESENTATIVE DAHLSTROM said she would prefer to have that
issue clarified in the bill.
MR. PORTER asked that some flexibility be provided so as to be
able to obtain the needed expertise - for example, perhaps
specify that not all five public member need to be Alaskans.
1:29:14 PM
MS. CUTLER then referred to proposed AS 41.42.035 - regarding
minutes of meetings - and characterized it as a typical
provision; it simply requires that the board keep minutes of
each meeting, distribute copies to the governor and the
Legislative Budget and Audit Committee, and make copies
available to the public, though it does specifically provide
that information deemed confidential under proposed AS 41.42.520
shall be redacted. She said that proposed AS 41.42.040 contains
language regarding honorariums, and transportation and per diem
allowances. She offered her understanding that members who
participate in meetings via teleconference would receive the
honorarium, adding, however, that she would be doing further
research on that issue. Members will also get transportation
and per diem as currently provided for in AS 39.20.180.
MS. CUTLER explained that proposed AS 41.42.045 pertains to
removal of the ANGPC's public board members and the filling of
any vacancies on the board.
REPRESENTATIVE GARA, referring back to proposed AS 41.42.035,
noted that there is no requirement that tape recordings of the
board's meetings be kept.
MS. CUTLER said she is not aware of any legal problem with
including such a requirement in the bill.
REPRESENTATIVE KOTT asked why the honorarium amount is $400.
MS. CUTLER offered her recollection that they merely picked the
same amount that the APFC specifies for its board members.
REPRESENTATIVE KOTT mentioned that the ARRC board members also
receive that amount.
MS. CUTLER indicated that the goal was to establish a
substantial enough honorarium so as to attract individuals that
would be willing to serve on a board that has a lot of work to
do.
MS. CUTLER then relayed that proposed AS 41.42.050 contains
typical language authorizing the board to delegate the ANGPC's
administration to an executive director. The last sentence in
proposed AS 41.42.050 - which says, "The board may delegate to
its executive director, officers, and agents of the corporation
those powers and duties as it considers necessary or desirable"
- is intended to provide the board with the authority to
delegate appropriate powers and duties to the executive director
and staff. For example, because the Mainline LLC is going to
have a management committee as well as other committees, and
because the board won't be working every day, the representative
to the management committee or some of the other committees
could actually be the executive director or a higher-level staff
member.
1:35:20 PM
MS. CUTLER then referred to proposed AS 41.42.060 and explained
that it requires the ANGPC board to employ an executive director
- he/she would be an "at will" employee of the board - and
authorize him/her to employ other staff, all of whom would serve
"at will" to the executive director. Such staff, as is typical,
could not be members of the board and would be exempt employees.
REPRESENTATIVE KOTT surmised, then, that such employees would
essentially be employees of the state.
MR. PORTER concurred.
MS. CUTLER, in response to a question, relayed that the
executive director would in effect be the chief executive
officer (CEO).
REPRESENTATIVE GARA pondered whether the state - via the
governor or commissioner - should have the right to say who the
executive director is.
MR. PORTER said such would be highly unusual, adding that the
individuals with the expertise - the ANGPC board members - are
in the best position to determine whom they could best work with
and who would best suit their requirements.
REPRESENTATIVE COGHILL surmised that the ANGPC board could act
quickly should any action against an executive director be
necessary.
MR. PORTER opined that although the personnel funding is
currently available, it is really the responsibility of the
ANGPC board to pick its own executive director and his/her
responsibility to in turn pick his/her own staff.
CHAIR McGUIRE agreed, noting that if an executive director is at
odds with the board it will result in a dysfunctional situation.
REPRESENTATIVE GARA opined that they should insert language that
would provide the state with additional oversight in the hiring
of the executive director.
MR. PORTER suggested that as a practical matter, the
administration might make recommendations regarding who the
first executive director ought to be, but it will still fall to
the ANGPC board to make the final determination regarding who it
hires for that position, since it should be someone the board
can work with.
1:41:50 PM
MS. CUTLER pointed out that there will be two commissioners on
the board anyway, [and so they can provide input on that issue
from the State's perspective].
REPRESENTATIVE KOTT asked whether there are any other boards or
commissions that are allowed to establish the pay scale of its
employees, and whether there is currently an upper limit on pay
for the staff of the ANGPC board. He expressed concern that the
executive director could end up being paid more than a
commissioner.
MR. PORTER said the latter could very well happen because [the
state] generally doesn't offer wages commensurate with what one
with sufficient expertise could get working for the private
sector, and the board needs to hire someone of professional
quality and pay him/her sufficiently because he/she will be
representing the state in negotiations with the aforementioned
producers. He noted that the Alaska Natural Gas Development
Authority (ANGDA) board also sets its executive director's
salary, and that [that amount] is submitted to the legislature
via the DOR and is subject to legislative approval via the
budget process. The same would be true of the ANGPC's executive
director's salary recommendation, and so the legislature will
have the final say regarding what the board's staff is getting
paid.
MS. CUTLER also pointed out that language in proposed AS
41.42.060(b) specifies that the value of the compensation paid
to the executive director cannot exceed the value of the
services he/she provides to the board.
REPRESENTATIVE KOTT remarked, however, that if the executive
director is hired while the legislature is not in session, it is
unlikely that the legislature, during the next session's
budgetary process, would cut that salary even if it were too
high. On a previous topic, he noted that his staff has
conducted some research and has found that the AHFC board
members do receive the honorarium when participating in meetings
via teleconference.
REPRESENTATIVE WILSON surmised that the board will have to pay
quite a bit in order to draw someone of the quality necessary to
serve as its executive director.
REPRESENTATIVE COGHILL asked whether the phrase, "the value of
the consideration provided to the corporation" is standard
language, and how the value of that will be determined.
1:47:11 PM
MS. CUTLER said it is not necessarily standard language, though
it is language that was recommended by other members of her
firm.
REPRESENTATIVE COGHILL indicated that the question of how that
value will be determined must still be addressed, and suggested
that they add language that would do so.
REPRESENTATIVE GARA opined that it is unlikely that the amount
of an executive director's salary would be challenged on the
basis that it doesn't meet the statutory requirement that it
equal the value of the service provided; in other words, once
the salary is set by the board, that will be it. He relayed,
therefore, that he will be offering an amendment that will
require State oversight when setting both the board's salary and
the staff's salary - oversight provided by perhaps the
commissioner of the DOR.
REPRESENTATIVE COGHILL said such an amendment would in essence
be providing veto power to one of the board members.
CHAIR McGUIRE opined that any question of whether someone is
overcompensated ought to be addressed by the legislature, and
expressed concern with providing the commissioner of the DOR
with special powers, particularly given that he/she is meant to
be a member of the board.
MR. PORTER, in response to a question, indicated that it is
anticipated that the executive director would serve both as the
board's administrator and as the project manager; furthermore,
he/she would most likely serve as the State's representative on
the Mainline LLC's management committee, and therefore would
have to have substantial amount of expertise and ability to lead
"the staff and the team forward."
MS. CUTLER indicated that the language regarding how the ANGPC's
board chooses its executive director and how he/she chooses
other staff is similar to the language currently governing the
APFC board. She expressed the hope that the salary authorized
by the board will be sufficient to attract a competent
individual.
1:54:00 PM
MS. CUTLER, turning attention to proposed AS 41.42.070,
explained that the attorney general would act as the ANGPC's
legal advisor and would hire legal firms as necessary to provide
any additional expertise that's needed. Proposed AS 41.42.080
contains typical language, she remarked, and states that board
members and the executive director are subject to the financial
disclosure provisions of AS 39.50, and that if they or any other
member of the staff acquire, own, or control any kind of an
interest - direct or indirect - in any kind of an entity that
has anything to do with the pipeline project, then they are
required to disclose such interest; such disclosure will become
a matter of public record and will be included in the board's
minutes.
MS. CUTLER relayed that proposed AS 41.42.200 outlines the
purposes of the ANGPC, and that proposed AS 41.42.210 outlines
the ANGPC's powers - both typical powers and powers specific to
the ANGPC. And although some of the specific powers outlined
may seem overly specific, they will ensure that the ANGPC has
the flexibility it needs to function as it should over the many
years of the project. Furthermore, "power" (24) acts as a
"catchall power" in that it would allow the ANGPC to "act in any
manner, or perform any function, necessary or incidental, to
effectuate other powers enumerated in or necessarily implied by
this chapter"; the purpose of this power is to ensure that any
necessary actions can be taken in the future to deal with as yet
unforeseen circumstances.
MS. CUTLER, referring to some of the other specific powers,
explained that they will ensure that the ANGPC will be able to
obtain an ownership interest in the project; operate the
project; issue bonds or incur other forms of financing
obligations as necessary; obtain, sell, or lease interest in
property, including its ownership interest in the project, when,
in the judgment of the ANGPC, doing so is necessary to further
its purposes; enter into agreements with other
countries/governments; apply for permits and licenses; enter
into any contracts or agreements to carry out the project and
perform all of its obligations under any such; obtain lines of
credit and borrow money; purchase insurance; enter into
indemnification or confidentiality agreements; and accept money
or gifts from other entities.
2:00:28 PM
MS. CUTLER referred to power (22) and explained that it is
intended to provide stability by assuring the potential partners
that the ANGPC may lose some of its voting rights or access to
confidential information if another statute is enacted by the
legislature that can be shown to have an adverse effect on the
ANGPC's ability to perform its obligations. However, power (22)
specifies that the ANGPC may not agree to any terms that attempt
to limit the legislature's authority to exercise police powers.
MR. PORTER opined that a similar change in statute via the
initiative process ought to be viewed the same as a change made
via statute; therefore, perhaps the language of power (22) ought
to be changed to reflect that point.
MS. CUTLER referred to power (23) and explained that it allows
the ANGPC to authorize any payments or distributions owed to it
to be paid to anyone it specifies in furtherance of the
satisfaction of its obligations. For example, if the ANGPC
issues revenue bonds, it could instruct that the dividend stream
from the Mainline LLC go directly to the payoff of those bonds,
thus making them more marketable. She offered her understanding
that this concept is not new, though under HB 2003, it can also
be applied to any other project and financing costs - not just
bonds.
MR. PORTER noted that power (23) will essentially allow the
Mainline LLC to deduct its operating costs from any dividends
submitted to the state. In response to comments, he relayed
that the bill also creates some structure upon which the state
can negotiate the Mainline LLC; in other words, some of the
clauses in HB 2003 may well also end up in the Mainline LLC
agreement.
2:09:24 PM
REPRESENTATIVE GARA asked whether a draft Mainline LLC agreement
exists yet.
MR. PORTER indicated that the formulation of that agreement is
still in progress, and as soon as a final template is arrived at
it will be submitted to the legislature and the public.
REPRESENTATIVE GARA expressed concern that the bill would in
essence allow the ANGPC to accept the Mainline LLC agreement
even if it contains clauses that the legislature doesn't approve
of.
MR. PORTER remarked that it won't be possible to legislate every
detail of a potential Mainline LLC agreement; instead the state
hopes to arrive at a final draft template upon which the state
will then negotiate five or six agreements.
REPRESENTATIVE GARA opined that the legislature ought to be able
to review that draft template before it completes work on
legislation establishing the ANGPC and its powers.
MR. PORTER opined that the ANGPC ought to have been created two
years ago so that it could now be negotiating the Mainline LLC
agreement, and pointed out that nothing in the bill says that
the ANGPC must sign the template agreement. Once a template is
arrived at, the ANGPC will sit down, under direction from the
legislature, and renegotiate [a final] Mainline LLC agreement;
although this process will take some time, it is the ANGPC's
responsibility to do it's own negotiating on behalf of the
state, but it must first be established.
REPRESENTATIVE GARA offered his understanding that the ANGPC, as
a minority owner, won't be able to stop the other three partners
from doing something that they three all agree upon. He asked
whether the legislature will end up having to approve the
proposed ASGF Contract - because certain deadlines elapse -
before it gets a chance to see, and perhaps change, the draft
Mainline LLC agreement.
2:15:24 PM
MR. PORTER said he would research that issue, adding that the
intent all along has been to get the ANGPC and its board set up
so that its members can review the [draft] Mainline LLC
agreement and the proposed ASGF Contract, and get fully up to
speed and make decisions regarding whether to sign the agreement
as it exists or whether to renegotiate its terms. If the ANGPC
and its board is not set up in a timely fashion, conforming
amendments will be considered that would provide the
commissioners with the authority to move forward with the
project.
CHAIR McGUIRE expressed a preference for going the route of
establishing the ANGPC and its board, and asked when the
aforementioned alternative would be triggered.
MR. PORTER indicated that there is still a window of opportunity
for the ANGPC and its board to be set up if HB 2003 is passed in
the next few days; currently the administration is working on
setting up board members so that they may choose an executive
director who in turn can be briefed on the contract so as to
have a working knowledge of the project. He posited that any
board members chosen will have the expertise and experience
needed to start working on the project right away. Ideally
several of the Mainline LLC agreements necessary to move the
project forward will be ready to be signed at the same time that
the proposed ASGF Contract is ready to be signed; this will
allow the project to move forward immediately, but it also
requires that the state continue negotiating on the Mainline LLC
agreements in the meantime. Otherwise the process will be
delayed until the state, in whatever form, has sufficient time
to execute those agreements.
CHAIR McGUIRE expressed her hope that the committee can focus on
the merits of the ANGPC and what the committee thinks it should
look like, and that to the extent that the committee would like
to make amendments regarding how the board is set up or how much
its members or staff are paid, that the committee would be ready
to start amending the bill. To the extent that members oppose
the proposed ASGF Contract as a whole or have opinions on the
Mainline LLC agreements, she suggested that members will have
further opportunity to voice those concerns, particularly given
that this bill must still go to the House Finance Committee.
[Following was a brief discussion regarding how the committee
intended to proceed over then next few days.]
The committee took an at-ease from 2:22 p.m. to 2:35 p.m.
MS. CUTLER, with regard to public corporations taking membership
interests in LLCs, pointed out that the APFC already does so,
though she acknowledged that that is not the same as what's
being proposed via HB 2003. The legal structure being proposed
is to set up a separate and independent public corporation that
will hold the state's interest and manage the state's interest
in the project, and that it will be the board of that public
corporation that will hold the membership interest in the
Mainline LLC and will therefore be the entity making the
decisions regarding whether to agree to the forthcoming Mainline
LLC agreement. She reminded members that there is precedent for
this concept though it is a bit different simply because of the
magnitude of the project and what will be required to complete
it.
2:37:57 PM
MS. CUTLER, with regard to the question of whether legislative
confirmation of the ANGPC's board members would be
constitutional, said that she has just been told that there is a
court case which held that at least under some circumstances,
legislative confirmation can be unconstitutional if the [Alaska
State] Constitution doesn't expressly provide for it. In
response to a request, she indicated that she would attempt to
provide the committee with something in writing on this issue.
REPRESENTATIVE GRUENBERG questioned whether there will be tax
consequences of proceeding as HB 2003 proposes.
MS. CUTLER said that whether the ANGPC will obtain a tax exempt
ruling from the Internal Revenue Service (IRS) is unknown, but
her understanding is that the intent is for the ANGPC to seek
just that.
MR. PORTER noted that the [ANGPC] probably won't be able to
create a tax exempt organization in Canada, and so to the extent
that there is a Canadian tax liability, the [ANGPC] will be
taxed.
REPRESENTATIVE GRUENBERG asked whether it would be possible to
insert a tax rebate provision in any agreement developed with
Canada.
REPRESENTATIVE GARA asked whether there is anything proposed in
the bill - with regard to setting up the ANGPC - that they ought
to do differently so as to get a favorable ruling on the tax
consequences on the bill.
MS. CUTLER said her firm tried to draft the bill with that in
mind, attempting to put the ANGPC in the best light for tax
purposes, though it is not assured that the ANGPC will receive a
tax exempt ruling. She indicated that [her firm] would be
willing to consider any additional suggestions that Legislative
Legal and Research Services could provide.
REPRESENTATIVE GARA expressed a preference for having more input
from tax experts regarding whether the bill should be changed so
that a tax exempt ruling is more likely.
2:43:00 PM
MS. CUTLER then referred to proposed AS 41.42.220, and noted
that it would authorize the ANGPC to establish wholly owned
subsidiary entities ("Ancillary LLCs") for the purpose of
owning, financing, or operating any portion of the project in
order to carry out the ANGPC's purposes. These Ancillary LLCs
may be either profit or nonprofit entities and may be
established in jurisdictions outside of Alaska, though they must
be set up in a manner that is consistent with the purposes of
[proposed AS 41.42]. Ancillary LLCs may be necessary - and in
the state's best interest or in the project's best interest -
for the portion of the project that runs through Canada, for the
GTP, for a "liquids extraction plant," for feeder lines, and for
perhaps other elements of the project.
MS. CUTLER said that Ancillary LLCs will be doing the actual
work, but would be set up and controlled by the ANGPC board,
which would determine the powers and assets of the Ancillary
LLCs and would choose, with the governor's consent, the members
of their boards; furthermore, Ancillary LLC board members would
serve at the pleasure of the ANGPC board. Under this concept,
the ANGPC will be the entity, legally, that controls the entire
project. She mentioned that the State's Canadian counsel has
advised the State that there might be particular things about
Canadian law, in a particular jurisdiction or province, that
would require a board to be set up in a certain way, and so for
this reason the language in the bill governing the set up of any
Ancillary LLC and its board does not look exactly like the
language pertaining to the set up of the ANGPC and its board.
However, the bill does specify that certain provisions -
principally those found in Article 4 of the bill, proposed AS
41.42.400 through proposed AS 41.42.440 - do apply to any
Ancillary LLC established under "this chapter."
MS. CUTLER relayed that "this is one area" [of the bill] about
which her firm is very interested in speaking with the
legislature's consultants, because her firm doesn't necessarily
agree with suggestions made the consultants. "We're going to be
dealing with different jurisdictions, and we need to give these
[Ancillary LLCs] the flexibility to meet the requirements of the
law of those jurisdictions, and so that is why this is set up
flexibly and not as strictly as some might suggest it should
be," she remarked. In response to a question, she indicated
that her firm would particularly like to discuss the issue of
[Ancillary LLCs] with the legislature's consultants.
REPRESENTATIVE GARA asked whether compromise language such as
"shall be organized under Alaska law except where necessary"
would be sufficient to alleviate concerns regarding what
jurisdiction the [Ancillary LLCs] fall under, while still
providing for some flexibility. He also expressed a preference
for the ANGPC to be organized under Alaska law rather than
Delaware law, because, according to the legislature's
consultants, Delaware law is less protective of minority
shareholder rights.
MS. CUTLER clarified that it's the Mainline LLC, not the ANGPC,
that would be organized under Delaware law.
CHAIR McGUIRE said the ANGPC would be organized under Alaska
law.
MS. CUTLER concurred. She offered her hope that the Mainline
LLC agreement that is in the process of being negotiated will
become the template for all the various segments of the project.
Currently, however, [it specifically pertains] to the portion of
the project that is the main pipeline in Alaska. Furthermore,
it is anticipated that other agreements will be necessary in
order to acquire an interest in other aforementioned segments of
the project. She reiterated her argument that flexibility for
the Ancillary LLCs will be necessary, particularly if
jurisdictional issues come into play. Also, there are many
business-related issues to consider when deciding where to
incorporate an entity, and so the decision regarding where to
incorporate [an Ancillary LLC] will need to be made by the ANGPC
in conjunction with its partners in the Mainline LLC.
MS. CUTLER suggested that the language offered by Representative
Gara may not necessarily be the most appropriate, but if this
issue is of concern to a majority of the committee, her firm
will try to come up with suitable language, perhaps something
along the lines of, "unless conflicts with the laws of the
resident jurisdiction". Canadian counsel has the concern, she
relayed, that the state might be put in a position of not being
able to take advantage of incorporation in Canada. And in the
interest of making [the ANGPC] a flexible entity, the drafters
have deliberately not provided for interlocking directorships.
2:55:04 PM
REPRESENTATIVE GRUENBERG referred to language on page 11, line
18, and suggested that the term "wholly owned subsidiary
entities" ought to be made more flexible in case there is a need
for something that isn't wholly owned or isn't a subsidiary. He
also suggested that proposed AS 41.42.220 shouldn't limit the
organizational jurisdictions of the Ancillary LLCs to just
Canada and the United States. He then referred to the language
of proposed AS 41.42.220(c) and observed that it gives the ANGPC
board members total carte blanche over the Ancillary LLCs'
boards. He expressed concern that this provision won't provide
the state with enough oversight of any Ancillary LLCs.
MR. PORTER pointed out that the ANGPC, via the bill, will have
already been given total authority to manage the entire project
as it sees fit, and proposed AS 41.42.220 merely allows the
ANGPC to establish other entities as necessary to fulfill its
responsibilities.
REPRESENTATIVE GRUENBERG indicated that he is a little wary of
allowing such to occur because the Ancillary LLCs could neither
be controlled by nor have to report to the legislature.
MS. CUTLER relayed that Canadian counsel [wanted to ensure] that
the boards of Ancillary LLCs would be selected by the ANGPC
board, and that her firm had legal concerns because Article III,
Section 22, of the Alaska State Constitution says in part: "All
executive and administrative offices, departments, and agencies
of the state government and their respective functions, powers,
and duties shall be allocated by law among and within not more
than twenty principal departments, so as to group them as far as
practicable according to major purposes." There is case law
stating that public corporations are appropriately public under
the Alaska State Constitution, and her firm wanted to be able to
argue that subsidiary entities established under HB 2003 would
be under the purview of Alaska's executive branch, but Canadian
counsel has warned that Canadian law requires the principal
board to appoint the board of a subsidiary. Therefore the
language currently in proposed AS 41.42.220 is intended to
address both concerns. She indicated that the goal is to have
the ANGPC exhibit control over all Ancillary LLCs so as to
preclude the development of any "rogue" entity.
MS. CUTLER, in response to questions, said it is expected that
the governor will give his/her consent of Ancillary LLC board
members in writing, and offered her belief that the ANGPC will
have the authority to establish [its own internal operating
procedures].
CHAIR McGUIRE relayed that she is attempting to arrange for the
legislature's consultants to be available at a later meeting to
discuss issues of concern to members, one of those concerns
being that HB 2003 merely authorizes a handoff of power and
responsibility to entities that the State will have no control
over. She offered her belief, though, that the language on page
11, line 23, which says, "in a manner that is consistent with
the purposes of this chapter" will link any Ancillary LLCs with
the ANGPC.
REPRESENTATIVE GARA asked Ms. Cutler to draft an amendment to
proposed AS 41.42.220 such that any Ancillary LLCs would be
organized under "Alaska law except where necessary to proceed
with the project or minimize tax liabilities to the state".
3:09:36 PM
MS. CUTLER then referred to Article 3 of the bill - the
financial provisions - and said it allows the ANGPC to issue
bonds and enter into other forms of financing obligations as
necessary. She offered her belief that it contains language
similar to other public corporations of the state, adding that
the expectation is that most financing will occur through
straight revenue bonds or revenue bonds "with the state's moral
obligation." She noted that language on pages 22 and 23 defines
"financing obligations" and essentially provides for things
other than bonds.
MS. CUTLER, in response to a question about dividends being
returned directly to the state, referred to her earlier comments
regarding power (23) outlined in proposed AS 41.42.210.
REPRESENTATIVE GRUENBERG asked whether certificates of
participation ought to be included in the aforementioned
definition.
MS. CUTLER surmised that such would be covered under "interim
certificates" and "grant anticipation notes", but said she would
research that issue further.
REPRESENTATIVE GARA asked whether the language on page 16, line
26, would allow the ANGPC to sell all or part of the state's
interest in the pipeline for a price that perhaps the
legislature wouldn't be happy with.
MS. CUTLER said that that language is standard for "validity of
pledge" provisions regarding bonds, and simply clarifies that if
the revenues from this project are already pledged to a bond
issue, and then the ANGPC later decides to sell the state's
interest, the ANGPC would not prohibited from doing so unless
the sale is restricted by the actual pledge itself through the
trust agreement.
3:14:50 PM
REPRESENTATIVE GARA said he wants to ensure that somewhere in
the bill is a provision that will preclude the ANGPC board from
selling the state's assets for a price that the state wouldn't
agree to.
MS. CUTLER said that the bill contains no such provision;
similar to the APFC - which doesn't get permission from either
the administration or the legislature before selling or buying
assets - the ANGPC is completely separate and independent from
the state in that regard.
REPRESENTATIVE GARA said that concerns him.
REPRESENTATIVE WILSON suggested adding language to the bill such
that the legislature would be informed of any potential action
that would adversely affect the state's revenue.
MS. CUTLER, in response to questions regarding vacancies on the
ANGPC board, pointed out that language on page 6, lines 29-31,
allows the governor to "promptly make an appointment to fill a
vacancy on the board", and that such authority is not limited to
the public members, though she acknowledged that perhaps the
latter point could be made clearer in the bill.
CHAIR McGUIRE returned to the issue of the ANGPC selling the
state's assets, and suggested that perhaps the validity of
pledge provision could be narrowed to ensure that the entirety
of the state's interest could not be sold without some sort of
state approval.
MR. PORTER acknowledged that point.
CHAIR McGUIRE referred to the APFC board and pointed out that
there has always been a tension between it and the legislature
regarding how much latitude should be given and how much control
should be retained when deciding what should be done with the
state's assets.
MS. CUTLER, in response to a question, offered her belief that
the language in Article 3 is standard language except for the
term, "or other financing obligations". Referring to language
on page 15, lines 9-11, she said that one would only want to
establish capital reserve funds if it will enhance the
marketability of bonds or other financing obligations.
3:25:01 PM
MS. CUTLER went on to explain that Article 4 of the bill,
proposed AS 41.42.400 through proposed AS 41.42.440 - details
the operations of the ANGPC. Specifically, proposed AS
41.42.400 establishes a gas pipeline project cash reserves fund
consisting of appropriations from the legislature and money or
other assets transferred to it by the ANGPC. She characterized
the language of this provision as typical language similar to
that governing the state's other public corporations. Assets in
this fund may be pledged to pay bonds, get lines of credit, or
otherwise meet "capital call" or other financial requirements of
the ANGPC. All payments out of this fund must be reported to
the legislature and governor. She relayed that proposed AS
41.42.410 pertains to the ANGPC's operating budget; that
proposed AS 41.42.420 contains typical language and is aimed at
addressing tax exempt status concerns; and that proposed AS
41.42.430 specifies that the State Procurement Code won't apply
to the ANGPC or "an owner entity of the project".
MR. PORTER predicted that the other three corporations of the
Mainline LLC wouldn't be able to meet the requirements of the
State Procurement Code anyway.
MS. CUTLER relayed that AS 41.42.440 outlines which other
statutes would not apply to the ANGPC unless proposed AS 41.42
specifically provides otherwise.
REPRESENTATIVE GRUENBERG noted that language on page 18, line
30, specifically provides that AS 37.10.070 would apply to the
ANGPC, and suggested, therefore, that the language on page 19,
lines 28-29, be altered to clarify that point. He also asked
whether AS 37.10.070 is currently written in such a way as to
satisfy what will be needed with regard to the ANGPC.
MR. PORTER said it is.
3:31:42 PM
MS. CUTLER said that AS 37.10.070 was specifically not included
as an exception in proposed AS 41.42.440 because the idea is
that the fund will be managed according to AS 37.10.070 but will
not be considered residual funds in the treasury.
MS. CUTLER turned attention to Article 5, which pertains to
financial information and control, reporting requirements,
public information, and confidential information. She relayed
that proposed AS 41.42.500, which she characterized as a typical
provision, would allow the Legislative Budget and Audit
Committee to audit the ANGPC and requires the ANGPC to provide
quarterly financial statements on or before a certain day in the
year. Proposed AS 41.42.510 - regarding reports and
publications - was "cribbed" from the APFC, she remarked, adding
her belief that everyone is proud of the APFC's report, and so
the idea was to create something similar for the ANGPC in order
that it could keep the public informed of its progress in an
easily-understood format. The drafters deliberately did not use
the phrase "newspaper of general circulation" because that has a
particular meaning in case law but does not mean that something
would necessarily be published in a newspaper that Alaskans in
small communities would get.
REPRESENTATIVE GARA opined that the public ought to have access
to information about how the Mainline LLC is conducting itself,
not just to information about the ANGPC. Language on page 20,
line 15-17, says that the Legislative Budget and Audit Committee
may not audit or evaluate the expenditures, operations, or
performance of an entity that is not wholly owned by the ANGPC.
He suggested, therefore, inserting language that would mandate
that the state receive an independent audit of the [Mainline
LLC].
MR. PORTER pointed out that the partners of the Mainline LLC
always have the right to audit each other, and that a portion of
the information garnered from any such audit would be made
available to the public, though not the entire audit. So an
audit can be conducted, but it must be done by the ANGPC acting
on behalf of the state.
3:37:03 PM
REPRESENTATIVE GARA suggested that they include a provision
stipulating that the ANGPC shall ask for an independent audit of
the [Mainline LLC] every two years and that the results of that
audit shall be made available to the public except for items
that should remain confidential.
MR. PORTER indicated that it has been difficult coming up with
language that will ensure that the public gets the information
it ought to while also ensuring that the producers' trade
secrets are kept confidential.
REPRESENTATIVE GARA suggested simply including references to the
portions of the bill that specify the items that must remain
confidential.
MS. CUTLER said they would take those suggestions under
consideration, but asked members to keep in mind that the state
has other public corporations that have engaged in outside
investments with private companies, and while those public
corporations can be audited by the Legislative Budget and Audit
Committee and have a similar right to audit the management of
those outside investments, not every detail that is revealed by
such audits is necessarily made public; furthermore, the
Legislative Budget and Audit Committee doesn't have the right to
audit those private companies, and the language in HB 2003 is
simply setting up something similar for the ANGPC as it engages
in a partnership with the producers by way of the Mainline LLC.
MR. PORTER concurred, adding that information about a private
corporation doesn't automatically become public simply because
it does business with a public corporation of the state.
MS. CUTLER and MR. PORTER, in response to questions, reiterated
that the ANGPC and any of its wholly owned subsidiaries can be
audited by the Legislative Budget and Audit Committee, but that
the Legislative Budget and Audit Committee won't have the right
to audit the other partners in the Mainline LLC, and that
although the ANGPC can audit its partners in the Mainline LLC,
not all information garnered from such audits will be made
public.
MS. CUTLER offered her understanding that Representative Gara is
simply suggesting the ANGPC request an audit of its partners in
the Mainline LLC every two years.
MR. PORTER, in response to a question, said there should be a
provision in the Mainline LLC agreement that would allow the
ANGPC to share certain confidential information with the
Legislative Budget and Audit Committee, though perhaps
confidentiality statements might have to be signed.
Furthermore, the ANGPC, as much as it can, will make information
public via a "financing statement."
MS. CUTLER noted that the confidentiality provisions of HB 2003
stipulate that confidential information may be shared with the
entire legislature and not just the Legislative Budget and Audit
Committee, because the legislature must be able to make
decisions regarding appropriations.
REPRESENTATIVE GRUENBERG expressed concern with the provision
that precludes the Legislative Budget and Audit Committee from
conducting audits of entities that are not wholly owned by the
ANGPC.
3:47:48 PM
REPRESENTATIVE GARA said he is comfortable with that provision
as long as some auditor that owes a duty to the state can
conduct an audit of entities not wholly owned by the ANGPC - in
this instance it would be an audit conducted by the ANGPC, which
does owe a duty to the state. He again mentioned that he wants
to add language stipulating that a substantial portion of the
information garnered from any audits conducted by the ANGPC of
the Mainline LLC shall be made available to the public.
MR. PORTER clarified that proposed AS 41.42.520(c)(3) stipulates
that certain confidential information may be disclosed when its
production is required for a confidential briefing of the
governor, the legislature, or a legislative committee.
REPRESENTATIVE GRUENBERG asked whether the bill limits the power
of the Legislative Budget and Audit Committee and other
committees to issue subpoenas.
MR. PORTER offered his belief that HB 2003 actually enhances the
power of the legislature to receive confidential information
from the ANGPC and the Mainline LLC via the ANGPC; the next
stage would be to then provide a financial summary of that
confidential information to the public, and that is the intent.
REPRESENTATIVE GRUENBERG observed that the language on page 20,
lines 15-17, would seem to divest the Legislative Budget and
Audit Committee of its ability to evaluate operations or
performances of entities not wholly owned by the ANGPC.
MR. PORTER pointed out that the Legislative Budget and Audit
Committee never had that ability; instead, the ANGPC will have
that ability and can therefore keep the Legislative Budget and
Audit Committee apprised such that the Legislative Budget and
Audit Committee can fulfill its duties to the state. In other
words, the Legislative Budget and Audit Committee has a
relationship with the ANGPC but not with the Mainline LLC or
other entities not wholly owned by the ANGPC, and so it is the
ANGPC that is responsible for providing information about the
Mainline LLC to the Legislative Budget and Audit Committee.
REPRESENTATIVE GRUENBERG opined that the term "newspaper" as it
is used in proposed AS 41.42.510 ought to be defined in some
way.
MS. CUTLER observed that doing so would be a policy call.
MR. PORTER explained that they sought to use broad language so
as to have the report be as accessible to as many people as
possible. He offered his understanding that the report will
also be made available on a web site.
MS. CUTLER said she has reviewed the language regarding audits
and evaluations as they pertain to the APFC, and has surmised
that it too emphasizes the fact that just because the state does
business with or invests in a private company, that does not
mean that the Legislative Budget and Audit Committee is allowed
to [directly] audit or evaluate that private company.
REPRESENTATIVE GRUENBERG asked whether the statute pertaining to
the APFC speaks to the issue of publishing its report in
newspapers.
MS. CUTLER said she would research that issue further, but
believes that that statute uses the term, "newspaper of general
circulation".
[HB 2003 was held over.]
ADJOURNMENT
3:59:03 PM
The House Judiciary Standing Committee was recessed at 3:59 p.m.
to a call of the chair. [The meeting was reconvened on June 3,
2006.]
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