Legislature(2005 - 2006)SENATE FINANCE 532
06/06/2006 09:00 AM Senate SPECIAL COMMITTEE ON NATURAL GAS DEV
| Audio | Topic |
|---|---|
| Start | |
| Roundtable Questions and Answers with Legislative Consultants: Issues Related to Gas Development | |
| James Barnes, Barnes & Cascio Llp, Legislative Budget and Audit Consultant | |
| Work Commitment – Article 5 of the Fiscal Contract. | |
| State Participation: | |
| Unknown Components: | |
| Regulatory Regime: | |
| Rick Harper, Econ One Research, Inc., Consultant to the Legislature | |
| James Eason, Consultant, Legislative Budget & Audit Committee | |
| Phillip Gildan, Greenberg Traurig, Llp, Consultant to the Legislative Budget and Audit Committee | |
| Dan Dickinson, Cpa, Consultant to Governor Frank Murkowski | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB2003 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE SPECIAL COMMITTEE ON NATURAL GAS DEVELOPMENT
June 6, 2006
9:15 a.m.
MEMBERS PRESENT
Senator Ralph Seekins, Chair
Senator Ben Stevens
Senator Gary Wilken
Senator Fred Dyson
Senator Bert Stedman
Senator Lyman Hoffman
Senator Donny Olson
Senator Thomas Wagoner
Senator Kim Elton
Senator Albert Kookesh
Senator Con Bunde
MEMBERS ABSENT
Senator Lyda Green
OTHER LEGISLATORS PRESENT
Senator Gary Stevens
Senator Gene Therriault
Senator Hollis French
Senator Charlie Huggins
Representative Beth Kerttula
Representative John Coghill
Representative Les Gara
Representative Carl Gatto
Representative David Guttenberg
Representative Jay Ramras
Representative Mike Kelly
Representative Paul Seaton
Representative Harry Crawford
Representative Ethan Berkowitz
Representative Jim Holm
COMMITTEE CALENDAR
Roundtable Questions and Answers with Legislative Consultants:
Issues Related to Gas Development
SENATE BILL NO. 2003
"An Act establishing the Alaska Natural Gas Pipeline Corporation
to finance, own, and manage the state's interest in the Alaska
North Slope natural gas pipeline project and relating to that
corporation and to subsidiary entities of that corporation;
relating to owner entities of the Alaska North Slope natural gas
pipeline project, including provisions concerning Alaska North
Slope natural gas pipeline project indemnities; establishing the
gas pipeline project cash reserves fund in the corporation and
establishing the Alaska natural gas pipeline construction loan
fund in the Department of Revenue; making conforming amendments;
and providing for an effective date."
SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JAMES BARNES
Barnes & Cascio LLP
Consultant to the Legislature
Houston, TX
POSITION STATEMENT: Gave PowerPoint presentation
RICK HARPER
Econ One Research, Inc.
Consultant to the Legislature
Three Allen Center, Suite 2825
333 Clay Street
Houston, TX 77002
POSITION STATEMENT: Contributed to Round Table Discussion
JIM EASON, Consultant
Legislative Budget and Audit Committee
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Contributed to Round Table Discussion
KEN GRIFFIN, Deputy Commissioner
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801-1724
POSITION STATEMENT: Responded to questions from committee
members
PHILLIP GILDAN
Greenburg Traurig, LLP
Consultant to the Legislative Budget and Audit Committee
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Contributed to Round Table Discussion
DAN DICKINSON, CPA
Consultant to the Governor
Office of the Governor
PO Box 110001
Juneau, AK 99811-0001
POSITION STATEMENT: Contributed to Round Table Discussion
ACTION NARRATIVE
CHAIR RALPH SEEKINS called the Senate Special Committee on
Natural Gas Development meeting to order at 9:15:01 AM. Present
at the call to order were Senators Tom Wagoner, Gary Wilken,
Bert Stedman, Fred Dyson, Albert Kookesh, Kim Elton, Lyman
Hoffman and Chair Ralph Seekins; Senator Donny Olson arrived
soon thereafter, and Senators Con Bunde and Ben Stevens arrived
as the meeting was in progress. Also in attendance were Senators
Gary Stevens, Gene Therriault, Hollis French and Charlie
Huggins, and Representatives Beth Kerttula, John Coghill, Carl
Gatto, Les Gara, David Guttenberg, Jay Ramras, Mike Kelly, Paul
Seaton, Harry Crawford, Ethan Berkowitz and Jim Holm.
^Roundtable Questions and Answers with Legislative Consultants:
Issues Related to Gas Development
CHAIR RALPH SEEKINS announced there would be a roundtable
discussion of issues related to gas development. This would
allow legislative members to talk with consultants in an open
forum style. He introduced James Barnes, Jim Eason, and Rick
Harper and invited them to seat themselves at the table.
9:19:21 AM
^JAMES BARNES, Barnes & Cascio LLP, Legislative Budget and Audit
Consultant
JAMES BARNES, Barnes & Cascio LLP, Legislative Budget and Audit
Consultant, informed the committee that he was with the law firm
Barnes & Cascio and that they represent oil and gas companies
primarily in international transactions. He gave a PowerPoint
presentation that focused on the May 10, 2006 draft of the
contract. The presentation does not reflect the changes set
forth in the May 24, 2006 draft. The SGDA serves to encourage
development of stranded gas, establish new fiscal terms for new
investment without affecting tax on the existing structure,
tailor the new fiscal terms to the project economics, establish
new fiscal terms, and maximize the benefits to the people of the
State of Alaska.
9:20:11 AM
Senator Donny Olson joined the meeting.
MR. BARNES added Alaska is unique in the regard that the tax
royalty jurisdiction does provide fiscal stability while others
do not and so comparisons will be against Nigeria, Angola,
Azerbaijan, Kazakhstan, and Russia. His comments would reflect
his experience in the international arena and how production-
sharing arrangements in different countries compare.
PowerPoint Presentation
9:21:26 AM
^Work Commitment - Article 5 of the fiscal contract.
The commitment as stated is to begin project planning activities
within 90 days, advance project activities with diligence, and
to conclude project planning activities when participants have
decided whether to begin preparation of regulatory applications
and planning for an open season. The project plan is not
publicly available but there is a summary generated by the
producers, which is available on Governor Frank Murkowski's
website. It is a description of the work to be done along with a
corresponding timeframe.
MR. BARNES directed the committee's attention to the timeline
and aired disappointment that the work commitment ends prior to
other components that are necessary to get to the point of
project sanction. Collection of field data, feed studies and the
EIS preparation portions are missing from the work commitment.
He recollected that the fiscal interest findings indicated that
the economic analysis was based on old data and that needs to be
updated. Some of the things that the work program encompasses
are preparing the work scope staffing plan for the next phase,
selecting contractors, developing plans for access and permanent
applications, and establishing commercial structure and
principles to guide the project through development.
The phrase "proceed with diligence" is defined as "prudence
under the circumstances." If the State feels that the
participants are not meeting that standard it could terminate
the fiscal contract through arbitration. There is a written
presumption that the contract will continue; the State's
presumption of deference is waived; the State has the burden of
proof to demonstrate that the participants are not acting with
diligence and that the lack of such planning has resulted in
adverse impact to the project. The State may not consider any
errors in judgment, unwillingness of any participant to enter
into a contract or suspension of the planning party's
activities.
By comparison with Azerbaijan or other nations it is recommended
that the State facilitate a firmer work commitment, as the goal
is to design a work commitment so that investors are able to
make an investment decision. Parties might consider inserting
completion dates for things such as filing the certificate of
convenience and necessity within two years so that there are
independent drivers for the State to be able to prove due
diligence that the parties are moving on a committed timeline.
Another possibility is that the State could endeavor to align
party interests so that the benefits flowing from the fiscal
contract accrue to the participants from the outset. The State
might also consider postponement of vesting of the components
until the project sanction decision is made. This was most
likely discussed already in the negotiations and discarded but
it is seen in the international contracts. The State is in a
position to manage the running timeline of the project and so if
a milestone is not met or extended, the fiscal contract would
end.
9:32:10 AM
^State participation:
The fiscal contract contemplates that an Alaska entity would own
an interest in each separate project entity that stems from the
main. So the State would own approximately 20 percent interest
in the gas transmission lines, gas treatment plant, mainline,
AK-AECO Pipeline, natural gas liquids plant and AECO-Chicago
pipeline. "Ship-or-pay" commitments would be the basis for
financing. The marketing arrangements are unknown as well as the
Governor's agreements with the project entities.
9:34:13 AM
^Unknown components:
A coordinated agreement between the project entities will be
necessary. Whether or not parties use federal guarantee the
financing will be based on ship-or-pay and marketing
arrangements. Affiliates of the producers will handle their own
ship-or-pay commitments and the State would be well advised to
prepare for how it is going to handle the liabilities associated
with the ship-or-pay commitment.
Financing arrangements among project and State entities are
unknown and there are probably "credit-worthiness" issues so
some kind of financial guarantee should be required. The
regulatory process will be above the level of the project
entities so coordination between parties so that they don't
cross purposes with one another is advised.
9:36:58 AM
MR. BARNES referred to a chart that reflects what is known and
not known and asked committee members to refer to it. The
producers and their marketing affiliates exist but the entities
are unknown.
9:38:50 AM
There are too many unknowns at this point and since the State is
acting like a board of directors it is standard to have
transparency and accountability. They are hallmarks of what a
board should expect and the SGDA requires it.
9:40:02 AM
^Regulatory Regime:
There are some indications that the RCA jurisdiction may be
limited in the event FERC doesn't take jurisdiction of one or
more components of the project. Under certain conditions the
State must reimburse the other participants for losses due to
RCA jurisdiction. The State is waiving entitlements to deference
and presumption of correctness with regard to interpretation of
its regulations. All leases, agreements, regulations, rules
orders and decisions to contract must conform to the contract.
All disputes will be resolved by either baseball or traditional
arbitration. The presentation concluded.
9:42:17 AM ^Questions and Answers
SENATOR Con Bunde joined the meeting.
MR. BARNES offered to answer questions.
9:43:34 AM
SENATOR GARY WILKEN asked Mr. Barnes the components under
Sarbanes-Oxley.
MR. BARNES replied he is not a Sarbanes-Oxley expert but he
understands that it applies to the entire structure and includes
other entities.
SENATOR BERT STEDMAN asked Mr. Barnes whether he planned on
updating his memo to reflect changes in the contract.
MR. BARNES replied yes.
SENATOR STEDMAN referred to page 5 and asked whether it was
advisable to require hard and fast timelines for the work
commitments or whether it was better to remain more flexible.
MR. BARNES suggested that the parties should spend as much time
in the planning phase as possible to come up with a realistic
timeline and then follow that plan. Based on the SGDA it appears
that the State is offering fiscal certainty in return for
getting a pipeline developed. Putting the contract in place
ought to lead to the point where the parties have sufficient
information to make a decision about whether to sanction the
project or not. That is what the work program does under most
international contracts. Four years into the project the parties
would have completed the studies, done the open season, and
would be at a point to make a project sanction decision. If
something gets delayed, the State has the ability to change the
milestones.
SENATOR GENE THERRIAULT noted that Dr. van Meurs said the
contract contained the strongest work commitments language he
had seen. He asked whether it wasn't true that the clock starts
ticking once the title to certain acreage is acquired and so
that would motivate the company to keep moving forward on the
project. If there were something that caused the project to be
delayed then the State could consider an extension on the
timeline but the burden of proof would be on the company to
prove that the project was moving forward at an acceptable rate.
He asked Mr. Barnes to speak of the burden of proof in relation
to the work commitment.
MR. BARNES replied the full statement of the work to be done
goes beyond project sanction. He has not seen the full project
plan but said he understands that in the international regime
there is some description of a work obligation and corresponding
financial commitment. There is a time period and it is tied with
a relinquishment obligation in portions. At the end of the
primary term, any portion not being held for development must be
relinquished. The detailed plan has to be approved by the
investors and the State so production-sharing contracts do have
that mechanism, which is a significant driver. It is not much
different than the present leases between the producers and the
State except that those leases are all tied to oil development,
not gas.
9:56:36 AM
MR. BARNES added the State should have a driver for gas
development and that should be a date independent on its own.
CHAIR SEEKINS noted the committee is talking about production
agreements.
MR. BARNES said he was asked to talk about international
comparisons, but the fiscal contract is not being converted to a
production-sharing agreement.
9:58:13 AM
CHAIR SEEKINS asked Mr. Barnes whether they were considering a
production-sharing agreement.
MR. BARNES said no but the State would use some elements of the
oil-type leases.
CHAIR SEEKINS asked Mr. Barnes to define "production-sharing
agreement."
MR. BARNES advised it would be a brief summary and continued. It
is a grant of contract right, not an ownership interest in land,
such as a lease. Typically it is between a state entity and the
investors. It is an undertaking by the investor and in return to
risking their capital, they are entitled to a share of
production. The State owns the production in the ground until
the point of fiscalization or the metering point. There are
three basic components; the State first takes a royalty and then
the balance is split. A portion goes to the investor to recover
costs. Over time the investor will draw down its cost account
and then something will have to be done with the cost oil. Then
there is the profit oil. The State and the producers will both
take a share of it. There is an income tax levied on the
producers and it varies from jurisdiction to jurisdiction.
Generally the profit share and cost recovery account are usually
given to the investor on the front end to ensure rapid recovery
of cost. Over time, the investor's share of profit oil decreases
and the State's share increases. The investors will also have
fewer costs to recover and so more cost oil will be split off
into profit oil so a large portion at the back end of the
project would get allocated to the State. The State can decide
whether to get its share at the end and let the investors pay
down on their debt more quickly.
CHAIR SEEKINS noted Alaska has a different arrangement in the
lease in that if there is a property right it ends up being with
the lessee.
MR. BARNES added at the point of capture the lessee must produce
the oil as it moves through the system.
10:05:15 AM
CHAIR SEEKINS mentioned that Senator Wilken organized a chart
based on SB 2004, which he passed on to members.
SENATOR THERRIAULT asked Mr. Barnes whether baseball arbitration
was common for these types of agreements.
MR. BARNES responded baseball arbitration is applicable when an
entity has to choose between two numbers but it isn't used very
often. He deferred the question to Mr. Harper.
10:07:01 AM
CHAIR SEEKINS asked Mr. Harper to respond to Senator
Therriault's question.
^RICK HARPER, Econ One Research, Inc., Consultant to the
Legislature
RICK HARPER, Econ One Research, Inc., Consultant to the
Legislature, introduced himself and listed his credentials. He
advised that baseball arbitration is used in a very limited
manner in the oil industry. In this instance it would be applied
anytime that numerical amounts are involved, such as dollars,
amounts, and quality. In the case of baseball arbitration, each
party presents a final offer and the arbitrators must pick
between the two offers. They are not free to craft their own
remedy.
CHAIR SEEKINS noted that ConocoPhillips does not want to use
baseball arbitration with the State of Alaska.
MR. HARPER agreed and said certain companies have carved that
out in their contracts, such as British Petroleum. It is used
for disputes of a numerical amount such as actual damages,
volumes or value.
10:12:38 AM
SENATOR STEDMAN asked whether it would be a disadvantage or an
advantage for the state to select baseball arbitration.
MR. HARPER responded it would make a significant difference
depending on the situation. It greatly restricts how arbitration
can be conducted. For instance there can only be three requests
for production of discovery documents and the maximum number of
depositions is limited to between two and five, depending on the
size of the issue. The State should consider the instances that
could happen where they wouldn't have as much information that
the producers would have. The producers might have important
information that the State would not have access to for
arbitration purposes and that would put the State at a
disadvantage.
SENATOR THERRIAULT asked Mr. Harper whether baseball arbitration
also limits discovery documents.
MR. HARPER responded yes. Entities are limited to a maximum of
three requests of documents in all instances.
SENATOR KIM ELTON asked whether the arbitrator would be limited
in the discovery process or whether it was just the parties that
were limited.
MR. HARPER said in theory the arbitrator can ask for documents
for his own purposes but that is different than litigants
seeking documents that support their position. He said he
wouldn't rely on an arbitrator to carry the State's water.
SENATOR THERRIAULT asked Mr. Barnes to elaborate on what the
State could do in terms of diligence on work commitments and
what it would take to terminate a contract.
10:18:50 AM
MR. BARNES replied that would be handled through arbitration.
There is a presumption that the contract would continue and so
the State would have an obligation to overcome that presumption.
The State would have to prove the parties were not acting with
prudence under the circumstances. There is not a great body of
language built around what is considered prudent. The burden of
proof is not as high as with a criminal proceeding. The State
must also prove that the lack of planning has made an adverse
impact on the project. The arbitration panel would consider the
difficulties and delays but they are prohibited from considering
any errors in judgment and the unwillingness of a party to enter
into a contract or to settle a dispute. In summary, it would be
a hefty burden for the State to prove and almost impossible for
the State to exercise a right to terminate.
SENATOR ELTON expressed concern that there were not enough
inducements for good behavior on the part of the other parties
and asked Mr. Harper to speak on that note.
MR. HARPER agreed that was a concern for consideration. He
mentioned the absolute limitation on damage awards was a key
item. For instance, for any breach arising in the contract there
cannot be an award for consequential damages including lost
profits. This is a trade item that can be added and included in
the contract.
10:24:49 AM
MR. BARNES added that the prohibition on consequential and
punitive damages is not unusual but it usually applies to
ordinary behavior. The gross negligence standard is imposed and
it works such that the operating company is not responsible for
consequential damages to the parties unless the operator engages
in gross negligence or willful misconduct. It is appropriate for
that language to appear in the project entity documents. The
wholesale exclusion of punitive and consequential damages is
normally the way the industry deals with limitation on
liability.
10:26:32 AM
CHAIR SEEKINS commented anything doing with PILT or the PPT
issues would not be subject to discovery restrictions in regard
to the contract.
MR. HARPER offered to look into that.
CHAIR SEEKINS asked Mr. Harper to define the kinds of disputes
that would be subject to arbitration.
MR. HARPER advised that the contract requires arbitration for
all disputes. There may be a broader standard for discovery in
terms of PILT and PPT but he was not certain. He surmised there
would be extraordinary potential for disputes in the realm of
very large damage claims. The commercial aspects of the pipeline
are extraordinary in scale and scope. It has not been his
experience that arbitration is a quick process. It is generally
a detailed procedure and that raises concerns as far as making
sure the project gets done quickly. Arbitrations do not have
standing jurists.
CHAIR SEEKINS asked how often in a normal dispute would there be
a request for production of additional documents.
MR. HARPER replied it depends on the size and nature of the
dispute. In a large dispute with very high stakes where parties
can afford extensive representation, he has seen over 20
document requests. It is hard to imagine that there will be
small dollar disputes in the context of this contract, he said.
SENATOR FRED DYSON asked Mr. Barnes whether he thought the State
should make firm two-year and four-year milestones with possible
sanctions for work commitments that are not performed.
MR. BARNES replied yes but said it was not his position to
advise the parties. The use of milestones with specific dates
would create the impetus to move the project along.
SENATOR DYSON asked Mr. Barnes whether the beginning of open
season was coincidental with filing for certification.
MR. BARNES said Mr. Shepler was better informed on that subject.
The open season is part of getting to the project sanctioning
though.
SENATOR DYSON asked Mr. Barnes to define when would be a
reasonable period to establish a milestone for the opening of
open season.
MR. BARNES again deferred to Mr. Shepler but commented it is
tied into the application for certificate of public convenience
and necessity. There are certain prerequisites under the FERC
process that would guide the State through the process. The
first milestone is a filing to initiate the open season process
and that is a milestone that the parties would have agreed upon.
Just as in the case with international agreements, the selection
of milestones and corresponding dates is an item for negotiation
but they are usually set out in the contract with definition.
SENATOR DYSON asked whether it was his opinion that having an
open season two years out was reasonable.
MR. BARNES asserted that depended on the planning timeframe but
the expert parties should negotiate on that subject if the State
were to use the milestone and corresponding date mechanism as a
way to drive the work commitment forward.
10:38:36 AM
SENATOR THOMAS WAGONER noted Alaska currently has leases on the
North Slope between the State and the producers with separate
terms and conditions. He asked Mr. Eason whether those leases
were being rolled into the fiscal contract and would then be
subject to the terms and conditions of the fiscal contract.
^JAMES EASON, Consultant, Legislative Budget & Audit Committee
JAMES EASON, Consultant, Legislative Budget & Audit Committee,
introduced himself for the record and listed his credentials. He
emphasized his extensive background and relayed his intention to
speak in an advisory manner to the State. He responded to
Senator Wagoner's question and replied that the leases would be
covered under the terms of the agreement. Additionally hundreds
more may be brought under a portion of the agreement, excluding
the work commitment. This would apply to lessees in the future
who nominate gas in the event they find gas. A separate piece of
legislation called the Uniform Fiscal Contract would allow other
lessee's to come into the process. A number of current lease
provisions would be governed under the contract and language in
the contract specifically states that if there is any conflict
between the two, the contract will govern.
10:43:14 AM
SENATOR WAGONER asked Mr. Harper whether he had experience with
sales of gas.
MR. HARPER replied yes.
SENATOR WAGONER asked the risk level the State of Alaska would
face when they become involved in the taking, transporting and
marketing of its share of the gas.
MR. HARPER aired currently the State rides the coat tails of the
lessees. Settlement would be based up on what the producers are
able to realize for themselves. The setup is such that the State
has no marketing expense at all. The decision to take control of
the gas on an "in-kind" basis puts the State in the business of
all the aspects that go along with bringing that gas to market.
Instantaneously Alaska will become a competitor with British
Petroleum, Exxon Mobile, ConocoPhillips, Shell Oil and the
others. Taking ownership at the terminus would have eliminated
that. The risks are very broad, uncertainty is large and it has
been defined as up to 12 percent decrement of the overall
State's net present value in the production.
10:47:41 AM.
In terms of marketing gas commercially, the State would be a
significant single-source marketer. The competitors have the
benefit of a wide portfolio for marketing and the State will be
dependent upon the quality and timing of information,
reliability of production, implications of maintenance schedules
and outages, and other such things. The State will not have the
benefit of the broader portfolio to balance its production
against.
CHAIR SEEKINS referred to Section C (11) of the contract (page
279) regarding the five oral depositions, and asked if good
cause were shown, would an arbitrator extend the size and scope
of the discovery process.
10:51:29 AM
MR. HARPER replied there is a separate standard for the
restriction under Article 14 and a set of circumstances for
things like that.
CHAIR SEEKINS asked how responsive arbitrators would be for
things like exemptions in C(11)(b)(4)(c).
MR. HARPER replied it would depend on who the arbitrators were
and the circumstances of the subject for arbitration. It appears
that it is the intent of the parties that discovery and
depositions be significantly limited and so that principle would
guide the arbitrators. It would take a significant situation and
there would probably be a split within the arbitration panel. It
would be difficult to speculate on any outcome.
10:56:36 AM recess 11:12:38 AM
CHAIR SEEKINS brought the Special Committee on Natural Gas
Development back to order.
SENATOR BEN STEVENS joined the meeting.
SENATOR WAGONER asked Mr. Eason how the arbitration in the
fiscal contract would affect the current leases.
MR. EASON was not prepared to comment on the full implications
but the intent was that some of the lease provisions would be
amended by inclusion in the contract. There has been discussion
of avoidance of cost and time delays by going to arbitration
versus litigation and at least one representative of the
Administration laments that the State has spent tremendous money
over the years in litigation. The other side of the story is
that that expense has returned the State hundreds of millions of
dollars in unpaid royalties and also has established court
precedence. Arbitration abandons those precedents and that is a
policy call but it breaks with what the State has traditionally
done.
11:15:42 AM
REPRESENTATIVE PAUL SEATON asked Mr. Barnes to consider the
following: If one of the producers decided the project would be
positively impacted if it were built in the future, say 2025,
would the State's position be that they would have to prove with
clear and convincing evidence that the producer's assessment was
wrong if it delayed the project to the year 2025.
11:17:04 AM
MR. BARNES replied during arbitration the burden of proof is
upon the State and they do have to prove with clear and
convincing evidence that participants are not acting with
"prudence under the circumstances" and that delaying the project
to 2025 would have an adverse material impact. He said there
would most likely be no judicial guidance on that point and the
State's position would be attenuated by limitations on
discovery.
REPRESENTATIVE SEATON noted his concern was due to the fact that
the issue has already been raised. He surmised that if a
producer's business model showed that the project would be
prudent to commence at a later time the State would then have to
disprove the producer's modeling.
MR. BARNES agreed.
MR. HARPER pointed out that errors in judgment could not be
taken into consideration in that set of circumstances.
11:20:29 AM
CHAIR SEEKINS asked Mr. Barnes to define how the standard of
"clear and convincing evidence" is used.
MR. BARNES replied that it is a higher standard than a
preponderance of the evidence although he admitted he was not
suited to answer that question.
REPRESENTATIVE SEATON expressed concern that the State would be
in a situation of models versus models and the difficulty would
fall to proving that one of the models was definitely wrong. He
expressed concern also that even if the work commitments were
completed within the timelines the State would not have the
information needed to go to project sanction.
MR. BARNES referred to the producer's project summary chart and
said Article 5 of the contract specifically states that the work
would continue until the planning process to begin open season
starts. The planning for the open season process appears to be
set to begin halfway through the year 2007. So if the beginning
of that planning process is the end of the work commitment then
it appears that everything that occurs before that point is the
work commitment. Understand that the work commitment is not
actually set out in the contract, he stated.
11:28:16 AM
SENATOR THERRIAULT asked whether there would be any preservation
of deference to the state agency in the arbitration process or
would it be a complete separation to deference.
MR. HARPER replied that he has not identified any deference of
maintenance at all.
SENATOR THERRIAULT asked whether an entity gives up the right to
receive any deference when selecting arbitration instead of
litigation.
MR. HARPER replied that appears to be the case, yes.
CHAIR SEEKINS asked Senator Therriault to explain his concern
regarding deference.
SENATOR THERRIAULT said the way deference works is that the
courts do not substitute themselves necessarily for the role of
the agency decision-maker. They just look to make sure that
person applied the law in a fair and decent way. If the court
finds that, they would defer or uphold the agency decision.
MR. BARNES added there are two provisions in the fiscal
contract. Article 19.10 says the State's interpretation of a law
is neither presumed correct or entitled to deference. Again in
Article 38.3 the provision says, "No doctrine, rule, or
principle of law, tax law, or equity that would create a
presumption for or against or deference to the position of any
party applies in the interpretation of the contract."
SENATOR THERRIAULT commented at the end of the day a court
action will set a precedent, but arbitration doesn't set
precedence.
CHAIR SEEKINS asked Mr. Harper whether, as an arbitrator, is he
able to look at past preference in arbitration.
MR. HARPER replied there was nothing that preserved preference
in arbitration. He agreed with Mr. Eason and with Senator
Therriault.
11:35:14 AM
SENATOR THERRIAULT wondered whether an arbitrator considered the
severity of an issue when applying the standard.
MR. HARPER replied an arbitrator is bound by the standards they
are presented with. They do not alter their view for bigger
cases.
SENATOR THERRIAULT asked Mr. Eason whether he knew of any other
time when the producers requested the State to move to an
arbitration system.
MR. EASON advised that his direct affiliation with the State of
Alaska ended 10 years ago. Prior to that the Department of
Natural Resources (DNR) entered into settlement agreements with
the producers over how royalty evaluation would occur after the
long-standing lawsuit of Amerada Hess. That was the first
instance of arbitration but he didn't know how many instances
there have been or whether they were successful. Many times the
State wanted an alternative to where they were at the time.
11:40:05 AM
CHAIR SEEKINS posed a hypothetical situation of a dispute
between the Department of Revenue (DOR) and the producers on the
terms of the PPT or PILT. The situation would go to arbitration
where the DOR might state that their position entitles them to
deference because of precedence. He asked Mr. Barnes whether one
party in a dispute could be entitled to deference or whether the
case would be settled strictly on the arguments presented and
the law.
MR. BARNES addressed the hypothetical situation noting that it
wouldn't be strictly an Alaska situation. He said:
The notion is that any agency, in interpreting it's
own regulations, is entitled to deference and it's a
presumption that it's being reasonable as it
interprets those regulations. That interacting with
your burden of proof, all things being equal, the
agency is entitled to prevail and I think that is
really just the extent of it as best I recall.
CHAIR SEEKINS asked the reason any producer or contractor would
enter into court or arbitration against a state department when
that department would have deference.
MR. EASON responded there was another piece to consider in a
situation such as that. The State has a long history of oil
development and lessees enter into the contract knowing they are
bound by the contract and by the law. History shows that the
State wins some disputes and it also loses some. The State has
established very important precedence and so disputes don't
occur anymore over certain issues. He stated:
Even on the documents and the issue of depositions,
whether there are three or five. Let's assume that
you're talking about five depositions. Really you are
talking about fifteen depositions on the participant's
side and five on the State's side. It's a minority
participant and it truly has minority, sort of skewed
rights relative to the others and that's not
suggesting that the producers always have a common
interest in combining their depositions and combining
their discovery requests, but I think there will be
instances where they do, and as you've been told
before, the relative access to that information is
dramatically skewed to the producer/participant side
relative to what the State is going to know when it
tries to pursue arbitration.
CHAIR SEEKINS aired that Alaska was "putting itself [in many
respects] into the position of being a corporation rather than
being a sovereign."
11:47:10 AM
MR. BARNES interrupted to clarify that the deference would be
with regard to the State's interpretation of its own regulations
and the application of those regulations. On commercial matters,
he said, it would be just as it would in any commercial dispute
where the claimant party has to bear the initial burden of
proof. The reason that the waiving of deference is significant
is that under Article 41.2 of the contract, all of the
decisions, regulations, rules, settlements, and agreements must
conform to the lease. The provision coupled with the waiver of
deference on interpretation of the regulations sets the State
back to an earlier stage in the situation of a conflict.
11:49:54 AM
CHAIR SEEKINS opined he recently found a definition of "clear
and convincing evidence" to read as such: "Clear and convincing
evidence is the intermediate level of burden of persuasion
sometimes employed in the US civil procedure. In order to prove
something by clear and convincing evidence, the party with the
burden of proof must convince the 'trier of fact' that it is
substantially more likely than not that the thing is in fact
true. This is a lesser requirement than proof beyond a
reasonable doubt."
11:51:24 AM
SENATOR WILKEN referenced Mr. Eason's letter to the committee
and said the re-surfacing of the "over-the-top" issue intrigued
him. He also made comment that Mr. Eason said the PPT could be
altered and "the people's voice could be silenced." He asked
whether there was a downside to the State's insistence that
Alaska won't have an over-the-top method to extract North Slope
Gas.
MR. EASON replied there was no downside that he was able to
determine but pointed out the State would have no certainty
under the contract unless they inserted an agreement because the
contract provides for unilateral amendment of the qualified
project plan. The project currently provides for a southern
route but the producers have the right to amend the contract at
any time. He strongly recommended adding a provision to protect
the southern route.
SENATOR WAGONER said that the current estimate of approximately
$25 billion dollars was based on five-year old data. He asked
whether that was something to be concerned about.
MR. HARPER admitted he wasn't comfortable with data that old.
MR. EASON added there is language in the best fiscal finding
addressing that but the data isn't quite five years old. The
Commissioner of the Department of Revenue made a policy decision
to stick with those numbers and proceed.
SENATOR WILKEN asked whether there was a summary that compares
the old contract with the new one.
11:58:15 AM
KEN GRIFFIN, Deputy Commissioner, Department of Resources (DNR),
replied yes but he does not have it with him.
SENATOR WILKEN asked Mr. Griffin the status of the study by the
Lukens Energy Group.
MR. GRIFFIN advised that he would get back to the committee with
an update.
SENATOR THERRIAULT said there is a definition that defines the
mainland going to Alaska and then there is Article 4. He
asserted the committee should look at how that interacts with
the PPT in anticipation of the roundtable discussion for the
following meeting.
12:00:05 PM
SENATOR OLSON asked what happens to the State's 20 percent
control in the event of cost overruns. His concern was whether
the State's interest would diminish in the situation of project
cost overages.
MR. EASON replied that the State would bear the obligation to
pay 20 percent of whatever the cost overage was but the
ownership would remain at 20 percent.
SENATOR OLSON commented that could be as much as $4 billion
dollars.
MR. EASON agreed.
SENATOR STEDMAN pointed out the risk of exposure is not dollar
for dollar.
12:02:16 PM
CHAIR SEEKINS asked Mr. Harper whether an arbitrator would
consider State of Alaska law as the basis for settlement.
MR. HARPER advised the contract states that State of Alaska law
would be used to administer the agreement.
CHAIR SEEKINS asked whether the entire contract was subject to
Alaska law.
MR. HARPER replied yes.
SENATOR THERRIAULT asked how it would work if there were a
dispute over the operation of an LLC and that LLC were subject
to Delaware law yet the contract was subject to Alaska law.
MR. HARPER did not know.
SENATOR THERRIAULT opined his interest was due to the fact there
are heightened duties under Alaska LLC law that make it very
clear what a majority owner owes to the minority owners. He
wondered whether the State would get that protection back or
whether the arbitrator would interpret Delaware law.
MR. HARPER said the LLC was a separate agreement that nobody has
seen yet.
12:05:08 PM
SENATOR BEN STEVENS stated he had a copy of the federal Alaska
Natural Gas Pipeline Act. Section 103(d) Prohibition of Certain
Pipeline Route reads, "No license, permit, lease, right-of-way,
authorization, or approval required under federal law for
construction of any pipeline to transport natural gas from the
land within Prudhoe Bay oil and gas lease area may be granted
for any pipeline that follows a route that 1) traverse land
beneath navigable water adjacent to or beneath the Beaufort Sea
2) enters Canada at a point of north of 68 degrees latitude."
That answers the ambiguity of the over-the-top route, he said.
"Congress did not allow FERC to issue that permit."
MR. EASON responded he referenced that in his memo. Congress can
always revisit that and under it's eminent domain authorities,
has the ability to change it. He reiterated his earlier
suggestion to add an amendment to the contract regarding the
second route.
SENATOR BEN STEVENS said what spurred him to find the federal
statute was the discussion that the QPP could not be changed
once the certificate was issued. He said it would be a violation
of federal law since FERC has said that they will not issue a
certificate upon the convenience that enters the Canadian border
below 68 degrees latitude. The earlier discussion that the QPP
could be changed without any consent to go over the top is just
adding ambiguity and uncertainty, he asserted.
12:08:30 PM
CHAIR SEEKINS recessed the committee for lunch.
CHAIR SEEKINS called the meeting back to order at 1:46:15 PM. He
asked Phillip Gildan to testify.
1:46:37 PM
^PHILLIP GILDAN, Greenberg Traurig, LLP, Consultant to the
Legislative Budget and Audit Committee
PHILLIP GILDAN, Greenberg Traurig, LLP, Consultant to the
Legislative Budget and Audit Committee, introduced himself for
the record and listed his credentials. He stated his background
is in representing governments and government proprietary
businesses predominately in utility transactions, electric
projects, natural gas, water and sewer.
1:47:26 PM
SENATOR BEN STEVENS referred to the federal Alaska Natural Gas
Pipeline Act that he previously read aloud and highlighted a
couple of areas in the Act. He said it was the template under
which FERC acts. He reminded the committee that federal law
preempts state law. Another important provision is Section 105,
Pipeline Expansion, which begins on page 4. He encouraged
members to study subsection (b) and derive their own
interpretations for discussion. He pointed out Section 107(b)
and said the deadline for filing a claim is 60 days after the
decision of action. He claimed the most important section to
discuss was Section 109 and expressed alarm that the consultants
had not addressed this topic. He went paraphrased Section 109 -
A Study of an Alternate Means of Construction:
The requirement of a study, if no application for the
issuance of a certificate or amended certificate of
public convenience as necessary, authorizing the
construction and operation of Alaska Natural Gas
Transportation project has been filed with the
commission by the date that is 18 months after the
date of this enactment. Mr. Chairman, I might
highlight that that date expired on April 11, 2006
according to the reports I have. The Secretary shall
conduct a study of the alternative approaches to the
construction and operation of such Alaska Natural Gas
Transportation project. The scope of the study under
this subsection shall take into consideration the
feasibility of 1) establishing a federal government
corporation to construct the Alaska Natural Gas
Transportation project and 2) secure alternative means
of providing federal financing and ownership including
alternative combinations of government and private
corporate ownership.
1:51:17 PM
SENATOR BEN STEVENS continued:
[Sub] section (c) - Consultation: In conducting the
study the Secretary shall consult with the Secretary
of the Treasury obviously to finance it, and the
Secretary of the Army, to the Corps of Engineers
obviously to build it, and the report shall make
recommendations to [US] Congress with the results of
this study and any recommendation. Mr. Chairman, I
believe that study is underway now.
CHAIR SEEKINS concurred.
SENATOR BEN STEVENS stated his belief that there was continued
delay of the opportunity to understand the scope of the project
and the alternatives of the project. He wondered why Mr. Shepler
or Mr. Gildan hadn't highlighted that to the committee. He said
the timeline for the issuance has expired and the State is now
in a study period where the federal government is looking at
taking over the project.
1:52:35 PM
SENATOR BEN STEVENS called for the Washington D.C. consultants
to investigate the status of the study.
MR. EASON offered to speak for Mr. Shepler. He said he recalled
that Mr. Shepler did discuss the issue in a work session and he
also researched the status of the study.
SENATOR BEN STEVENS requested a memo on the status. He offered
to write a letter of request for the update. He asserted the
magnitude of the process and the delays associated with the
project and contract is the reason why the State is at a "need
to know" point on the status of the impact.
1:54:33 PM
SENATOR THERRIAULT offered a quick comment to let the members
know that during the Energy Council he had a series of meetings
with Mr. Shepler, one of which was in the FERC offices. They met
with FERC and staff and also staff from the Department of
Energy. He questioned them on the status of the study and the
indication was that nobody was anxious to "sweep in and take
over this project." He doubted that Congress would get into the
pipeline business, but suggested if the pipeline was not going
forward that Congress might simply change the routing. He
advised that he would request an update on the study.
1:57:36 PM
SENATOR BEN STEVENS commented the proposed over-the-top route
would transverse the area that is right off the coastal plain of
the Alaska National Wildlife Refuge (ANWR). He asserted since
Congress has been embroiled over ANWR for 25 years that they
would be very reluctant to pass an approved project in an even
more environmentally sensitive area, such as the submerged
waters off the coast.
1:59:06 PM
SENATOR WAGONER commented ANWR is no different from any other
national park or any other national piece of land set aside as
pristine. "When it comes to water, they only go to the mean high
tide line." He suggested the mean high tide line from the North
Slope to the territorial boundary was state jurisdiction.
2:00:17 PM
SENATOR OLSON said the people from the North Slope region would
vehemently oppose anything that goes into the water since it
would have a disastrous effect on the migration of whales.
CHAIR SEEKINS aired his belief that the federal government takes
on large projects, referring to the Grand Coulee Dam and the
Tennessee Valley Authority, if it believes it is good for the
country.
2:02:38 PM
SENATOR BEN STEVENS asked Mr. Gildan whether he had the memos
dated June 2, 2006 from himself and Mr. Shepler.
MR. GILDAN replied yes.
SENATOR BEN STEVENS said as he reads Mr. Shepler's memo
regarding SGDA contract issues, it expands on a series of issues
and yet Mr. Gildan's memo corrects some of those points with
some proposed amendments.
MR. GILDAN said that fairly summarizes the memorandum.
SENATOR BEN STEVENS read from the memorandum: "The State is
providing its tax and royalty concessions to the producers now
at the time the contract is executed and those commitments will
be effective potentially for decades." He asked how a tax
concession could now be applied. The impact of the proposed
production tax is not a concession. "If there are in fact tax
and royalty on gas, they [concessions] certainly don't occur
now," he said. He added that he didn't think that was the intent
but that is how the memorandum reads.
CHAIR SEEKINS advised he would provide committee members with a
copy of the memorandum.
2:07:54 PM at ease 2:21:41 PM
CHAIR SEEKINS announced that all committee members now have the
memorandum to which Senator Ben Stevens and Mr. Gildan have been
referring. For the record, it is dated June 2, 2006 from Don
Shepler titled SGDA Contract Issues.
SENATOR BEN STEVENS said the dialogue in the executive summary
translates specifically into Exhibit 1, which is in Mr. Gildan's
summary. He announced that he would be referring back and forth
between the two documents.
2:23:05 PM
SENATOR BEN STEVENS referred to page 7 of the executive summary
where it states, "No provision for the State to consent for the
approval of material changes to the qualified project plan." The
bottom of the page states, "In as much as the State, through the
contract, is making material and long term tax and royalty
concessions, these concessions will become effective when the
contract is signed rather than when the project is completed."
He said he didn't understand the definition of the tax and
royalty concession. He referred committee members to page 8
where it lists several instances where material changes to the
plan may be warranted. As presently written the contract
provides the State with no control over the circumstances to
which material changes could be made. He asked Mr. Gildan
whether that was accurate.
MR. GILDAN advised that provision was drafted and put together
by Mr. Shepler but said he believed it tied to paragraph 6.
SENATOR BEN STEVENS asked whether the amendment was the result
of the discussion or whether the discussion was the result of
the amendment.
MR. GILDAN said he presumed the amendment followed from the
discussion. The amendment was an attempt to ensure that if the
State never saw the LLC agreement that there would be provision
for tying the two together. Eventually there would be a
provision in the LLC agreement to assure that the State will
have the right and ability for proper review.
2:27:33 PM
SENATOR BEN STEVENS said, "That's an interesting addition, I
think, to the deliberations we've had for the last two days."
MR. GILDAN interrupted to say he only recently had an
opportunity to talk with administrative team members. He said he
felt comfortable that the Administration will address the issues
brought forth by the memorandum and the committee.
2:28:24 PM
SENATOR BEN STEVENS countered he now has a series of documents
that raise questions and he wondered why the presenters say
they've seen the information and that the documents may not
apply.
MR. GILDAN reported the Administration has not seen the
information but the discussion subsequent to the memorandum
denotes that they will have the opportunity to see the LLC
beforehand. Many of the suggestions and issues were options for
the committee and the Legislature in the event they didn't get
the option to see the agreements. "Now that we're going to be
able to see them, we'll be able to tell whether or not the
concerns that these were drafted to provide options for the
Legislature are necessary or not," he stated.
SENATOR BEN STEVENS said he never anticipated that the
Legislature would not be able to see all of the LLC agreements
before approving the project. Discussion for the past two days
suggested that most of this had to do with PipeCo, which the
committee wasn't prepared to bring up again until after it had
seen the agreements.
2:30:34 PM
SENATOR BEN STEVENS added the committee has endured much
discussion on the inadequacies of something they haven't even
seen yet. He questioned how anybody could expect the committee
to analyze summaries about something it hasn't seen.
2:31:38 PM
CHAIR SEEKINS referred to Page 4 of Exhibit 1 where it says the
operating agreement shall provide that the State shall not agree
to a waiver of sovereign immunity without a reasonable monetary
limit on such waiver and goes on to read, "The State shall not
indemnify or otherwise hold harmless any person or entity that
has been adjudged in a judicial administrative or alternative
dispute, resolution, proceeding to be liable for negligence or
misconduct in the performance of the person's or entity's duty
or has been adjudged guilty of a crime at such criminal
adjudication withheld subject to probationary terms … the State
may not eliminate claims for actual damages incurred by the
State, may not eliminate the equitable rights to seek specific
performance and injunctive relief and provided further that the
rights and limitations provided in this subsection shall apply
to collateral agreements to be entered into."
CHAIR SEEKINS said the State then is basically duplicating a
corporate entity in terms of the partnership, rather than being
a sovereign. He asked whether it was unreasonable to assume that
all parties were going to be equal in the ability to seek
judgments against each other.
MR. GILDAN responded that each entity would be on an even keel.
CHAIR SEEKINS agreed. He said if one party indemnifies the
other, they all indemnify each other on an equal basis. He asked
Mr. Gildan whether that was true.
MR. GILDAN did not know, saying he didn't have that document but
from a business perspective, those are protections that the
Legislature may wan to consider for those indemnity provisions.
CHAIR SEEKINS said he struggles with how to bring the State to
the same level of responsibility that the other entities share
in the joint venture. He asked how the State would limit its
responsibility to a certain dollar amount before asserting
sovereign immunity from suit or judgment.
MR. GILDAN said it would be done in the agreement that each
entity would have a limitation on the amount of indemnity. All
parties would negotiate a level that was comfortable or
commensurate so that it wasn't an "open checkbook."
CHAIR SEEKINS asked whether he thought that would be fair.
MR. GILDAN said yes.
CHAIR SEEKINS asked Mr. Gildan whether he knew of other
government entities that waived sovereign immunity for
arbitration or judicial proceedings.
MR. GILDAN replied yes. It is a relatively common and reasonable
thing to do. He said it was also not uncommon to have
limitations so that the parties know the limits of potential
liabilities.
2:37:14 PM
MR. GILDAN advised the committee that during the recess he
emailed Mr. Shepler and asked for a quick response to the issue
that Senator Ben Stevens raised. Mr. Shepler indicated in his
response that the issue was discussed two weeks ago at a
Legislative briefing and the discussion at the time was to go
through the Governor's office to get the update on the
information, thinking that the Governor's office would have a
better and more direct line into the federal government for that
information.
2:39:38 PM
SENATOR BEN STEVENS commented that the second report to Congress
from FERC regarding the application process would be presented
July 1, 2006.
CHAIR SEEKINS referred to paragraph 10 and read, "The operating
agreement shall provide that the State member have the right to
participate in all meetings of the governing board of the entity
and vote on all decisions of the entity, including but not
limited to decisions affecting tax allocations." He asked Mr.
Gildan whether he had any indication to believe that would not
be the case.
MR. GILDAN said he heard weeks ago that there was an indication
of that. "In a public/private partnership where the State is
actually an owner in an entity like this, there are different
tax treatments of the for-profit entities that are owners of
that entity versus the State." Any decisions that are made might
not necessarily impact the State but they could, depending on
how the tax decisions were structured, he stated.
2:42:27 PM
CHAIR SEEKINS referred to paragraph 11, the right to review all
books and records of the entity, and clarified that was talking
about the entity in which the State owns a 20 percent share and
not necessarily the books and records of the parent company.
MR. GILDAN said absolutely.
2:43:49 PM
MR. GILDAN added his belief that the Administration's consultant
team was "top notch" and would "try their darndest to do
everything that is on this list." But other members of that
ownership group might disagree with what the Administration's
team is trying to do. That is the reason for his list of
precautions, he stated.
2:44:54 PM
CHAIR SEEKINS thanked Mr. Gildan for his participation and said
they would address the issue further in tomorrow's roundtable
discussion.
2:45:15 PM
SENATOR STEDMAN said he is feeling a tone of defeat before the
project is even started. There should be a more optimistic view
in getting to the end, which is the gas line, rather than "going
down a bunch of different rabbit trails."
CHAIR SEEKINS said it was important to get answers to the
questions first. He asserted that the committee should get to
see the template of the LLC. Just the same as with the "ghost
contract" now there is a "ghost LLC agreement." He said there is
a great deal of distrust because of the requirements of
confidentiality in the SGDA. The Governor was accused of
negotiating a contract in secret when in fact he was required by
law to negotiate the contract in strict confidentiality. The
media mis-portrayed that, he claimed.
2:48:08 PM
SENATOR FRED DYSON said the process has been long and
frustrating but he sensed that the Administration was acting
diligently in keeping it going forward. The complexity and
magnitude of the project and all the issues that have been
brought up are the sole reason for the delay.
2:49:55 PM
SENATOR BEN STEVENS said he would like to address the LLC
agreements and the unavailability for review and interpretation.
An LLC operates under a management agreement, which defines the
terms of ownerships, and the operating agreement, which defines
the terms under which the entity will operate. While he shares
the other member's frustration at not being able to see those
agreements, he understands the complexity of putting those
things in place. He said if legislators believe they should be
involved with every intricate detail of the operating agreement
of each LLC, they would be overreaching their authority. The
Legislature does have the authority to see the management
agreement of the LLC. "That is what I'm interested in seeing,"
he said.
2:54:40 PM
CHAIR SEEKINS thanked the consultants Mr. Eason, Mr. Harper, and
Mr. Barnes for their participation today. He asked for closing
comments from each of them.
MR. EASON neglected to comment saying it was a legislative
process.
MR. HARPER expressed appreciation at being part of the process.
MR. BARNES expressed appreciation for the opportunity to
participate. He noted that it was not unusual to spend this much
time on a complex project and urged committee members not to get
discouraged.
CHAIR SEEKINS announced Dan Dickinson and asked committee
members whether they had questions for him.
2:57:14 PM
^DAN DICKINSON, CPA, Consultant to Governor Frank Murkowski
DAN DICKINSON, CPA, Consultant to Governor Frank Murkowski,
commented on an earlier question regarding the comparison of the
contracts. He directed committee members to the Governor's
website where there is that information available.
2:58:19 PM
SENATOR WILKEN advised Mr. Dickinson that the committee has had
discussions relating to the 20.4 percent throughput payment to
the municipalities and because of the valuation they understand
that will become 25 percent.
MR. DICKINSON nodded.
SENATOR WILKEN asked whether that was a net zero increase of
whether that increase would be taken out of somewhere else.
MR. DICKINSON advised there were two aspects regarding the
valuation and who pays for it. Roughly some number in the "high
forties" is the portion of TAPS in the unorganized borough that
will go directly to the State. The other dollars will be roughly
proportioned between the North Slope, Valdez, Fairbanks, and so
on in descending order of portions. However, this is a cost to
TAPS that goes into the tariff and it makes the wellhead value
of every shift on TAPS lower as a consequence.
SENATOR WILKEN asked whether that was just a realignment of
revenue stream or whether the State would gain new revenue.
MR. DICKINSON clarified there would be a net increase because
taxpayers would pay more.
3:02:25 PM
CHAIR SEEKINS advised committee members of the agenda for the
following day.
3:03:23 PM at ease 3:06:38 PM
CHAIR SEEKINS adjourned the roundtable meeting at 3:07:27 PM.
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