Legislature(2005 - 2006)SENATE FINANCE 532
06/01/2006 01:30 PM Senate SPECIAL COMMITTEE ON NATURAL GAS DEV
| Audio | Topic |
|---|---|
| Start | |
| SB2004 | |
| SB2003 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB2003 | TELECONFERENCED | |
| *+ | SB2004 | TELECONFERENCED | |
1:38:10 PM
SB 2004-STRANDED GAS DEVELOPMENT ACT AMENDMENTS
CHAIR SEEKINS announced SB 2004 to be up for consideration.
BONNIE HARRIS, Assistant Attorney General, Department of Law,
introduced Joe Donahue, who has worked on the amendments to the
Stranded Gas Act; Jim Baldwin, to explain the last portion of
the proposed amendments which deal with the Municipal Impact
Fund; and Kevin Jardell, to answer policy questions.
KEVIN JARDELL, Legislative Director, Office of the Governor,
presented a brief history of the Stranded Gas Act and the
administration's position regarding its authority to negotiate
the contract.
1:43:53 PM
He said the administration has acknowledged from the beginning
that some of the contract provisions were outside the authority
granted to it by the Stranded Gas Act.
1:44:42 PM
The question of what authority would be needed to move the
project forward was unclear until the contract was complete. Now
that there is an agreement between the administration and the
sponsor group, the administration is asking for the grant of
authority to allow it to put the contract before the legislature
for review.
MR. JARDELL said that when the administration passed out the
fiscal interest finding, it detailed the contract provisions for
which the administration needed authority. The legislation now
before the committee is intended to give the administration
enough authority to renegotiate contract terms after the public
hearings.
1:47:25 PM
SENATOR BUNDE asked if Mr. Jardell was talking about SB 2004,
version A [labeled 24-GS2046\A].
MR. JARDELL replied yes.
1:47:58 PM
JOSEPH DONAHUE, Preston Gates & Ellis LLP, Counsel to the
Governor, explained sections 1-11 of the bill as follows. He
said that these provisions are primarily driven by two major
policy decisions made by the administration during the course of
negotiations of the proposed fiscal contract.
The first decision was for the state to become a full commercial
partner in the project. That decision had three components: the
state would take an equity position in the pipeline, it would
take royalty gas in-kind for the duration of the contract and
convert its production tax payments to gas in-kind payments, and
it would take a shipping position on the pipeline.
1:49:33 PM
The second was the decision to incorporate oil fiscal certainty
into the proposed fiscal contract.
1:49:56 PM
MR. DONOHUE said that Section 1 is the purpose section of the
original Stranded Gas Development Act (SGDA). The new components
of the fiscal contract incorporate the revised Petroleum
Production Tax (PPT), Payment in Lieu of Taxes (PILT), and a
provision that incorporates oil corporate income into the
corporate income PILT provisions. Therefore, the first provision
expands the scope of the fiscal terms and relates it to all of
the sponsors' and other parties' business activity in the state,
regardless of whether it is tied to the actual implementation of
this project.
1:51:42 PM
In Section 1, page 2, paragraph (2), the term "related party"
has been added and is defined in Section 16 of the bill as "an
entity that is affiliated with a qualified sponsor that owns a
portion of the project and is an intended beneficiary of fiscal
certainty under the proposed fiscal contract." The related party
concept ties to the midstream entities that will own the
mainline, the gas treatment plants, and the gas transmission
lines.
1:53:12 PM
Section 2. AS 43.82.020, revisits some primary negotiation
topics identified by the original act and expands them to
include express authority for payment of gas production tax in-
kind [paragraph (3)]. Paragraph (4) authorizes the state to
negotiate acquisition of and ownership in the project, as well
as terms relating to collateral agreements authorized under AS
43.82.437.
MR. DONOHUE explained that changes in paragraph (1) of 43.82.020
are intended to clarify that oil fiscal certainty can be granted
regardless of whether the particular entity is involved in this
project, or the earnings being protected arise from it.
1:55:23 PM
Changes in paragraph (2) reflect a broadening of the provisions
that the Commissioner of Revenue and the Commissioner of Natural
Resources can negotiate. Once negotiated and in the fiscal
contract, they would supersede any conflicting provisions of oil
and gas leases and unit agreements.
1:57:03 PM
SENATOR BUNDE asked if the agreements in Section 2 are subject
to legislative ratification.
MR. DONOHUE replied that they refer to existing oil and gas
leases drafted pursuant to statutory authority and subject to
the contractual relationship with the producers.
1:57:46 PM
CHAIR SEEKINS asked whether the terms would have to be modified
in the contract.
MR. DONOHUE replied yes.
CHAIR SEEKINS asked whether the final version of the contract is
still subject to legislative ratification.
MR. DONOHUE replied yes.
1:58:40 PM
SENATOR BUNDE noted that ratification happens at the very end of
the process.
MR. DONOHUE agreed.
1:59:52 PM
SENATOR DYSON referenced Section 3 on page 3, and asked if it
means that the commissioner can change oil taxes that are
already established in statute.
MR. DONOHUE replied yes.
SENATOR DYSON asked how long that provision has been in the
amendment.
MR. DONOHUE said it has been there for a couple of months and
directed him to the appendix I version.
2:01:52 PM
Paragraph (2) of Section 3, line 7, makes this subsection
conform to the rest of the changes proposed to AS 43.82.220.
Paragraph (6), line 19, repeals the terms and conditions for
administrative termination of a contract under AS 43.82.445.
That has been replaced with a purely contractual procedure
(Article 28 and Article 5).
MR. DONOHUE continued to paragraph (7), line 21, which broadens
the commissioner's authority, providing greater flexibility and
less technical density than in the long-form SGDA conforming
amendments bill in appendix I.
2:05:30 PM
SENATOR ELTON said his understanding is that the language in
paragraph (7) is not needed for anything in the contract now,
but is inserted in the Stranded Gas Development Act in case
additional changes are made between now and the time it is
presented to the legislature.
MR. DONOHUE replied that it is intended to substitute for a
"laundry list" of paragraphs that do reflect articles and
provisions in the current fiscal contract. It also provides
flexibility in case other changes are necessary.
2:06:22 PM
Section 4, page 3, proposes a new subsection (b) to 43.82.200.
It relates to Article 26 of the fiscal contract, exhibit C and
provides mandatory dispute resolution procedures.
2:07:54 PM
CHAIR SEEKINS asked Mr. Donohue to describe the state's
sovereign immunity.
MR. DONOHUE answered that sovereign immunity is a common-law
concept going back to the sovereigns of England. It originally
meant that you could not sue the king, but changed eventually so
that you could sue him in a special court of equity. It has
evolved into a doctrine that says the legislature can define
those actions that can be brought against the state by citizens.
2:10:07 PM
CHAIR SEEKINS asked if, by waiving our sovereign immunity, we
are allowing someone to sue the state on issues related to the
contract.
MR. DONOHUE replied no, that it relates only to the producers'
rights to sue the state if it fails to pay an arbitration award.
If an award is unpaid 365 days after an attempt to collect in
the State of Alaska, the producers can file the award as a
judgment in another state and pursue the state's assets to
satisfy the judgment.
CHAIR SEEKINS asked Mr. Donohue to confirm that waiving the
state's sovereign immunity is a different thing from giving up
the state's sovereignty.
MR. DONOHUE replied that it is different.
MR. JARDELL interjected that, every time the state allows itself
to be sued, it technically waives its sovereignty.
MR. DONOHUE continued with Section 5, page 4, amending
43.82.210(a). These changes are part of a pattern to make it
clear that oil fiscal certainty can be considered and proposed
in a contract and submitted to the legislature for final review
and authorization.
2:11:02 PM
He said Section 6, page 4, amends 43.82.220(a) to clarify that,
in the event of a conflict, the provisions of the fiscal
contract preempt the conflicting provisions in oil and gas lease
or unit agreements.
He pointed to the article [Article 23] in the current contract
that relates to Point Thomson, as an example of a potential
conflict.
2:12:45 PM
SENATOR DYSON asked if this provision applies only to SGDA
applications that met the deadline a year or two ago.
MR. DONOHUE said yes, with few exceptions, the proposed
amendments would be retroactive to the beginning of the
application process January 1, 2004. If this contract is not
approved however, then these will be the new standards going
forward and the legislature will have to amend this act to
create a new filing deadline.
2:14:15 PM
Senator Wagoner commented that will be true only if the new
contract is negotiated under the Stranded Gas Development Act.
MR. DONOHUE agreed.
2:15:57 PM
MR. DONOHUE explained that page 5 contains further amendments to
43.82.220(a), which reflect a move away from long-term purchase
and sales agreements. Instead, the state is making a shipping
commitment for 20 percent of the gas, the combined total of RIK
and PTP.
2:17:13 PM
Paragraph (2), line 18, makes it clear that the provisions of
the fiscal contract dealing with some of the upstream cost
allowances the state has agreed to pay, and which are not
allowed under statute or in the oil and gas lease agreements,
will be authorized.
2:18:52 PM
MR. DONOHUE said that Section 7 broadens 43.82.220(c) to deal
with more than just Royalty issues.
Section 8 adds a new subsection (e) that says decisions related
to taking royalty gas in-kind are not subject to the provisions
of AS 38.
2:20:10 PM
Section 9 amends language in AS 43.82.250 related to the term of
the contract, but the underlying term limit is still 35 years
and may not exceed 45 years from the effective date.
SENATOR HOFFMAN arrived at 2:21:22 PM.
MR. DONOHUE continued to Section 10, page 6, which is intended
to make the actual operation of the work commitments article
consistent with the underlying statute.
Section 11 adds a new section 43.82.437, which authorizes a type
of collateral agreement called a coordinating arrangement, that
would tie the overall fiscal agreement with qualified sponsors
who are the production subsidiaries, to the parent organizations
and the affiliates that will actually implement the project.
2:24:00 PM
This section also deals with the establishment of Alaska
Pipeline Corporation (a.k.a. Alaska Pipe, PipeCo, AK Pipe), a
public corporation that would finance and own various parts of
the project. In order to make the corporation effective
immediately, it authorizes a modified quorum rule allowing the
two commissioner members to act on behalf of the board for the
first 120 days.
2:26:19 PM
SENATOR SEEKINS asked who the commissioner members are.
MR. DONOHUE responded that they are the Commissioner of Revenue
and the Commissioner of Transportation and Public Facilities.
Five public members are provided for in the legislation and, as
they are appointed, will have an equal vote.
2:26:50 PM
SENATOR ELTON quoted a portion of Section 43.82.437, subsection
(a), page 6, beginning on line 20, which reads:
The Commissioner of Revenue, with the concurrence of the
Commissioner of Natural Resources, may negotiate collateral
agreements.
He asked if that means the Commissioner of Natural Resources
must concur to negotiate, or must concur in the agreement
reached by the Commissioner of Revenue.
MR. DONOHUE replied that this relates to agreements between the
state and any other entity, unlike subsection (b), which refers
to agreements between a public corporation and other entities.
So, the answer is that the Commissioner of Natural Resources
would have to concur with any agreement reached as a result of
negotiations.
2:28:05 PM
JIM BALDWIN, Counsel to the Attorney General's Office, explained
that Section 12, page 7, gives the parties to the contract
assurance that municipal taxes and assessments can continue to
be paid directly to the municipalities.
2:29:24 PM
Section 13 provides for the accounting and custody of impact
payments amounting to $125 million.
Section 14 establishes a "Grant Fund", which is an account in
the General Fund, to receive those monies. Subsection (e), page
9, lines 6-10, outlines the purposes for which grants can be
made.
Section 15 extends the life of the Municipal Advisory Group to
cover the period throughout which grant funds will be made
available.
Section 16 was discussed earlier.
2:32:36 PM
MR. BALDWIN said that Section 17 makes it clear that
arbitrations within the state are provided for under the Alaska
Uniform Arbitration Act, but carves out an exception for
arbitrations that are authorized under the SGDA.
Section 18 repeals AS 43.82.445.
Section 19 is a technical change correcting the section heading
of 43.82.220.
MR. BALDWIN went on to Section 20, page 10, which provides that
Sections 1-12, 15, 16, and 18 of this act are retroactive to
January 1, 2004, and that Section 17 is retroactive to January
1, 2005.
Section 21 makes this act effective immediately.
2:33:58 PM
SENATOR ELTON went back to Section 14, page 8, lines 20-21,
which says that the department "shall adopt regulations under
which economically affected municipalities and nonprofit
organizations may apply for and be eligible to receive grants".
He said that "nonprofit organizations" is not defined in the
definition section, and wondered if it is defined elsewhere in
law.
2:34:40 PM
MR. BALDWIN replied that the intention is to make eligible those
nonprofit organizations that act in a quasi-municipal capacity
in the unorganized borough. There are such organizations and the
state contracts with them regularly, so the intention is not to
write a particular region out of the state out of getting an
impact grant provided they can document a sufficient impact.
SENATOR ELTON noted that Mr. Baldwin is talking about a subset
of nonprofit organizations that provides quasi-governmental
duties, and asked if there is a reason the language of the bill
does not speak to that subset rather than the broader category
of nonprofits.
MR. BALDWIN replied that he thinks it would be beneficial to
amend the language to make that clearer and offered to help with
that.
2:36:28 PM
SENATOR BEN STEVENS pointed out that on page 9, lines 5-6
specifically identify "nonprofit organizations serving the
unorganized borough".
2:37:00 PM
SENATOR WILKEN directed Mr. Baldwin's attention to page 7, lines
29-31, which amend the term "revenue-affected municipality" to
read "economically affected municipalities", and asked if there
is a difference between those terms.
MR. BALDWIN replied that the terms are defined in the Stranded
Gas Development Act. He said that a "revenue-affected
municipality" can also be "economically affected", but the
reverse may not be true.
SENATOR WILKEN then directed him to page 8, line 24 and asked if
any thought has been given to defining the phrase "direct or
severe impact".
MR. BALDWIN answered that he hoped it would be further defined
in regulation.
SENATOR WILKEN asked if it would be appropriate to add a
requirement into the bill that a definition of the phrase be
included in the regulations.
MR. BALDWIN answered that would be a policy call.
2:39:35 PM
SENATOR WILKEN asked Mr. Baldwin how the process described in
subsection (e), page 9, lines 2-14, would work. He said it
appears that the grant request would be submitted in a report to
the legislature during the first 10 days of the session, and
then go through the department to the municipal action group,
which would advise the commissioner whether the request is
appropriate. He asked if that is correct.
MR. BALDWIN responded yes, the relevant Municipal Advisory Group
makes a recommendation that the proposed expenditure meets the
needs of the section.
SENATOR WILKEN asked where the report due to the legislature is
addressed.
MR. BALDWIN directed him to subsection (d) on page 8, line 27.
SENATOR WILKEN asked if the grant request first surfaces in the
first 10 days of every session.
CHAIR SEEKINS said that he thinks the legislature gets a report
of where grants have been given.
MR. BALDWIN confirmed that the report is submitted to the
legislature after the fact.
SENATOR WILKEN questioned the language on page 8, lines 29-30
which reads "a list of all municipalities and organizations
determined by the department to be eligible for further grants".
MR. BALDWIN responded that the report includes a list of
meritorious requests that were not funded due to a shortfall.
2:41:29 PM
SENATOR WILKEN asked if the committee could get a step-by-step
description of how the grant process works, including how
decisions are made regarding impacts.
2:42:36 PM
SENATOR HOFFMAN asked why page 9, subsection (f), restricts the
use of grants to retire municipal debt.
MR. BALDWIN said that it is a policy call, but the rationale
behind it is that it does not further the public interest to
incur new debt to pay preexisting debt. Grants should be used to
cover new impacts, but obligations initiated after the beginning
of the grant program might be covered at the discretion of the
legislature.
SENATOR HOFFMAN countered that the language seems to prohibit
both previous and future debt.
MR. BALDWIN agreed, but said that the language is modeled on an
existing grant program in response to the request of the
Municipal Advisory Group. He reiterated that it is open to
policy determination by the legislature.
2:45:11 PM
SENATOR WILKEN said the total amount of grant money available
over 6 years is $125 million, and if it were used to cover
existing municipal debt, it would be eaten up very quickly.
At ease from 2:45:58 PM to 2:55:24 PM
2:56:30 PM
SENATOR WILKEN directed Mr. Baldwin to a handout [Chapter 82.
Alaska Stranded Gas Development Act], Section 43.82.520,
subsection (b), paragraph (1), which reads "the share of
payments to revenue-affected municipalities should be given
priority over payments to economically-affected municipalities
with due regard to the anticipated size of the tax base", and
asked if he could explain the differences between the two types
of municipality.
2:58:19 PM
STEVEN B. PORTER, Deputy Commissioner, Department of Revenue,
responded that economically-affected refers to unexpected
impacts to the communities during the construction phase, when
there is no revenue being generated. These are the impacts
addressed by the $125 million impact funds in the contract.
Revenue-affected communities are those that have taxing
authority.
SENATOR WILKEN thanked Mr. Porter for his explanation and asked
whether he could provide it in writing.
MR. PORTER said that he would have the lawyers elaborate on his
explanation.
CHAIR SEEKINS said that SB 2003 and SB 2004 will be open for
public testimony over the weekend, so he would close discussion
on SB 2004 for now and open discussion on the PipeCo bill, SB
2003.
He asked whether the members of the committee would like to hear
from anyone in particular on these matters when they return
after the weekend.
3:01:25 PM
SENATOR WAGONER requested that the Chair ask Legal Services to
have Jack Chenoweth review the document and report back to the
committee on Friday.
SENATOR ELTON suggested that the Chair ask Kevin Ritchie,
Executive Director of the Alaska Municipal League (AML), to
provide the committee with the municipalities' reaction to some
of the provisions.
MR. PORTER said that Steve Thompson, Chair of the Municipal
Advisory Board, might be willing to attend or to send a
representative.
SENATOR OLSON suggested that the Chair invite Kathy Wasserman.
CHAIR SEEKINS Closed discussion on SB 2004.
| Document Name | Date/Time | Subjects |
|---|