Legislature(2001 - 2002)

04/05/2002 09:15 AM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 302-ALASKA GAS CORPORATION                                                                                                 
[Contains discussion of HB 410]                                                                                                 
Number 0027                                                                                                                     
VICE CHAIR  FATE announced  that the  committee would  hear HOUSE                                                               
BILL NO. 302, "An Act  establishing the Alaska Gas Corporation, a                                                               
public corporation, and providing  for its structure, management,                                                               
responsibilities,  and operation,  and requiring  the development                                                               
of a project plan to  evaluate whether construction and operation                                                               
of   a  natural   gas  transmission   pipeline  project   by  the                                                               
corporation is feasible."                                                                                                       
VICE CHAIR  FATE informed  members of  his intention,  because of                                                               
the critical  need to expedite a  gas pipeline, to move  the bill                                                               
from committee that day.                                                                                                        
Number 0059                                                                                                                     
REPRESENTATIVE JIM  WHITAKER, Alaska State  Legislature, sponsor,                                                               
acknowledged  that HB  302 is  controversial because  it embodies                                                               
both  constitutional  and  philosophical  issues.   He  said  his                                                               
intention that  morning wasn't  to dwell  on those  broad issues,                                                               
however,  but  on an  initiative  [Initiative  01GSLN, the  "All-                                                               
Alaskan Gasline Initiative"] that probably  will be placed on the                                                               
next ballot.                                                                                                                    
REPRESENTATIVE  WHITAKER explained  that the  initiative troubles                                                               
him  because  it  is  route-specific  regarding  an  Alaskan  gas                                                               
project, restricting  the route to  one that goes from  the North                                                               
Slope to Valdez, which [would  require] conversion of natural gas                                                               
to  liquefied  natural  gas  (LNG).    However,  that  isn't  the                                                               
preferred alternative  of many of  the players.  He  suggested it                                                               
would be foolish  of the legislature to allow  such a significant                                                               
muddying of the waters.                                                                                                         
Number 0278                                                                                                                     
WILSON  L. CONDON,  Commissioner,  Department  of Revenue  (DOR),                                                               
came forward  to testify.   He explained major  differences among                                                               
HB 302,  the proposed initiative,  and HB 410, sponsored  by [the                                                               
House  Special Committee  on Oil  and Gas,  which is  chaired by]                                                               
Representative Ogan.   First,  HB 302  is available  for whatever                                                               
project will work  best for taking North Slope gas  to market; by                                                               
contrast, the  initiative and HB  410 both restrict  the activity                                                               
of the  organization they  would establish  to the  promotion and                                                               
development of  a project that  would take gas to  Prince William                                                               
Sound, turn it into LNG, and  market it somewhere.  Second, there                                                               
is no "target date" in HB  302, whereas the initiative and HB 410                                                               
both have the  objective of getting gas to market  by 2007, which                                                               
has consequences regarding what must be done right now.                                                                         
COMMISSIONER  CONDON explained  the third  difference.   Under HB
302, responsibility  for the upfront  feasibility studies  that a                                                               
publicly owned  project would require  are assigned to  the Joint                                                               
Committee  on  Natural  Gas Pipelines;  consequently,  the  DOR's                                                               
[zero] fiscal note for HB 302  is very different from that for HB
410, since  the department  has read both  the initiative  and HB
410 to put that responsibility on  the DOR until a corporation is                                                               
actually set  up and functioning.   "We were concerned  about the                                                               
2007  date as  a target  date for  completing the  project, which                                                               
necessarily  means  you need  to  plan  to  spend lots  of  money                                                               
relatively  soon,  in  our  judgment,"   he  explained.    "Under                                                               
Representative Whitaker's  bill, that  judgment's really  left in                                                               
the  hands of  the  joint committee,  and  the responsibility  of                                                               
getting that  work done  - or  at least getting  it started  - is                                                               
assigned to them."                                                                                                              
COMMISSIONER   CONDON  referred   to  Representative   Whitaker's                                                               
mention  of  possible  constitutional controversy  and  said,  "I                                                               
don't   think  that   we're  disobeying   the   command  of   the                                                               
constitution  in  terms of  the  way  we're conducting  ourselves                                                               
right now,  but that's a  philosophical discussion that  we don't                                                               
need to get into."                                                                                                              
Number 0636                                                                                                                     
REPRESENTATIVE  DYSON brought  attention  to a  paragraph in  the                                                               
analysis section of  the DOR's fiscal note  that begins, "Because                                                               
a legislative committee would pay  for and manage the feasibility                                                               
study ...."  He asked which committee that refers to.                                                                           
COMMISSIONER CONDON clarified  that it is the  Joint Committee on                                                               
Natural Gas Pipelines.                                                                                                          
Number 0686                                                                                                                     
VICE CHAIR  FATE requested  that Representative  Whitaker discuss                                                               
the prospect of  a legal challenge regarding  the similarities of                                                               
HB 302 and the [initiative].                                                                                                    
REPRESENTATIVE  WHITAKER  deferred  to Jack  Chenoweth,  who  had                                                               
provided the legal opinion [a  memorandum dated January 21, 2002]                                                               
contained in the bill packet.                                                                                                   
Number 0760                                                                                                                     
JACK CHENOWETH, Assistant Revisor  of Statutes, Legislative Legal                                                               
Counsel,  Legislative Legal  and  Research Services,  Legislative                                                               
Affairs Agency, came forward to  testify, noting that he was both                                                               
the drafter  of HB 302 and  the author of the  opinion referenced                                                               
by  Representative  Whitaker.    With regard  to  the  similarity                                                               
between  the bill  and the  initiative, Mr.  Chenoweth said  he's                                                               
assuming,  as  the sponsor  is,  that  the signatures  have  been                                                               
counted and are sufficient, and  that the initiative is certified                                                               
for the  November general-election ballot.   He pointed  out that                                                               
whether a bill passed by  the legislature displaces an initiative                                                               
is a  matter for the  lieutenant governor  to decide; it  isn't a                                                               
decision that he or the legislature can make.                                                                                   
MR. CHENOWETH  then explained  that in  the written  opinion he'd                                                               
provided,  he'd  tried  to  identify  what  he  regarded  as  the                                                               
significant differences  between HB  302 and the  initiative, and                                                               
to discuss  them in  terms of whether  they are  so significantly                                                               
different that the lieutenant governor  necessarily would have to                                                               
say they  are not substantially the  same.  He told  members that                                                               
he doesn't think  any of the points identified  by either himself                                                               
or Commissioner  Condon, in his  testimony, necessarily  compel a                                                               
conclusion that the two are not  substantially the same.  He went                                                               
on to say:                                                                                                                      
     I  think  the  lieutenant   governor  could  find  that                                                                    
     adoption  of  a bill  in  this  form, or  substantially                                                                    
     similar  to  it,  is  substantially  the  same  as  the                                                                    
     initiative,  as  presented,   and  could  displace  the                                                                    
     initiative  from the  November ballot  if this  bill is                                                                    
     I realize  that there are differences  in the magnitude                                                                    
     and the  direction of the  project as described  in the                                                                    
     initiative  from what  is described  here in  the bill.                                                                    
     But I think  that's a function of time  and the passage                                                                    
     of  time  and  of  activity  taking  place  outside  of                                                                    
     Alaska,  particularly in  the  Congress.   And I  think                                                                    
     that  ...  you,  the   legislature,  have  latitude  to                                                                    
     develop a bill, with an  eye on the initiative, ... and                                                                    
     that you  have a  lot of latitude  as you  develop that                                                                    
Number 0920                                                                                                                     
MR. CHENOWETH  pointed out  that discussed  in his  memorandum is                                                               
the leading case in this area,  Warren v. Boucher, which is about                                                             
25  years old.    He  brought attention  to  the  first two  full                                                               
paragraphs  on page  3 of  the memo,  noting that  these are  the                                                               
significant ones  and "generally  point to the  fact that  if the                                                               
subject matter  is very technical,  very large in size,  then the                                                               
legislature has more latitude to  shape legislation and have that                                                               
legislation  accepted  as being  substantially  the  same as  the                                                               
initiative as presented."  He further said:                                                                                     
     I think that  this is a very good example  of where the                                                                    
     legislature  does  enjoy  that kind  of  ...  latitude.                                                                    
     This   is   a   project    that,   according   to   the                                                                    
     administration  - at  least, according  to a  bill that                                                                    
     they have submitted  - asks for the  permission for the                                                                    
     Alaska  Railroad Corporation  to issue  as much  as $17                                                                    
     billion of financing to support  ... a gas line project                                                                    
     that runs  down ... from  Prudhoe Bay to  the Interior,                                                                    
     and  then out  ...  to connect  to  the domestic  North                                                                    
     American transportation system.   And that is ... large                                                                    
     by anyone's ... measure.                                                                                                   
     The remaining  portions of  the bill  that go  to other                                                                    
     questions    about    structuring   the    corporation,                                                                    
     confirming  the members  of the  board,  and things  of                                                                    
     that sort, I  think, are secondary issues.   I do think                                                                    
     that as you take a look  at how you're going to support                                                                    
     efforts  to bring  gas to  market,  that you  are in  a                                                                    
     position to  make a decision  as to where it  is likely                                                                    
     going  to  be  marketed,   and  draw  your  legislation                                                                    
     And  I think  that  ... the  lieutenant governor  could                                                                    
     find  that ...  your end  product is  substantially the                                                                    
     same  as the  initiative, and  displace the  initiative                                                                    
     from  the November  general-election ballot.   I'm  not                                                                    
     saying  she  will;  I'm  saying  that  there's  nothing                                                                    
     that's  in  this  bill  that  ...  compels  her  to  do                                                                    
Number 1070                                                                                                                     
REPRESENTATIVE DYSON surmised that  the authors of the initiative                                                               
will  not be  pleased  to have  it removed  from  the ballot  and                                                               
therefore  will challenge  this  in court.   He  asked:   If  the                                                               
lieutenant governor  were to rule  that this bill  supersedes the                                                               
initiative, what would  the timeframe and process  be under which                                                               
a court challenge could be brought?                                                                                             
MR. CHENOWETH  noted that the  statutes weren't in front  of him,                                                               
but  recalled  that an  action  would  have  to be  commenced  in                                                               
superior court within 30 days  after a final determination of the                                                               
lieutenant governor.                                                                                                            
Number 1156                                                                                                                     
REPRESENTATIVE DYSON asked whether the  court is mandated to give                                                               
its decision within  a time that would allow  the [initiative] to                                                               
be placed on the ballot.                                                                                                        
MR. CHENOWETH replied:                                                                                                          
     Not  that I  know of.   And  in fact,  if it's  a close                                                                    
     question, if it turns  out that the lieutenant governor                                                                    
     says  that whatever  bill is  passed does  displace the                                                                    
     initiative and  ... the sponsors of  the initiative ...                                                                    
     don't like that  decision and challenge it -  ... and I                                                                    
     can  concede that  they might  be able  to present  the                                                                    
     arguments and  make it a  close question - my  sense is                                                                    
     that  the  court  probably  would put  a  hold  on  the                                                                    
     lieutenant  governor's decision,  ... if  they couldn't                                                                    
     determine this  in advance, ...  and allow it to  go on                                                                    
     the  ballot and  sort it  all out  later on.   If  they                                                                    
     eventually  decide  that  Lieutenant  Governor  Ulmer's                                                                    
     decision to  displace the  initiative was  correct, the                                                                    
     results would be set aside.   If they decide that there                                                                    
     are points that she  didn't consider properly, and that                                                                    
     she should  have allowed  it to be  on the  ballot, the                                                                    
     results would stand as certified.                                                                                          
Number 1260                                                                                                                     
REPRESENTATIVE DYSON moved  to report HB 302  from committee with                                                               
individual  recommendations  and  the "interesting"  zero  fiscal                                                               
VICE CHAIR  FATE asked whether  there was any objection.   [There                                                               
was no  audible response, but  Representative Kohring  raised his                                                               
Number 1283                                                                                                                     
REPRESENTATIVE KOHRING  explained that his objection  regards the                                                               
state   government's   getting    involved   in   the   potential                                                               
construction of a gas pipeline; he  said he assumes this would be                                                               
a forerunner  to that.   He acknowledged the sponsor's  intent in                                                               
part  to   preempt  a  ballot   initiative,  but   suggested  the                                                               
legislature  shouldn't   be  too  preoccupied  with   that.    He                                                               
indicated he doesn't believe  having a government-constructed and                                                               
government-owned pipeline is  the proper way to go.   He expanded                                                               
on his explanation:                                                                                                             
     I  just  philosophically  disagree with  the  issue  of                                                                    
     building  a pipeline,  and if  you could  point to  the                                                                    
     past   history    of   government's    involvement   of                                                                    
     constructing   and  owning   and  maintaining   capital                                                                    
     projects, you'll  see that  we have  a very  poor track                                                                    
     record. ...  I point  to things  like the  Seward grain                                                                    
     terminal,  the  Point  MacKenzie dairies  in  my  area,                                                                    
     [the]  Delta  barley farm  project,  and  others.   And                                                                    
     they've  proven   to  be  quite   massive  boondoggles,                                                                    
     unfortunately, at  the expense ... of  the public, with                                                                    
     their dollars that have been wasted on these projects.                                                                     
     And I  really do appreciate the  sponsor's efforts, and                                                                    
     I know his intent is honorable  as far as trying to get                                                                    
     the ... gas  fields developed and get  dollars into the                                                                    
     treasury,  and that's  certainly  a laudable  goal.   I                                                                    
     just question  the wisdom of  the state  being involved                                                                    
     in a project of this nature.                                                                                               
REPRESENTATIVE  KOHRING  suggested  that  government  involvement                                                               
should  be looked  at  throughout the  country,  and that  market                                                               
conditions should be used [as  an indicator] regarding whether it                                                               
is feasible to proceed.  "My  fear is that we'll end up investing                                                               
billions of  dollars in a gas  line and the public  is [going] to                                                               
end up footing the bill, whether it  works or not," he added.  He                                                               
requested to hear from the sponsor.                                                                                             
Number 1440                                                                                                                     
REPRESENTATIVE WHITAKER replied as follows:                                                                                     
     In  response, we  could have  that broad  philosophical                                                                    
     debate.   I'm  prepared to  do that,  Mr. Chairman,  if                                                                    
     it's your desire to do so.                                                                                                 
     I can  point out that  while the state is  probably not                                                                    
     well prepared to maintain, operate,  or build a project                                                                    
     of  this  nature,  it is  appropriate  that  the  state                                                                    
     facilitate a project of  this nature through ownership,                                                                    
     in  much  the  same  way  that  the  state  facilitates                                                                    
     commerce  through  ownership  of roads,  airports,  and                                                                    
     ports.   A  pipeline transportation  system is,  at its                                                                    
     basis,  a  transportation  system.     And  it  is  not                                                                    
     inappropriate, under any economic  model, for the state                                                                    
     to own a basic transportation infrastructure.                                                                              
     Having said that,  and not wanting to go  a lot deeper,                                                                    
     if  that  satisfies   the  concerns  of  Representative                                                                    
     Kohring, I would  prefer to leave it  there, although I                                                                    
     am prepared  to go deeper  if that  is the wish  of the                                                                    
Number 1537                                                                                                                     
VICE  CHAIR  FATE  requested confirmation  that  HB  302  doesn't                                                               
demand  the state's  involvement any  more than  the [initiative]                                                               
would regarding construction of a pipeline.                                                                                     
REPRESENTATIVE WHITAKER said it is probably less.  He explained:                                                                
     The  intent of  the  bill is  to  restrict the  state's                                                                    
     involvement to ownership, in much  the same manner that                                                                    
     the  state's  involvement  in  the  management  of  the                                                                    
     permanent fund is  restricted to an ownership  role.  I                                                                    
     would not envision  a state bureaucratic entity.   I do                                                                    
     envision a very small ownership function.                                                                                  
Number 1600                                                                                                                     
VICE CHAIR FATE  stated his understanding that in  speaking of an                                                               
ownership  function,  Representative  Whitaker meant  "an  equity                                                               
interest in the pipeline, in the transportation system itself."                                                                 
REPRESENTATIVE  WHITAKER responded,  "Either  equity or  outright                                                               
ownership, and that  is, the function of determination  as to the                                                               
state's ownership role will be  related to any number of economic                                                               
VICE CHAIR FATE  asked, "Would the corporation ...  be the entity                                                               
that makes that determination?"                                                                                                 
REPRESENTATIVE WHITAKER said yes.                                                                                               
Number 1623                                                                                                                     
REPRESENTATIVE DYSON voiced support for  the bill, noting that he                                                               
also  shares Representative  Kohring's reservations  about public                                                               
involvement in  private enterprise.   He explained  that, indeed,                                                               
he  thinks  of this  [pipeline]  as  transportation, and  further                                                               
believes there ought to be on  the table at least a consideration                                                               
of having the  pipeline be a common carrier,  which would greatly                                                               
assuage  many minor  leaseholders' concerns  about access  to get                                                               
their  products  to  market.    He said  he  also  realizes  it's                                                               
difficult for  the private sector to  "get all the things  to the                                                               
table  to ...  build a  project."   He mentioned  the possibility                                                               
that a tax-free  structure and the state's  borrowing power might                                                               
help to make the project more viable.                                                                                           
REPRESENTATIVE  DYSON offered  his belief  that marketing  LNG to                                                               
the Pacific Rim  and the West Coast  needs to be a  part of whole                                                               
project.   He said the  limited scope  of the initiative  and its                                                               
tendency to  preclude other options  is of great concern  to him,                                                               
however.   He  also said  his  first choice  is to  have a  "hub"                                                               
somewhere in the Interior "that  lets all options go forward, ...                                                               
depending on their economic viability."                                                                                         
Number 1736                                                                                                                     
REPRESENTATIVE  DYSON told  members  that Upper  Cook Inlet,  the                                                               
area he represents, will have  gas shortages beginning in 2009 or                                                               
2010.   Unless there are  major developed gas sources  there, the                                                               
fertilizer plant  in Nikiski and  LNG exports will  be curtailed.                                                               
For him, he said,  being able to run a "stub"  line to Cook Inlet                                                               
in the  future is "absolutely  a nonnegotiable."  He  added, "I'm                                                               
not  interested   in  any  solutions   that  preclude   half  the                                                               
population  of the  state and  the economic  development of  that                                                               
area to  be truncated."  He  said that is another  reason for his                                                               
support [of the bill].                                                                                                          
Number 1783                                                                                                                     
REPRESENTATIVE  DYSON offered  to  withdraw his  motion if  there                                                               
weren't enough votes to move the bill from committee.                                                                           
Number 1803                                                                                                                     
VICE CHAIR  FATE called an  at-ease at 9:38  a.m.  He  called the                                                               
meeting back to order at 9:42 a.m.                                                                                              
REPRESENTATIVE  KOHRING  announced  that he  still  had  concerns                                                               
about the  ultimate result  of this  effort, but  also recognized                                                               
that without  the legislation, the  initiative would  still exist                                                               
and  could "result  in even  worse things."   He  suggested there                                                               
would be ample opportunity to  voice concerns in other committees                                                               
of referral.  He reiterated  his concern that this legislation is                                                               
a forerunner of building a  pipeline, which he believes should be                                                               
strictly market-based.   He also  offered his belief that  if the                                                               
market currently  were demanding  that a  pipeline be  built, the                                                               
industry would step forth to do it.                                                                                             
Number 1866                                                                                                                     
REPRESENTATIVE  KOHRING withdrew  his objection,  noting that  he                                                               
would  add  his  [individual   recommendation  to  the  committee                                                               
[There  was  confusion over  the  existing  motion; the  ultimate                                                               
result  was a  restating  of the  motion to  move  the bill  from                                                               
committee with an "interesting" zero fiscal note.]                                                                              
Number 1912                                                                                                                     
VICE CHAIR  FATE asked  whether there was  any objection.   There                                                               
being no  objection, HB 302  was moved  out of the  House Special                                                               
Committee on Oil and Gas.                                                                                                       

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