Legislature(2005 - 2006)SENATE FINANCE 532


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09:26:10 AM Start
09:26:46 AM SB2003 || SB2004
09:32:18 AM Louisiana Cutler, Preston Gates & Ellis
09:49:20 AM James Barnes, Barnes & Cascio
10:14:22 AM Larry Ostrovsky, Department of Law
11:03:10 AM Kevin Jardell, Office of the Governor
11:26:26 AM Joseph K. Donohue, Preston Gates & Ellis
01:39:39 PM James Barnes, Barnes & Cascio
01:48:10 PM Eddy Jeans, Department of Education and Early Development
01:53:31 PM Steve Van Sant, State Assessor
02:10:44 PM Donald Shepler, Greenberg and Traurig
02:17:48 PM Bob Loeffler, Morrison & Foerster
02:27:38 PM Donald Shepler and Bob Loeffler
03:10:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 1:00 pm --
Heard & Held
Moved CSSB 2004(NGD) Out of Committee
            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                                                               
consideration.  Amendment 10A to SB  2004 had been adopted at the                                                               
7:05 a.m. meeting on this same date.                                                                                            
9:28:27 AM                                                                                                                    
SENATOR  WAGONER  withdrew  the  remainder  of  Amendment  10  to                                                               
SB 2004  (text provided  in  the 7:05  a.m.  minutes), items  10B                                                               
through 10Q.                                                                                                                    
CHAIR SEEKINS indicated  some of these issues would  be looked at                                                               
under  SB  2003, relating  to  the  Alaska Natural  Gas  Pipeline                                                               
Corporation  ("PipeCo"   or  "AK   Pipe").    Returning   to  the                                                               
separation-of-powers issue, he called upon Ms. Cutler.                                                                          
^Louisiana Cutler, Preston Gates & Ellis                                                                                        
LOUISIANA  CUTLER,   Preston  Gates  &  Ellis,   Counsel  to  the                                                               
Governor,  highlighted a  difference in  her views  and those  of                                                               
Dennis Bailey,  Legislative Legal Services attorney.   She opined                                                               
that  the separation-of-powers  problem is  much more  acute with                                                               
respect  to  approval  of collateral  agreements.    Although  it                                                               
exists as well  with regard to the fiscal contract  itself, it is                                                               
less  acute because  the legislature  has two  articulated powers                                                               
related to taxing.                                                                                                              
She explained  that Article  IX, Section  1, of  the constitution                                                               
indicates the legislature can contract  away the taxing power but                                                               
never surrender  it; Section 4 talks  about how the power  can be                                                               
contracted away.   Additionally, there  is the legal  doctrine of                                                               
unconstitutional delegation  of the taxing powers  to begin with:                                                               
even  if it  weren't contracted  away  for a  while, there  could                                                               
still be  an unconstitutional delegation if  the legislature were                                                               
not involved in that decision.                                                                                                  
She  surmised there  probably wouldn't  be any  limited liability                                                               
company (LLC) agreement  if the state didn't take a  share in the                                                               
pipeline.   It  isn't  directly connected  to  the taxing  power.                                                               
Although on  a bigger scale, it  is akin to other  contracts that                                                               
public corporations and the  administration frequently enter into                                                               
without legislative  approval of the  exact language; this  is in                                                               
contrast to  providing statutory authorization to  actually enter                                                               
into a  contract.   Hence Ms. Cutler  reiterated the  belief that                                                               
the  separation-of-powers problem  is worse  with respect  to the                                                               
collateral  agreements.   She underscored  that  even Mr.  Bailey                                                               
recognizes there is a problem.                                                                                                  
9:32:18 AM                                                                                                                    
SENATOR  STEDMAN expressed  concern about  adopting an  amendment                                                               
despite  advice, from  both Legislative  Legal  Services and  the                                                               
administration's counsel, that it is unconstitutional.                                                                          
CHAIR SEEKINS  said it is  an unanswered question.   He mentioned                                                               
time spent by  the Senate Judiciary Standing  Committee, which he                                                               
chairs,   on  the   issue  of   the  fiscal   contract  and   the                                                               
legislature's  requirement  for  final  approval.   He  said  the                                                               
normal process  would be for  the commissioner,  after publishing                                                               
final  findings of  financial interest  and  a determination,  to                                                               
execute the contract.  Amendments  in 1998, however, gave rise to                                                               
a  constitutional issue:   this  interjects the  legislature into                                                               
what normally is an administrative  process, and it says PipeCo's                                                               
board of  directors cannot approve  a collateral  agreement until                                                               
the legislature has authorized it,  to Chair Seekins' belief - or                                                               
the commissioner in the first 180 days.                                                                                         
MS. CUTLER affirmed that.                                                                                                       
SENATOR  STEDMAN   voiced  concern  about  where   the  remaining                                                               
components of withdrawn  Amendment 10 had come  from, and whether                                                               
the consultants hired  by the legislature had thought  of them or                                                               
had been  handed them.   Characterizing some as poison  pills, he                                                               
expressed   disappointment  that   they  wouldn't   be  addressed                                                               
CHAIR  SEEKINS  suggested  the opportunity  to  review  some  and                                                               
question the consultants further would arise under SB 2003.                                                                     
9:35:22 AM                                                                                                                    
SENATOR BUNDE remarked  that the idea of  legislative approval of                                                               
a basic  gas pipeline contract  likely will  be the subject  of a                                                               
court  suit  on  the  separation  of powers.    He  surmised  the                                                               
amendment  posed  no  more  jeopardy than  the  notion  that  the                                                               
legislature  would reconvene  later this  summer for  a yes-or-no                                                               
vote on  a pipeline contract.   He suggested there  currently are                                                               
dueling attorneys and consultants.                                                                                              
CHAIR SEEKINS explained one reason  for passage of SB 2001 by the                                                               
Senate:   If constitutional  questions are to  be decided  by the                                                               
court, original  jurisdiction will  be the Alaska  Supreme Court,                                                               
and they  must be  brought within  120 days  of execution  of the                                                               
contract;  thus constitutional  questions can  be answered  early                                                               
on.  He noted some challenges  are anticipated on that issue, and                                                               
perhaps this one as well.                                                                                                       
CHAIR  SEEKINS returned  attention  to Amendment  12 to  SB 2004,                                                               
labeled 24-GS2046\A.14, Bailey, 6/4/06, which read:                                                                             
                     A M E N D M E N T  12                                                                                  
     OFFERED IN THE SENATE                                                                                                      
          TO:  SB 2004                                                                                                          
     Page 1, line 12, following "state":                                                                                    
          Insert ", including gas pipeline pricing that                                                                     
     encourages further gas exploration"                                                                                    
CHAIR  SEEKINS  informed  members  that in  order  to  make  that                                                               
sentence consistent with what the  drafters believe the intent to                                                               
be,  they  suggest  the  following:    insert  "expansion"  after                                                               
9:37:52 AM                                                                                                                    
SENATOR GREEN moved  to rescind the committee's  action on 6/4/06                                                               
in adopting  Amendment 12.  There  being no objection, it  was so                                                               
SENATOR  HOFFMAN moved  to  adopt  Amendment 12  to  SB 2004,  as                                                               
amended to  include the aforementioned  word "expansion".   There                                                               
being no objection, it was so ordered.                                                                                          
9:39:43 AM                                                                                                                    
SENATOR WILKEN  returned to  withdrawn Amendment  10 to  SB 2004.                                                               
He asked Senator Stedman to  specify which components he believed                                                               
to be the most disturbing.   He explained that if egregious items                                                               
will show  up tomorrow  or next  month, he'd  like to  know about                                                               
them while the consultants who can address them are here.                                                                       
SENATOR STEDMAN answered he hadn't marked those.                                                                                
CHAIR SEEKINS requested  that Senator Stedman work on  it for the                                                               
SENATOR BEN STEVENS highlighted what  he termed a poison pill for                                                               
success, on page 3, lines 8-10, of Amendment 10, which read:                                                                    
               (6)  the Operating Agreement must provide                                                                        
     that the  entity may  not effect  a material  change or                                                                    
     amendment  to the  Qualified Project  Plan without  the                                                                    
     review and authorization of the legislature;                                                                               
He  indicated the  aforementioned  document was  funded with  the                                                               
$125 million  by the sponsors in  2000, and he suggested  it is a                                                               
poison pill because  it limits success.  The team  leaders of the                                                               
Qualified Project Plan are the  experts - engineers and financial                                                               
members - that will build the line, he noted.                                                                                   
SENATOR STEDMAN informed members  that one egregious component of                                                               
Amendment 10 was item (16):                                                                                                     
               (16)  the Operating Agreement must provide                                                                       
     that  the project  entity shall  use project  financing                                                                    
     supported by  federal guarantee instruments  as defined                                                                    
     in the Alaska  Natural Gas Pipeline Act  to the maximum                                                                    
     extent available  from the  United States  Treasury and                                                                    
     must    limit   the    equity   portion    of   project                                                                    
     capitalization  to not  more than  20 percent  of total                                                                    
He  highlighted  "must"  and  "shall",   saying  he  read  it  as                                                               
specifying  and  controlling how  the  other  members would  have                                                               
their capital structure within this LLC.                                                                                        
SENATOR WAGONER pointed out he'd  withdrawn these because of time                                                               
constraints,  but  suggested  they  could  be  brought  back  and                                                               
discussed individually if the committee so wished.                                                                              
CHAIR SEEKINS proposed addressing components of withdrawn                                                                       
Amendment 10 later, and going on to Amendment 11, labeled 24-                                                                   
GS2046\A.11, Bailey, 6/3/06.                                                                                                    
SENATOR  DYSON withdrew  Amendment  11,  explaining that  revised                                                               
language  was being  distributed  as Amendment  13.   He  offered                                                               
Amendment 13 to SB 2004,  labeled 24-GS2046\A.16, Bailey, 6/5/06,                                                               
which read:                                                                                                                     
                     A M E N D M E N T  13                                                                                  
     OFFERED IN THE SENATE                                                                                                      
          TO:  SB 2004                                                                                                          
     Page 6, following line 18:                                                                                                 
          Insert new bill sections to read:                                                                                     
      "* Sec. 11. AS 43.82.400(a) is amended to read:                                                                       
               (a)  If the commissioner develops a proposed                                                                     
          contract  under  AS 43.82.200   -  43.82.270,  the                                                                    
          commissioner shall                                                                                                    
                    (1)  make preliminary findings and a                                                                        
          determination  that  the proposed  contract  terms                                                                    
          are  in  the  long-term fiscal  interests  of  the                                                                    
          state and  further the  purposes of  this chapter;                                                                    
                    (2)  prepare a proposed contract that                                                                       
          includes   those  terms   and  shall   submit  the                                                                    
          contract to the governor; and                                                                                     
                    (3)  submit to the governor all                                                                         
          documents  related to  the ownership,  governance,                                                                
          management, control, and  operation of the project                                                                
          and participating  entities at  the same  time the                                                                
          contract   is   submitted   under  (2)   of   this                                                                
     * Sec. 12. AS 43.82.410 is amended to read:                                                                              
               Sec. 43.82.410. Notice and comment regarding                                                                   
          the contract. The commissioner shall                                                                                
                    (1)  give reasonable public notice of                                                                       
          the  preliminary findings  and determination  made                                                                    
          under AS 43.82.400;                                                                                                   
                    (2)  make copies of the proposed                                                                            
          contract, the  commissioner's preliminary findings                                                                    
          and  determination, the  documents required  under                                                                
          AS 43.82.400(a)(3),   and,  to   the  extent   the                                                                
          information   is   not   required   to   be   kept                                                                    
          confidential  under  AS 43.82.310, the  supporting                                                                    
          financial, technical,  and market  data, including                                                                    
          the work papers,  analyses, and recommendations of                                                                    
          any    independent    contractors    used    under                                                                    
          AS 43.82.240 available to the public and to                                                                           
                         (A)  the presiding officer of each                                                                     
               house of the legislature;                                                                                        
                         (B)  the chairs of the finance and                                                                     
               resources committees of the legislature; and                                                                     
                         (C)  the chairs of the special                                                                         
               committees on oil and gas, if any, of the                                                                        
                    (3)  offer to appear before the                                                                             
          Legislative Budget and  Audit Committee to provide                                                                    
          the  committee  a  review  of  the  commissioner's                                                                    
          preliminary   findings   and  determination,   the                                                                    
          proposed contract,  and the  supporting financial,                                                                    
          technical,  and market  data;  if the  Legislative                                                                    
          Budget   and    Audit   Committee    accepts   the                                                                    
          commissioner's  offer,  the committee  shall  give                                                                    
          notice of  the committee's  meeting to  the public                                                                    
          and  all  members  of   the  legislature;  if  the                                                                    
          financial, technical,  and market data that  is to                                                                    
          be  provided  must   be  kept  confidential  under                                                                    
          AS 43.82.310,  the  commissioner may  not  release                                                                    
          the  confidential  information   during  a  public                                                                    
          portion of a committee meeting; and                                                                                   
                    (4)  establish a period of at least 90                                                                  
          [30]  days  for  the  public and  members  of  the                                                                    
          legislature  to comment  on the  proposed contract                                                                    
          and  the  preliminary findings  and  determination                                                                    
          made under AS 43.82.400.                                                                                              
     * Sec. 13. AS 43.82.430(b) is amended to read:                                                                           
               (b)      After   considering   the   material                                                                    
          described in (a) of this  section and securing the                                                                    
          agreement  of the  other parties  to the  proposed                                                                    
          contract   regarding   any   proposed   amendments                                                                    
          prepared  under  (a)  of   this  section,  if  the                                                                    
          commissioner  determines that  the contract  is in                                                                    
          the long-term  fiscal interests of the  state, the                                                                    
          commissioner  shall submit  the contract  with the                                                                
          supporting documentation,  including the documents                                                                
          required    under   AS 43.82.400(a)(3)    to   the                                                                
     * Sec. 14. AS 43.82.435 is amended to read:                                                                              
               Sec. 43.82.435. Legislative authorization.                                                                     
          The  governor may  transmit  a contract  developed                                                                    
          under   this    chapter   with    the   supporting                                                                
          documentation,  including  the documents  required                                                                
          under   AS 43.82.400(a)(3)   to  the   legislature                                                                
          together  with  a  request  for  authorization  to                                                                    
          execute the  contract. A contract  developed under                                                                    
          this chapter  is not  binding upon  or enforceable                                                                    
          against  the   state  or  other  parties   to  the                                                                    
          contract  unless  the  governor is  authorized  to                                                                    
          execute  the contract  by law.  The state  and the                                                                    
          other  parties to  the  contract  may execute  the                                                                    
          contract within  60 days after the  effective date                                                                    
          of the law authorizing the contract."                                                                                 
     Renumber the following bill sections accordingly.                                                                          
     Page 10, line 23:                                                                                                          
          Delete "Sections 1 - 12, 15, 16, and 18"                                                                              
          Insert "Sections 1 - 16, 19, 20, and 22"                                                                              
     Page 10, line 25:                                                                                                          
          Delete "Section 17"                                                                                                   
          Insert "Section 21"                                                                                                   
SENATOR  DYSON  asked  Mr.  Shepler and  others  to  explain  why                                                               
Amendment 13 is valuable.                                                                                                       
9:45:01 AM                                                                                                                    
^Donald Shepler, Greenberg and Traurig                                                                                          
DONALD  SHEPLER,  Greenberg  Traurig,   LLP,  Consultant  to  the                                                               
Legislature, introduced  himself, informing listeners that  he is                                                               
an attorney in his firm's Washington, D.C., office.                                                                             
^James Barnes, Barnes & Cascio                                                                                                  
JAMES   BARNES,  Barnes   &  Cascio   LLP,   Consultant  to   the                                                               
Legislature, explained that the state,  in looking at this fiscal                                                               
contract, is being asked to  make a current decision with respect                                                               
to the  nature of its investment.   He referred to  the following                                                               
language in Amendment 13:                                                                                                       
               (3)  submit to the governor all documents                                                                    
     related  to  the   ownership,  governance,  management,                                                                
     control,   and    operation   of   the    project   and                                                                
     participating entities  at the  same time  the contract                                                                
     is submitted under (2) of this subsection.                                                                             
He noted a board of directors  typically wants to see those items                                                               
and be included in the decision.   Mr. Barnes surmised the intent                                                               
of Amendment  13 is to give  the state an opportunity  to look at                                                               
the full picture of the investment  to which it is being asked to                                                               
commit.  While  much of this information will  have been obtained                                                               
at the decision point for the  other parties - in perhaps four or                                                               
five years  - the same  isn't necessarily  true for the  state at                                                               
the point where it will consider the fiscal contract.                                                                           
SENATOR BUNDE asked  whether the issue is  that the commissioners                                                               
don't have  access to  this information.   He noted  the governor                                                               
would have access through the commissioners.                                                                                    
MR. BARNES  said he wasn't  personally involved in  drafting this                                                               
amendment.   He deferred to  Phillip Gildan, a consultant  to the                                                               
legislature on teleconference.                                                                                                  
The committee  took an at-ease from  9:49:20 AM to 9:59:31  AM to                                                           
fax a copy of Amendment 13 to Mr. Gildan.                                                                                       
SENATOR DYSON moved to divide  Amendment 13.  Amendment 13A would                                                               
be  all   except  page   2,  lines   16-18,  of   the  amendment.                                                               
Amendment 13B would be page 2, lines 16-18, as follows:                                                                         
                     A M E N D M E N T  13B                                                                                 
               (4)  establish a period of at least 90 [30]                                                                  
     days for the  public and members of  the legislature to                                                                    
     comment on  the proposed  contract and  the preliminary                                                                    
     findings and determination made under AS 43.82.400.                                                                        
10:00:53 AM                                                                                                                   
SENATOR DYSON  indicated he  was offering  these amendments  as a                                                               
courtesy  to  Senator  Therriault  and  would  let  him  and  his                                                               
consultants explain.                                                                                                            
SENATOR  GENE  THERRIAULT,  Alaska State  Legislature,  explained                                                               
that Amendment  13B is to  expand the  comment period.   This was                                                               
addressed in the  Senate Judiciary Standing Committee  as part of                                                               
SB 316 during  the regular session; due to the  complexity of the                                                               
overall   package,  he'd   proposed  an   amendment  to   provide                                                               
additional time  to understand the  contract and submit  input to                                                               
the administration, which would  benefit legislators, the general                                                               
public and other oil and gas companies in Alaska.                                                                               
He recalled  debate in  the administration  as to  whether public                                                               
comment should  be at  least 30 days  or up to  90 days;  he also                                                               
recalled the governor  saying it should be at least  45.  Senator                                                               
Therriault reported,  however, that  during discussion of  SB 316                                                               
he'd heard from smaller companies  that have in-house counsel who                                                               
were scrambling to understand the  full impact of the contract in                                                               
order to give meaningful input  during the public comment period;                                                               
they wanted  a minimum  of 60 days,  and had said  60 to  90 days                                                               
would  provide time  for meaningful  comment.   Furthermore, some                                                               
small companies such  as Anadarko or Pioneer might  not even have                                                               
in-house counsel, and their hired  counsel would need time to get                                                               
up to speed before even making recommendations to them.                                                                         
He  noted he'd  originally  suggested  90 days.    In the  Senate                                                               
Judiciary   Standing  Committee,   however,  the   administration                                                               
indicated up  to 60  days was  acceptable but 90  days was  a bit                                                               
long; thus that committee changed it  to 60.  Although 90 days is                                                               
proposed  in the  amendment, Senator  Therriault deferred  to the                                                               
current committee  to decide  whether to change  it to  60, which                                                               
would add two weeks to the  45 days stated by the administration.                                                               
This  would  provide an  opportunity  to  comment, not  only  for                                                               
legislators, but also for petroleum  companies in Alaska that are                                                               
concerned about open access and other provisions.                                                                               
SENATOR BEN  STEVENS brought attention to  the following language                                                               
in withdrawn Amendment 11:                                                                                                      
               (3) if state participation is proposed,                                                                      
     submit  to   the  governor  all   documents  reasonably                                                                
     related to  the ownership, governance,  management, and                                                                
     control of  the state's participation at  the same time                                                                
     the   contract  is   submitted   under   (2)  of   this                                                                
He pointed out parallel language in proposed Amendment 13A:                                                                     
               (3) submit to the governor all documents                                                                     
     related  to  the   ownership,  governance,  management,                                                                
     control,   and    operation   of   the    project   and                                                                
     participating entities  at the  same time  the contract                                                                
     is submitted under (2) of this subsection.                                                                             
He reiterated his concern voiced on  a previous amendment:  It is                                                               
unreasonable  to  complete  this  in  the next  45  or  90  days.                                                               
Senator Ben Stevens  also said if that portion of  the project is                                                               
part of the  requirement before the contract can  be presented to                                                               
the  legislature, they  might as  well delay  determination until                                                               
there  is a  FERC Qualified  Project  Plan and  a certificate  of                                                               
public  convenience is  issued, since,  as he  interprets it,  it                                                               
won't ever be satisfied.                                                                                                        
10:08:49 AM                                                                                                                   
CHAIR  SEEKINS  returned  attention to  proposed  Amendment  13B,                                                               
relating to the comment period.                                                                                                 
SENATOR  THERRIAULT, in  response to  discussion of  the deadline                                                               
dates, reiterated the  concern of smaller companies:   they don't                                                               
know whether should be scrambling now,  since day 45 might be the                                                               
deadline, and  want 60  to 90  days for  meaningful comment.   He                                                               
also reiterated his earlier explanation.                                                                                        
SENATOR BEN  STEVENS paraphrased part of  AS 43.82.430(a), noting                                                               
the commissioner  of revenue  shall provide  the findings  to the                                                               
legislature within 30 days after the close of public comment.                                                                   
10:13:37 AM                                                                                                                   
^Larry Ostrovsky, Department of Law                                                                                             
LARRY  OSTROVSKY,  Chief   Assistant  Attorney  General-Statewide                                                               
Section  Supervisor, Oil,  Gas &  Mining Section,  Civil Division                                                               
(Anchorage),  Department  of  Law,  stated his  belief  that  the                                                               
administration would agree to 60 days.                                                                                          
10:14:22 AM                                                                                                                   
SENATOR DYSON  moved to  adopt Amendment 1  to Amendment  13B, to                                                               
replace 30 days  with 60 days.  There being  no objection, it was                                                               
so ordered.                                                                                                                     
CHAIR SEEKINS asked  if there was any objection  to Amendment 13B                                                               
as amended.                                                                                                                     
SENATOR BEN STEVENS objected.                                                                                                   
A roll  call vote of  8 yeas and 4  nays proved Amendment  13B as                                                               
amended  passed,  with  Senators Bunde,  Olson,  Kookesh,  Dyson,                                                               
Wilken,  Elton,  Hoffman and  Wagoner  voting  yea, and  Senators                                                               
Stedman, Ben Stevens, Green and Seekins voting nay.                                                                             
10:15:50 AM                                                                                                                   
SENATOR BEN STEVENS  moved to table SB 2004 until  no sooner than                                                               
the week of July 10, 2006.                                                                                                      
SENATOR BUNDE asked why that date was chosen.                                                                                   
SENATOR  BEN  STEVENS  answered  that it  equals  the  time  just                                                               
adopted, no sooner than 60 days from the public comment period.                                                                 
CHAIR SEEKINS  opined that the  effect would be a  30-day comment                                                               
period if SB 2004 isn't  adopted, since the commissioner would be                                                               
compelled, under current law, to  bring the final version back to                                                               
the legislature anytime  after 30 days from May 10.   There would                                                               
be no extension  of time.  It  would be at the  discretion of the                                                               
governor,  who has  stated it  would be  45 days  or whatever  it                                                               
takes.   In  effect,  anytime after  that  45-day commitment  the                                                               
governor could bring the contract  back to the legislature in its                                                               
final form.                                                                                                                     
An initial  roll call vote was  7 yeas and 5  nays, with Senators                                                               
Bunde, Olson,  Kookesh, Ben Stevens,  Stedman, Hoffman  and Green                                                               
voting  yea,  and  Senators Dyson,  Wilken,  Elton,  Wagoner  and                                                               
Seekins voting nay.   Senator Bunde changed his vote  from yea to                                                               
nay.   Therefore, the  motion to  table SB  2004 until  no sooner                                                               
than the week of July 10, 2006, failed by a vote of 6-6.                                                                        
The committee took an at-ease from 10:20:05 AM to 10:58:41 AM.                                                              
SENATOR  HOFFMAN  moved  to rescind  the  committee's  action  in                                                               
adopting Amendment 10A  to SB 2004 during the  7:05 a.m. meeting.                                                               
Containing the first  section of Amendment 10,  as revised during                                                               
that meeting to contain only lines 1-8, Amendment 10A read:                                                                     
                A M E N D M E N T  10A (Revised)                                                                            
    OFFERED IN THE SENATE                        BY WAGONER                                                                     
          TO:  SB 2004                                                                                                          
     Page 6, line 23, following "project":                                                                                      
          Insert "and each project entity to be created to                                                                      
     own and operate any part of the project"                                                                                   
     Page 6, line 24, following "chapter.":                                                                                     
          Insert "Each collateral agreement shall be a                                                                          
     condition   subsequent   to   the   proposed   contract                                                                    
     developed  under  this  chapter  shall  be  subject  to                                                                    
     review and authorization to  execute by the legislature                                                                    
     and, on  approval, may  be entered  into by  the public                                                                    
     corporation as provided in (b) of this section."                                                                           
SENATOR GREEN put a call on committee members.                                                                                  
CHAIR SEEKINS announced discussion would continue meanwhile.                                                                    
SENATOR  DYSON  objected  for  discussion  purposes,  asking  why                                                               
Senator Hoffman wanted to withdraw Amendment 10A.                                                                               
SENATOR HOFFMAN explained that  previous dialogue suggested there                                                               
isn't  oversight  over  major corporations  such  as  the  Alaska                                                               
Permanent Fund  Corporation.   Having it  in this  particular Act                                                               
would cause  further problems, and  he voiced concern  about what                                                               
the "majors" would think of it.   He stated his belief that it is                                                               
bad policy.                                                                                                                     
^Kevin Jardell, Office of the Governor                                                                                          
KEVIN  JARDELL,  Legislative  Liaison, Office  of  the  Governor,                                                               
informed  members that  the administration  strongly opposes  the                                                               
amendment and thus supports its rescission.   He said it is clear                                                               
from testimony in  the Senate and House that  members are looking                                                               
for  answers   about  how  the  collateral   agreements  will  be                                                               
structured and what they'll contain.                                                                                            
He told members that throughout  the Stranded Gas Act, it clearly                                                               
is  the  administration's  burden  to  get  that  information  to                                                               
legislators  and ensure  their  comfort with  what  has been  put                                                               
together  in the  contract before  the legislature  votes on  it.                                                               
Mr.  Jardell  stated  the  intention   of  carrying  that  burden                                                               
throughout  the  education process  until  hopefully  there is  a                                                               
ratification vote in the legislature.                                                                                           
He voiced concern, however, that  Amendment 10A - which similarly                                                               
tries  to  get  the  legislature  to  understand  the  contract's                                                               
contents  -  has what  he  hopes  is an  unintended  consequence:                                                               
killing any contract  and not allowing a  commercial project like                                                               
this to  go forward.   Mr. Jardell opined that  every application                                                               
received  - not  just those  from the  producers -  would require                                                               
significant collateral  agreements in  the future, and  that this                                                               
amendment, forcing those  to come back to  the legislature, would                                                               
preclude the ability to proceed on any application.                                                                             
11:03:10 AM                                                                                                                   
SENATOR DYSON  recalled that  consultants had  previously posited                                                               
that the  state is in  a weak position  in relation to  its other                                                               
partners in  this venture.   He asked whether  the administration                                                               
believes its position  is strong enough to  protect the interests                                                               
of the people of Alaska.                                                                                                        
MR.  JARDELL  related  the belief  that  the  contract  necessary                                                               
protections while  achieving a  extremely beneficial  outcome for                                                               
the State  of Alaska.  He  added, "We think we  fully comply with                                                               
the purpose and the intent of  the Stranded Gas Act, which was to                                                               
go  out  and  negotiate  a  deal  to  get  the  gas  to  market."                                                               
Expressing  appreciation  for  members'   comments  and  work  by                                                               
legislative  consultants, he  explained  that the  administration                                                               
sends comments to  its team to analyze; it's part  of the process                                                               
outlined in  the Stranded  Gas Act.   For  those with  merit, Mr.                                                               
Jardell  stated  the  intent  to  see  if  there  is  a  need  to                                                               
renegotiate  those pieces  back  into the  final contract  before                                                               
bringing it to the legislature.                                                                                                 
He  said  those  comments  and  input are  vital  to  making  the                                                               
Stranded  Gas Act  work  and  ensuring the  contract  is one  the                                                               
legislature can support.  However,  he highlighted the difference                                                               
between setting it out in law  - where there is no flexibility to                                                               
negotiate   any  portion   -  and   providing  input,   with  the                                                               
expectation  that  the  administration   will  try  to  negotiate                                                               
certain   changes.     If  the   language  is   too  restrictive,                                                               
Mr. Jardell cautioned, it hinders the  ability to comply with the                                                               
Stranded Gas Act and negotiate the final deal.                                                                                  
11:06:02 AM                                                                                                                   
MR.   JARDELL,  in   response  to   Senator  Bunde,   stated  the                                                               
expectation of providing  members of the legislature  with an LLC                                                               
agreement  and other  pattern agreements  and frameworks  to look                                                               
at.    He  added,  "We  intend  to  make  sure  you  have  enough                                                               
information to  feel comfortable that  the contract that  we have                                                               
agreed to  is in the  best interest of  the State of  Alaska, and                                                               
allow it to be ratified."                                                                                                       
SENATOR  BUNDE  asked whether  there  is  an awareness  that  the                                                               
contract  likely won't  be approved  by the  legislature if  good                                                               
information isn't provided.                                                                                                     
MR. JARDELL  replied yes, indicating the  administration is aware                                                               
of  the  burden it  has  and  the  responsibility to  ensure  the                                                               
decision by the legislature is an educated and informed one.                                                                    
11:08:41 AM                                                                                                                   
SENATOR  OLSON  asked  Mr.  Jardell  to  specify  the  unintended                                                               
consequences of Amendment 10A.                                                                                                  
MR. JARDELL  responded that he  believes legislators  are trying,                                                               
with Amendment 10A, to gather  information and comfort themselves                                                               
that  they'll   have  that  information  before   voting  on  the                                                               
contract.   However, he  opined that the  consequence -  which he                                                               
hopes is  unintended -  would be  to kill  the contract  or other                                                               
contracts because of the uncertainty,  not knowing if there is an                                                               
ability to  do collateral agreements  and get them signed  off by                                                               
the partners in the project in  a timely fashion, years from now,                                                               
without waiting  for a session  and going before  the legislature                                                               
to sign the collateral agreements.                                                                                              
He further responded  that not having the  legislature in session                                                               
to sign  an agreement and  thus delaying a commercial  project is                                                               
one problematic possibility; as far  as not allowing the partners                                                               
to  go  forward in  a  timely  manner,  however, there  are  many                                                               
possibilities.  In  response to Senator Wagoner,  he indicated he                                                               
was expressing  the administration's  views, formed  from looking                                                               
at the issues, rather than relating the producers' views.                                                                       
SENATOR ELTON opined what was  intended with the amendment wasn't                                                               
that  every future  contract  done by  PipeCo  or another  entity                                                               
would require  approval, but that  the legislature  would approve                                                               
the  charter  or  recipe  under which  the  entity  operates;  he                                                               
expressed comfort with that.                                                                                                    
CHAIR SEEKINS  observed it says  each collateral  agreement would                                                               
be a condition  subsequent to the fiscal contract.   He remarked,                                                               
"Tied back to the fiscal contract is pretty heavy."                                                                             
MR. JARDELL  responded that the administration  believes, through                                                               
the  Stranded  Gas  Act  process  in the  coming  weeks  and  the                                                               
information process, that the legislature  will be fully informed                                                               
of  the  intent of  the  administration  and the  producers  with                                                               
regard to what they'll be signing,  and the patterns and forms of                                                               
that.    He added,  "If,  in  the  event  we don't  provide  that                                                               
information, then  we could certainly have  opportunities for the                                                               
legislature to weigh  in on that and let  the administration know                                                               
that  we need  to provide  more information  or have  other tools                                                               
available to you, to ensure that we do."                                                                                        
11:13:46 AM                                                                                                                   
SENATOR HOFFMAN reminded members that  the motion before them was                                                               
to rescind the committee's action,  during the 7:05 a.m. meeting,                                                               
in adopting Amendment 10A.                                                                                                      
CHAIR SEEKINS announced all members were present.                                                                               
SENATOR GREEN pointed out awkward wording in Amendment 10A:                                                                     
          Insert "Each collateral agreement shall be a                                                                          
    condition   subsequent   to   the   proposed   contract                                                                     
     developed under this chapter shall be subject to                                                                           
CHAIR SEEKINS suggested "and" is needed there.                                                                                  
11:14:34 AM                                                                                                                   
CHAIR  SEEKINS  asked whether  there  was  any objection  to  the                                                               
motion   to   rescind   the  committee's   action   in   adopting                                                               
Amendment 10A.                                                                                                                  
SENATOR ELTON and SENATOR WAGONER objected.                                                                                     
A roll call vote  of 8 yeas and 4 nays  proved the motion passed,                                                               
with  Senators  Stedman,  Bunde,  Kookesh,  Ben  Stevens,  Olson,                                                               
Hoffman,  Green  and  Seekins voting  yea,  and  Senators  Dyson,                                                               
Wilken, Elton and Wagoner voting nay.                                                                                           
CHAIR SEEKINS  indicated the original  motion to  adopt Amendment                                                               
10A was before the committee again.                                                                                             
SENATOR  GREEN  concurred  with Chair  Seekins'  assessment  that                                                               
"and" was missing between "chapter" and "shall".                                                                                
CHAIR SEEKINS  related his experience  that good  agreements make                                                               
good  partners.    He  highlighted   the  difficulty  in  feeling                                                               
comfortable without seeing the template  that goes along with the                                                               
LLC  and that  might evolve  into further  collateral agreements.                                                               
He also emphasized this is  a long-term project that will benefit                                                               
his  grandchildren and  their generation.   He  asked why  it had                                                               
taken longer than anticipated to see the template.                                                                              
MR.  JARDELL replied  that he  couldn't define  the difficulties,                                                               
other than trying to get it  right.  Noting he hadn't been deeply                                                               
involved with the  negotiations of the LLC,  he indicated someone                                                               
else from the administration might be  able to speak to that.  In                                                               
further  response, Mr.  Jardell said  he believes  it is  fair to                                                               
characterize  the situation  as each  party negotiating  with the                                                               
CHAIR  SEEKINS  invited  questions  of the  experts  relating  to                                                               
Amendment 10A.                                                                                                                  
11:20:08 AM                                                                                                                   
SENATOR  THERRIAULT   called  attention  to  SB   2004,  page  7,                                                               
subsection  (e),   beginning  at  line 14,  which   defines  what                                                               
"collateral agreement"  includes.   He said  he wasn't  sure from                                                               
the discussion whether the legislature  would have to approve all                                                               
these  decisions made  by these  corporations.   The  definitions                                                               
narrow it,  however, so  it is  just when the  state sets  up the                                                               
business or gets  into the business operation.   All decisions of                                                               
the business operations wouldn't be overseen.                                                                                   
CHAIR SEEKINS asked whether this  relates to a specific timeframe                                                               
or is a continuum in time.                                                                                                      
SENATOR THERRIAULT opined it's a continuum.                                                                                     
CHAIR  SEEKINS concurred  with that  understanding.   He recalled                                                               
testimony  that in  Canada it  would be  a joint  venture, rather                                                               
than an  LLC, and  in other  states it might  be another  type of                                                               
corporation.  He asked Mr. Donohue whether that is correct.                                                                     
^Joseph K. Donohue, Preston Gates & Ellis                                                                                       
JOSEPH  K.  DONOHUE,  Preston  Gates  &  Ellis,  Counsel  to  the                                                               
Governor,  emphasized   this  collateral-agreement  power   is  a                                                               
transitional  power   that  the   Department  of   Revenue  (DOR)                                                               
commissioner has  for 180  days after the  effective date  of the                                                               
authorization Act.  That authority  relates to agreements entered                                                               
into by  the state with,  potentially, the affiliates  and parent                                                               
companies  of  the  producers;  it  would  be  an  administrative                                                               
contract that  lines up those  parties which will  actually carry                                                               
out the  contract, with  the terms and  conditions of  the fiscal                                                               
contract that has been approved.                                                                                                
He  said once  the  "AK  Pipe" legislation  is  enacted, the  two                                                               
commissioners  would be  able  to  act on  behalf  of the  public                                                               
corporation  for  up  to  120   days.    Thereafter,  the  public                                                               
corporation would  take full  responsibility for  negotiating and                                                               
executing  any remaining  LLC agreements.   Mr. Donohue  said the                                                               
administration  will make  every effort  to have  a template;  in                                                               
fact, he  understands it will be  more than a template  - it will                                                               
be  the mainline  LLC agreement,  presented when  the legislature                                                               
has the opportunity to review the fiscal contract.                                                                              
CHAIR  SEEKINS asked:   After  the transition  period, would  the                                                               
restriction under  Amendment 10A no  longer be in effect  for any                                                               
future LLC that the board of directors would enter into?                                                                        
MR.  DONOHUE replied  that Amendment  10A reads  "as a  condition                                                               
subsequent" and would continue beyond the transitional power.                                                                   
SENATOR ELTON  surmised it's a  limitation of  the commissioner's                                                               
ability  to  negotiate a  collateral  agreement,  and that  power                                                               
lapses  180  days  after  the  effective date  of  the  law  that                                                               
authorizes the contract.  He  asked whether it's correct that the                                                               
limitation in  the amendment  would probably  only be  applied to                                                               
the mainline-entity LLC.                                                                                                        
MR. JARDELL  replied no.   He  opined the  "condition subsequent"                                                               
would require a continuing obligation  to bring those back before                                                               
the legislature.   He said  the administration believes  the only                                                               
commercial, viable option is to  give that public corporation the                                                               
ability to  enter into  those agreements  without having  to come                                                               
back each time to the legislature for approval.                                                                                 
11:26:26 AM                                                                                                                   
SENATOR GREEN objected to Amendment 10A.                                                                                        
A  roll call  vote of  4  yeas and  8 nays  proved Amendment  10A                                                               
failed,  with Senators  Dyson, Wilken,  Elton and  Wagoner voting                                                               
yea, and Senators Ben Stevens,  Kookesh, Stedman, Bunde, Hoffman,                                                               
Olson, Green and Seekins voting nay.                                                                                            
11:27:39 AM                                                                                                                   
SENATOR  HOFFMAN  asked  Mr.  Jardell   to  address  the  earlier                                                               
adoption of Amendment  13B, establishing a period of  at least 60                                                               
days for the public and members of the legislature to comment.                                                                  
MR.  JARDELL  answered   that  the  governor,  on   a  number  of                                                               
occasions, has  said the process  should be as long  as necessary                                                               
to get adequate information to  the public and, more importantly,                                                               
to  listen to  the public  and the  legislature.   Today Governor                                                               
Murkowski would announce  the third phase of  the public process,                                                               
which includes  going back to  communities and  having panel-type                                                               
discussions  and more  interaction,  providing as  many means  of                                                               
giving information as  possible.  Mr. Jardell  stated support for                                                               
leaving it  as is, since  it provides the most  flexibility under                                                               
the Stranded Gas Act to ensure  the process can be completed when                                                               
there has been adequate information back and forth.                                                                             
11:31:03 AM                                                                                                                   
SENATOR  HOFFMAN  moved  to rescind  the  committee's  action  in                                                               
adopting Amendment 13B.                                                                                                         
SENATOR BUNDE objected.                                                                                                         
SENATOR HOFFMAN explained  that the language says  "at least" and                                                               
thus it could go 60 or 100 days.                                                                                                
CHAIR  SEEKINS alluded  to Mr.  Ostrovsky's opinion,  stated that                                                               
day  prior   to  when  Amendment   13B  was  adopted,   that  the                                                               
administration wouldn't object.   He asked Mr.  Jardell, "Are you                                                               
SENATOR  HOFFMAN  said  if  that  was  the  testimony,  he  would                                                               
withdraw his motion.                                                                                                            
11:32:18 AM                                                                                                                   
MR. JARDELL  related the  belief that  the original  Stranded Gas                                                               
Act provides  the greatest flexibility,  and with  the governor's                                                               
commitment to  get the  information out  to the  public, sticking                                                               
with 30 days is the way to go.   In response to Chair Seekins and                                                               
Senator  Elton,  Mr.  Jardell  reiterated  his  earlier  remarks,                                                               
including that the governor has  committed to taking as much time                                                               
as necessary; he  clarified it wasn't he  who'd testified earlier                                                               
and said the position hadn't changed.                                                                                           
SENATOR  OLSON  also  recalled  the  opinion  stated  earlier  by                                                               
Mr. Ostrovsky.                                                                                                                  
SENATOR WILKEN spoke in support of 60  days and said it is a moot                                                               
point, given  what Mr. Jardell  said about taking the  process to                                                               
the  communities.   He added  that supporting  the 60  days would                                                               
gives his constituents  an indication of the  willingness to take                                                               
whatever time is needed.                                                                                                        
11:35:50 AM                                                                                                                   
SENATOR HOFFMAN  withdrew his motion  to rescind  the committee's                                                               
action in adopting Amendment 13B.                                                                                               
The committee took an at-ease from 11:36:26 AM to 1:32:47 PM.                                                               
1:33:29 PM                                                                                                                    
^James Barnes, Barnes & Cascio                                                                                                  
MR. BARNES  explained a  chart, "Annex  2: Possible  Gas Pipeline                                                               
Structure," attached  to a memo  he'd submitted  a week ago.   He                                                               
said it's a possible structure  of what he thinks is contemplated                                                               
by the fiscal  contract; it shows a  general corporate structure,                                                               
with  parent  entities  and  subsidiary  organizations  including                                                               
marketing  affiliates of  the prospective  parties in  the fiscal                                                               
He pointed  out that there'd  be a pipeline-owning  affiliate for                                                               
each party, for example.  The  entities would be connected by the                                                               
flowing gas, and  there would need to be  coordination among them                                                               
and also  some financing arrangements,  perhaps including  use of                                                               
the federal  loan guarantee.   Mr. Barnes  noted SB 2003  sets up                                                               
governance arrangements for "AK PipeCo."                                                                                        
He explained that  "AK GasCo," the gas-owning entity  that may be                                                               
an arm of the state or  separate state corporation, is the "state                                                               
capacity holder"  under the  fiscal contract;  it would  have its                                                               
own  governance  arrangements  and  would  have  the  ship-or-pay                                                               
commitment.  Whether it would be  guaranteed by the state or some                                                               
other  financing arrangement  remains  to be  seen.   Noting  the                                                               
fiscal  contract seems  to contemplate  concerted  action by  the                                                               
parent entities in arranging regulatory  approval - in Canada and                                                               
Alaska, and  perhaps in the Lower  48 - Mr. Barnes  said it seems                                                               
there  should   be  "undertaking  coordination"  and   perhaps  a                                                               
guarantee arrangement.                                                                                                          
1:39:39 PM                                                                                                                    
SENATOR  WILKEN  asked about  the  significance  of the  vertical                                                               
solid and dotted lines on the chart.                                                                                            
MR.  BARNES   answered  that  the   colored  boxes   are  already                                                               
established   entities,  and   the  solid   lines  indicate   the                                                               
relationship  is known.    For  example, BP  already  has a  gas-                                                               
marketing affiliate,  to his belief.   For the  state's entities,                                                               
however,  it  isn't  known;  there   is  pending  legislation  on                                                               
AK PipeCo, but apparently not on AK GasCo.                                                                                      
The committee took an at-ease from 1:41:24 PM to 1:41:43 PM.                                                                
SENATOR BUNDE moved to adopt  conceptual Amendment 15 to SB 2004,                                                               
to delete  Section 11.   He explained that although  there'd been                                                               
substantial  input  from  various   entities  about  Section  11,                                                               
relating to collateral  agreements, it isn't ripe  for action yet                                                               
and there isn't enough information.                                                                                             
SENATOR BEN STEVENS  proposed also deleting page  2, lines 27-29,                                                               
relating to collateral agreements.                                                                                              
1:43:30 PM                                                                                                                    
SENATOR BUNDE accepted that as a friendly amendment.                                                                            
CHAIR SEEKINS asked  whether there was any  objection to adopting                                                               
Amendment 15  as amended.   There being  no objection, it  was so                                                               
1:44:06 PM                                                                                                                    
SENATOR  WILKEN   moved  to  adopt  Amendment   14,  labeled  24-                                                               
GS2046\A.18, Bailey, 6/5/06, which read:                                                                                        
                     A M E N D M E N T  14                                                                                  
    OFFERED IN THE SENATE                 BY SENATOR WILKEN                                                                     
          TO:  SB 2004                                                                                                          
     Page 1, line 5, following "contract;":                                                                                   
          Insert  "relating  to  determination of  full  and                                                                  
     true value of property and required contributions for                                                                    
      education in municipalities affected by stranded gas                                                                    
     fiscal contracts;"                                                                                                       
     Page 10, following line 1:                                                                                                 
          Insert a new section to read:                                                                                         
        "* Sec. 16.  AS 43.82 is amended by adding a new                                                                    
     section to article 7 to read:                                                                                              
               Sec. 43.82.650. Calculations of education                                                                      
          funding.  To  determine  the  amount  of  required                                                                  
          local  contribution  under AS 14.17.410(b)(2)  and                                                                    
          (c) for  a school  district in  a revenue-affected                                                                    
          municipality,  and  to  perform its  duties  under                                                                    
          AS 14.17.510,   the    Department   of   Commerce,                                                                    
          Community,  and Economic  Development shall  adopt                                                                    
          regulations.   The   regulations  must   establish                                                                    
          assessment standards  for any property  that would                                                                    
          have been  assessed under AS 43.56 but  is instead                                                                    
          generating   a  payment   to  a   revenue-affected                                                                    
          municipality in  lieu of a municipal  property tax                                                                    
          as  provided in  a contract  developed under  this                                                                    
          chapter.  The  regulations  must ensure  that  the                                                                    
          property is  included in the  full and  true value                                                                    
          of  the city  or borough  school district  for the                                                                    
          purpose    of     determining    required    local                                                                    
          contributions   for    education   funding   under                                                                    
          AS 14.17.410(b)(2) and (c)."                                                                                          
     Renumber the following bill sections accordingly.                                                                          
     Page 10, line 23:                                                                                                          
          Delete "Sections 1 - 12, 15, 16, and 18"                                                                              
          Insert "Sections 1 -12, 15 - 17, and 19"                                                                              
     Page 10, line 25:                                                                                                          
          Delete "Section 17"                                                                                                   
          Insert "Section 18"                                                                                                   
SENATOR WILKEN objected  for discussion purposes.   He provided a                                                               
spreadsheet, "Local  School Funding  Worksheet:   Comparison with                                                               
Oil & Gas  Properties Included and Excluded from the  Full & True                                                       
Value,"  prepared   by  Steve  Van  Sant,   the  state  assessor.                                                               
Senator  Wilken  explained  that  the Foundation  Formula  has  a                                                               
provision  that depends  on basic  need  or 45  percent of  prior                                                               
basic  need;  because   of  going  to  a   throughput  method  of                                                               
valuation, the  "full and true  value" component would  be pulled                                                               
with respect to education funding.                                                                                              
He noted  this affects  any borough  using AS  43.56 to  fund its                                                               
schools,  but particularly  Valdez and  the North  Slope Borough.                                                               
Fairbanks would lose  about 2 percent of its funding  and Kenai 6                                                               
percent, whereas  the North Slope  Borough would lose  80 percent                                                               
and Valdez  30 percent.   Amendment  14 is  to fix  this problem.                                                               
Senator Wilken deferred to Mr. Jeans and Mr. Van Sant.                                                                          
1:46:53 PM                                                                                                                    
^Eddy Jeans, Department of Education and Early Development                                                                      
EDDY  JEANS, Director,  School Finance,  Department of  Education                                                               
and  Early Development  (DEED), explained  that DEED  receives an                                                               
annual  report  from  the Department  of  Commerce,  Community  &                                                               
Economic Development  (DCCED), from  the state  assessor, showing                                                               
the   full-value  determination   for   each  municipality;   his                                                               
department   uses   that   to  calculate   the   required   local                                                               
contribution.    Amendment  14 requires  the  state  assessor  to                                                               
continue, for the  purposes of DEED, to include the  value of the                                                               
oil  and   gas  under   AS  43.56   in  making   that  full-value                                                               
determination.   It  keeps the  program  as it  currently is  for                                                               
calculating required local effort for public schools.                                                                           
1:48:10 PM                                                                                                                    
SENATOR STEDMAN  asked whether,  with Amendment  14, it  would be                                                               
treated as today,  with one-half of the assessed  value over 1999                                                               
MR. JEANS replied it would continue  as is.  This tells the state                                                               
assessor  how to  calculate the  full-value  determination for  a                                                               
given year.   It preserves  both parts of the  Foundation Formula                                                               
for the required  local contribution in terms of  1) how the full                                                               
value  is determined  and 2) how  it is  applied in  the formula.                                                               
The "50  percent" provision  referred to  by Senator  Stedman, in                                                               
another section, isn't affected.                                                                                                
SENATOR  STEDMAN asked  whether today  the Trans-Alaska  Pipeline                                                               
System (TAPS)  is treated differently  from other  real property,                                                               
with an  assessed value at  100 percent, not the 1999  level plus                                                               
one-half the growth after 1999.                                                                                                 
MR. JEANS indicated he didn't know.                                                                                             
1:50:10 PM                                                                                                                    
SENATOR  WILKEN  informed  members that  the  Municipal  Advisory                                                               
Group (MAG)  had provided Resolution  2006-03, Issues  Related to                                                               
Effects of  the Stranded Gas  Act Contract on  Education Funding,                                                               
which led to this amendment.                                                                                                    
1:51:03 PM                                                                                                                    
^Steve Van Sant, State Assessor                                                                                                 
STEVE VAN  SANT, State Assessor, Division  of Community Advocacy,                                                               
Department  of   Commerce,  Community  &   Economic  Development,                                                               
answered Senator Stedman's question,  saying TAPS is treated like                                                               
other real property.  This  amendment assures that the full value                                                               
continues to  contain the value  for oil and gas  properties; the                                                               
department will  come up  with regulations.   This  will preclude                                                               
any  revenue loss  for Valdez  or the  North Slope  Borough.   He                                                               
noted the  second page of  his spreadsheet shows the  North Slope                                                               
Borough  would   lose  about  $15.7 million  and   Valdez  almost                                                               
$1 million in additional  school funding if the value  of oil and                                                               
gas weren't included in the full and true value.                                                                                
SENATOR OLSON voiced appreciation,  saying his constituents would                                                               
be incensed if this weren't equilibrated in some way.                                                                           
JIM  BALDWIN, Counsel  to  the Office  of  the Attorney  General,                                                               
informed members  that he  agreed with  everything Mr.  Jeans had                                                               
said with respect to the effect of Amendment 14.                                                                                
1:53:31 PM                                                                                                                    
CHAIR SEEKINS asked  whether there was any  objection to adopting                                                               
Amendment 14.  There being no objection, it was so ordered.                                                                     
The committee took an at-ease from 1:53:44 PM to 1:56:44 PM.                                                                
SENATOR  THERRIAULT  returned attention  to  Amendment  13A.   He                                                               
informed members that he'd asked  the drafter to work on language                                                               
following   this  morning's   discussion,  but   hadn't  received                                                               
anything  yet.   Noting concern  had been  expressed about  where                                                               
that  requirement was  placed  in the  process,  he reported  the                                                               
drafter had suggested  it would be "replaced in  the process that                                                               
we're already well into."  Thus  he'd asked the drafter to recast                                                               
the  language.   He  referred  to  page 1,  lines 11-13,  of  the                                                               
amendment, which read:                                                                                                          
               (3)  submit to the governor all documents                                                                    
     related  to  the   ownership,  governance,  management,                                                                
     control,   and    operation   of   the    project   and                                                                
     participating entities  at the  same time  the contract                                                                
     is submitted under (2) of this subsection.                                                                             
He indicated that  the language he'd asked the  drafter to shrink                                                               
it  to would  read:   "all  documents related  to the  ownership,                                                           
governance, management, control, and  coordination of the project                                                           
and participating  entities".  This  would be inserted  where the                                                           
underlined language is  on line 20 of the  amendment, which read:                                                               
"the documents required under  AS 43.82.400(a)(3)".  Thus Senator                                                           
Therriault said that information would  be required at a point in                                                               
the process not yet reached.                                                                                                    
1:58:06 PM                                                                                                                    
CHAIR  SEEKINS  noted  Amendment   13A  relates  to  Section  11,                                                               
collateral  agreements, deleted  by Amendment  15.   He suggested                                                               
Amendment 13A therefore should lie on the table.                                                                                
SENATOR THERRIAULT concurred,  saying it seems if  there is going                                                               
to be a  collaborative process and there is  some discussion with                                                               
the administration  about the  need for  the legislature  to have                                                               
details about those entities, it could wait until then.                                                                         
CHAIR SEEKINS  said that is the  intent.  He announced  no action                                                               
would be taken on Amendment 13A.                                                                                                
The committee took an at-ease from 1:58:57 PM to 2:00:04 PM.                                                                
SENATOR  WAGONER   informed  members   that  during   the  coming                                                               
roundtable discussions he'd like to  address page 2, lines 21-24,                                                               
of  SB 2004,  regarding oil  and  gas lease  agreements and  unit                                                               
agreements.  In  particular, he'd like consultants  on both sides                                                               
to discuss  leases that are  rolled into the  contract, including                                                               
the effect  on current leases and  what the state stands  to gain                                                               
or lose.   He opined  that this amendment  would put quite  a bit                                                               
more authority into the commissioner's  toolbox, and he suggested                                                               
it should be looked at thoroughly before doing so.                                                                              
2:03:06 PM                                                                                                                    
SENATOR  WILKEN   moved  to  adopt  Amendment   16,  labeled  24-                                                               
GS2046\A.17, Wayne, 6/5/06, which read:                                                                                         
                     A M E N D M E N T  16                                                                                  
     OFFERED IN THE SENATE                                                                                                      
          TO:  SB 2004                                                                                                          
     Page 3, line 26:                                                                                                           
          Delete "a new subsection"                                                                                             
          Insert "new subsections"                                                                                              
     Page 4, following line 2:                                                                                                  
          Insert a new subsection to read:                                                                                      
               "(c)  Nothing in a contract under this                                                                           
          chapter  diminishes  the  legal authority  of  the                                                                    
          Regulatory  Commission  of Alaska  or  indemnifies                                                                    
          any person or entity  from future decisions of the                                                                    
          Regulatory Commission of Alaska  or a successor to                                                                    
          the Regulatory Commission of Alaska."                                                                                 
SENATOR  THERRIAULT explained  that  Amendment 16  relates to  an                                                               
issue of  concern to  him since  discussions at  Centennial Hall.                                                               
He recalled  legislation a couple  of years ago that  proposed to                                                               
limit the powers of the  Regulatory Commission of Alaska (RCA) in                                                               
regulating  the oil  pipeline.   Now  the  proposed gas  contract                                                               
suggests  FERC will  be relied  upon to  regulate this  "monopoly                                                               
transportation system."  However, FERC  is a federal creation and                                                               
may not exist in the future.                                                                                                    
He related his  understanding of the contract language:   If FERC                                                               
doesn't  exist, the  only regulation  would  be through  business                                                               
agreements; RCA couldn't step in.   Senator Therriault questioned                                                               
prohibiting RCA, the state's own  entity, from acting as a buffer                                                               
between this monopoly and the  consumers in this situation.  Thus                                                               
the amendment  would direct the administration  that the contract                                                               
isn't  to  increase  RCA's powers,  but  wouldn't  diminish  them                                                               
either; it would apply to RCA or its successor agency.                                                                          
He  also said  the contract  language suggests  that even  if RCA                                                               
acted  in  its  regulatory  role  and caused  an  impact  to  the                                                               
companies,  the  state would  somehow  indemnify  them.   Senator                                                               
Therriault  told members  he  couldn't think  of  when the  state                                                               
would  do  that,  except  to  mitigate the  effect  of  a  tariff                                                               
believed to be  too high.  If  a tariff is too high,  it would be                                                               
subtracted  from the  state's wellhead  value, he  suggested, and                                                               
thus  the  RCA  would  be   doing  exactly  what  was  desired  -                                                               
maintaining a lower  tariff, to the benefit of  consumers and the                                                               
State of Alaska.                                                                                                                
2:07:01 PM                                                                                                                    
CHAIR  SEEKINS surmised  the  intent  is not  to  set up  dueling                                                               
regulatory agencies,  but to look  for a successor if  FERC "goes                                                               
SENATOR  THERRIAULT  clarified it's  also  if  FERC determines  a                                                               
portion of the operation doesn't fall within its jurisdiction.                                                                  
2:07:36 PM                                                                                                                    
CHAIR SEEKINS  asked Mr. Shepler  what chance there is  that FERC                                                               
will dissolve without a successor.                                                                                              
^Donald Shepler, Greenberg and Traurig                                                                                          
MR. SHEPLER  noted he hadn't  thought about it much,  but pointed                                                               
out  that  FERC dates  from  1938  in  various forms.    Although                                                               
nothing prohibits  Congress from amending  the Natural Gas  Act -                                                               
the source of FERC's power over  this pipeline system - he opined                                                               
there isn't a very high  probability.  More problematic, however,                                                               
is  that some  pieces of  the  contemplated system  might not  be                                                               
found to be subject to FERC's jurisdiction.                                                                                     
He said everyone  agrees the pipeline itself would  be subject to                                                               
FERC regulation.   The treatment plant, in  his opinion, probably                                                               
would be.   For  feeder lines or  gas-transmission lines  and the                                                               
natural gas liquids  (NGL) plant, though, Mr. Shepler  said it is                                                               
unclear, the further upstream one  goes, whether FERC will assert                                                               
jurisdiction or be affirmed in that jurisdiction.                                                                               
CHAIR SEEKINS  asked whether RCA would  have regulatory authority                                                               
outside Alaska.                                                                                                                 
MR. SHEPLER said he wouldn't think so.   He noted RCA has its own                                                               
statutory regulatory authority.                                                                                                 
2:10:44 PM                                                                                                                    
CHAIR  SEEKINS  surmised spur  lines,  for  example, wouldn't  be                                                               
regulated by FERC, and thus would be regulated by RCA.                                                                          
MR.  SHEPLER  said  that  could  be.   In  further  response,  he                                                               
specified  this   applies  where   FERC  either   doesn't  assert                                                               
authority or is  found to lack authority.  For  a line taking gas                                                               
from the main  line to Fairbanks or Anchorage,  for instance, RCA                                                               
would have jurisdiction under current federal statutes.                                                                         
CHAIR  SEEKINS  cautioned  against possibly  setting  up  dueling                                                               
authorities under the proposed language.                                                                                        
2:12:30 PM                                                                                                                    
SENATOR BUNDE suggested  there will always be  gray areas between                                                               
FERC and  RCA jurisdiction.   This precludes the  opportunity for                                                               
someone to escape regulation by either entity.                                                                                  
2:13:12 PM                                                                                                                    
CHAIR SEEKINS  confirmed Mr. Loeffler  was on  teleconference now                                                               
and read from Amendment 16.                                                                                                     
^Bob Loeffler, Morrison & Foerster                                                                                              
BOB  LOEFFLER,  Morrison &  Foerster,  Counsel  to the  Governor,                                                               
began by saying the intent  of the contract provision relating to                                                               
RCA was  to clarify where  federal jurisdiction lies, as  part of                                                               
the overall  effort toward fiscal  certainty; in his  mind, there                                                               
was no  intent to  change the  jurisdiction.   He opined  that it                                                               
corresponds to federal  law, which on this  project would include                                                               
the  main  line; the  gas  treatment  plant  (GTP); and,  to  his                                                               
belief,  the  upstream feeder  lines,  which  wouldn't be  making                                                               
deliveries in  Alaska, but  would be  feeding into  an interstate                                                               
He agreed  it is a  remote possibility  that FERC could  go away,                                                               
although  it has  been in  business,  in some  form, since  1938.                                                               
Mr. Loeffler highlighted a constitutional  question as to whether                                                               
the federal government has authority to  regulate an area.  If it                                                               
changes  the form  of regulation,  does  that open  the area  for                                                               
regulation by the state?                                                                                                        
He  cited  the Narragansett  case,  relating  to electricity,  as                                                               
suggesting  states   cannot  step  in  and   regulate  interstate                                                               
commerce,  even  if  the  federal   government  hasn't  acted  to                                                               
regulate that  area.  Therefore,  in the hypothetical  and remote                                                               
case that Congress  decides FERC should have a  different form of                                                               
regulation or not  regulate part of the  interstate gas business,                                                               
Mr. Loeffler  said he  couldn't give the  opinion that  the state                                                               
could step in.                                                                                                                  
He turned to  Amendment 16, noting he hadn't  seen it previously.                                                               
After  reading portions  out loud,  he said,  "Yes, the  contract                                                               
does contain  a possible indemnification,  with a lot  of hurdles                                                               
and limitations  before you  get to  it.  So,  from the  point of                                                               
view  of   the  administration,  we   couldn't  agree   to  that,                                                               
consistent  with the  tentative  contract that  we  ... will  put                                                               
before you."                                                                                                                    
2:17:48 PM                                                                                                                    
MR. LOEFFLER emphasized there are  limitations on loss that apply                                                               
to the  indemnification clause  as well as  any other  loss under                                                               
the  contract;  they remove  the  largest  potential exposure  if                                                               
there ever is a loss situation.   "So we don't agree, as far as I                                                               
know, with the indemnity language  in the amendment, because it's                                                               
inconsistent  with  what  we've  negotiated,"  he  told  members.                                                               
Mr. Loeffler also questioned what the  first half of the sentence                                                               
does beyond stating a truism:   if RCA doesn't have jurisdiction,                                                               
it isn't changed, and if it does, it isn't changed.                                                                             
2:18:52 PM                                                                                                                    
SENATOR  STEDMAN suggested  Amendment  16, targeted  to go  under                                                               
AS 43.82.200,  contract development,  doesn't seem  to fit  well.                                                               
He asked why it isn't under AS 43.82.610, regulation.                                                                           
SENATOR  THERRIAULT explained  that  he'd  written this  language                                                               
last night and had asked the  drafter where it fits.  Stating the                                                               
intention  that  RCA's ability  to  utilize  its statutory  power                                                               
wouldn't  be  precluded  in   the  contract,  Senator  Therriault                                                               
requested an example  where RCA exercises its power  such that it                                                               
needs  to be  indemnified under  the contract.   With  respect to                                                               
RCA's regulation  of this transportation system  where the feeder                                                               
lines come into it, he surmised  it would be to ensure the tariff                                                               
isn't too high.                                                                                                                 
He also  wondered whether  that is  what the  current contractual                                                               
language tries to indemnify in  case RCA makes that determination                                                               
in the future.  If they  do, Senator Therriault said, his opinion                                                               
is that it would be to the  benefit of consumers and the State of                                                               
Alaska, because the  tariff would be subtracted  from the state's                                                               
wellhead value.                                                                                                                 
2:20:33 PM                                                                                                                    
MR. LOEFFLER replied  that if RCA attempted to set  the tariff on                                                               
the feeder  lines and  they were  subject to  federal regulation,                                                               
that  exercise  would  be  preemptive.    No  loss  would  arise.                                                               
Assuming federal  regulation, RCA  could "just not  set different                                                               
tariffs."   He offered to  reiterate his previous  explanation of                                                               
the oil line and gas line with  respect to this if necessary.  He                                                               
added that if somehow the  federal government didn't regulate the                                                               
tariff of the  feeder line into the interstate system  - which is                                                               
contrary  to his  understanding -  and RCA  had jurisdiction  and                                                               
said the  profit element was  too high  on the feeder  line, then                                                               
the contract would kick in and  there couldn't be, under his view                                                               
of the contract, an indemnity for those lost profits.                                                                           
He  read from  Article 37.2  of the  contract, which  says it  is                                                               
negotiated  in consideration  of  the parties'  consent to  limit                                                               
recovery of certain  loss; no party is liable to  any other party                                                               
for  loss of  federal rights  relating  to this  contract or  any                                                               
breach  of  it,  or  any   consequential  or  incidental  damages                                                               
including lost  profits.  Mr.  Loeffler told members that  if RCA                                                               
says the tariffs  are too high because the profit  element is too                                                               
high,  he  reads  the contract  provisions,  taken  together,  as                                                               
follows:    In a  dispute,  after  other procedural  hurdles  are                                                               
cleared,  one  cannot  be  indemnified  by  the  state  for  lost                                                               
He highlighted the  only situation he could think  of where there                                                               
might  be an  indemnity:   If  RCA attempted  to impose  contract                                                               
carriage  on a  feeder  line -  attempting  to displace  existing                                                               
shippers with  new shippers  - then  the displaced  shipper might                                                               
argue it suffered  a loss.  But whether it  really had suffered a                                                               
loss would depend  on facts downstream, including  whether it was                                                               
advantaged  by  not   having  to  ship  at   a  particular  time.                                                               
Furthermore, Mr. Loeffler  said, it would assume  that an attempt                                                               
to  impose  contract  carriage  on  a  flow  of  gas  through  an                                                               
interstate  pipeline, which  depends  on that  flow, didn't  also                                                               
interfere with the operation of that pipeline.                                                                                  
2:24:49 PM                                                                                                                    
^Donald Shepler and Bob Loeffler                                                                                                
MR. SHEPLER  pointed out  that in  the 2004  federal legislation,                                                               
Congress established  specific rules  over federal  regulation of                                                               
an Alaskan pipeline project; in  the future, Congress could again                                                               
make rules  having nothing to  do with FERC's regulation  for the                                                               
last  70 years  in  the  Lower 48,  and  could surgically  remove                                                               
federal regulation  of the  Alaskan project  or some  portions of                                                               
it.   He  noted this  "what goes  around, comes  around" scenario                                                               
doesn't depend on massive deregulation or abolition of the FERC.                                                                
MR. LOEFFLER  added that  under the  commerce clause  the federal                                                               
government, through  Congress, chooses how to  regulate entities.                                                               
It is  the province of  the federal  government to decide  how to                                                               
regulate; the  fact that it  can surgically change an  element of                                                               
regulation  doesn't remove  that from  federal jurisdiction,  and                                                               
the state cannot just step in to  fill a gap or institute its own                                                               
2:27:38 PM                                                                                                                    
SENATOR THERRIAULT  remarked he is  always a bit leery  of taking                                                               
comfort  in  protections afforded  by  another  government.   The                                                               
state controls RCA,  which isn't subject to  changes by Congress.                                                               
Noting the  amendment refers to  indemnification, he  pointed out                                                               
that Article 8.3 of the  contract talks about reimbursement for a                                                               
loss  to  a  participant,  which could  include  costs  to  cover                                                               
transportation or other appropriate relief.                                                                                     
He related his  concerns:  If a section of  pipeline doesn't fall                                                               
under FERC jurisdiction  but falls under the  regular RCA powers,                                                               
wouldn't the  desire be  to have RCA  continue to  exercise those                                                               
powers  to  protect  the  consumers   and  the  state?    And  if                                                               
exercising those powers  caused a loss, should the  state have to                                                               
reimburse  for  that?    Senator Therriault  noted  if  a  future                                                               
legislature disagreed, RCA's  powers could be modified  then.  He                                                               
specified that  the intention isn't  to increase RCA's  powers or                                                               
cause any overlap,  but is to preserve those powers  as they are,                                                               
under law established by the legislature.                                                                                       
2:29:58 PM                                                                                                                    
CHAIR SEEKINS read from Amendment 16.   He asked whether it would                                                               
be better to  clarify that it only refers  to decisions regarding                                                               
areas  under  RCA authority,  which  might  read better  for  the                                                               
layman.  He suggested the following conceptual wording:                                                                         
     Nothing  in a  contract under  this chapter  diminishes                                                                    
     the legal  authority of the  RCA regarding  areas under                                                                    
     RCA authority or indemnifies any  person or entity from                                                                    
     future decisions of  the RCA or a successor  to the RCA                                                                    
     regarding  areas under  RCA  authority  - or  decisions                                                                    
     under RCA authority.                                                                                                       
SENATOR THERRIAULT agreed that still encapsulates his intent.                                                                   
2:31:45 PM                                                                                                                    
MR.  LOEFFLER responded  that  the first  half  sort of  restates                                                               
existing law and  thus he would reference AS 42.06.245.   He read                                                               
from the following portion of that statute:                                                                                     
     The requirements of this  chapter pertaining to permits                                                                    
     and  certificates of  public convenience  and necessity                                                                    
     do  not  apply  to   the  construction  of  a  pipeline                                                                    
     facility  exclusively subject  to federal  jurisdiction                                                                    
     or  to the  interstate  portion of  the  business of  a                                                                    
     pipeline  or pipeline  carrier  exclusively subject  to                                                                    
     federal jurisdiction.                                                                                                      
He said  the first part, though  he wouldn't agree with  it, is a                                                               
truism.     The  second,  a   legitimate  public   policy  issue,                                                               
recognizes  that limits  are being  placed on  the reimbursement.                                                               
Mr. Loeffler added, "There are  a set of procedural hurdles, even                                                               
before you  get to the  possibility of reimbursement for  a loss,                                                               
if  you can  construct a  loss other  than lost  profits, I  feel                                                               
constrained, as  a representative  of the administration,  not to                                                               
agree  with,  because  it's contrary  to  the  negotiations  that                                                               
occurred on the draft contract."                                                                                                
2:33:15 PM                                                                                                                    
SENATOR  STEDMAN  again  asked   why  the  language  proposed  in                                                               
Amendment  16  goes  under  AS 43.82.200,  contract  development,                                                               
instead of AS 43.82.610, regulation.                                                                                            
SENATOR THERRIAULT explained that  he'd informed the drafter that                                                               
this  is  to instruct  the  administration  to not  impact  RCA's                                                               
powers  as  the  administration  constructs the  contract.    The                                                               
drafter then had suggested it belonged in that section.                                                                         
2:34:26 PM                                                                                                                    
SENATOR STEDMAN  asked whether Senator Therriault  could identify                                                               
any diminishment of RCA's authority in the contract.                                                                            
SENATOR  THERRIAULT suggested  that  is why  there was  testimony                                                               
that it sort of restates current  statute.  He said the operative                                                               
part  is  where  it  gets  to  indemnification  or  reimbursement                                                               
triggered if RCA actually takes on  its statutory role.  He added                                                               
that he wasn't sure why, if  the state regulatory agency is doing                                                               
as the statutes  instruct, there should be  indemnification for a                                                               
resulting loss  if, in fact,  it is ensuring that  tariffs aren't                                                               
too high or that there is access to lines.                                                                                      
2:35:21 PM                                                                                                                    
SENATOR GREEN asked  whether it was Mr.  Loeffler who'd presented                                                               
that information at Centennial Hall.                                                                                            
MR. LOEFFLER affirmed that.                                                                                                     
SENATOR  GREEN asked  whether he'd  used the  term "overstepping"                                                               
with regard to RCA's potential actions.                                                                                         
MR. LOEFFLER said he could have.                                                                                                
SENATOR  GREEN  requested  a hypothetical  scenario  in  which  a                                                               
dispute could arise and lead to litigation.                                                                                     
MR. LOEFFLER gave  an example from the existing RCA  statute.  He                                                               
noted AS 42.06.240  requires a North  Slope natural  gas pipeline                                                               
to apply for  a certificate, but also says the  requirement for a                                                               
certificate doesn't  operate to impose state  regulation that has                                                               
been preempted  under federal law.   He opined that if  RCA asked                                                               
the applicant  for the main  line to  apply for a  certificate of                                                               
public convenience and necessity under  state law, and as part of                                                               
that application to address how  much will be intrastate service,                                                               
it would  be inconsistent  with the  requirements of  the federal                                                               
statute, which  requires a certificate of  public convenience and                                                               
He suggested RCA could step  into the jurisdiction of FERC, which                                                               
looks at  gas markets and  potential shippers and is  required to                                                               
look at  how much transportation  capacity will be set  aside for                                                               
intrastate uses.  There could  be dueling agencies.  Mr. Loeffler                                                               
said  the  idea of  Article  8.3  is  that before  anyone  starts                                                               
claiming a dispute or loss,  there is a cooling-off period during                                                               
which  the state  and federal  governments can  talk and  clarify                                                               
jurisdictional issues before the  point of dispute resolution and                                                               
a claim for loss.                                                                                                               
2:39:22 PM                                                                                                                    
SENATOR GREEN asked whether the  contract proposes that the state                                                               
assist in indemnifying the other partners for RCA's actions.                                                                    
MR.  LOEFFLER  noted  there  are limitations  on  the  loss,  but                                                               
replied that if  RCA caused a loss to the  producers and the loss                                                               
was  adjudicated and  proved, this  amendment  would prevent  the                                                               
state from reimbursing for that loss.                                                                                           
2:40:23 PM                                                                                                                    
MR. SHEPLER  informed members  he was looking  at Article  8.3 of                                                               
the contract in light of Mr.  Loeffler's testimony.  He noted the                                                               
contract   itself   is   triggered   if   FERC   doesn't   assert                                                               
jurisdiction.   The second  sentence on page  87 of  the contract                                                               
says if  FERC doesn't assert  jurisdiction, no party may  seek or                                                               
support jurisdiction in  the RCA and so forth.   Mr. Shepler said                                                               
he was having  trouble getting back to Mr.  Loeffler's point that                                                               
somehow there  would be a  "constitutional crisis"  between state                                                               
and federal regulation.                                                                                                         
He  opined  Amendment  16  just  says  nothing  in  the  contract                                                               
diminishes   whatever   authority   RCA  might   have   in   that                                                               
circumstance,   as   set   forth  in   its   statutory   mandate.                                                               
Contemplated  in  the contract  is  that  FERC would  not  assert                                                               
jurisdiction as  the triggering event,  Mr. Shepler  said, adding                                                               
that he believes, subject to  confirmation by Senator Therriault,                                                               
that the  intent is to clarify  there is no change  being made by                                                               
this contract to RCA's existing authority.                                                                                      
2:42:17 PM                                                                                                                    
SENATOR  GREEN suggested  the  real thrust  is  the language  "or                                                               
indemnifies any  person or  entity from  future decisions  of the                                                               
Regulatory Commission  of Alaska", which relates  to the contract                                                               
SENATOR THERRIAULT  replied it's in  regard to the loss  and said                                                               
RCA is precluded if there  is federal jurisdiction.  If, however,                                                               
FERC says it won't regulate, he  wants to preserve RCA's right to                                                               
follow its statutory  direction from the legislature  and step in                                                               
to see whether it has jurisdiction  over that area, since RCA has                                                               
been set up to protect consumers and the state.                                                                                 
MR.  LOEFFLER  clarified  that  RCA,  an  independent  regulatory                                                               
agency, is  excluded from the  definition of the state.   Nothing                                                               
in the contract restricts RCA  from asserting lawful jurisdiction                                                               
in   that  circumstance.     In   further  response   to  Senator                                                               
Therriault, he affirmed that the  state itself, by this language,                                                               
couldn't  ask for  RCA  jurisdiction, but  he  pointed out  there                                                               
would be many interested parties.                                                                                               
SENATOR THERRIAULT  suggested there could be  a strange situation                                                               
in  which the  state  has  written its  laws  to  direct RCA  and                                                               
believes those laws  should be exercised, but  would be precluded                                                               
from encouraging RCA to use those laws.                                                                                         
CHAIR  SEEKINS related  his understanding  of AS  42.06.245, that                                                               
nothing  limits the  power  of the  commission  in that  chapter,                                                               
except as  preempted by  federal law.   He  asked if  that covers                                                               
these circumstances, and surmised it cannot be contracted away.                                                                 
2:46:06 PM                                                                                                                    
SENATOR THERRIAULT noted there could  be a situation in which RCA                                                               
wants to  assert jurisdiction.   Under the contract, the  state -                                                               
which wrote the law - wouldn't  be able to support that activity,                                                               
even if it was in the state's best interest.                                                                                    
CHAIR  SEEKINS  suggested perhaps  saying  that  "nothing in  the                                                               
contract  under  this  chapter  supersedes  the  requirements  of                                                               
Section 42.06.245", which basically  says that nothing limits the                                                               
powers of the commissioner except as preempted by federal law.                                                                  
SENATOR  THERRIAULT replied  that he  thought it  would have  the                                                               
intended effect.   However, he  didn't want  to rely on  having a                                                               
company such  as Pioneer  protect the  state in  the future.   He                                                               
agreed the  reference to .245, coupled  with the indemnification,                                                               
probably would encapsulate his intention.                                                                                       
2:47:53 PM                                                                                                                    
SENATOR GREEN objected to Amendment 16.                                                                                         
CHAIR  SEEKINS,  in response  to  Senator  Elton, clarified  that                                                               
although he'd  talked about a  conceptual amendment  to Amendment                                                               
16, he  hadn't offered it.   He said the  first part is  a truism                                                               
that  already  exists.    He   asked  whether  the  second  part,                                                               
regarding  indemnification, is  a truism  as well,  or introduces                                                               
new law that says it's okay to  preempt federal law as long as it                                                               
is done a certain way.                                                                                                          
2:49:22 PM                                                                                                                    
SENATOR GREEN referred  to discussion of Article  8.3, which says                                                               
the  state will  indemnify the  partners for  any actions  by RCA                                                               
that cause a  loss or diminishment.  She  said that consideration                                                               
has to be  given, but questioned whether it is  right.  She noted                                                               
the amendment  allegedly protects  RCA, but  also says  the state                                                               
won't indemnify  any other  person and  so forth.   She  said she                                                               
didn't know the reasoning behind the indemnification.                                                                           
MR. LOEFFLER said  he'd try to explain.  The  language is that if                                                               
RCA asserts  jurisdiction and takes  regulatory actions  that are                                                               
inconsistent  with the  principles of  FERC policy  or commercial                                                               
agreements that result  in a loss, the state  shall reimburse the                                                               
participant for the loss.  He emphasized it isn't automatic.                                                                    
He  gave the  following as  the  rationale:   The producers  want                                                               
clarity as to  the regulatory arrangement; they don't  want, at a                                                               
later date, to be faced with  a change in those arrangements that                                                               
causes an  unanticipated loss.   In the  allocation of  risk, the                                                               
state  should be  responsible -  within the  limitations, hurdles                                                               
and  procedures -  for any  ultimate loss  to the  companies from                                                               
RCA's actions inconsistent  with those standards, since  RCA is a                                                               
state  creation.   Some  companies  had  pressed hard  for  that,                                                               
Mr. Loeffler reported, and the negotiation  session at which this                                                               
was  agreed to  involved some  other economic  trades; those  who                                                               
were there felt this was a fair trade.                                                                                          
2:52:59 PM                                                                                                                    
SENATOR  GREEN   proposed  adding  "unless  RCA's   actions  were                                                               
inconsistent  with  FERC  principles"  to  the  amendment.    She                                                               
suggested this is key language in the contract provision.                                                                       
CHAIR  SEEKINS suggested  "federal  regulations".   He  requested                                                               
Mr. Shepler's opinion  if the  end of the  paragraph were  to say                                                               
"inconsistent with federal law or FERC regulation".                                                                             
MR.  SHEPLER  proposed "if  such  actions  are inconsistent  with                                                               
federal law or regulations".                                                                                                    
SENATOR GREEN asked whether he'd said "FERC" or "federal".                                                                      
MR. SHEPLER indicated either could be used.                                                                                     
CHAIR  SEEKINS inquired  whether  that would  fit within  Senator                                                               
Therriault's intent.                                                                                                            
SENATOR  THERRIAULT noted  there  won't be  jurisdiction if  it's                                                               
preempted by federal  law.  However, he was thinking  that if RCA                                                               
is exercising  its power  to protect consumers  and the  state, a                                                               
power  that  the legislature  has  granted,  why would  there  be                                                               
indemnification  if it  ran contrary  to a  FERC principle  and a                                                               
loss occurred.   He  surmised "smaller  players" in  Alaska might                                                               
see  some   protection  from  RCA   if  there  was  a   piece  of                                                               
infrastructure not covered  by federal authority.   If they chose                                                               
to exercise that to get  protection for themselves and the state,                                                               
why would the state pick up any resulting loss?                                                                                 
2:56:37 PM                                                                                                                    
CHAIR SEEKINS said he understood  that, but wasn't willing to say                                                               
there  couldn't  be  indemnification for  something  contrary  to                                                               
federal  law.   If  a decision  by  RCA were  later  shown to  be                                                               
preempted by federal law, he'd have a problem with it.                                                                          
SENATOR THERRIAULT opined that "federal  law" and "a principle of                                                               
FERC" are  probably two  different things.   Clearly,  RCA cannot                                                               
operate contrary to federal law.                                                                                                
CHAIR SEEKINS  suggested the following language:  "Nothing limits                                                               
the  powers of  the  commission  except to  the  extent they  are                                                               
preempted by  federal law, under  existing law today."   However,                                                               
he again  expressed concern about indemnifying  against something                                                               
unenforceable because it is preempted by federal law.                                                                           
2:57:49 PM                                                                                                                    
MR. SHEPLER responded:                                                                                                          
     I  don't  think that's  the  situation.   I  think  the                                                                    
     provision  of  8.3  contemplates a  circumstance  where                                                                    
     FERC does  not assert  jurisdiction.   So ...  FERC has                                                                    
     stepped  aside  or doesn't  have  the  authority to  go                                                                    
     there in the  first place.  And your  own state statute                                                                    
     would  say that  ...  in the  absence  of FERC  federal                                                                    
     authority,  RCA   has  such  authority.     And  if  in                                                                    
     exercising that  authority it requires a  party to make                                                                    
     a  refund ...  or  charge a  lower  rate, the  question                                                                    
     comes  back  as  to  whether  the  state  ought  to  be                                                                    
     reimbursing  the  entity   that  was  overcharging  for                                                                    
     having to roll back its rate.                                                                                              
     I  think  that's  the   policy  question  that  Senator                                                                    
     Therriault is  raising of ...  the anomaly  here, where                                                                    
     you  have  a  state agency  exercising  its  authority,                                                                    
     implicitly finding  that someone has  been overcharged,                                                                    
     and  then the  state  treasury somehow  having to  come                                                                    
     back and  reimburse the overcharging party  for some or                                                                    
     all of the overcharge.                                                                                                     
SENATOR  GREEN  recalled  discussion   at  Centennial  Hall  that                                                               
because the  contract was based  on the premise of  FERC control,                                                               
everyone was considering FERC rules  and regulations as the basis                                                               
for the contract,  rather than RCA's being part of  it.  She also                                                               
recalled that was the reason for including indemnification.                                                                     
2:59:48 PM                                                                                                                    
SENATOR  THERRIAULT   recalled  a  struggle  a   few  years  back                                                               
involving  different   protections  offered  by  RCA.     Smaller                                                               
entities in  Alaska had seen RCA  as a state entity  that offered                                                               
some protection with respect to rates  and access.  He voiced the                                                               
desire to  preserve that power.   If RCA  finds a tariff  rate is                                                               
too high  and the rate is  lowered, he said, the  state shouldn't                                                               
reimburse it from the state treasury.                                                                                           
3:00:43 PM                                                                                                                    
MR.  LOEFFLER told  members  he  was trying  to  work within  the                                                               
confines   of   the  structure.      He   said  yes,   there   is                                                               
reimbursement.  But if  the tariff is too high -  as RCA found in                                                               
the TAPS case - because the  profit element is too high, there is                                                               
no requirement,  under the language  he'd read to  the committee,                                                               
to reimburse for lost profits.  He continued:                                                                                   
     What  I'm trying  to carefully  say is,  there is  some                                                                    
     limited  reimbursement   or  indemnification  possible.                                                                    
     But when you  work through the language  of the section                                                                    
     and  the  operative  limitations  in  the  contract,  I                                                                    
     believe  it's quite  remote and  limited.   And so  I'm                                                                    
     objecting a little bit to  hypotheticals that don't fit                                                                    
     within the language of the contract.                                                                                       
3:01:53 PM                                                                                                                    
SENATOR GREEN maintained her objection to Amendment 16.                                                                         
A roll  call vote  of 6 yeas  and 6 nays  proved Amendment  16 to                                                               
SB 2004  failed, with  Senators  Kookesh,  Olson, Dyson,  Wilken,                                                               
Elton and  Wagoner voting yea,  and Senators Stedman,  Bunde, Ben                                                               
Stevens, Hoffman, Green and Seekins voting nay.                                                                                 
3:02:49 PM                                                                                                                    
CHAIR SEEKINS informed  Senator Therriault that he  would look at                                                               
the amendment differently if the  language could be cleared up as                                                               
to what is indemnified.                                                                                                         
SENATOR BUNDE  opined that  SB 2004  is a  work in  progress, and                                                               
that  the committee  had gone  as far  as possible  until further                                                               
information is received.                                                                                                        
CHAIR   SEEKINS  indicated   Amendment  5B,   set  aside   during                                                               
yesterday's hearing, wouldn't be addressed.                                                                                     
3:03:48 PM                                                                                                                    
SENATOR  BUNDE  moved  to  report   SB  2004,  as  amended,  from                                                               
committee  with individual  recommendations  and attached  fiscal                                                               
SENATOR ELTON objected.                                                                                                         
An initial roll  call vote was 10 yeas and  2 nays, with Senators                                                               
Kookesh,  Ben  Stevens,  Stedman, Bunde,  Dyson,  Wilken,  Green,                                                               
Wagoner  and Seekins  voting yea,  and Senators  Olson and  Elton                                                               
voting nay.   Senator  Olson changed  his vote  from nay  to yea.                                                               
Therefore, CSSB 2004(NGD)  was reported  from the  Senate Special                                                               
Committee on Natural Gas Development by a vote of 11-1.                                                                         
3:05:13 PM                                                                                                                    
SENATOR  BEN STEVENS,  in response  to  Senator Elton,  clarified                                                               
that  as presiding  officer of  the Senate  he'd ruled  that this                                                               
special committee,  which combines  the Senate  Finance Committee                                                               
and the Senate  Resources Standing Committee, could  serve as the                                                               
finance  committee  in  addressing  fiscal  matters  relating  to                                                               
bills, and thus could satisfy a finance committee referral.                                                                     
CHAIR  SEEKINS pointed  out  there  was a  zero  fiscal note  for                                                               
SB 2004.   In  response to  Senator Olson,  he said  the upcoming                                                               
roundtable  discussions would  address  the  concept behind  this                                                               
bill and the entire process  relating to natural gas development.                                                               
He  surmised a  similar  bill  could be  considered  in a  future                                                               
special session.                                                                                                                
SENATOR  OLSON questioned  the purpose  of  those discussions  if                                                               
SB 2004 has already passed from committee.                                                                                      
CHAIR SEEKINS  said he didn't  believe the  topic had come  to an                                                               
end.   SB 2003 was still  open, and there could  be discussion of                                                               
the general  topic of the natural  gas contract.  The  intent was                                                               
not to  rehash SB 2004, but  to talk about the  general topic and                                                               
have  an opportunity  for discussion  involving consultants,  the                                                               
producers, the administration and legislators.                                                                                  
SENATOR DYSON  agreed and  noted a  section of  SB 2004  had been                                                               
stripped that  related to collateral agreements,  anticipating it                                                               
would likely  show up  in other legislation  relating to  the LLC                                                               
and so  forth.   Furthermore, there had  been discussion  in this                                                               
committee  about  needing  more  information.   He  said  he  was                                                               
looking forward to the discussions.                                                                                             
CHAIR SEEKINS also told Senator Olson  he was eager to pursue the                                                               
relationship  between  RCA and  FERC,  and  needed more  time  to                                                               
consider the effect  of indemnification.  He  closed the hearing,                                                               
with  CSSB 2004(NGD)  reported from  committee  and SB 2003  held                                                               

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