03/17/2014 01:00 PM House RESOURCES

                   HCR 22-IN-STATE REFINERIES                                                                               
                                                                                                                                
1:03:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  announced that the  first order of  business is                                                               
HOUSE CONCURRENT RESOLUTION  NO. 22, Urging the  governor to take                                                               
all action necessary  to keep in-state oil  refiners in operation                                                               
and to keep oil refining operations in the state competitive.                                                                   
                                                                                                                                
1:03:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TAMMIE  WILSON, Alaska  State Legislature,  as the                                                               
sponsor,  stated that  HCR  22  urges the  governor  to take  all                                                               
action necessary to  keep in-state oil refiners  in operation and                                                               
to keep  oil refining operations  in the state competitive.   She                                                               
referenced the  possibility for  the closure  of the  Flint Hills                                                               
Refinery  and its  search for  a buyer.   She  reported that  the                                                               
Flint Hills Refinery was supplying  clean drinking water to local                                                               
residents during the problems with  contaminated water, and would                                                               
continue to  do so  throughout.  She  declared that  currently it                                                               
was more  affordable to import  fuel than for  in-state refining.                                                               
She said  that, as this  could change with time,  the legislature                                                               
needed to determine  the value for maintaining  refineries in the                                                               
Interior and throughout the state.   She stated "for right now we                                                               
aren't competitive globally."  She  questioned the results should                                                               
there be  a disaster, noting  that the  State should be  as self-                                                               
sufficient as  possible.   She emphasized  that it  was important                                                               
for the  governor to  move quickly in  negotiating a  royalty oil                                                               
contract  with  a potential  new  buyer  and  to ensure  who  was                                                               
responsible for the aforementioned  contamination.  She expressed                                                               
that her biggest concern was for  closure of the refinery and the                                                               
necessity  of  new  permits.   She  declared  that  the  proposed                                                               
resolution addressed the need for maintenance of self-                                                                          
sufficiency, an ability to refine  other imports, and use for its                                                               
best capacity.                                                                                                                  
                                                                                                                                
1:06:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  referenced page  1,  lines  14-16 of  the                                                               
proposed bill, and inquired how  a royalty-in-kind contract would                                                               
be negotiated that would help the in-state refineries.                                                                          
                                                                                                                                
REPRESENTATIVE T.  WILSON replied  that the current  contract was                                                               
$2.15 over the  price of the North Slope, as  the law states that                                                               
we get the most for the  value.  She explained that Department of                                                               
Natural Resources (DNR)  would account for the  import cost which                                                               
included many  pieces, and  not just  the price.   She  said that                                                               
this  was  all  "within  the realm  of  the  administration  when                                                               
they're negotiating the contract."   She suggested that there was                                                               
a  possibility for  contract  negotiation to  other  uses at  the                                                               
plant.                                                                                                                          
                                                                                                                                
1:07:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  directed attention back to  lines 14-16,                                                               
and referenced  a recent  royalty oil  contract with  Flint Hills                                                               
Resources.  He asked if  Representative T. Wilson was considering                                                               
a new  contract with another  party, and  he asked, if  there was                                                               
not another party, how this would be possible.                                                                                  
                                                                                                                                
REPRESENTATIVE  T. WILSON  offered her  understanding there  were                                                               
"some other players  at the table."  She declared  that, as Flint                                                               
Hills would  no longer  have this  contract as  of June  1, 2014,                                                               
this was  not a re-negotiation  of the contract for  Flint Hills.                                                               
She  stated that  Flint Hills  had made  it quite  clear that  it                                                               
would not be  the owner and operator.  However,  they did want to                                                               
ensure  that this  would be  more economical  for another  party.                                                               
This contract would  be for the potential buyer  with which Flint                                                               
Hills was currently negotiating.                                                                                                
                                                                                                                                
REPRESENTATIVE   KAWASAKI   suggested   that,   during   contract                                                               
negotiation, "it's good to know  who we're negotiating with."  He                                                               
questioned the theory  that the state would get a  good deal from                                                               
this negotiation.                                                                                                               
                                                                                                                                
REPRESENTATIVE T. WILSON  replied that, although there  was a lot                                                               
of concern  to get the  most money  for a resource,  there should                                                               
also be consideration  for the other ancillary pieces.   She said                                                               
that the  proposed resolution  asked for all  these points  to be                                                               
taken  seriously,   and  that  there  should   be  some  possible                                                               
negotiations.                                                                                                                   
                                                                                                                                
1:09:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR asked  whether the  proposed resolution  was                                                               
being sent to other individuals in addition to the governor.                                                                    
                                                                                                                                
REPRESENTATIVE   T.   WILSON   replied  that   "these   kind   of                                                               
negotiations is  done by the  administration and the  governor is                                                               
the one who is in charge."                                                                                                      
                                                                                                                                
1:10:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER,  acknowledging  that the  Interior  refineries                                                               
were  "a  hot  topic  in   the  news,"  asked  why  the  proposed                                                               
resolution did not include refineries in other areas of Alaska.                                                                 
                                                                                                                                
REPRESENTATIVE  T. WILSON  replied that  the proposed  resolution                                                               
focused on in-state refineries, as  they had different issues and                                                               
a  different mechanism.   She  pointed out  that the  Flint Hills                                                               
plant  was  being  shut  down.   She  acknowledged  that  it  was                                                               
important to include all the refineries.                                                                                        
                                                                                                                                
CO-CHAIR  SADDLER  expressed  his  agreement that  there  was  no                                                               
attempt to disparage the other refineries in Alaska.                                                                            
                                                                                                                                
CO-CHAIR  SADDLER directed  attention  to page  1,  line 14,  and                                                               
asked if  this should be a  "Resolved" statement as opposed  to a                                                               
"Whereas" statement.                                                                                                            
                                                                                                                                
REPRESENTATIVE T. WILSON expressed her agreement.                                                                               
                                                                                                                                
CO-CHAIR  SADDLER   asked  if  she  would   accept  a  conceptual                                                               
amendment to make this change.                                                                                                  
                                                                                                                                
REPRESENTATIVE T. WILSON expressed her agreement.                                                                               
                                                                                                                                
CO-CHAIR  SADDLER moved  to adopt  Conceptual Amendment  1, which                                                               
would, on  page 1, line  14, delete  "Whereas" and insert  "Be It                                                               
Resolved that" with conforming changes.                                                                                         
                                                                                                                                
REPRESENTATIVE JOHNSON asked if this was a motion.                                                                              
                                                                                                                                
1:12:18 PM                                                                                                                    
                                                                                                                                
There being no objection, Conceptual Amendment 1 was adopted.                                                                   
                                                                                                                                
REPRESENTATIVE  KAWASAKI directed  attention to  page 2,  line 1,                                                               
and asked for  the current timeline for the cleanup  and how this                                                               
proposed   resolution  could   impact  the   decisions  made   at                                                               
Department of Environmental Conservation (DEC).                                                                                 
                                                                                                                                
1:13:23 PM                                                                                                                    
                                                                                                                                
LYNN  KENT,  Deputy  Commissioner, Office  of  the  Commissioner,                                                               
Department  of Environmental  Conservation, explained  that state                                                               
law made owners and operators  of a contaminated property jointly                                                               
and separately  liable for  the contamination.   She  stated that                                                               
although DEC had  been working primarily with Flint  Hills as the                                                               
current  owner,  the Department  of  Law  had recently  initiated                                                               
action  to  bring  both  Williams  and  Flint  Hills  forward  as                                                               
responsible  parties to  work out  the allocation  of cost.   She                                                               
directed attention  to the cleanup standards,  acknowledging that                                                               
this standard had to be based  on and supported by sound science.                                                               
She  relayed  that  the  level  set  by  the  Division  of  Spill                                                               
Prevention  & Response  was being  appealed by  Flint Hills,  and                                                               
that it was unknown for how  long this appeal process could take.                                                               
She  returned attention  to the  question of  liability, and  she                                                               
offered her belief that not  having the allocation of cost figure                                                               
would not  have any impediment  to sale  of the facility,  as the                                                               
state  administration had  offered  to enter  into a  prospective                                                               
purchaser agreement with a new buyer,  so the new buyer would not                                                               
have any  liability for pre-existing contamination.   She offered                                                               
her  belief that  neither  the  final clean  up  standard or  the                                                               
allocation of costs was necessary  to have clarified prior to the                                                               
purchase and operation of the facility.                                                                                         
                                                                                                                                
REPRESENTATIVE  SEATON asked  for  clarification that  reasonable                                                               
clean-up standards supported by science  would not have an impact                                                               
on the decisions that were currently under appeal.                                                                              
                                                                                                                                
MS. KENT  replied that  the clean-up  standard was  under appeal,                                                               
although it did not  have to hold up the sale  of the refinery to                                                               
a new operator.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  SEATON  asked if  the  language  in the  proposed                                                               
resolution  to   "expeditiously  set  up  a   reasonable  cleanup                                                               
standard supported by  science" would impact what  DEC would look                                                               
at as the cleanup standard which it suggested.                                                                                  
                                                                                                                                
MS. KENT deferred to the Department  of Law, and opined that this                                                               
language would not influence any appeal.                                                                                        
                                                                                                                                
1:16:42 PM                                                                                                                    
                                                                                                                                
JOHN  HUTCHINS, Assistant  Attorney  General, Oil,  Gas &  Mining                                                               
Section,  Civil  Division  (Juneau),  Department  of  Law  (DOL),                                                               
expressed his agreement with the testimony from Ms. Kent.                                                                       
                                                                                                                                
1:17:58 PM                                                                                                                    
                                                                                                                                
JOE   BALASH,  Commissioner   Designee,  Department   of  Natural                                                               
Resources,  in response  to  Representative  Seaton, pointed  out                                                               
that  restriction of  the  terms  for a  refinery  to within  the                                                               
boundaries  of the  North  Star Borough  would  only include  two                                                               
operations, and would  exclude two others on the  North Slope and                                                               
"two  south of  the  range."   He  noted  that further  expansion                                                               
raised  questions  regarding  the   legislative  intent  for  the                                                               
actions by  the administration.   He observed that there  was the                                                               
ability  to  transfer the  upcoming  Flint  Hills contract  to  a                                                               
prospective  buyer,  should  a   buyer  be  identified,  as  that                                                               
contract  had   already  been  reviewed   and  approved   by  the                                                               
legislature.  He  cautioned the committee about using  price of a                                                               
royalty  contract  as  the  sole   means  to  make  any  refinery                                                               
competitive in  Alaska with other  imported products.   He opined                                                               
that  there  were  other  ways  to achieve  this,  and  that  the                                                               
governor  had convened  a subset  of his  cabinet, including  the                                                               
commissioners of  DEC and DNR,  as well as the  Attorney General,                                                               
to consider  ways to  assist any prospective  buyer of  the Flint                                                               
Hills facility.   They were also having  extensive discussion for                                                               
the importance of maintaining the  existing refineries.  He noted                                                               
that  there  was a  concern  for  losing  other refineries.    He                                                               
acknowledged that offering the royalty  for sale at some discount                                                               
had been considered, although there  was concern that discounting                                                               
a fraction  of the royalty  would lead to requests  for discounts                                                               
to the  remaining royalty.  He  noted that pricing of  West Texas                                                               
Intermediate (WTI) versus Alaska  North Slope (ANS) would realize                                                               
a difference of almost $150 million  of royalty to the state.  He                                                               
offered his belief that there  were more efficient ways to ensure                                                               
Alaska  based refining,  and that  the  governor was  considering                                                               
other recommendations.   He noted that some of  this $150 million                                                               
value  would go  to the  producers  of the  royalty, whereas  the                                                               
administration  would  prefer to  find  a  solution to  keep  the                                                               
refineries healthy and keep the  benefits to those refineries and                                                               
the consumers in Alaska.                                                                                                        
                                                                                                                                
1:23:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  T. WILSON  stated that  she had  not intended  to                                                               
preclude the other refineries, and  that there were other issues,                                                               
as well,  that needed to be  resolved.  She said  "all refineries                                                               
are very important  and I don't want  to step on any,  but I just                                                               
want  it  done fast."    She  requested  to have  the  resolution                                                               
brought back to  the committee in a short time.   She stated that                                                               
she  would talk  with the  committee members  to ensure  that any                                                               
other questions were answered.                                                                                                  
                                                                                                                                
1:24:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER held over HCR 22.                                                                                              
                                                                                                                                
1:24:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER requested  that  the  sponsor ensure  that                                                               
Flint Hills concurred with the proposed resolution.                                                                             
                                                                                                                                
REPRESENTATIVE T.  WILSON replied that,  as she wanted  to ensure                                                               
that  no  refineries  would  be closed,  she  would  broaden  the                                                               
proposed  resolution, and  make  sure that  Flint  Hills and  the                                                               
other refineries were in support.                                                                                               
                                                                                                                                
REPRESENTATIVE  HAWKER   offered  his   desire  to   have  formal                                                               
endorsements to the resolution from the refineries involved.                                                                    
                                                                                                                                
REPRESENTATIVE T. WILSON expressed her agreement.                                                                               
                                                                                                                                
1:25:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON requested  that  the  commissioner of  DNR                                                               
report  whether a  new contract  would delay  the opening  of the                                                               
Flint Hills refinery,  as the legislature would  not be available                                                               
to approve  a royalty in-kind  contract which was  different than                                                               
the existing contract.