Legislature(2005 - 2006)SENATE FINANCE 532


Download Mp3. <- Right click and save file as

Audio Topic
09:10:40 AM Start
09:11:50 AM SB2003 || SB2004
09:17:12 AM David Van Tuyl, Bp
09:27:59 AM Harold Heinze, Alaska Natural Gas Development Authority (angda)
09:50:57 AM Steven B. Porter, Department of Revenue
02:25:02 PM Mark Hanley, Anadarko Petroleum
04:47:50 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
-- Public Testimony --
            SB 2003-NATURAL GAS PIPELINE CORPORATION                                                                        
        SB 2004-STRANDED GAS DEVELOPMENT ACT AMENDMENTS                                                                     
CHAIR  SEEKINS  announced SB  2003  and  SB  2004  to be  up  for                                                               
9:11:50 AM                                                                                                                    
^David Van Tuyl, BP                                                                                                             
DAVID VAN TUYL, Commercial Manager, Alaska Gas Group, BP,                                                                       
testified as follows:                                                                                                           
     It's  a  privilege  for  me  to be  here  to  offer  my                                                                    
     testimony on  these two bills.   We  definitely support                                                                    
     the  intent  behind both  SB  2003  and  SB 2004.    We                                                                    
     believe  these   bills  will  help  progress   the  gas                                                                    
     pipeline fiscal contract.                                                                                                  
     First, I'd like to offer  some comments on SB 2003, the                                                                    
     Act  that would  ... establish  the Alaska  Natural Gas                                                                    
     Pipeline  Corporation,  which  I'll call  "PipeCo"  for                                                                    
     short.  SB  2003, as drafted, will enable  the state to                                                                    
     form a public corporation as  the vehicle for the state                                                                    
     to be a direct participant in the project.                                                                                 
     Article  1 establishes  PipeCo and  sets  the rules  of                                                                    
     governance within  PipeCo.  An important  aspect of the                                                                    
     rules  of  governance is  an  exemption  from the  Open                                                                    
     Meetings  Act,  which  ensures  that  PipeCo  can  hold                                                                    
     certain confidential  information it receives  from the                                                                    
     limited    liability    corporation,   or    LLC,    as                                                                    
     confidential.   But  the rules  of governance  strike a                                                                    
     good  balance   in  that  they  require   a  policy  of                                                                    
     conducting at least one meeting in public each year.                                                                       
     Article  2 establishes  the purpose  and powers  of the                                                                    
     new  corporation.   This  article establishes  PipeCo's                                                                    
     authorities  ... in  an appropriate  manner to  conduct                                                                    
     its business as a member of  the gas pipeline LLC.  But                                                                    
     we do  have a concern that  PipeCo needs to be  able to                                                                    
     hold  confidential information  as confidential.   This                                                                    
     will ensure  the free flow  of information  between the                                                                    
     members of the LLC, which  is critical to the efficient                                                                    
     functioning of the corporation.                                                                                            
     The  remaining  provisions  of  SB  2003  are  fit  for                                                                    
     purpose and allow PipeCo  to effectively participate in                                                                    
     the project.  We therefore  support passage of SB 2003,                                                                    
     provided  that the  bill ensures  that PipeCo  can keep                                                                    
     confidential information as confidential.                                                                                  
     Now  I'd like  to turn  attention briefly  to SB  2004,                                                                    
     which   includes  amendments   to   the  Stranded   Gas                                                                    
     Development Act.   SB 2004 will  enable the legislature                                                                    
     to  authorize  approval  of  the  gas  pipeline  fiscal                                                                    
     contract.    The  administration  did  a  good  job  in                                                                    
     structuring these amendments and  in explaining them to                                                                    
     this committee.   However, there  is one point  that we                                                                    
     see just a bit differently  than the administration and                                                                    
     that we'd like to take  a moment briefly to clarify for                                                                    
     the record.                                                                                                                
     The  administration   stated  that  the   amendment  to                                                                    
     AS 43.82.220(a)(2)  that allows  for the  inclusions of                                                                    
     terms in the contract  related to the state reimbursing                                                                    
     the producers  for certain upstream costs  was required                                                                    
     because this  was not a  right the  producers currently                                                                    
     hold under either existing lease or unit agreements.                                                                       
     We don't agree.  In  old-form leases, commonly known as                                                                    
     DL-1 leases, the state is  obligated to pay for certain                                                                    
     upstream costs associated with any  of its gas it takes                                                                    
     in kind.   So we  feel that this  ... is a  lease right                                                                    
     associated  with  these  DL-1  leases.   And  the  vast                                                                    
     majority  of  the  known North  Slope  gas  resource  -                                                                    
     around  90 percent  - is  found on  these DL-1  leases.                                                                    
     The fiscal contract simply  extends that existing lease                                                                    
     right to all gas from all leases.                                                                                          
     To  conclude my  brief  comments, I  want to  emphasize                                                                    
     that BP stands  ready, willing and able  to advance the                                                                    
     gas   pipeline  project   along   with  our   partners,                                                                    
     ConocoPhillips,  ExxonMobil and  the  State of  Alaska.                                                                    
     The gas pipeline fiscal contract,  coupled with SB 2003                                                                    
     and SB  2004, makes that  objective possible.   BP also                                                                    
     stands  ready  to  work with  the  legislature  as  you                                                                    
     complete your work on these bills.                                                                                         
     We  support passage  of SB  2003 and  SB 2004  and then                                                                    
     encourage the  legislature to approve the  gas pipeline                                                                    
     fiscal contract to enable all  Alaskans to benefit from                                                                    
     one of the largest energy projects on the planet.                                                                          
9:17:12 AM                                                                                                                    
CHAIR SEEKINS asked why it wouldn't be simpler to hold the state                                                                
similar to the companies with respect to confidentiality of                                                                     
MR.  VAN TUYL  agreed it  may be  a fit  solution.   He expressed                                                               
concern that  although certain  proprietary information  could be                                                               
exchanged  among LLC  partners to  the benefit  of all  partners,                                                               
competitive information  should remain  within the bounds  of the                                                               
LLC.   Furthermore, internal discussions about  security measures                                                               
would be  appropriate to hold  within the LLC.   Such information                                                               
typically wouldn't be made available  to shareholders of a public                                                               
corporation, he noted.                                                                                                          
CHAIR SEEKINS  said that  appears to  be the  intent, duplicating                                                               
the  level of  equal footing  in  terms of  confidentiality.   He                                                               
suggested reviewing this provision.                                                                                             
MR. VAN TUYL highlighted the need for clarity.                                                                                  
9:20:20 AM                                                                                                                    
SENATOR  ELTON inquired  about  protocols  established among  the                                                               
private partners for handling confidential information.                                                                         
MR. VAN  TUYL explained it's  a typical provision within  any LLC                                                               
or undertaking between companies  apart from government entities.                                                               
The  desire   is  to  ensure  proprietary   information  is  held                                                               
confidential.  Provisions  also recognize the need  to share good                                                               
ideas  that  may not  be  public;  those provisions  usually  are                                                               
clearly, carefully and  tightly drafted.  His  company is looking                                                               
at that  to ensure  the language  establishing PipeCo  is written                                                               
that clearly and carefully.                                                                                                     
9:21:43 AM                                                                                                                    
SENATOR  BUNDE  related  a  strongly  held  tenet  among  Alaskan                                                               
businesses and many citizens:  the  state should stay out of, and                                                               
out of the  way of, private enterprise, which does  a better job.                                                               
However, the  companies involved  in this project  are requesting                                                               
state participation.   He asked  for successful  models worldwide                                                               
relating   to  arrangements   between  governments   and  private                                                               
MR. VAN TUYL offered to provide that information.                                                                               
CHAIR SEEKINS announced all members were present.                                                                               
9:24:20 AM                                                                                                                    
^Harold Heinze, Alaska Natural Gas Development Authority (ANGDA)                                                                
HAROLD  HEINZE,  Chief  Executive  Officer,  Alaska  Natural  Gas                                                               
Development  Authority (ANGDA),  Department of  Revenue, informed                                                               
members that  ANGDA is  a public corporation  of the  state which                                                               
was assigned broad  powers in 2002, under AS  41.41.010, to bring                                                               
natural gas from the North Slope to market.  He continued:                                                                      
      ANGDA has taken the lead on in-state gas uses and in                                                                      
      lateral-line connection to the Cook Inlet area.  The                                                                      
     ANGDA board has closely  followed, over the last couple                                                                    
     years,  the  public  information on  Stranded  Gas  Act                                                                    
     negotiations.   Since the release  of the  gas contract                                                                    
     and supporting  documents less than a  month ago, ANGDA                                                                    
     has been reviewing  its provisions with a  focus on in-                                                                    
     state gas use.  That  review has been expanded over the                                                                    
     last few  days to  include the  gas-related legislation                                                                    
     introduced by the Murkowski Administration.                                                                                
     Since   ANDGA   was    not   inside   the   negotiating                                                                    
     confidentiality  fence, we  have had  to cold  read the                                                                    
     contract  and absorb  the numerous  consultant studies.                                                                    
     In this first  past review, several of  us have flagged                                                                    
     concern that the contract  language and provisions will                                                                    
     make the actual delivery and  use of North Slope gas to                                                                    
     Alaskan communities and citizens very difficult.                                                                           
     Discussion papers  on the several topics  are currently                                                                    
     being prepared  for the June  12th special  ANGDA board                                                                    
     meeting,  and  a  listing  of   the  topical  items  is                                                                    
     attached.   At the June  12th meeting, the  ANGDA board                                                                    
     will   be   considering   specific   modifications   to                                                                    
     contracts,  and I  believe that  these suggestions,  if                                                                    
     incorporated,  will  facilitate   the  common  goal  of                                                                    
     making North Slope gas available in Alaska.                                                                                
     Prior  to that  time, there  are two  observations that                                                                    
     I'd  like to  flag for  the committee's  consideration.                                                                    
     First, ANGDA  already exists.   ANGDA may be  useful to                                                                    
     the state in the  creation and/or transition to "Alaska                                                                    
     Pipe" proposed in  SB 2003.  Also,  the relationship of                                                                    
     these  two  similar corporations  of  the  state is  of                                                                    
     longer-term  significance  to  accomplish  the  state's                                                                    
     And then, secondly, it is  important that the state not                                                                    
     disadvantage  itself by  failing  to  create and  fully                                                                    
     fund the  operations of its gas  pipeline corporations.                                                                    
     At  the same  time,  it should  be  recognized that  in                                                                    
     creating Alaska  Pipe under SB [2003],  the legislature                                                                    
     is making  the decision  that the  state invest  in the                                                                    
     gas pipeline project.  Alaska  Pipe is not the decider,                                                                    
     only the management implementer of that decision.                                                                          
     The  legislature's  decision   to  invest  billions  of                                                                    
     dollars of  public money  and debt  should be  based on                                                                    
     due-diligence standards; that has  not been part of the                                                                    
     public  legislative   considerations  to  date.     The                                                                    
     legislature may  wish to create  and fund  Alaska Pipe,                                                                    
     but   ...  condition   the  activation   of  its   full                                                                    
     authorities on the approval of the contract.                                                                               
      ANGDA wishes to be a positive force in advancing the                                                                      
        gas line contract and will interact with you as                                                                         
9:27:59 AM                                                                                                                    
SENATOR BUNDE referred to his  concern expressed to Mr. Porter at                                                               
the previous meeting  about gearing up and  funding PipeCo before                                                               
a contract is signed and ratified,  and that Mr. Porter had noted                                                               
state entities  have worked diligently  on this for a  long time.                                                               
Senator  Bunde said  that's true,  but cautioned  about the  tail                                                               
wagging  the dog.   He  questioned,  if a  gas pipeline  contract                                                               
failed, whether  the desire would be  to have a PipeCo  out there                                                               
negotiating with private  enterprise to create a  new contract to                                                               
replace it.   He suggested this duty should continue  to lie with                                                               
the administration.   He also encouraged Mr.  Heinze to establish                                                               
clear lines  of communication  with the  administration regarding                                                               
the contract, if they don't exist already.                                                                                      
9:29:40 AM                                                                                                                    
MR. HEINZE  suggested the need now  to create an entity  that has                                                               
some project identity  and can be part of moving  forward the big                                                               
project.   He said it is  neither practical nor possible  for the                                                               
bureaucratic arm of  the state to do that,  since the negotiators                                                               
have other duties and so forth.   While the amount of money seems                                                               
large  on  one scale,  it  is  small  compared with  the  payoff.                                                               
Noting  his group  has  struggled with  funding  levels and  been                                                               
prudent, he cautioned that things don't happen without money.                                                                   
He addressed communication,  stating intent at the  June 12 ANGDA                                                               
board meeting to review documents on  a number of points and then                                                               
submit those "white papers" as  letters to the administration and                                                               
legislature  for  consideration.    The  intent is  to  be  in  a                                                               
positive,  suggestive  mode.   He  indicated  that since  ANGDA's                                                               
formation,   Steve  Porter   has   been  it   liaison  with   the                                                               
9:31:53 AM                                                                                                                    
SENATOR  BUNDE   referenced  Mr.  Heinze's  testimony   that  the                                                               
legislature may wish  to create and fund  a pipeline corporation,                                                               
but  condition the  activation  of its  full  authorities on  the                                                               
approval of the  contract.  Senator Bunde agreed  it shouldn't be                                                               
activated before  contract approval, but also  questioned funding                                                               
it before that point.                                                                                                           
MR. HEINZE clarified  that the grant of power  to the corporation                                                               
- and under the current grant of  power to ANGDA - will be broad:                                                               
the ability to go out and  raise money to accomplish the purposes                                                               
for which  the entity has  been created.   He spoke of  the ANGDA                                                               
board's fiscal restraint, surmising  the new pipeline corporation                                                               
would show similar restraint.   Expressing concern that the grant                                                               
of  power  in  SB 2003  "makes  the decision  to  invest  in  the                                                               
pipeline,"  Mr. Heinze highlighted  the  diligence required  with                                                               
that  decision,  which he  didn't  necessarily  believe had  been                                                               
satisfied in the legislative review process.                                                                                    
SENATOR  BUNDE offered  general  agreement, but  opined that  the                                                               
decision to  invest in the  pipeline occurs when  the legislature                                                               
chooses  to  approve a  contract  which  does  that, not  when  a                                                               
corporation is authorized.                                                                                                      
9:34:28 AM                                                                                                                    
SENATOR  OLSON asked  how ANGDA  would remedy  the difficulty  of                                                               
delivering and using North Slope gas in Alaskan communities.                                                                    
MR. HEINZE indicated  he couldn't answer in detail  yet; it's the                                                               
purpose  of the  June 12  board meeting.   However,  he said,  he                                                               
believes  the  concerns can  be  resolved  through modifying  the                                                               
contract to  remove impediments.   For example, it  would require                                                               
major  commitments  in  a  difficult,  complex  process  for  any                                                               
Alaskan  utility  to successfully  take  gas  from the  pipeline.                                                               
There  is a  lack of  necessary information  and so  forth.   The                                                               
contract  doesn't provide  any "bootstrapping"  for the  state to                                                               
help achieve this.                                                                                                              
He mentioned  Wyoming's highly successful  development authority,                                                               
of benefit  to that state,  but also the challenge  when standing                                                               
between  two  private-sector entities  and  providing  a line  of                                                               
credit  as  a  guarantee  and assurance  for  certain  things  to                                                               
happen.   He suggested  this may  be an  appropriate role  in the                                                               
state for ANGDA or some other  group.  Noting the contract limits                                                               
normal  Regulatory Commission  of Alaska  (RCA) jurisdiction,  he                                                               
remarked, "Frankly, we don't even  understand at this point fully                                                               
what that means, but we do  understand that an agency that has to                                                               
play  a  major role  in  in-state  decisions is  somehow,  again,                                                               
limited by the contract language."                                                                                              
9:37:26 AM                                                                                                                    
SENATOR  OLSON said  he  didn't see  the  difference between  the                                                               
producers' ability to provide natural  gas to smaller communities                                                               
and ANGDA's  ability.  He  suggested the former would  be easier,                                                               
in fact, especially if RCA was outside some of the process.                                                                     
MR. HEINZE  replied that  smaller communities  will have  to make                                                               
long-term,  binding  commitments  to  get  gas  delivered.    For                                                               
utilities  in his  area, those  would involve  several times  the                                                               
utilities'  current worth.   For  a smaller  community along  the                                                               
way, it  likely would  exceed the net  property value  within the                                                               
whole jurisdiction.  It's not  that those terms are unreasonable;                                                               
rather, if the only way  to protect those interactions is through                                                               
the  Federal   Energy  Regulatory   Commission  (FERC),   then  a                                                               
tremendous burden  of expense  would be  incurred to  get natural                                                               
gas to even the smallest entity.                                                                                                
9:38:56 AM                                                                                                                    
CHAIR SEEKINS  asked Mr. Heinze  to expand on his  testimony that                                                               
the legislature's  decision to invest billions  of public dollars                                                               
and debt should be based  on a due-diligence standard that hadn't                                                               
been part of the legislative considerations to date.                                                                            
MR. HEINZE  compared the legislature's  decision to  a high-level                                                               
corporate decision,  noting he's  familiar with  what constitutes                                                               
due diligence in such an instance.   As a careful reviewer of the                                                               
record, he  told members  nothing right now  says $20  billion is                                                               
the right  number "in a  diligence sense."  A  diligence standard                                                               
usually requires  receiving professional,  accurate advice  as to                                                               
the range of  the numbers, probabilities and so  forth.  Although                                                               
there has  been a  lot of  work to arrive  at the  estimate, it's                                                               
worth a little money for the  legislature to have someone look at                                                               
the estimate,  understand it and  then provide a  written opinion                                                               
about the quality and range of that estimate.                                                                                   
CHAIR SEEKINS agreed  and suggested that hearing from  one or two                                                               
more consultants shouldn't be a problem.                                                                                        
9:41:12 AM                                                                                                                    
SENATOR  BEN   STEVENS  asked  whether  Mr.   Heinze  agreed  the                                                               
aforementioned  amount  wouldn't  be  known until  FERC  makes  a                                                               
determination  and  issues  a  request  for  the  owners  for  an                                                               
authorization  for expenditure,  after when  FERC is  prepared to                                                               
issue its certificate  of public convenience.   He suggested even                                                               
the other members of the LLC don't know how much it will cost.                                                                  
MR. HEINZE agreed the project  that will actually be built hasn't                                                               
been defined; until  then, the cost won't be known.   However, he                                                               
disagreed on the last point,  opining that the corporate entities                                                               
have far more knowledge than the  state does about the quality of                                                               
the estimates  and related issues.   "In a public sense,  we have                                                               
zero," he said.                                                                                                                 
SENATOR  BEN STEVENS  partially agreed  and partially  disagreed.                                                               
He concurred  that the corporate entities  have greater knowledge                                                               
of the potential  costs of a project of this  magnitude, but said                                                               
the  decision   by  the  board   of  directors  of   the  partner                                                               
corporations won't  commit the  funds until  FERC has  given them                                                               
the   permit  that   says,  "Show   us  your   authorization  for                                                               
expenditure, and  here will be the  rate of return and  here will                                                               
be  the tariff  set,  based  on the  project  costs  ... that  we                                                               
approve  that you  have  given to  us."   He  suggested, at  that                                                               
point, FERC may not approve it.                                                                                                 
9:43:59 AM                                                                                                                    
MR.  HEINZE agreed  with  the assertion  regarding  FERC.   Under                                                               
federal regulations for  the open season in Alaska  and under its                                                               
general proceedings,  FERC clearly requires public  disclosure of                                                               
the estimate, cost  factors and so forth that have  gone into the                                                               
cost calculation.   Hopefully, in this case that will  occur.  He                                                               
cautioned, however, that it would  be "terribly unfortunate if we                                                               
found ourselves in Washington, D.C.,  before FERC, having to drag                                                               
that information  out on  the table."   Mr. Heinze  proposed that                                                               
the process  of moving  forward is better  served by  being aware                                                               
that information exists which hasn't yet been revealed.                                                                         
SENATOR BEN STEVENS  suggested there is a need  for public access                                                               
to confidential  information only if  and when the  state commits                                                               
to being a  participant.  At the time of  FERC's sanctioning, all                                                               
LLC members could  determine whether to be partners,  and the LLC                                                               
would vote on whether to move  forward.  He said he respects both                                                               
positions:     wanting  information  before   participating,  and                                                               
refusing to  provide it until there  is a commitment to  become a                                                               
partner.   He noted that's  the policy call the  legislature must                                                               
make  about  moving to  the  next  level before  undertaking  due                                                               
9:47:02 AM                                                                                                                    
MR. HEINZE  pointed out two parts  to the issues.   First, to his                                                               
understanding,  a  legislative  decision  on the  contract  is  a                                                               
decision to  move forward with  state involvement; from  what can                                                               
be seen  of the "withdrawal  provisions," however, and  from what                                                               
isn't seen  with respect  to LLC  voting procedures,  the state's                                                               
"voice" and choices aren't known  after that point.  "Clearly, at                                                               
that  moment,  the  legislature  is in  charge  of  the  decision                                                               
whether to become  an interest owner in the pipeline  or not," he                                                               
added.   Second, people beyond the  legislature need information.                                                               
If  the marketing  arms of  the corporate  entities have  certain                                                               
information available, he asked, why  isn't it available to local                                                               
utilities, for example?  Why isn't it available through RCA?                                                                    
9:48:35 AM                                                                                                                    
^Steven B. Porter, Department of Revenue                                                                                        
STEVEN  B. PORTER,  Deputy  Commissioner,  Department of  Revenue                                                               
(DOR),  came forward  to answer  questions,  affirming he'd  been                                                               
immersed in the project for some time.                                                                                          
CHAIR SEEKINS  asked whether the  administration has a  good idea                                                               
of the quality of the rough cost estimates.                                                                                     
MR. PORTER  agreed with  Mr. Heinze that  it's appropriate  to do                                                               
due diligence  on the  cost estimate; he  indicated DOR  did that                                                               
due diligence and  spent substantial time with  its contractor to                                                               
ensure  there was  comfort in  depending on  the information  and                                                               
cost estimates  provided by the  producers.  However,  the report                                                               
it received  is a summary.   The  data itself isn't  available to                                                               
third  parties  - including  the  public,  ANGDA or  utilities  -                                                               
because it  is confidential.  It  puts third parties in  a little                                                               
more difficult position.                                                                                                        
9:50:57 AM                                                                                                                    
SENATOR BEN STEVENS asked Mr.  Porter whether he was referring to                                                               
information developed  during a  multimillion-dollar study  a few                                                               
years ago; if so, he requested details.                                                                                         
MR. PORTER  affirmed it was  that $125 million study,  saying the                                                               
information is owned by the  three producers - ConocoPhillips, BP                                                               
and  ExxonMobil.   Noting  Mr. Van  Tuyl  could provide  details,                                                               
Mr. Porter said  he'd spent  a substantial  number of  hours with                                                               
the study as well.   Pointing out "they do have  a data room," he                                                               
characterized it as  a scoping study of the project  and a pretty                                                               
comprehensive analysis, at that point  in time, done to arrive at                                                               
a rough cost estimate.                                                                                                          
9:52:09 AM                                                                                                                    
MR.  VAN  TUYL specified  the  aforementioned  study was  jointly                                                               
conducted by BP  - "actually done by Phillips at  the time" - and                                                               
ExxonMobil  over  18  months  in 2001-2002.    They  completed  a                                                               
technical  feasibility study;  did a  commercial analysis  of the                                                               
project;  and conducted  fieldwork -  people walked  much of  the                                                               
route and  sampled streams and  more than 1,000  river crossings,                                                               
flew  the aerial  extent  of the  pipeline  route, and  completed                                                               
Global  Positioning System  (GPS) survey  data and  a preliminary                                                               
engineering estimate.                                                                                                           
He  said conclusions  from that  study  were 1)  the project  was                                                               
technically feasible and  2) at the time,  it wasn't commercially                                                               
viable because the identified risks  - including regulatory risks                                                               
and potential fiscal  risks - outweighed the rewards.   Thus they                                                               
embarked  on two  activities.   The  first  was pursuing  federal                                                               
legislation to  define the federal  regulatory process  to ensure                                                               
the  process is  efficient and  well  defined; he  noted that  in                                                               
October  2004 the  federal government  passed the  Alaska Natural                                                               
Gas  Pipeline Act,  which defined  the regulatory  process.   The                                                               
second was  that in January  2004, "on  the back of  that study,"                                                               
the  three  companies jointly  submitted  an  application to  the                                                               
state  to initiate  negotiation of  a fiscal  contract under  the                                                               
Alaska Stranded Gas Development Act ("Stranded Gas Act").                                                                       
9:54:42 AM                                                                                                                    
SENATOR HOFFMAN  requested confirmation  that even after  the due                                                               
diligence was  concluded, the  state:  1)  felt the  project made                                                               
fiscal sense,  2) was  considering investment  at 16  percent and                                                               
3) because of  the lucrativeness of the  venture, negotiated with                                                               
the "majors"  to increase  its participation  to 20 percent.   He                                                               
recalled hearing that from Dr. Pedro van Meurs.                                                                                 
MR. PORTER offered his personal  knowledge:  in the negotiations,                                                               
the  state's  intent  has  always been  to  align  its  ownership                                                               
interest  with  its  gas  interest.    Although  there  has  been                                                               
discussion of  what that ownership  interest would be,  he didn't                                                               
remember being  at a  point of trying  to increase  the ownership                                                               
interest by 4 percent because it was an economic venture.                                                                       
9:56:56 AM                                                                                                                    
MR.  VAN TUYL  clarified that  the project  evaluated during  the                                                               
2001-2002 joint study involved transporting  natural gas from the                                                               
North Slope  to Alberta, Canada.   That  is the first  major hub;                                                               
from there,  gas can  be placed virtually  anywhere on  the North                                                               
American grid with  the existing infrastructure.   It also looked                                                               
at the option of continuing on to Chicago.                                                                                      
He explained  that one  unknown factor was  what the  world would                                                               
look like  when Alaska's  gas entered the  Alberta market  - what                                                               
the western Canadian sedimentary basin  would do, for example, or                                                               
how much ullage out of Alberta  would exist.  Thus the study also                                                               
looked  at  a project  continuing  to  the Midwest;  Chicago  was                                                               
chosen  because  it  is North  America's  most  "liquid"  market.                                                               
Indicating the study looked at a  full 4 billion cubic feet (Bcf)                                                               
a day from  Alberta to Chicago, Mr. Van Tuyl  said it isn't known                                                               
whether any or part of that section would have to be built.                                                                     
SENATOR   WAGONER   asked   whether    figures   for   both   the                                                               
aforementioned scenarios were based on 4 Bcf of gas a day.                                                                      
MR. VAN  TUYL affirmed that.   He  then specified that  looked at                                                               
was a "sort  of nameplate capacity" of 4.5 Bcf  a day leaving the                                                               
North Slope.   "I think  the actual numbers  came out to  be 4.3,                                                               
with ultimate delivery to market  to be something around 3.9 when                                                               
you have fuel and shrinkage along the way," he added.                                                                           
9:59:21 AM                                                                                                                    
SENATOR  BEN STEVENS  asked whether  the study  included in-state                                                               
transmission or demand.                                                                                                         
MR. VAN TUYL answered in detail:                                                                                                
     We  did not  do ...  any  kind of  a full,  independent                                                                    
     study of in-state use.  What  we did do was look at how                                                                    
     we   might   accommodate   a  future   LDC   or   local                                                                    
     distribution  company's  ability  to satisfy  that  in-                                                                    
     state  need.     And  in  the   fiscal  contract,  that                                                                    
     manifested itself  in the  commitment of  the companies                                                                    
     to provide up  to four off-take points in  Alaska.  But                                                                    
     we  didn't do  an  independent study  of  what ...  the                                                                    
     demand might be.                                                                                                           
     We did  reference some  studies that  were done  by the                                                                    
     state to  look at in-state  demand and whatnot.   So we                                                                    
     used those  numbers to determine sort  of what in-state                                                                    
     needs might be,  but we didn't do  a separate, bottoms-                                                                    
     up cost  analysis or  a study  analysis, at  least none                                                                    
     that I can recall right now.                                                                                               
10:00:32 AM                                                                                                                   
SENATOR  BEN  STEVENS  asked whether  it's  anticipated,  if  the                                                               
contract is  ratified, that  data from the  due diligence  of the                                                               
$125  million study  would be  made  available for  informational                                                               
purposes to the state and to a state entity such as ANGDA.                                                                      
MR.  PORTER replied  that under  certain circumstances  and under                                                               
certain  confidentiality  rights, he  thinks  the  state and  its                                                               
affiliates possibly  could be brought  into that data room  for a                                                               
look.  "I don't know that  we've discussed the timing of a public                                                               
sharing of the data," he added.                                                                                                 
10:01:30 AM                                                                                                                   
MR.  VAN  TUYL  suggested  this  relates  to  his  own  testimony                                                               
regarding the  desire of  his company  - and  to his  belief, his                                                               
partners -  to hold certain  information as proprietary,  in that                                                               
the cost  estimates include the  use of  proprietary technologies                                                               
to  develop  those  costs  and  savings.    He  surmised  certain                                                               
information  might  be  made public,  whereas  other  information                                                               
wouldn't; to his knowledge, details  hadn't been parsed out as to                                                               
what could be  made public.  He noted there  is a process whereby                                                               
people  can sign  confidentiality agreements  and have  access to                                                               
the data, but that is a controlled access.                                                                                      
10:02:28 AM                                                                                                                   
CHAIR  SEEKINS asked  whether it  would be  advantageous for  the                                                               
companies  to underestimate  the  due diligence  relating to  the                                                               
cost and "surprise us later."                                                                                                   
MR. VAN TUYL noted he is an  engineer trained to come up with the                                                               
best technical  data possible; support  the data; and then  do an                                                               
internal risk analysis  and have other experts on  other areas of                                                               
the project "sort  of poke holes at the estimate  and say, 'Well,                                                               
you didn't adequately identify the  range of possible outcomes on                                                               
labor or  on the cost  of steel or  whatnot.'"  A  contingency to                                                               
cover that  is included as part  of the estimate.   The effort is                                                               
to come  up with  a hard  estimate of the  cost, he  said, rather                                                               
than a highball or lowball estimate, within a range.                                                                            
He  reported that,  currently, with  the data  available and  the                                                               
rigor with which the cost estimate  was done, that range is "plus                                                               
or minus 20 percent," given market  conditions at the time.  This                                                               
is an important caveat.   Since the 2001 timeframe, for instance,                                                               
the cost  of steel has more  than doubled; he also  mentioned the                                                               
labor market for  industrial development.  If  that estimate were                                                               
redone -  which it  hasn't been  - the  number probably  would be                                                               
higher today.                                                                                                                   
10:04:34 AM                                                                                                                   
MR. HEINZE  offered his experience:   at this level  of corporate                                                               
decision, several people  would scrutinize what was  going on and                                                               
ensure points  of challenge were  put on the table  so management                                                               
had full information.  In  this instance, however, he didn't know                                                               
of any  way to do  that, other than  for the legislature  to hire                                                               
somebody to review the estimate and offer independent advice.                                                                   
MR. PORTER highlighted one reason  the state was comfortable with                                                               
the  data-room  information created  by  the  industry:   it  was                                                               
created for internal purposes at  the time, not to negotiate with                                                               
the state; their  job was to provide their  management teams with                                                               
a  number they  believed  accurate in  order  to facilitate  good                                                               
decision making.                                                                                                                
10:06:24 AM                                                                                                                   
CHAIR SEEKINS  surmised someone was  estimating how  the economic                                                               
conditions had changed and thus would affect this project.                                                                      
MR. VAN  TUYL said BP  did its own internal  assessments compared                                                               
with the work  finished in 2002, and updated it;  he imagined the                                                               
partner companies did the same,  though they hadn't come together                                                               
collectively with a consensus view of the updated number.                                                                       
10:07:08 AM                                                                                                                   
SENATOR WAGONER questioned  whether $20 billion is known  to be a                                                               
good number.   Regarding due diligence on the part  of the state,                                                               
he acknowledged the necessity, but said  he wasn't sure how to go                                                               
about it.  He cautioned about  knowing what it entails before the                                                               
legislature goes much  further in investing in "plus  or minus 20                                                               
percent"   of  this   high-risk   line.     He  highlighted   the                                                               
legislature's  responsibility to  be  diligent  in investing  the                                                               
state's money.                                                                                                                  
10:08:54 AM                                                                                                                   
MR.  HEINZE  brought  attention  to  an article  in  the  June  4                                                               
electronic  issue   of  Petroleum  News  about   success  in  big                                                             
projects;  it  quotes  heavily  from  Al  Rogers  of  Independent                                                               
Project  Analysis (IPA).   Mr. Heinze  clarified  that he  didn't                                                               
question  the intention  of the  people who  made the  estimates.                                                               
However, the state needs to  understand that competent people may                                                               
get it wrong half the time,  and to understand what kind of labor                                                               
productivity  is built  in,  for  example.   There  is plenty  of                                                               
opportunity  for  things to  go  awry.    As part  of  diligence,                                                               
therefore,  those questions  should  be asked.    In response  to                                                               
Chair Seekins, he agreed to fax a copy of the article.                                                                          
10:10:33 AM                                                                                                                   
SENATOR WAGONER noted the  aforementioned article summarized what                                                               
Mr. Rogers  said during the  recent meetings at  Centennial Hall.                                                               
Senator Wagoner remarked that it was no great revelation.                                                                       
MR.  PORTER acknowledged  that point,  but clarified  the state's                                                               
commitment to authorize this contract  or participate in this gas                                                               
pipeline is  not a  commitment to spend  the 20  percent; rather,                                                               
it's  to  move forward  with  the  analysis  "to get  us  there."                                                               
That's why the work commitments are  designed as they are.  There                                                               
can be no decision today to  build the gas pipeline, which is why                                                               
Mr. Rogers  in  the  IPA  presentation   talked  about  a  staged                                                               
analysis, Mr. Porter added.                                                                                                     
He explained,  "We're going  to go back  through, a  scoping time                                                               
where we  do project planning, we  continue to go back  through a                                                               
review  of  the  engineering,  do the  analysis  in  the  project                                                               
planning to get  that cost estimate even more  accurate."  That's                                                               
why a project-sanction  decision on whether to  move forward with                                                               
a major  process of building  this pipeline is actually  three to                                                               
four years  away.  At  that point, the  state needs the  right to                                                               
decide whether to take the risk as a participant.                                                                               
MR. HEINZE  said Mr. Porter  had just highlighted the  reason for                                                               
moving forward  to form  the corporation.   Someone is  needed to                                                               
examine  not only  the  financial aspects,  but  also the  entire                                                               
project, to  be a  good participant in  defining the  project and                                                               
moving  forward.   Absent forming  the corporation  and providing                                                               
money, Mr. Heinze questioned how it would get done.                                                                             
10:13:38 AM                                                                                                                   
SENATOR BEN STEVENS  referred to the Alaska  Natural Gas Pipeline                                                               
Act passed by  Congress in October 2004 and its  $18 billion loan                                                               
guarantee.  He  asked whether this federal  guarantee would apply                                                               
if the state became a participant.                                                                                              
MR.   VAN  TUYL   affirmed   that,   noting  the   aforementioned                                                               
legislation had many facets, including  loan guarantees for up to                                                               
$18 billion  and providing  for financing  for "up  to 80 percent                                                               
debt" associated  with the project.   One  key aspect of  the LLC                                                               
agreement is to ensure the  participants can access the financing                                                               
they need  to go forward  with the  project.  He  highlighted the                                                               
importance to  participants of  being able  to take  advantage of                                                               
those loan guarantees.                                                                                                          
SENATOR  BEN   STEVENS  surmised   that  if  the   sponsor  group                                                               
anticipated costs  exceeding the loan-back guarantee,  they'd ask                                                               
Congress for an increase in the loan guarantee amount.                                                                          
MR. VAN TUYL indicated he wasn't aware of that intent by BP.                                                                    
SENATOR  BEN STEVENS  clarified  he was  observing that  Congress                                                               
likely would  be receptive  to a request  for an  increase, given                                                               
the situation with gas in the Lower 48.                                                                                         
10:17:27 AM                                                                                                                   
SENATOR  STEDMAN referred  to Mr.  Porter's earlier  comments and                                                               
the cost estimates.   Senator Stedman said it  seems "we're going                                                               
through  the normal  process" and  wouldn't know  the exact  cost                                                               
until  the project  is sanctioned  in  two or  three years;  even                                                               
then,  it would  be a  guess, likely  a low  estimate, from  what                                                               
they'd heard about dealing with mega-projects.                                                                                  
CHAIR SEEKINS suggested due diligence is a continuing standard.                                                                 
The committee took an at-ease from 10:18:02 AM to 10:29:24 AM.                                                              
SENATOR BUNDE  observed that  the state is  often accused  of not                                                               
doing business well; he gave examples.                                                                                          
MR. VAN  TUYL said he could  give a more complete  response after                                                               
additional research.   He provided as an  example the involvement                                                               
of the  federal Minerals Management  Service (MMS) in  taking its                                                               
royalty  share  of  gas  in  kind,  similar  to  the  arrangement                                                               
proposed  here for  the  state.   The  MMS royalty-in-kind  (RIK)                                                               
program  started a  number of  years  ago on  a relatively  small                                                               
scale in  order to get experience  and then decide whether  it is                                                               
an appropriate  government role; it  has grown, and  recently MMS                                                               
took  out ten-year  firm transportation  (FT) -  similar to  what                                                               
will be  looked at for  this project  - to transport  its royalty                                                               
share of gas and commit the gas to a project.                                                                                   
He said  MMS cited three  reasons for continued expansion  of its                                                               
RIK  program:   higher market  value for  the royalty  gas; lower                                                               
administrative costs  than with the  traditional royalty-in-value                                                               
program;  and  fewer  disputes  with  the  industry,  because  of                                                               
commercial  alignment.   Mr.  Van  Tuyl  reported a  similar  RIK                                                               
arrangement with the  State of Wyoming for  which similar reasons                                                               
were  cited.   He  offered  to reference  articles  in which  MMS                                                               
stated  the  foregoing,  and  to  try  to  provide  international                                                               
examples of equity participation by governments as well.                                                                        
10:33:37 AM                                                                                                                   
MR.  PORTER  related  his  belief  that  the  business  of  state                                                               
government is  not to be  in private enterprise.   In government,                                                               
the  advocates  for participating  in  a  major project  tend  to                                                               
overestimate benefits  to the public  and to  underestimate costs                                                               
and risks;  he noted  a substantial amount  of research  has been                                                               
done on  this.   Mr. Porter  said he has  some comfort  with this                                                               
project, however, because the state's  three partners are some of                                                               
the largest corporations in the  world and have private decision-                                                               
making analysis, with the state as a minority partner.                                                                          
SENATOR DYSON asked  in which ways the interests of  the state or                                                               
its people  aren't exactly aligned  with the fiscal  interests of                                                               
the major companies, even potentially.                                                                                          
MR.  PORTER  answered  that the  corporations  have  one  primary                                                               
responsibility:   to their shareholders,  to make a profit.   The                                                               
state's   additional   responsibilities  include   creating   and                                                               
participating  in  a project  and  trying  to bring  the  maximum                                                               
benefit to Alaska's people; in-state  gas use is somewhat in that                                                               
arena.   Another  issue, for  which  a solution  hasn't yet  been                                                               
found, is  that a number of  people in the Interior  and the Cook                                                               
Inlet  area  want to  see  a  petrochemical industry.    Although                                                               
elements  of  four studies  have  looked  at  trying to  make  it                                                               
economically viable, none  of the contractors have  come back and                                                               
said it's  a good  idea.   The producers  are less  interested in                                                               
where it occurs, other than trying to capture the most value.                                                                   
10:37:45 AM                                                                                                                   
MR. VAN TUYL highlighted a  key aspect:  unprecedented commercial                                                               
alignment, with the  state able to align  itself with experienced                                                               
participants,  creating  a  good  synergy.    Although  different                                                               
interests exist,  he offered the  belief that the  contract deals                                                               
with those specific interests.   He cited examples, including the                                                               
studies  required in  Article 9  by all  participants; provisions                                                               
for "Alaska hire"; and that any  party is free to compete for the                                                               
opportunity to provide in-state gas,  something BP - which brings                                                               
energy to customers - will compete for.                                                                                         
10:40:23 AM                                                                                                                   
MR.  PORTER   pointed  out   the  parties'   different  positions                                                               
regarding financial  structures.   Even the three  producers have                                                               
different  financial priorities  and  ways they  like to  finance                                                               
projects, he  said.  Any  of the three  producers may be  able to                                                               
pay cash for  this project, for example,  under today's oil-price                                                               
scenarios.  The state has  an interest in protecting its downside                                                               
risk,  and  its  cash-flow  issues   differ  from  those  of  the                                                               
producers.   When the state comes  to the table to  negotiate how                                                               
to finance this, ensuring it  is protected in that environment is                                                               
SENATOR DYSON remarked that in his  years at BP, he learned about                                                               
environmental,  political  and  permitting  issues.    While  the                                                               
"over-the-top"  route desired  by  the industry  would have  been                                                               
shorter and perhaps  cheaper, he opined, the  highway route could                                                               
be built  sooner and  be less problematic,  and would  allow more                                                               
in-state  use.   He asked  how financial  arrangements are  being                                                               
structured  so  they don't  do  a  disservice to  the  producers'                                                               
stockholders and yet  take care of state  interests including the                                                               
following:  timing,  since doing the project  soon would increase                                                               
state income for  services; in-state use such as gas  in the Cook                                                               
Inlet  region seven  or  eight  years from  now  for power,  home                                                               
heating  and, hopefully,  continuation  of value-added  industry;                                                               
and "people" issues  such as training for  construction and long-                                                               
term operating jobs.                                                                                                            
10:45:09 AM                                                                                                                   
MR. PORTER  recognized the  desire to  bring the  gas on  line as                                                               
soon as possible,  but also recalled testimony by  IPA that being                                                               
schedule-driven can ultimately  cost more than holding  off for a                                                               
couple of years  and doing it right.  He  suggested the industry,                                                               
while good  at methodically  walking through  the process,  has a                                                               
"freight train" problem as well:   once a management team decides                                                               
to  move forward,  it tends  to minimize  costs and  be schedule-                                                               
driven,   which  occasionally   in  the   past  had   created  an                                                               
environment  in which  information was  lacking in  the decision-                                                               
making processes, leading  to cost overruns.  Thus  the state may                                                               
be the  party dragging its feet  to ensure a particular  stage of                                                               
the project is done effectively  and thoroughly before jumping to                                                               
the  next  stage  -  ensuring   the  producers  spend  the  money                                                               
necessary for the analysis required  to make the decision to move                                                               
10:47:51 AM                                                                                                                   
SENATOR DYSON  said he hopes Mr.  Porter is right.   He expressed                                                               
concern  about getting  the revenue  stream  flowing and  getting                                                               
gas, particularly for the Interior  and Cook Inlet.  For whatever                                                               
reasons, including some  valid ones, he noted,  the producers may                                                               
want to  go slowly, and  the state's 20 percent  interest doesn't                                                               
give it veto power over the qualified project plan.                                                                             
MR. PORTER  highlighted one  problem encountered  in negotiations                                                               
with  regard  to  voting  in  the LLC:    generally,  veto  power                                                               
provides the  ability only  to delay  a project,  not to  move it                                                               
faster.  What  can move a project faster is  the stability of the                                                               
teams  -   ensuring  the  producers  aren't   trading  out  their                                                               
management teams continually  - and ensuring the  project is done                                                               
well and efficiently.  In  addition, as co-owner, the state plans                                                               
to  watch the  diligence under  which they  proceed, and  has the                                                               
right to blow the whistle, if necessary, if there is stalling.                                                                  
SENATOR DYSON indicated  he had continuing concerns.   He said it                                                               
appears  the only  option for  the state  would be  to quit.   He                                                               
asked  about other  sanctions or  inducements that  wouldn't stop                                                               
the progress or cause a change in teams.                                                                                        
10:51:23 AM                                                                                                                   
MR.  VAN TUYL  said Senator  Dyson raised  a number  of excellent                                                               
issues.    Regarding  the  over-the-top   or  highway  route,  he                                                               
reported both  were looked  at in the  2001-2001 joint  study; it                                                               
was  concluded there  was  no  cost advantage  to  either.   More                                                               
important, the northern  route is prohibited by  both federal and                                                               
state law.   Thus the  exclusive focus  is on making  the highway                                                               
route as efficient as possible regarding costs and schedules.                                                                   
He  emphasized BP's  desire to  diligently advance  this pipeline                                                               
project, noting  the contract package  includes terms  that would                                                               
increase oil  taxes by  a billion  dollars a  year, just  for the                                                               
opportunity to do  the project.  With respect to  timing, Mr. Van                                                               
Tuyl said  the contract  gives the state  a "stick,"  a diligence                                                               
standard.  If the producers fail to  live up to it, the state can                                                               
terminate their  rights under the contract,  the fiscal stability                                                               
they've bargained for, which BP wouldn't want to jeopardize.                                                                    
He discussed  minimizing unfructified capital -  that which isn't                                                               
bearing fruit.   Once  a company starts  investing in  a project,                                                               
the idea is  to get it on-stream as soon  as reasonably possible.                                                               
There is  a dynamic  tension:   do it quickly,  but do  it right,                                                               
avoiding mistakes such as becoming  schedule-driven.  The fear is                                                               
having a  project cost two  or three times what  was anticipated.                                                               
He  suggested the  contract recognizes  this tension  and ensures                                                               
diligent advancement of the project,  recognizing the goal isn't,                                                               
at all costs, to deliver a project by a certain date.                                                                           
10:55:12 AM                                                                                                                   
SENATOR  BUNDE  voiced  concern about  misalignment  between  the                                                               
legislature  and  the people:    the  legislature may  want  high                                                               
prices in  order to fund  services, and  yet the people  may want                                                               
low gas  prices and legislators  may campaign on  providing that.                                                               
He  asked  whether the  firewalls  are  adequate to  protect  the                                                               
legislature from this, for instance.                                                                                            
MR.  PORTER   replied  the  issue   has  arisen   several  times,                                                               
especially   with  the   Municipal  Advisory   Group  (MAG)   and                                                               
interested  parties.   He  suggested  the  misalignment could  be                                                               
focused, rather than  eliminated.  The gas that  Alaska sells has                                                               
to be  based on a  commercial basis.   The tension must  lie with                                                               
the legislature, not the entity selling  the gas.  If people want                                                               
cheap gas  in Cook  Inlet, for example,  they need  to understand                                                               
it's  a  subsidy   and  ask  the  legislature  for   it;  if  the                                                               
legislature  decides to  provide  Alaskans with  cheap gas,  then                                                               
it's up  to the  legislature to handle  that stress,  tension and                                                               
decision  from  a  policy  standpoint.     It's  a  subsidization                                                               
decision, one legislators make daily.                                                                                           
SENATOR BUNDE asked whether there's  an adequate firewall between                                                               
PipeCo  and the  legislature so  that PipeCo  can continue  to be                                                               
MR. PORTER  answered it's  exactly why PipeCo  was created  as it                                                               
was.  It's  meant to be as independent as  possible, with minimum                                                               
exposure to  political influence.   It's the reason  for six-year                                                               
terms, for example,  so any one administration  can't control the                                                               
entity's decision making.  Together  with removal for cause, this                                                               
provides an amount of independence  that Mr. Porter said he hopes                                                               
will protect the entity from such influence.                                                                                    
11:00:31 AM                                                                                                                   
SENATOR SEEKINS  expressed appreciation  for the insulation  of a                                                               
corporate group  from political influence.   He cited  a personal                                                               
SENATOR  BEN  STEVENS  commented   on  the  state's  unfructified                                                               
resources.   He then  turned to the  balance between  the state's                                                               
exposure to  risk and the  potential benefits.  Referring  to the                                                               
presentation from Mr. Rogers and IPA,  he cited an estimated cost                                                               
of $22.5 billion;  $18 billion in  loan-back guarantees;  and the                                                               
state's $1.2 billion share of  the $5.8 billion overall equity at                                                               
risk over the project life.                                                                                                     
He  indicated  this  pales  when compared  with  the  amount  the                                                               
legislature  will spend  over  the  next 30  years.    Even if  a                                                               
50 percent overrun resulted  in a cost of $33.7 billion  - and if                                                               
Congress  didn't  raise the  loan-back  guarantee  - the  state's                                                               
share of  the $15.7 billion total  risk would be  $3 billion over                                                               
35 years  or so.   Senator Ben  Stevens suggested this  amount is                                                               
almost   insignificant   when   considering   the   benefits   of                                                               
infrastructure, employment,  revenues for public services  and so                                                               
forth.  If  the state's participation is the  catalyst that moves                                                               
the project forward, he said, it's worth the risk.                                                                              
11:06:23 AM                                                                                                                   
CHAIR SEEKINS asked  how long it would take the  state to recover                                                               
that at-risk capital once gas starts to flow.                                                                                   
SENATOR  BEN STEVENS  answered it  would be  four to  five years,                                                               
from the cash flow this project would generate.                                                                                 
MR. VAN TUYL noted it could be sooner, depending on the price.                                                                  
SENATOR  BEN   STEVENS  said  the   question  is   whether  state                                                               
participation is the catalyst that leaps it forward.                                                                            
11:07:20 AM                                                                                                                   
SENATOR OLSON agreed with Senator  Ben Stevens' concern regarding                                                               
investment and  long-term payoff,  but asked  how to  ensure this                                                               
bureaucracy doesn't  become "a dinosaur that  can't feed itself,"                                                               
especially  if  gas  prices  go   down.    He  also  asked  about                                                               
safeguards if a situation isn't in the state's best interest.                                                                   
MR. PORTER noted  the legislature has control  over the operating                                                               
budget.   Referring to  the legislation and  the fiscal  note, he                                                               
said  the intent  is to  identify  that organization  as a  "non-                                                               
operator"  organization, primarily  responsible for  tracking the                                                               
operator, ensuring a good job  is done and having staff available                                                               
so the non-operator's decision is  fully supported by information                                                               
and documentation.  The state entity  should never be more than a                                                               
dozen people; it's controlled by  the amount of money provided in                                                               
the  operating  budget.   The  operator  -  probably one  of  the                                                               
producers, unless the decision is to  have a third party build or                                                               
operate the pipeline - will have the so-called bureaucracy.                                                                     
SENATOR  OLSON pointed  out  the lack  of  fiscal restraint  this                                                               
MR.  PORTER replied  that from  the gas  pipeline standpoint,  no                                                               
personnel  have been  hired  to date,  despite  the authority  to                                                               
spend about  $1.5 million  on personnel.   "We  felt like  it was                                                               
appropriate to  timely delay  that until  we had  an organization                                                               
set  in place,"  he explained.   "So  we have  been trying  to be                                                               
efficient with your money ... and to spend it wisely."                                                                          
11:11:06 AM                                                                                                                   
SENATOR STEDMAN opined that if  the oil-tax change is linked with                                                               
the  gas  line,  more  than the  equity-position  exposure  would                                                               
likely  be generated  by the  time the  line is  constructed, and                                                               
certainly by the  time the gas first flows.   "We don't have near                                                               
the exposure that is readily apparent on the surface," he added.                                                                
SENATOR WILKEN  referred to the  payment in lieu of  taxes (PILT)                                                               
with respect  to municipalities, noting  it is done  presently on                                                               
full and true  value, whereas now a "20  percent throughput PILT"                                                               
is  being  established  to  replace   it.    According  to  Randy                                                               
Hoffbeck,  he  said, that's  established  with  the valuation  at                                                               
$3.5 billion;   in  mid-May,   a  decision   increased  that   by                                                               
20 percent, to  $4.3 billion.   He asked whether it's  proper, in                                                               
the  amendments  or the  contract,  to  go  back and  adjust  the                                                               
[20.4]-cents-per-barrel  throughput based  on the  new, increased                                                               
valuation of  the pipeline,  and also  to set  out that  the PILT                                                               
payment  -  whatever it's  established  on  in  the future  -  is                                                               
established on the most current valuation of the pipeline.                                                                      
11:14:00 AM                                                                                                                   
MR. PORTER deferred to Mr.  Van Tuyl for details regarding future                                                               
payments,  but offered  his understanding  that the  valuation of                                                               
the pipeline is  established, whether at 4.3 or  3.5, the amounts                                                               
coming from  the PILT.   The  contract incorporates  an automatic                                                               
inflation factor so the amount is certain over time.                                                                            
MR. VAN TUYL  added that the Trans-Alaska  Pipeline System (TAPS)                                                               
rate in  the contract is  the 20.4 cents Senator  Wilken referred                                                               
to.  He related his view that  all contract terms are part of the                                                               
whole:  if  any one is adjusted, there needs  to be consideration                                                               
given for  the entire contract.   He agreed with Mr.  Porter that                                                               
all rates included in Article  17 have an escalation factor; that                                                               
effective rate  increases through  time for  the duration  of the                                                               
He  pointed out  that the  value of  TAPS has  declined virtually                                                               
every year, with one exception  in addition to this current year;                                                               
thus it's  a departure from  the past to  have an escalator.   As                                                               
part of  the balance for  the deal,  however, to get  the desired                                                               
certainty,  the rate  was locked  in at  an increased  value from                                                               
what  the valuation  was  last year.   "Industry  came  in at,  I                                                               
think,  $1.4 billion;  the actual  valuation  was set  at 3,"  he                                                               
said.  "The  contract value was established at the  3.5, the 20.4                                                               
cents, with  an escalator.   So,  yes, that's  how the  TAPS rate                                                               
SENATOR WILKEN asked  whether the 20.4 cents  should be escalated                                                               
by "the '05 increase of the valuation of the pipeline."                                                                         
MR. PORTER referred to a  resolution passed by MAG in recognition                                                               
of the same  issue - which, he said, would  only become a problem                                                               
if there were  a decision to attempt to  renegotiate those terms.                                                               
He noted MAG recommended that if  the basis of the pipeline truly                                                               
has changed "from 3.5 to 4.3,"  it would be appropriate to change                                                               
the  PILT as  well.   From  a procedural  standpoint,  it is  the                                                               
commissioner's responsibility during  this public hearing process                                                               
to  review those  comments, evaluate  them and  determine whether                                                               
amendments are  necessary based on  those comments -  in essence,                                                               
to determine  whether renegotiation  of those terms  should occur                                                               
and, if  so, to  renegotiate them and  return to  the legislature                                                               
with amended terms.   He added, "That would be  the process under                                                               
which ... we'd evaluate that 4.5."                                                                                              
11:17:45 AM                                                                                                                   
SENATOR  WILKEN asked  whether the  PILT would  be flat  for nine                                                               
MR. VAN TUYL clarified that it escalates right away.                                                                            
SENATOR  WAGONER   agreed  with  Senator  Ben   Stevens'  earlier                                                               
remarks, but  qualified it somewhat, expressing  concern that one                                                               
mega-project has  been built  in Alaska since  1969.   Noting the                                                               
same companies  will build  this line,  he asked  what assurances                                                               
exist, or what  the companies are doing to ensure  there won't be                                                               
similar huge  cost overruns, since  this line will be  2.5 longer                                                               
than TAPS,  for instance, and  there will be similar  issues such                                                               
as workforce availability, contractors and so forth.                                                                            
11:19:25 AM                                                                                                                   
MR. VAN TUYL indicated BP and  its board of directors have worked                                                               
to learn  from the TAPS  experience to ensure it  isn't repeated.                                                               
One  reason  TAPS overran  preliminary  estimates  is related  to                                                               
regulatory snags.   Calling it a classic  example where schedule-                                                               
driven  mega-projects fail,  Mr.  Van  Tuyl said  this  is a  key                                                               
reason  they sought  clarity on  the federal  regulatory process.                                                               
They've  learned a  lot about  technology, including  engineering                                                               
for  river   crossings  and   designing  traverses   for  passes.                                                               
Furthermore,  they've   learned  the  importance  of   lining  up                                                               
materials  and resources,  two areas  of significant  overrun for                                                               
TAPS.  This includes access to  steel and having the right people                                                               
identified and trained.  Thus  Article 6 of the contract includes                                                               
subsidizing  training for  the workforce.   Characterizing  it as                                                               
front-end loading,  Mr. Van Tuyl  indicated the approach  will be                                                               
highly disciplined,  with the dynamic  tension of wanting  to get                                                               
to the point of producing gas and having a return.                                                                              
11:23:11 AM                                                                                                                   
SENATOR  BUNDE asked  what percentage  of the  cost would  be for                                                               
MR. VAN TUYL said he would find out.                                                                                            
CHAIR  SEEKINS offered  his experience  that it  is difficult  to                                                               
estimate even the cost of a new building four years from now.                                                                   
SENATOR BUNDE  highlighted differing  interests of the  state and                                                               
its citizens:  building a  pipeline as cheaply as possible versus                                                               
wanting high wages.                                                                                                             
CHAIR SEEKINS concurred, noting the  state is an investor in this                                                               
and  neither the  producers nor  the  state would  want costs  to                                                               
escalate  unreasonably.   He  recalled  ballooning prices  during                                                               
TAPS construction in the Fairbanks  area, in particular, but said                                                               
TAPS was  a good  investment in  the end,  even though  much more                                                               
expensive  than  anticipated.   He  acknowledged  there would  be                                                               
tension  between  the  best  interests   of  the  state  and  its                                                               
The committee took an at-ease from 11:27:47 AM to 2:21:43 PM.                                                               
^Mark Hanley, Anadarko Petroleum                                                                                                
MARK  HANLEY,   Public  Affairs   Manager  in   Alaska,  Anadarko                                                               
Petroleum, told  members his company  is extremely  interested in                                                               
ensuring a  gas line  gets built,  although official  comments on                                                               
the contract  itself aren't ready  yet.  Regarding  amendments to                                                               
the  Stranded  Gas  Act,  he encouraged  members  to  review  Don                                                               
Shepler's  June 2,  2006, memorandum  and perhaps  talk with  the                                                               
consultant.   Mr.  Hanley said  the memo  raises issues  Anadarko                                                               
also  has   identified,  generally  relating  to   expansion  and                                                               
regulatory authority, not  the contract's fiscal terms.   One new                                                               
issue raised is the 45-day  public comment period, which Anadarko                                                               
had planned to  be part of; the memo  suggests amendments drafted                                                               
to  address  a  number  of  concerns could  be  included  in  the                                                               
Stranded Gas  Act amendments.   Mr. Hanley agreed it's  better to                                                               
address them in statute, rather than just as comments.                                                                          
2:25:02 PM                                                                                                                    
MR. HANLEY,  in response to  Senator Dyson, listed  the following                                                               
issues  raised in  Mr. Shepler's  June 2  memo that  are of  like                                                               
concern to  Anadarko:  lack  of an LLC  available to look  at, of                                                               
concern since  that entity will  apply for the  FERC certificate,                                                               
set the  rate and decide who  gets to expand the  pipe; expansion                                                               
issues;  absence of  commitments  regarding voluntary  expansion;                                                               
rolled-in-price issues; sole-risk expansions  on the state's part                                                               
as an option,  which Anadarko believes is a  valuable option; the                                                               
weakness  of  the state-initiated  expansion;  and  that the  LLC                                                               
agreements   aren't  there   for  the   legislature  to   review.                                                               
Mr. Hanley  said he  didn't  know about  requiring  the state  to                                                               
consent to any material change in the qualified project plan.                                                                   
SENATOR DYSON  noted Mr. Hanley  hadn't mentioned the  absence of                                                               
commitments regarding capital structures for tariff purposes.                                                                   
MR. HANLEY  replied he'd have to  look at it.   He specified that                                                               
the  final item,  about the  net  book value,  would concern  his                                                               
company  as  well.    In  response  to  Senator  Elton,  he  said                                                               
Anadarko's team  members were still  going through  the contract;                                                               
most hadn't read  the June 2 memo yet, and  they hadn't looked at                                                               
specific  amendment language.   He  suggested they  could testify                                                               
next week.   He noted  they would have submitted  public comments                                                               
in another week and a half, but  the memo had made him realize it                                                               
might be too late at that point.                                                                                                
CHAIR  SEEKINS asked  whether Mr.  Hanley had  an opportunity  to                                                               
discuss any of these points with Mr. Shepler or his staff.                                                                      
MR. HANLEY  replied not since the  memo came out.   He elaborated                                                               
on his contacts with Mr.  Shepler over the years, noting Anadarko                                                               
hadn't shared an official position  on the proposed contract with                                                               
him  or   anyone,  although   Mr.  Shepler's   memo  is   a  good                                                               
representation of  issues Anadarko  has dealt  with.   In further                                                               
response, regarding  when Anadarko's comments would  be available                                                               
on the  contract, Mr. Hanley  said they're aiming for  early next                                                               
week with respect to issues raised in the memo.                                                                                 
2:31:50 PM                                                                                                                    
CHAIR SEEKINS  noted members had  received a complete  version of                                                               
the Stranded  Gas Act  that morning, and  said he'd  received the                                                               
information  referred to  by Mr.  Hanley from  the Internet.   He                                                               
asked  whether anyone  else wished  to testify.   He  then turned                                                               
attention to amendments.                                                                                                        
The committee took an at-ease from 2:33:44 PM to 2:36:38 PM.                                                                
SENATOR DYSON moved to adopt Amendment  1 to SB 2004, labeled 24-                                                               
GS2046\A.5, Bailey, 6/3/06, which read:                                                                                         
                      A M E N D M E N T  1                                                                                  
    OFFERED IN THE SENATE                  BY SENATOR DYSON                                                                     
          TO: SB 2004                                                                                                           
     Page 3, lines 3 - 4:                                                                                                       
          Delete "modifications of taxes on oil and gas,                                                                    
     including terms providing for"                                                                                         
     Page 3, line 4, following "taxes":                                                                                         
          Insert "on oil or gas or both"                                                                                    
SENATOR  DYSON objected  for discussion  purposes.   He explained                                                               
that this section allows the  commissioner to substitute payments                                                               
in lieu of taxes.  Although  it seems clear that the phrase being                                                               
deleted  on  lines 3-4  is  superfluous,  the administration  had                                                               
testified that  this language or  something like it is  needed to                                                               
clarify there  could be a PILT  substitute for oil or  gas taxes.                                                               
Senator  Dyson said  he thinks  this is  accomplished, but  he is                                                               
less confident that adding "on oil or gas or both" is needed.                                                                   
2:39:06 PM                                                                                                                    
JIM  BALDWIN, Counsel  to  the Office  of  the Attorney  General,                                                               
Department  of  Law, concurred  that  Amendment  1 preserves  the                                                               
ability to agree  to establish a payment in lieu  of taxes on oil                                                               
or gas.   While  the language  being deleted  is helpful,  to his                                                               
belief,   the  amendment   still  preserves   the  aforementioned                                                               
2:40:30 PM                                                                                                                    
SENATOR DYSON removed his objection.                                                                                            
CHAIR SEEKINS  announced that without  objection, Amendment  1 to                                                               
SB 2004 was adopted.                                                                                                            
He confirmed with Senator Dyson  that a second amendment wouldn't                                                               
be offered.                                                                                                                     
The committee took an at-ease from 2:41:20 PM to 2:43:01 PM.                                                                
SENATOR BUNDE moved to adopt Amendment  1 to SB 2003, labeled 24-                                                               
GS2056\A.2, Cook, 6/2/06, which read:                                                                                           
                      A M E N D M E N T  1                                                                                  
    OFFERED IN THE SENATE                  BY SENATOR BUNDE                                                                     
          TO:  SB 2003                                                                                                          
     Page 5, line 16, following "(c)":                                                                                          
          Insert "At least three of the public members of                                                                       
        the board must be state residents.  Other public                                                                        
     members need not be state residents."                                                                                      
CHAIR SEEKINS objected for discussion purposes.                                                                                 
SENATOR GREEN also objected.                                                                                                    
SENATOR BUNDE recalled  discussion of whether members  of the new                                                               
natural  gas advisory  group  should be  Alaskans,  and that  the                                                               
administration wanted  the best expertise possible,  perhaps even                                                               
from Canada.   He suggested  that having three public  members of                                                               
the  board  be  state  residents  gives  the  administration  its                                                               
option,  while  there  will be  the  "buy-in"  and  institutional                                                               
memory with  having five total  members -  including, presumably,                                                               
the commissioners - who are Alaska residents.                                                                                   
CHAIR  SEEKINS  asked  whether  anyone  from  the  administration                                                               
wished to comment.                                                                                                              
SENATOR GREEN inquired whether Tam  Cook, director of Legislative                                                               
Legal  and Research  Services, believed  the second  sentence was                                                               
necessary.  She said it seemed superfluous.                                                                                     
SENATOR BUNDE,  noting the amendment  was created  by Legislative                                                               
Legal Services, said he hadn't asked for that specifically.                                                                     
2:46:30 PM                                                                                                                    
CHAIR  SEEKINS  and  SENATOR   GREEN  removed  their  objections.                                                               
Without objection, Amendment 1 to SB 2003 was adopted.                                                                          
2:47:41 PM                                                                                                                    
SENATOR BUNDE moved to adopt Amendment  2 to SB 2003, labeled 24-                                                               
GS2056\A.3, Cook, 6/2/06, which read:                                                                                           
                      A M E N D M E N T  2                                                                                  
    OFFERED IN THE SENATE                  BY SENATOR BUNDE                                                                     
          TO:  SB 2003                                                                                                          
     Page 6, line 8:                                                                                                            
          Delete "or portion of a day spent"                                                                                    
          Insert "during which the member spent at least                                                                        
     four hours"                                                                                                                
SENATOR GREEN objected.                                                                                                         
SENATOR BUNDE explained  that Amendment 2 to SB  2003 was offered                                                               
to generate discussion.  Although  people on this board will have                                                               
valuable  expertise and  deserve  adequate compensation,  someone                                                               
might show  up for  a teleconference or  "15-minute check  in and                                                               
check out"  and get the  $400 honorarium.   Requesting discussion                                                               
of what is  an adequate amount of time spent,  he said four hours                                                               
was  chosen because  it's  the  amount of  time  necessary for  a                                                               
legislator to claim "long-term per diem."                                                                                       
SENATOR ELTON  noted early morning  or late-night  meetings might                                                               
require  a  member to  travel  either  the  previous day  or  the                                                               
following morning.   When  this is  coupled with  language saying                                                               
the four  hours must be spent  at a meeting of  the board, people                                                               
are penalized.                                                                                                                  
2:50:39 PM                                                                                                                    
SENATOR BUNDE asked whether Senator  Elton was suggesting a board                                                               
member would qualify  for three days' worth of  honorarium if the                                                               
person spent  one day traveling, one  day meeting and then  a day                                                               
SENATOR ELTON  responded, saying  he anticipates that  the people                                                               
of  the  caliber   desired  for  the  board   would  deserve  the                                                               
honorarium.    Furthermore, he  isn't  bothered  by providing  an                                                               
honorarium  for the  time during  which they're  away from  their                                                               
other professional lives.                                                                                                       
SENATOR  WAGONER concurred,  noting $400  a  day isn't  a lot  of                                                               
compensation, considering  the quality of people  who'll be asked                                                               
to serve.   However, he agreed $400 shouldn't be  provided for 15                                                               
minutes on teleconference.   He suggested looking  at providing a                                                               
50 percent honorarium  for anything less than two  hours spent on                                                               
the business of the LLC, for  example, but pointed out that these                                                               
people could be  put in a position where their  time was taken up                                                               
because of scheduling problems and so forth.                                                                                    
SENATOR  BEN STEVENS  opposed Amendment  2 for  multiple reasons:                                                               
other  members of  state  boards  receive compensation,  although                                                               
only on  a day when a  meeting has been called  and public notice                                                               
sent; there  also could be  travel per  diem, at a  different pay                                                               
level;  and  considerable  time  is  spent  preparing  for  board                                                               
meetings, and may  even result in shorter meetings.   Unless it's                                                               
applied  to all  state boards  and  commissions, he  said, it  is                                                               
unfair  to   target  a  single   board  with  such   a  four-hour                                                               
requirement.   He pointed  out that  although legislators  have a                                                               
four-hour requirement, theirs is a job, not a board position.                                                                   
2:55:54 PM                                                                                                                    
SENATOR  STEDMAN  agreed  this  isn't the  time  to  be  pinching                                                               
pennies with respect  to the honorarium, and noted  that per diem                                                               
for transportation is covered by statute.                                                                                       
CHAIR SEEKINS  remarked that it's  the same amount  of honorarium                                                               
he  received in  the  early  1990s while  serving  on the  Alaska                                                               
Permanent Fund Corporation Board of Trustees.                                                                                   
SENATOR BUNDE withdrew Amendment 2 to SB 2003.                                                                                  
2:56:53 PM                                                                                                                    
SENATOR BUNDE  offered a conceptual  amendment to SB  2003, later                                                               
labeled  conceptual Amendment  4, to  add "in-person  or face-to-                                                               
face"  following language  beginning on  page 6,  line 7,  of the                                                               
bill, relating to the $400 honorarium.                                                                                          
SENATOR GREEN  objected.   She explained  that the  time involved                                                               
can  be  the same,  regardless  of  whether  the meeting  is  via                                                               
teleconference;  she  related  personal  experience.    She  also                                                               
agreed   with  Senator   Ben   Stevens'   previous  comment,   on                                                               
Amendment 2, that  if it applies  to this board, it  should apply                                                               
to all others.  She asked about Chair Seekins' experience.                                                                      
CHAIR  SEEKINS  recalled  that  some  teleconferencing  had  been                                                               
allowed,  and that  if the  time  was spent,  the honorarium  was                                                               
SENATOR  HOFFMAN  objected   as  well.    He   pointed  out  that                                                               
teleconferencing is  encouraged today in  order to save  time and                                                               
money.  Such encouragement would disappear with this amendment.                                                                 
2:59:35 PM                                                                                                                    
SENATOR  BUNDE suggested  the need  to revisit  other boards  and                                                               
commissions.   He expressed concern  about spending  the public's                                                               
money to pay someone who made a 15-minute phone call.                                                                           
CHAIR SEEKINS indicated  he'd have staff member  Brian Hove check                                                               
with someone from the Alaska Permanent Fund Corporation board.                                                                  
SENATOR  GREEN pointed  out that  page 6,  beginning at  line 12,                                                               
says  the board  shall adopt  policies and  procedures to  ensure                                                               
compensation isn't paid to a member  or other person if the value                                                               
would  exceed the  value  of the  consideration  provided to  the                                                               
corporation.   Thus  it is  addressed somewhat,  with the  policy                                                               
determined by the board.                                                                                                        
SENATOR WILKIN  noted he sits on  boards, one of which  does much                                                               
work by teleconference,  sometimes requiring six hours  in a day.                                                               
He said  while he appreciates  what Senator Bunde  is attempting,                                                               
it may  be a bit misguided  because of how the  real world works.                                                               
Highlighting the cost savings, he  said he'd hate to be penalized                                                               
because he chose to participate by teleconference.                                                                              
SENATOR BUNDE withdrew conceptual Amendment 4 to SB 2003.                                                                       
3:02:17 PM                                                                                                                    
SENATOR BUNDE moved to adopt Amendment  3 to SB 2003, labeled 24-                                                               
GS2056\A.4, Cook, 6/3/06, which read:                                                                                           
                      A M E N D M E N T  3                                                                                  
    OFFERED IN THE SENATE                  BY SENATOR BUNDE                                                                     
          TO:  SB 2003                                                                                                          
     Page 6, line 29:                                                                                                           
          Delete "promptly"                                                                                                     
     Page 6, line 30, following "board":                                                                                        
          Insert "within 30 days after the seat becomes                                                                         
SENATOR GREEN objected.                                                                                                         
SENATOR   BUNDE  indicated   this  relates   to  the   governor's                                                               
appointment, saying  "promptly" could  last for  months, possibly                                                               
prohibiting action by a group highly important to the state.                                                                    
3:04:10 PM                                                                                                                    
SENATOR  WILKEN moved  to adopt  Amendment  1 to  Amendment 3  to                                                               
SB 2003, deleting "30" and inserting "90".                                                                                      
SENATOR GREEN objected for discussion purposes.                                                                                 
SENATOR  WILKEN explained  that this  board  will be  one of  the                                                               
three most  important in  Alaska.   He questioned  the governor's                                                               
ability   to    easily   find   someone   with    the   necessary                                                               
qualifications, and said he'd hate to rush that process.                                                                        
SENATOR BUNDE said he had no objection.                                                                                         
SENATOR GREEN withdrew her objection.                                                                                           
SENATOR  ELTON  spoke in  support  of  90  days, noting  it  also                                                               
imposes a deadline for someone who is being asked to serve.                                                                     
CHAIR SEEKINS asked  whether there was any  objection to adopting                                                               
Amendment  1  to  Amendment  3  to  SB  2003.    There  being  no                                                               
objection, it was so ordered.                                                                                                   
3:06:02 PM                                                                                                                    
SENATOR GREEN withdrew her objection to Amendment 3.                                                                            
CHAIR SEEKINS asked  whether there was any  objection to adopting                                                               
Amendment 3 to SB 2003 as  amended.  There being no objection, it                                                               
was so ordered.                                                                                                                 
3:06:27 PM                                                                                                                    
CHAIR SEEKINS moved  to adopt Amendment 5 to SB  2003, on page 6,                                                               
line 4, to  delete "provided", which he  surmised wasn't intended                                                               
by the drafters.  There being no objection, it was so ordered.                                                                  
3:07:34 PM                                                                                                                    
SENATOR  WILKEN said  he'd misread  signals and  therefore hadn't                                                               
done an amendment to  the PipeCo bill - SB 2003  - with regard to                                                               
voting on  fiscal issues by teleconference.   He offered to  do a                                                               
conceptual amendment or type one for later.                                                                                     
CHAIR SEEKINS agreed  to having it typed for later.   He returned                                                               
attention to SB 2004.                                                                                                           
3:08:25 PM                                                                                                                    
SENATOR WILKEN  moved to  adopt Amendment 3  to SB  2004, labeled                                                               
24-GS2046\A.4, Bailey, 6/3/06, which read:                                                                                      
                      A M E N D M E N T  3                                                                                  
     OFFERED IN THE SENATE                 BY SENATOR WILKEN                                                                    
          TO:  SB 2004                                                                                                          
     Page 9, following line 14:                                                                                                 
          Insert a new subsection to read:                                                                                      
          "(f)  Before making awards of grants under this                                                                       
     section  for   a  fiscal  year,  the   commissioner  of                                                                    
     commerce,  community,  and economic  development  shall                                                                    
     provide   reasonable  public   notice   of  all   grant                                                                    
     applications  received,  the   recommendations  of  the                                                                    
     relevant   municipal    advisory   group,   preliminary                                                                    
     determinations made concerning  the eligibility of each                                                                    
     municipality   or  organization   for   a  grant,   the                                                                    
     eligibility   of    each   expenditure    or   proposed                                                                    
     expenditure for  a grant,  and the  proposed allocation                                                                    
     of available  money among  grant proposals.  The public                                                                    
     notice  must specify  a  time and  place  for a  public                                                                    
     hearing  during  which  the commissioner  will  receive                                                                    
     comments concerning the  preliminary determinations and                                                                    
     allocations of  the department. The  commissioner shall                                                                    
     give reasonable  public notice of  the final  awards of                                                                    
     grants  made  under  this section.  Final  awards  take                                                                    
     effect 30 days after public  notice is given and may be                                                                    
     paid   to   the   grantees  according   to   procedures                                                                    
     established by regulation."                                                                                                
     Reletter the following subsections accordingly.                                                                            
     Page 9, following line 25:                                                                                                 
          Insert a new subsection to read:                                                                                      
          "(j)  In this section, "direct or severe impact"                                                                      
     means  a clearly  demonstrable  effect  on a  community                                                                    
     that proximately  contributes to  a material  change to                                                                    
     transportation,   infrastructure,    law   enforcement,                                                                    
     emergency   services,   health  and   human   services,                                                                    
     education,    labor     force,    population,    wages,                                                                    
     subsistence, or  another sociocultural  element brought                                                                    
     about by the construction of a gas pipeline."                                                                              
SENATOR WILKEN  objected for discussion  purposes.  He  noted the                                                               
first  section  of Amendment  3  to  SB  2004 relates  to  public                                                               
notice,  and  the  second  section   defines  "direct  or  severe                                                               
CHAIR SEEKINS  invited Mr. Baldwin  to give  the administration's                                                               
perspective on any amendment.                                                                                                   
SENATOR WILKEN  explained that the  first section  of Amendment 3                                                               
to SB  2004 makes public  how the grants are  analyzed, validated                                                               
and awarded,  in a public forum.   There was trouble  in the past                                                               
with a grant  process done out of the public  eye, without record                                                               
or with  records that  couldn't be obtained.   This  ensures that                                                               
communities  know who's  getting what,  and that  Alaska's people                                                               
know how this impact money is being divided up.                                                                                 
3:11:11 PM                                                                                                                    
SENATOR  WILKEN  noted  the  second section  of  Amendment  3  to                                                               
SB 2004,  instead of  saying  what impacts  are,  says what  they                                                               
aren't, providing  sideboards.  It combines  definitions from the                                                               
Alaska  Coastal  Management  Program;  the  Alaska  Surface  Coal                                                               
Mining  Control and  Reclamation Act;  and Legislative  Research,                                                               
which  rolled  in  its  suggestion  and  other  definitions  from                                                               
3:12:30 PM                                                                                                                    
CHAIR SEEKINS began  discussion of what later  became Amendment 3                                                               
to Amendment 3  to SB 2004, relating to the  first section of the                                                               
amendment,  line  13, which  says  in  part, "Final  awards  take                                                               
effect 30 days after public notice".   He surmised this refers to                                                               
public notice  of the final  awards, not the notice  specifying a                                                               
time and place for public hearing.   He asked whether it would be                                                               
advantageous,  after "public  notice",  to insert  "of the  final                                                               
SENATOR WILKEN said he'd accept that as a friendly amendment.                                                                   
3:13:36 PM                                                                                                                    
SENATOR ELTON began  discussion of Amendment 1 to  Amendment 3 to                                                               
SB 2004.   He requested  a legal opinion about  the inconsistency                                                               
between  the phrase  "or another  sociocultural  element" in  the                                                               
second  section   of  Amendment  3   and  the  phrase   "and  for                                                               
socioculture" on page 9, line 8, of the bill.                                                                                   
MR.  BALDWIN  suggested  making  them  parallel  for  consistency                                                               
purposes,  replacing  the  language  in the  amendment  with  the                                                               
language from page 9, line 8, of the bill.                                                                                      
3:15:31 PM                                                                                                                    
SENATOR  ELTON moved  to  adopt  Amendment 1  to  Amendment 3  to                                                               
SB 2004 as  follows, which included  his addition of a  hyphen to                                                               
the word "sociocultural":                                                                                                       
          Page 1, line 23, of the amendment, following                                                                          
          Delete "or another sociocultural element"                                                                             
          Insert "and for socio-cultural impacts"                                                                               
3:16:38 PM                                                                                                                    
SENATOR OLSON asked about adding  "the impact or planning for" to                                                               
the list  of provisions  at the bottom  of the  amendment because                                                               
planning must come up in order to remedy an impact.                                                                             
CHAIR  SEEKINS announced  it  would  be taken  up  as a  separate                                                               
3:18:12 PM                                                                                                                    
SENATOR DYSON  returned to Amendment 1  to Amendment 3.   He said                                                               
it  had been  suggested that  "and" be  used, implying  all those                                                               
items listed  must be taken  into account.  However,  "or" allows                                                               
picking from any or all, which he surmised would be the desire.                                                                 
SENATOR  ELTON  accepted "or  for"  to  replace  "and for"  as  a                                                               
friendly  amendment.    He  noted it  would  probably  mandate  a                                                               
conforming amendment on page 9, line 8, of the bill.                                                                            
SENATOR BUNDE  spoke against "or",  saying it wouldn't  allow any                                                               
sideboards or limitations.  He pointed  out that the maker of the                                                               
main  amendment said  it denotes  what  isn't allowed.   Thus  he                                                               
preferred "and" in order to have it list a totality of impacts.                                                                 
SENATOR WILKEN  supported "or".   Highlighting the  difficulty of                                                               
defining impacts in statute, he  suggested impacts are whatever a                                                               
group of  people think  they are  when, in  good faith,  they sit                                                               
down to  determine whether  an impact exists.   The  decisions of                                                               
the  commissioner or  MAG will  be  public, and  they'll be  held                                                               
accountable  for  their decisions.    Thus  he proposed  "or"  is                                                               
appropriate   because   it  broadens   it   and   yet  there   is                                                               
accountability.   He indicated  that if "and"  were left  in, the                                                               
community would have to qualify for all those on the list.                                                                      
3:22:12 PM                                                                                                                    
CHAIR  SEEKINS   asked  whether  Senator  Bunde   maintained  his                                                               
SENATOR  BUNDE affirmed  that, saying  he'd like  to strike  that                                                               
whole last phrase.                                                                                                              
SENATOR ELTON  clarified that  with Amendment  1 to  Amendment 3,                                                               
including the change  to "or", the language to  be inserted would                                                               
read "or for socio-cultural impacts".                                                                                           
3:23:09 PM                                                                                                                    
A roll  call vote  of 10 yeas  and 2 nays  proved Amendment  1 to                                                               
Amendment  3  to  SB  2004 passed,  with  Senators  Kookesh,  Ben                                                               
Stevens, Stedman,  Olson, Dyson, Wilken, Elton,  Hoffman, Wagoner                                                               
and Seekins voting yea and Senators Bunde and Green voting nay.                                                                 
3:23:52 PM                                                                                                                    
SENATOR OLSON informed  Chair Seekins that he'd like  to hold off                                                               
on the  amendment he'd mentioned  earlier, since he didn't  see a                                                               
good place for it.                                                                                                              
CHAIR SEEKINS said it would be kept open until tomorrow.                                                                        
3:24:18 PM                                                                                                                    
SENATOR  BUNDE   moved  to  adopt   conceptual  Amendment   2  to                                                               
Amendment 3  to SB  2004,  second section  of  the amendment,  as                                                               
     Page 1, line 23, of the amendment, following "wages":                                                                      
          Insert "or subsistence."                                                                                              
          Delete the rest of the amendment                                                                                      
SENATOR  BUNDE  explained  that  the  preceding  are  all  socio-                                                               
cultural impacts.  If put in  the negative, it would be difficult                                                               
to define and would open a loophole he chose not to see opened.                                                                 
SENATOR OLSON objected.                                                                                                         
SENATOR GREEN  questioned whether  Senator Bunde really  meant to                                                               
delete "brought about by the construction of a gas pipeline".                                                                   
SENATOR BUNDE  said it  was a good  catch; he  revised conceptual                                                               
Amendment  2  to Amendment  3  accordingly.    It would  read  as                                                               
follows because of Amendment 1 to Amendment 3, just adopted:                                                                    
     Page 1, line 23, of the amendment, following "wages":                                                                      
          Insert "or subsistence"                                                                                               
          Delete ", or for socio-cultural impacts"                                                                              
CHAIR SEEKINS  suggested the original sentence  probably included                                                               
Senator Bunde's  thought when it said  "and another socioeconomic                                                               
impact", implying all the previous items were included.                                                                         
3:26:52 PM                                                                                                                    
SENATOR  WILKEN  remarked  that   "proximately"  on  line  21  of                                                               
Amendment 3 means accurately or close  to, and thus there must be                                                               
a  linkage to  the socio-cultural  impacts.   He said  it enables                                                               
keeping  "or for  other socio-cultural  impacts" in  the language                                                               
and so he wouldn't support the amendment.                                                                                       
CHAIR  SEEKINS  clarified  it now  says  "or  for  socio-cultural                                                               
impacts".  He suggested it  wasn't indicating that the others are                                                               
socio-cultural impacts.                                                                                                         
SENATOR  BUNDE  remarked  that the  definition  of  "proximately"                                                               
probably lies in the eyes of the beholder.                                                                                      
SENATOR  GREEN  asked Senator  Wilken  whether  this language  is                                                               
similar to other legislation he has worked on.                                                                                  
SENATOR WILKEN replied that with  the exception of tying into the                                                               
bill itself, it's  essentially the same language.   He noted that                                                               
on another issue there'd been  an attempt to define "impact", and                                                               
this was  the best they could  do.  In further  response, he said                                                               
the National Petroleum  Reserve-Alaska (NPR-A) legislation didn't                                                               
include "socio-cultural".                                                                                                       
SENATOR GREEN opined it is dangerous language.                                                                                  
SENATOR ELTON  provided context,  stating his  understanding from                                                               
testimony the  previous day that  this language was  suggested by                                                               
MAG,  working   with  the   deputy  commission   of  DOR.     The                                                               
commissioner  will   make  a  decision  on   impact  funds  after                                                               
consulting with the  MAG group.  Thus thresholds  must be crossed                                                               
on any decision,  whether it relates to  transportation or socio-                                                               
cultural impacts.  Senator Elton  said he's comfortable with that                                                               
process, especially given  that the first part  of this amendment                                                               
clarifies the process and what is accomplished.                                                                                 
3:30:53 PM                                                                                                                    
SENATOR  GREEN responded  that with  all due  respect to  MAG, it                                                               
gives her no assurance.  It's  a self-interest group, and this is                                                               
what they want.  It will be  a direct gift to their village, town                                                               
or borough.                                                                                                                     
SENATOR  ELTON acknowledged  that point,  but suggested  there is                                                               
also a  self-policing element in MAG:   the more money  that goes                                                               
to another  community for  any kind of  interest, the  less money                                                               
there is for them.                                                                                                              
SENATOR BUNDE  responded that he  also expected to be  told there                                                               
is  honor among  thieves.   Saying  this isn't  only directed  at                                                               
small communities,  he provided an example  and expressed concern                                                               
about  Alaskans'  creativity in  artfully  using  state money  to                                                               
their own advantage.                                                                                                            
3:32:43 PM                                                                                                                    
CHAIR  SEEKINS  asked  about  the  difference  between  a  socio-                                                               
cultural impact and a socioeconomic impact.                                                                                     
MR.  BALDWIN replied  that  it  was hard  to  say, but  suggested                                                               
"socioeconomic" has  more to  do with  actual dollars  and cents,                                                               
whereas  "socio-cultural"   relates  to   almost  anthropological                                                               
considerations such as lifestyle and perhaps recreation.                                                                        
SENATOR  OLSON  spoke  in  favor  of  retaining  "socio-cultural"                                                               
because it  relates to  impacts from  the gas line.   He  said it                                                               
goes far  beyond recreation, having  to do with a  lifestyle that                                                               
people either  were raised with or  have come in to.   Looking at                                                               
the amendment, he said it addresses a multifaceted element.                                                                     
3:34:20 PM                                                                                                                    
SENATOR  DYSON spoke  in  support of  conceptual  Amendment 2  to                                                               
Amendment 3.   He  suggested "material" on  line 21  indicates an                                                               
objective change; an example is  a new road for which individuals                                                               
don't have  a choice.  Socio-cultural  impacts, though important,                                                               
are  far more  subjective and  hard  to evaluate  - they  involve                                                               
choice  and aren't  something the  government  is responsible  to                                                               
fix; he  cited effects  from television  or impacts  on marriages                                                               
from "ladies of the night"  during TAPS construction as examples.                                                               
Voicing hope  that affected communities  would use  good judgment                                                               
in responding to changes, he  also noted the reference to "health                                                               
and  human   services",  surmising   the  legislature   would  be                                                               
financing remedies for some of the negative social effects.                                                                     
SENATOR HOFFMAN remarked that it's a bad, bad amendment.                                                                        
3:38:21 PM                                                                                                                    
A  roll  call  vote  of  3 yeas  and  9  nays  proved  conceptual                                                               
Amendment  2 to  Amendment 3  to  SB 2004  failed, with  Senators                                                               
Bunde,  Dyson and  Green  voting yea  and  Senators Ben  Stevens,                                                               
Stedman,  Olson, Wilken,  Elton,  Hoffman,  Kookesh, Wagoner  and                                                               
Seekins voting nay.                                                                                                             
3:39:45 PM                                                                                                                    
SENATOR GREEN returned to Amendment 3  to Amendment 3 to SB 2004.                                                               
She offered  the following language  beginning on line 13  of the                                                               
      Thirty days after such public notice is given, final                                                                      
       awards take effect and may be paid to the grantees                                                                       
     according to procedures established by regulation.                                                                         
She pointed  out that this makes  it refer to the  final award of                                                               
grants in the previous sentence.                                                                                                
SENATOR  WAGONER  suggested it  could  be  simplified further  by                                                               
saying "final grant awards".                                                                                                    
SENATOR GREEN  explained that this  is designed to  specify which                                                               
public notice it refers to.                                                                                                     
CHAIR SEEKINS asked  whether there was any  objection to adopting                                                               
Amendment  3  to  Amendment  3  to  SB  2004.    There  being  no                                                               
objection, it was so ordered.                                                                                                   
3:41:52 PM                                                                                                                    
CHAIR SEEKINS asked  whether there was any  objection to adopting                                                               
Amendment 3 to SB 2004 as  amended.  There being no objection, it                                                               
was so ordered.                                                                                                                 
The committee took an at-ease from 3:42:08 PM to 3:55:38 PM.                                                                
SENATOR BEN STEVENS moved to adopt Amendment 4 to SB 2004, which                                                                
                      A M E N D M E N T  4                                                                                  
     AS 43.82 is amended by adding a new section to read:                                                                       
          Sec. 43.82.255.  Term of contract provisions                                                                        
     related to  oil.   (a) The  provisions of  this section                                                                  
     apply to  a contract developed under  AS 43.82.020 that                                                                    
     provides for periodic  payment in lieu of  taxes on oil                                                                    
     under AS 43.55.                                                                                                            
          (b) For the part of the contract term beginning                                                                       
     immediately after  the date of full  project funding or                                                                    
     the  date  of  issuance  of  a  certificate  of  public                                                                    
     convenience and necessity  for construction and initial                                                                    
     operation   of  the   Alaska   Natural  Gas   Pipeline,                                                                    
     whichever  date is  later, and  ending  14 years  after                                                                    
     that date, the commissioner may  develop a term for the                                                                    
     contract  that provides  for payments  in  lieu of  the                                                                    
     taxes on oil set out in  AS 43.55.  For the part of the                                                                    
     contract term covered by  this subsection, the payments                                                                    
     in  lieu  of taxes  may  be  established with  as  much                                                                    
     certainty as  the Constitution of  the State  of Alaska                                                                    
          (c) For the part of the contract term beginning                                                                       
     immediately after  the period described in  (b) of this                                                                    
     section, and ending  on a date not later  than 25 years                                                                    
     after the  effective date of  the contract,  the amount                                                                    
     of the  payment in  lieu of tax  on oil  under AS 43.55                                                                    
     must be equal  to the amount of the tax  levied by law.                                                                    
     However, the  commissioner may develop a  contract term                                                                    
     that, in  the event of  a material change in  the taxes                                                                    
     enacted  after  the  effective date  of  the  contract,                                                                    
     establishes a  procedure for  restoring the  parties to                                                                    
     substantially the  same economic  position they  had as                                                                    
     of  the end  of the  period  described in  (b) of  this                                                                    
     section immediately before the change.                                                                                     
          (d) Implementation of a contract provision                                                                            
     authorized in this  section may be made  subject to the                                                                    
     dispute resolution procedures of the contract.                                                                             
SENATOR BEN STEVENS objected for discussion purposes.  He                                                                       
explained that Amendment 4 to SB 2004 adds a new section under                                                                  
terms of the contract related  to oil.  He paraphrased subsection                                                               
(a), indicating  he believes it  validates the  portion discussed                                                               
yesterday afternoon, AS 43.82.210(a)(1),  "oil and gas production                                                               
taxes and oil surcharges under  AS 43.55".  Noting subsection (b)                                                               
is  complex,  he  pointed  out  the contract  term  is  from  the                                                               
effective date to some future  point; other provisions in law say                                                               
it cannot be longer than 45 years.                                                                                              
3:58:15 PM                                                                                                                    
SENATOR BEN STEVENS  read from the first sentence  of (b), saying                                                               
it  relates to  the  term beginning  when:   a  project is  fully                                                               
funded,  with commitments  by the  corporations'  boards; a  FERC                                                               
certificate  of public  convenience has  been issued  and permits                                                               
are in  order; and  there is  certainty that  a pipeline  will be                                                               
constructed.  The 14-year period,  derived from contemplation, is                                                               
a  time  of capital-cost  recovery,  defined  as "total  revenues                                                               
minus  corporate  income tax  equals  total  expenditures."   The                                                               
project will have  moved forward and substantial  money will have                                                               
been spent, he said, going beyond the time of first gas.                                                                        
He   explained   that  there   is   some   leniency  because   of                                                               
uncertainties about delays,  cost overruns and so  forth.  During                                                               
that time,  the terms  in AS 43.55,  which would  be incorporated                                                               
into the contract  related to oil, shall be part  of a payment in                                                               
lieu of  taxes and be established  with as much certainty  as the                                                               
state  constitution  allows.    With  subsections  (a)  and  (b),                                                               
certainty begins on  oil when a project is  funded, permitted and                                                               
committed to  by all sponsor  members to move forward,  and shall                                                               
last 14 years "in firm certainty."                                                                                              
He turned  to subsection  (c), which  addresses the  period after                                                               
the 14 years  has expired,  ending no later  than 25  years after                                                               
the effective  date of the  contract.  He highlighted  three time                                                               
periods:  1) the effective date,  2) the project sanction or full                                                               
project  funding  and  3)  this  uncertain  date  14 years  after                                                               
4:02:06 PM                                                                                                                    
SENATOR BEN STEVENS read from (c).   He noted payments due in the                                                               
PILT during the  above-described period must equal  what's in the                                                               
tax law  at that  time.   However, if there's  a change  that the                                                               
legislature has  the authority to  effect, there is  an agreement                                                               
to go back and look at  those terms with regard to "substantially                                                               
the same economic position."                                                                                                    
He proposed thinking in terms of  timing.  The overall picture is                                                               
25 years  from the effective date.   Phase one is  anticipated to                                                               
be  4  years, although  the  time  until project  sanction  isn't                                                               
known; during  that time, there  is no  certainty and oil  is not                                                               
locked in.  For phase two, from  the point of sanction - once the                                                               
project is  permitted and there's  an issuance from FERC  - there                                                               
will be firm certainty on  taxation for 14 years; the legislature                                                               
will agree  not to change  the terms  during that time,  which is                                                               
the period of capital-cost recovery.  Phase three is 7 years.                                                                   
He recalled that the industry  and financial presenters advocated                                                               
certainty for  the term of  the first firm  shipping commitments;                                                               
he indicated  FERC will  require such  FT commitments  during the                                                               
open season.   He proposed  that the 21 years  following sanction                                                               
is ample time to cover this period of concern.                                                                                  
4:06:46 PM                                                                                                                    
SENATOR BEN  STEVENS said he  anticipated a lot of  reaction from                                                               
Amendment  4.   However, he  suggested it's  not unreasonable  to                                                               
have the right to modify a  new petroleum tax regime - which it's                                                               
anticipated will be enacted - between  now and the period for the                                                               
project  when the  desire  is to  lock it  in.   He  acknowledged                                                               
technical corrections  may be required.   Thus he  didn't believe                                                               
it  unreasonable   to  request   the  state's  ability   to  make                                                               
modifications  during  that   time.    Nor  did   he  believe  it                                                               
unreasonable for the industry to  demand certainty regarding cash                                                               
flow  during  the  period  of "cash  outflow  to  a  capital-cost                                                               
recovery."   It's  a normal  industry practice  and standard,  he                                                               
said.  He reiterated details from subsection (c).                                                                               
CHAIR SEEKINS suggested it provides for a balancing clause.                                                                     
SENATOR BEN STEVENS concurred.   With regard to why the balancing                                                               
clause isn't  included, he said  there was a lot  of deliberation                                                               
about it.  The balancing clause  won't be needed for a minimum of                                                               
18  years, and  then only  if  a future  legislature changes  the                                                               
contract materially.  He asked  why the legislature would want to                                                               
tell the  commissioner what balancing clause  the commissioner is                                                               
supposed  to use,  18  years  from now,  when  trying to  balance                                                               
elements and dynamics of market  conditions for which they cannot                                                               
make an accurate forecast.                                                                                                      
4:10:35 PM                                                                                                                    
SENATOR ELTON  drew attention to  subsection (b) in  Amendment 4,                                                               
"and ending  14 years after  that date".   He inferred  it allows                                                               
for  the  period up  to  commencement  of  the project  and  then                                                               
recovery of capital costs.  He  said it seems capital costs could                                                               
be recovered  after 12 years or  16 years.  Rather  than having a                                                               
firm 14  years, he therefore  asked about using language  such as                                                               
"and ending after capital costs are recovered".                                                                                 
SENATOR  BEN  STEVENS  replied  he'd  thought  about  it  a  lot.                                                               
Subsection (b) is  phase two, from sanction to some  point in the                                                               
future.   His original intention  was to say "from  sanction date                                                               
that  covers  through  capital expenditure  and  then  through  a                                                               
period of  revenue generation to capital-cost  recovery."  Delays                                                               
and pricing  considerations are  unknown factors.   He  said he'd                                                               
concluded that  in order to try  to meet those three  timelines -                                                               
4 or  5 years  for permitting,  10 to  14 years  for capital-cost                                                               
recovery, and  20 years for FT  commitment - he'd wanted  to give                                                               
certainty for some period, and had ended up at 14 years.                                                                        
4:12:58 PM                                                                                                                    
SENATOR ELTON turned to subsection (c)  in Amendment 4.  He asked                                                               
what  the  commissioner's  responsibility   is  in  developing  a                                                               
contract term that, in the event  of material change in the taxes                                                               
enacted  after the  effective date  of the  contract, establishes                                                               
the  procedure  for restoring  parties.    He asked  whether  the                                                               
legislature is ceding  some authority to the  executive branch in                                                               
the establishment of payments in lieu of taxes.                                                                                 
SENATOR  BEN STEVENS  answered "no"  to  the last  question.   He                                                               
paraphrased  the  first  sentence  in  (c),  adding  "or  by  the                                                               
contract" after the written phase "the  payment in lieu of tax on                                                               
oil under AS 43.55  must be equal to the amount  of tax levied by                                                               
law".  He  said they have to be  equal in the law at  "the end of                                                               
(b), which is the terms of fiscal certainty."                                                                                   
SENATOR ELTON  observed that  the next  sentence seems  to modify                                                               
the first, however.                                                                                                             
SENATOR BEN STEVENS said the  next sentence in (c) gives latitude                                                               
to future  legislators to change  it.  He paraphrased  a portion,                                                               
which begins,  "However, the commissioner may  develop a contract                                                               
term  that, in  the  event  of a  material  change  in the  taxes                                                               
enacted  after  the   effective  date  of  the   contract".    He                                                               
interpreted this to say that  if the legislature changes that tax                                                               
structure between  the effective date and  the end-date mentioned                                                               
in (b) - which  could be 17 or 20 years from  now - the agreement                                                               
is to allow  the commissioner to enter into a  contract term that                                                               
is essentially  a rebalancing agreement.   He emphasized  that it                                                               
has to be a "material change on the contract."                                                                                  
SENATOR ELTON asked  the purpose of "may" in  the second sentence                                                               
of  (c) and  whether  it could  say,  "However, the  commissioner                                                               
shall develop a contract term".                                                                                                 
SENATOR BEN  STEVENS indicated  it could  be changed  to "shall",                                                               
but  "may" allows  the commissioner,  at a  future date,  to deal                                                               
with  uncertain market  conditions;  there might  be  no need  to                                                               
change it for that last 7-year period.                                                                                          
4:16:18 PM                                                                                                                    
SENATOR ELTON  observed it's  a different way  of looking  at the                                                               
certainty issue.  Rather than locking  it in for 30 years, at the                                                               
end  of  (b)   there  still  is  a   constitutional  issue  being                                                               
addressed, but the lock-in is for a shorter period of time.                                                                     
SENATOR BEN STEVENS agreed it's  a significant shift from locking                                                               
in  taxation  immediately  after ratification  of  the  contract.                                                               
This says certainty  isn't locked in until there  is a commitment                                                               
from all parties,  as well as validation that all  permits are in                                                               
place and everything is active to  move forward.  "At that point,                                                               
in my mind,  the reason why I  came up with that  is because that                                                               
is  when a  firm business  commitment  ... has  been signed,"  he                                                               
added, noting at  that point the financial  markets and investors                                                               
will want to have certainty during that period of time.                                                                         
He told members  he'd spent a lot of time  looking at comparisons                                                               
of what  other nations do  with respect to forgiveness  on taxes.                                                               
For  example,  Alberta's system  forgives  all  taxes until  full                                                               
capital-cost  recovery on  the  oil  sands and  has  a 1  percent                                                               
royalty during  that time, which  may take years.   With Alaska's                                                               
project,  he stated  the intent  of  providing certainty  without                                                               
locking it in over a period of time that isn't necessary.                                                                       
4:18:57 PM                                                                                                                    
SENATOR ELTON returned  to subsection (b), noting  he has assumed                                                               
project  funding   cannot  be  finalized  until   issuance  of  a                                                               
certificate  of  public  convenience  and necessity.    He  asked                                                               
whether funding may possibly occur before that.                                                                                 
SENATOR BEN  STEVENS said  "full project  funding" is  defined in                                                               
the Stranded Gas Act, AS 43.82.900(7), which states:                                                                            
          (7) "full project funding" means full approval by                                                                     
     a  party  to a  contract  under  AS 43.82.020  for  the                                                                    
     expenditure of  the capital necessary  for construction                                                                    
     and operation  of the  approved qualified  project that                                                                    
     is subject to the contract;                                                                                                
He explained that  he'd inserted the issuance  of the certificate                                                               
of  public convenience.   He  suggested it's  almost a  redundant                                                               
requirement because  the FERC certificate cannot  be issued until                                                               
the authorization for expenditure has  been approved by the board                                                               
of directors  of the  sponsor groups.   He  said he  believes the                                                               
issuance of  that certificate  is the later  of the  two "because                                                               
they could  make approval  and then  there would  be a  period of                                                               
time that it locks in."  He  opined that the FERC issuance is the                                                               
real marker for when the  project moves forward or doesn't, which                                                               
is why he'd included that.                                                                                                      
4:21:41 PM                                                                                                                    
SENATOR WILKEN  asked whether  there is  a general  definition of                                                               
"material change" in the industry.                                                                                              
SENATOR  BEN STEVENS  said it's  a good  question.   He gave  his                                                               
personal  understanding that  it's anything  with an  impact over                                                               
3 percent,  "plus  or  minus  3   percent  on  annual  forecasted                                                               
CHAIR  SEEKINS called  it a  GAAP (generally  accepted accounting                                                               
principles) term.                                                                                                               
SENATOR BEN  STEVENS said he  wasn't sure whether it  was defined                                                               
in statute, but noted it wasn't defined in the Stranded Gas Act.                                                                
MR. BALDWIN  said not to  his knowledge,  but he'd seen  the term                                                               
used in international agreements.                                                                                               
CHAIR SEEKINS requested confirmation that  the intent here is "an                                                               
effective plus or minus 3 percent."                                                                                             
SENATOR  BEN STEVENS  affirmed  that, specifying  it  would be  a                                                               
change  that had  a  material effect  on  the revenues  generated                                                               
under the contract, plus or minus 3 percent.                                                                                    
4:22:46 PM                                                                                                                    
SENATOR  WILKEN  asked  whether firm  transportation  commitments                                                               
normally are in 20-year blocks.                                                                                                 
SENATOR  BEN STEVENS  affirmed  that as  his  understanding.   He                                                               
indicated his understanding  that the open season  under the FERC                                                               
timeline occurs 2 years before  sanction; from first gas forward,                                                               
FERC wants a commitment for 20 years.                                                                                           
SENATOR WILKEN requested confirmation that  if it took 4 years to                                                               
get to sanction,  the legislature could come back in  2 years, if                                                               
it so chose, and do a whole new petroleum production tax (PPT).                                                                 
SENATOR BEN STEVENS  agreed there'd be such freedom,  but said he                                                               
believed there'd have  to be the caveat that  it would materially                                                               
impact  the  contract and  put  it  in  jeopardy.   "But  there's                                                               
nothing that  says that  we would  have to  make the  change," he                                                               
4:24:02 PM                                                                                                                    
CHAIR SEEKINS suggested it would put the project at risk.                                                                       
SENATOR  BEN STEVENS  said  it  could.   In  response to  Senator                                                               
Wilken,  he  added,  "We  would have  the  consequences  of  that                                                               
decision, but ... the industry does  not get the certainty of our                                                               
decision  to move  forward  on ratification  until  they show  us                                                               
there is a project."                                                                                                            
CHAIR  SEEKINS  summarized,  "Show  us the  money,  show  us  the                                                               
project - you get certainty."                                                                                                   
SENATOR BEN STEVENS cautioned that  future legislators would have                                                               
to be  aware of the  jeopardy that they  may cause to  the future                                                               
diligence of pursuit of the project.                                                                                            
4:24:47 PM                                                                                                                    
SENATOR  DYSON said  he'd been  intrigued by  this concept  since                                                               
first hearing  about it.  He  referred to (c), however,  where it                                                               
talks about "substantially the same  economic position" as at the                                                               
end  of (b).   If  the oil  industry were  struggling and  losing                                                               
money on the pipeline at the  end of the period described in (b),                                                               
he  said, it  appears under  (c) the  state couldn't  fix it  for                                                               
them.  Or  if the people of Alaska weren't  getting a fair share,                                                               
that  couldn't be  fixed either,  because of  the requirement  to                                                               
stay in that plus-or-minus-3-percent range discussed earlier.                                                                   
4:26:29 PM                                                                                                                    
SENATOR  BEN  STEVENS  clarified that  capital-cost  recovery  is                                                               
"total  revenues   minus  corporate   income  tax   equals  total                                                               
expenditures,"  whereas full  debt  retirement  would occur  much                                                               
further  into  the  future  and   is  unknown  because  the  debt                                                               
instruments and amounts would vary  from company to company.  "We                                                               
looked  at that  in terms  of saying  that maybe  it should  be a                                                               
period of certainty through debt  retirement," he noted, but said                                                               
that  date  is hard  to  pick  because  of the  uncertainty  with                                                               
respect to each company.                                                                                                        
He continued, saying  "same economic position" to  him means "the                                                               
same  distribution  of  economic  rent."   As  the  state  is  an                                                               
economic participant  and takes its  gas in value, it  bears both                                                               
the high side  and the low side with the  industry; therefore, it                                                               
has nothing  to give back,  under the  way the contract  has been                                                               
developed,  unless there  is a  decision  to give  back the  gas.                                                               
There is  no severance tax.   "The only thing we  could give back                                                               
would be royalty in terms of  the gas economics," he added.  "But                                                               
the  oil  economics  is  another element,  and  that's  why  it's                                                               
unpredictable ... how  those two will interact  into the future."                                                               
Thus he said he hadn't known how to phrase it.                                                                                  
4:28:51 PM                                                                                                                    
SENATOR DYSON asked  whether his main point was  still true, that                                                               
if  there  is a  real  problem  - either  for  the  state or  the                                                               
producers at the end of the period in (b) - it cannot be fixed.                                                                 
SENATOR  BEN  STEVENS  suggested that's  encompassed  in  Senator                                                               
Elton's statement about "shall" versus "may".                                                                                   
SENATOR DYSON said that wasn't his reading of it.                                                                               
SENATOR BEN STEVENS replied, "If  we say 'shall', then they would                                                               
not be able to make any changes.   If it says 'may' - if there is                                                               
something that  is so dramatic  at the end  of period (b)  - they                                                               
may do it, they may not do it.   But certainty ends at the end of                                                               
period (b)."                                                                                                                    
SENATOR DYSON asked whether the  initiation of the remedy is only                                                               
at the discretion of the commissioner.                                                                                          
SENATOR BEN  STEVENS replied  no, it's at  the discretion  of the                                                               
legislature  under  AS  43.55, because  the  legislature  changes                                                               
taxes.   He indicated  this doesn't  go into  the changes  of the                                                               
terms of  the contract as  a whole.   Rather, it only  relates to                                                               
how oil interacts with the contract.   He said he hadn't ventured                                                               
into the economics of the gas in the future.                                                                                    
4:30:07 PM                                                                                                                    
SENATOR DYSON  said he was still  charmed by this, but  asked for                                                               
time to think about it overnight.                                                                                               
CHAIR SEEKINS  suggested there'd  never be  an objection  to "the                                                               
downward change in the economic burden from the producers."                                                                     
SENATOR DYSON expressed concern that  it's precluded by this, and                                                               
added he  wanted to  think about  putting into  statute something                                                               
he'd thought would be in the contract.                                                                                          
CHAIR  SEEKINS  pointed  out  that   the  contract  needs  to  be                                                               
developed in  concert with the  requirements and purposes  of the                                                               
4:31:23 PM                                                                                                                    
SENATOR  BEN  STEVENS  replied   to  Senator  Dyson,  saying  the                                                               
development  of Section  43.82.255  is in  response  to terms  in                                                               
Exhibits P and  R of the contract, which are  based on terms that                                                               
will  be  incorporated  from  passage  of a  final  PPT.    Those                                                               
exhibits are  oil terms and credit  terms of the PPT.   This says                                                               
those  exhibits can  be part  of the  contract for  this specific                                                               
period of time, to his understanding.                                                                                           
SENATOR BUNDE agreed  these are things he'd expect to  see in the                                                               
contract,  but opined  that the  legislature's only  guarantee of                                                               
getting  something  into  the  contract  is  through  this  bill.                                                               
Whether it's  a good  idea, on  this or any  issue, is  worthy of                                                               
discussion, but it's  one of the few sure  routes the legislature                                                               
has with respect to affecting the contract.                                                                                     
4:33:13 PM                                                                                                                    
SENATOR ELTON  referred to  (c), line  2, "ending  on a  date not                                                               
later than 25  years".  Assuming 4 years  before construction and                                                               
then another  14 years,  he said the  plain language  suggests it                                                               
could end after 19 years.                                                                                                       
SENATOR BEN STEVENS  replied that is theoretically  correct.  The                                                               
flexibility is intentional because the  length of phase one isn't                                                               
known.   It could  be 7  years before  project funding  and final                                                               
FERC certification.   There  could be  permit challenges  or U.S.                                                               
Supreme Court challenges, for example.   He acknowledged it could                                                               
say,  for instance,  "A  date certain  25  years after  effective                                                               
date, it ends."                                                                                                                 
CHAIR SEEKINS requested clarification about the effective date.                                                                 
4:35:15 PM                                                                                                                    
MR.  BALDWIN  specified that  the  Act  says the  contract  takes                                                               
effect 60 days after signature.                                                                                                 
CHAIR  SEEKINS surmised  that after  approval by  the legislature                                                               
there is 60  days to execute the contract; the  effective date is                                                               
60 days after the date of full execution.                                                                                       
SENATOR BEN STEVENS said that's correct.                                                                                        
4:36:03 PM                                                                                                                    
SENATOR  ELTON   turned  to  subsection   (d)  in   Amendment  4,                                                               
"Implementation  of  a  contract  provision  authorized  in  this                                                               
section may be made subject  to the dispute resolution procedures                                                               
of  the contract."    He said  he'd assumed  it  would have  been                                                               
covered by arbitration without this,  but this specifies that the                                                               
dispute  resolution  process  in  the contract  will  govern  the                                                               
provisions of this.   He surmised the Alaska  Supreme Court could                                                               
have  had  jurisdiction,  for example,  rather  than  using  this                                                               
SENATOR BEN  STEVENS said the only  contract provision authorized                                                               
under  this  section  is  the  balancing  provision  whereby  the                                                               
commissioner  may develop  a  contract  term in  the  event of  a                                                               
material  change.   If  there  is  disagreement,  it will  go  to                                                               
arbitration under the terms of  the contract; eventually, a court                                                               
would determine  it.  He  said this balancing provision  won't be                                                               
in use for 18  years, and thus the attempt was  to be as flexible                                                               
as possible.                                                                                                                    
SENATOR  ELTON  noted that  in  anticipation  of a  lawsuit  over                                                               
locking in the  tax regime, today the  Senate adopted legislation                                                               
providing that  the Alaska  Supreme Court is  the first  court of                                                               
jurisdiction.  This provision in  the Stranded Gas Act would lock                                                               
in  tax terms,  and  yet,  in this  case,  any  disputes will  be                                                               
decided by an arbitrator, rather than the Alaska Supreme Court.                                                                 
4:38:39 PM                                                                                                                    
SENATOR BEN STEVENS  replied that the difference  between the two                                                               
- the  locking in  or the  creation of  fiscal certainty  under a                                                               
PILT -  is given in (b),  where it says taxes  may be established                                                               
with as  much certainty  as the  constitution allows;  that's the                                                               
piece  where  a supreme  court  challenge  is anticipated.    The                                                               
second piece would  be a renegotiation of  contract terms through                                                               
a  balancing clause  in the  contract.   It would  be contractual                                                               
terms, not  statutory terms.   Therefore,  the provision  in (d),                                                               
"implementation of a contract provision,"  would be the provision                                                               
established  under   the  authority   of  (c),  which   says  the                                                               
commissioner may develop a contract term.                                                                                       
4:39:40 PM                                                                                                                    
SENATOR ELTON suggested it should  say "in the above subsection",                                                               
rather than "section", since section includes subsection (b).                                                                   
SENATOR  BEN  STEVENS agreed  with  the  need  to look  at  that,                                                               
although  he   opined  that  only   one  contract   provision  is                                                               
authorized under  this section,  AS 43.82.255,  and all  the rest                                                               
just give allowances for the contract to be part of it.                                                                         
4:40:25 PM                                                                                                                    
SENATOR  WAGONER noted  the first  time period  could be  shorter                                                               
than 4 years, perhaps less than  44 months as far as FERC review.                                                               
He said he  hadn't been willing to commit to  locking this in for                                                               
an  extended period  of  time; this  provides  more comfort  than                                                               
earlier, and is a good attempt at solving the problem.                                                                          
CHAIR SEEKINS  said under Amendment 4  it appears there is  a 14-                                                               
year  period  of  certainty, after  which  the  commissioner  may                                                               
activate a balancing  clause for a period of time  up to 25 years                                                               
from the contract's effective date.   Although there is something                                                               
approximating   certainty   beyond   that   14   years,   it   is                                                               
SENATOR BEN STEVENS agreed, but said  this tries to address a lot                                                               
of  different  needs:    meeting   the  needs  of  the  financial                                                               
community  and  investors,  securing  cash  flow  that  won't  be                                                               
interrupted  by  legislative action,  and  meeting  the needs  of                                                               
legislators who  are concerned about locking  in fiscal certainty                                                               
on a project that isn't certain  to happen.  For the legislature,                                                               
the  need is  for the  front end.   For  industry, the  financial                                                               
world, and the  federal government with respect  to the loan-back                                                               
guarantee, the  need is for  the capital-cost  recovery component                                                               
as well  as the recovery period  that will be demanded  from FERC                                                               
with respect to  the duration of a shipping commitment.   Thus he                                                               
suggested it's 20 years, not 14 years.                                                                                          
4:44:18 PM                                                                                                                    
CHAIR SEEKINS  remarked that he  hadn't yet talked to  a rational                                                               
Alaskan who  wants to materially  adversely affect  the economics                                                               
of  a  project.    His constituents  seem  to  understand  giving                                                               
certainty  for a  period of  time to  recovery capital  expenses,                                                               
rather  than  having  the  legislature  be  able  to  change  the                                                               
economics of the deal at the  end of the construction period, for                                                               
example, before first gas.  However,  there also is the risk that                                                               
the legislature  will destroy the  project in that first  4 years                                                               
if the structure  is changed.  Beyond that, he  said this meets a                                                               
lot of the needs of the people with whom he has discussed it.                                                                   
4:45:30 PM                                                                                                                    
SENATOR  WAGONER  echoed  Senator  Dyson's  request  to  take  up                                                               
Amendment 4 to SB 2004 tomorrow, in order to have more time.                                                                    
SENATOR  BEN STEVENS  said  he wouldn't  object,  but asked  that                                                               
members try  not to conceptually  amend the provisions.   He said                                                               
it  hadn't   gone  through  Legislative  Legal   Services  for  a                                                               
multitude of  reasons, but he would  ask them now to  draft it in                                                               
regular format.                                                                                                                 
4:47:08 PM                                                                                                                    
CHAIR SEEKINS  agreed it would  be good to  get such a  draft and                                                               
their  input.   He  thanked  participants and  held  SB 2003  and                                                               
SB 2004 over.                                                                                                                   

Document Name Date/Time Subjects