Legislature(1993 - 1994)

03/01/1993 01:40 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
                                                                               
                     HOUSE FINANCE COMMITTEE                                   
                          March 1, 1993                                        
                            1:40 P.M.                                          
                                                                               
  TAPE HFC 93 - 33, Side 2, #000 - end.                                        
  TAPE HFC 93 - 34, Side 1, #000 - #694.                                       
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Co-Chair Ron Larson called the meeting of  the House Finance                 
  Committee to order at 1:40 P.M.                                              
                                                                               
  PRESENT                                                                      
                                                                               
  Co-Chair Larson                    Representative Brown                      
  Co-Chair MacLean                   Representative Therriault                 
  Vice-Chair Hanley                  Representative                            
  Grussendorf                                                                  
  Representative Navarre             Representative Parnell                    
                                                                               
  Representatives Foster, Hoffman and Martin were  not present                 
  for the meeting.                                                             
                                                                               
  ALSO PRESENT                                                                 
                                                                               
  Jan  DeYoung,  Administrator/Hearing Examiner,  Alaska Labor                 
  Relations  Agency,   Department  of  Labor,   Anchorage  via                 
  Teleconference;   John    Abshire,   Deputy    Commissioner,                 
  Department  of  Labor;  John  Tillinghast, Chugach  Electric                 
  Company, Anchorage, Alaska; Raga Elim, Special Assistant  to                 
  Commissioner Olds, Department of Natural Resources.                          
                                                                               
  SUMMARY INFORMATION                                                          
  *hb102                                                                       
  HB 102    An Act  relating  to the  Alaska  Labor  Relations                 
            Agency; and providing for an effective date.                       
                                                                               
            CS HB 102 (FIN) was reported out of Committee with                 
            a "do pass" recommendation and  with a zero fiscal                 
            note  by  the  House  Finance  Committee  for  the                 
            Department of Labor.                                               
  *hb116                                                                       
  HB 116    An  Act  directing  the  commissioner  of  natural                 
            resources to accept, under  certain circumstances,                 
            the contract price  agreed to between a  lessee of                 
            federal land and a gas or electric  utility as the                 
            value of  the federal  government's royalty  share                 
            from  natural  gas  production  when  royalty   is                 
            payable to the state under applicable federal law;                 
            and providing for an effective date.                               
                                                                               
                                1                                              
                                                                               
                                                                               
            HB   116  was   placed   into  subcommittee   with                 
  Representative           Parnell as Chair  and with  members                 
                           Representative             MacLean,                 
                           Representative       Brown      and                 
                           Representative  Hanley.    The bill                 
                           was held in  Committee for  further                 
                           discussion.                                         
  *hb102                                                                       
  HOUSE BILL 102                                                               
                                                                               
       "An Act relating to the  Alaska Labor Relations Agency;                 
       and providing for an effective date."                                   
                                                                               
  JAN  DEYOUNG,  ADMINISTRATOR/HEARING EXAMINER,  ALASKA LABOR                 
  RELATIONS AGENCY,  DEPARTMENT OF  LABOR, ANCHORAGE,  ALASKA,                 
  testified  via teleconference  in  support of  HB 102.   Ms.                 
  DeYoung  explained that  the  Alaska Labor  Relations Agency                 
  hears disputes between unions,  public employers, individual                 
  union members  and the unions.   The Agency  administers the                 
  public  Employment  Relations  Act  and the  Railroad  Labor                 
  Relations Act.  The  Agency, created in 1990, over  the past                 
  two years  has  experienced a  sixty-seven percent  workload                 
  increase.                                                                    
                                                                               
  In 1992, Ms. DeYoung noted, the volunteer board  members met                 
  a  total of  thirty-three days  for  agency business.   This                 
  workload  has  created   a  hardship   for  board   members.                 
  Consequently, the Department of Labor has requested that the                 
  board  be  increased in  order to  share  the workload.   In                 
  addition to increasing the panel, HB  102 would allow for an                 
  honorarium with  compensation reflected in  the $12.8 fiscal                 
  note.                                                                        
                                                                               
  Co-Chair Larson asked the number of members necessary  to be                 
  present to form an  agency quorum.  Ms. DeYoung  replied for                 
  administrative hearings three members need to be present and                 
  two of those members would make a quorum.  A public business                 
  meeting could not be shared by the  panel, consequently both                 
  panels would need to  be present and a quorum  would consist                 
  of four members.                                                             
                                                                               
  Representative  Hanley  recommended  that  the  fiscal  note                 
  itemize the  per diem and  travel costs associated  with the                 
  hire of  the additional  three board members.   Ms.  DeYoung                 
  pointed out those  costs are insubstantial as  board members                 
  currently reside in Anchorage where all cases are heard.                     
                                                                               
  Representative Therriault asked if an  appeal right would be                 
  granted  for  a  full board  hearing  if  a  person was  not                 
  satisfied with  their  initial determination.   Ms.  DeYoung                 
  stated the appeal from a panel decision goes directly to the                 
                                                                               
                                2                                              
                                                                               
                                                                               
  Superior Court.                                                              
                                                                               
  Representative  Parnell  questioned the  honorarium position                 
  and  asked  the  criteria  used  to determine  which  boards                 
  receive honorariums.    Co-Chair  Larson  discussed  various                 
  boards  which  do   have  the  honorarium   paid  positions.                 
  Representative Grussendorf echoed his  concern regarding the                 
  requested honorariums.                                                       
                                                                               
  JOHN  ABSHIRE,  DEPUTY  COMMISSIONER,  DEPARTMENT OF  LABOR,                 
  stated that honorarium  positions pay range from  $50 - $450                 
  dollars  per day and  added that the  requested $100 dollars                 
  per day was a low case medium.  Mr. Abshire recommended that                 
  all new members to the board continue to reside in Anchorage                 
  which would alleviate travel costs.                                          
                                                                               
  Representative  Hanley   asked  the  compensation   for  the                 
  Worker's Compensation Board honorarium.  Mr. Abshire replied                 
  it  was  $50  dollar  per  day  with  additional  per  diem.                 
  Representative Parnell questioned if board members living in                 
  Anchorage receive per diem.  Mr. Abshire stated they do not.                 
  Representative Grussendorf  noted his concern that all board                 
  members be  residents of Anchorage solely to avoid board and                 
  travel costs.                                                                
                                                                               
  Co-Chair MacLean MOVED Amendment #1, the deletion of Section                 
  3, Page 2,  Lines 3  through 7 of  the proposed  legislation                 
  which would delete  the honorarium position.  There being NO                 
  OBJECTION, it was adopted.                                                   
                                                                               
  Representative Brown noted  with the deletion of  Section 3,                 
  the fiscal note would  be reduced to zero.   Co-Chair Larson                 
  MOVED  CS HB  102  (FIN) out  of  Committee with  individual                 
  recommendations  and  a zero  fiscal note.   There  being NO                 
  OBJECTION, it was so ordered.                                                
                                                                               
  CS  HB 102  (FIN) was reported  out of Committee  with a "do                 
  pass"  recommendation and  with a  zero fiscal  note by  the                 
  House Finance Committee for the Department of Labor.                         
  *hb116                                                                       
  HOUSE BILL 116                                                               
                                                                               
       "An Act directing the commissioner of natural resources                 
       to accept,  under certain  circumstances, the  contract                 
       price agreed to between a lessee  of federal land and a                 
       gas or  electric utility  as the  value of the  federal                 
       government's royalty share from natural gas  production                 
       when royalty is  payable to the state  under applicable                 
       federal law; and providing for an effective date."                      
                                                                               
  JOHN  TILLINGHAST,  CHUGACH  ELECTRIC   COMPANY,  ANCHORAGE,                 
  ALASKA, testified in support  of HB 116.  He  commented that                 
                                                                               
                                3                                              
                                                                               
                                                                               
  Chugach is seeking  to introduce legislation that  will help                 
  resolve a royalty  dispute that Chugach is  involved in with                 
  the  Department of  Natural Resources  (DNR) concerning  the                 
  valuation of federal royalties for  natural gas that Chugach                 
  purchased at the Beluga  River field.  Chugach thought  that                 
  this issue  had been resolved  in 1986 when  legislation (AS                 
  38.05.180(aa)) was passed.                                                   
                                                                               
  That legislation  provides  legislative guidance  to DNR  in                 
  valuing royalties for gas and electric utilities.  He added,                 
  unfortunately,  that  the  current  DNR  administration  has                 
  chosen  to  interpret  the  statute   verbatim  and  is  now                 
  disregarding the legislative intent that was behind the law.                 
  In so doing, the current DNR administration has flip-flopped                 
  the agency's position and is  now apparently in disagreement                 
  with  the  intent behind  the  legislation which  they fully                 
  supported in 1986.                                                           
                                                                               
  Mr. Tillinghast  added, if  DNR prevails  in its pursuit  of                 
  increasing federal royalties for Beluga  gas for prior years                 
  (1984-1992),  electric rate-payers  from Homer  to Fairbanks                 
  will  be  asked to  pay  more  than $21  million  dollars in                 
  additional  royalties.    At  issue  today are  the  federal                 
  royalties  for  the  years 1984-87  totaling  $12.4  million                 
  dollars.  However, if  DNR applies the same logic  to future                 
  years (1988-1992), Chugach  rate payers would be  liable for                 
  an additional $9 million dollars.                                            
                                                                               
  Chugach, which is  a member owned cooperative,  will have no                 
  choice  but  to  pass  these additional  costs  on  to their                 
  ratepayer   through   some    type   of   rate    surcharge.                 
  Unfortunately,  today's customers  would  be forced  to  pay                 
  additional royalty payments for inexpensive natural gas that                 
  they  may  not  have been  there  to  use.   Chugach  firmly                 
  believes that by making royalty demands that they  know will                 
  simply be passed  on to  the consumers, that  the agency  is                 
  actually trying to impose a tax on the Alaska public without                 
  any   notice  to   them,  and   without  the   Legislature's                 
  involvement.                                                                 
                                                                               
  Representative  Brown  referenced  a  chart  on Page  19  of                 
  Attachment #1,  "An Analysis  of the  Department of  Natural                 
  Resources  Demand  for   Additional  Beluga  River   Royalty                 
  Payments from Railbelt Utility Consumers".   Mr. Tillinghast                 
  stated that Chugach is  being audited for the period  1984 -                 
  1987.   If the  State prevails  and there  is a  delinquency                 
  assessed, there  will be a  one time surcharge  on residents                 
  and businesses.                                                              
                                                                               
  Representative Brown  questioned the benefit  percentages of                 
  the proposed legislation  and asked who would  receive them.                 
  Mr. Tillinghast stated  that the  business impacts would  be                 
                                                                               
                                4                                              
                                                                               
                                                                               
  substantial.   Representative Brown  asked if Chugach  would                 
  object  to  covering  only  the  Cook  Inlet  region.    Mr.                 
  Tillinghast said there would be no  objection to that as the                 
  greatest impact of  the legislation would be  experienced in                 
  that area.                                                                   
                                                                               
  Representative Brown asked for further information as to who                 
  would   benefit  from   the  proposed   legislation.     Mr.                 
  Tillinghast stated that Chugach would benefit from the bill,                 
  and added that all other pricing controversies in Cook Inlet                 
  have been settled.                                                           
                                                                               
  Co-Chair  Larson questioned  if the Power  Cost Equalization                 
  (PCE) subsidy would  be affected  by the proposed  increase.                 
  Mr. Tillinghast stated that PCE is  required to fill the gap                 
  between power  cost expense  between the  urban centers  and                 
  rural areas.                                                                 
                                                                               
  (Tape Change, HFC 93 -34, Side 1).                                           
                                                                               
  Representative Brown noted  for the record that  her husband                 
  is one of  the five members  of the Alaska Public  Utilities                 
  Commission   (APUC).    She   stressed  that   the  proposed                 
  legislation  has  no  effect  on   PCE  until  authority  is                 
  clarified to amend the floor.                                                
                                                                               
  Representative  Grussendorf asked where the State's share of                 
  the federal royalty  would be distributed.   Mr. Tillinghast                 
  replied twenty-five percent  would go to the  Permanent Fund                 
  and seventy-five percent  would be allocated to  the general                 
  fund.   Representative Grussendorf pointed out  that Chugach                 
  is asking that the  Permanent Fund be reduced in  order that                 
  sixty  percent  of  their consumers  receive  benefit.   Mr.                 
  Tillinghast stated that  Chugach is  a cooperative and  does                 
  not pass  dividends on  to share  holders.   Cost of  direct                 
  royalties   will    be   passed   on   to   the   consumers.                 
  Representative Grussendorf emphasized  that the PCE  program                 
  was a price agreed  upon to allow certain areas of the State                 
  to benefit from hydroelectric projects.                                      
                                                                               
  Representative Hanley stated  that the  policy call made  in                 
  1986 states that in State leases,  the contract price is the                 
  price.   The Legislature  passed legislation  in 1986  which                 
  said that the State will accept  the contract price on State                 
  leases.   Representative Hanley further  discussed contracts                 
  and royalty agreement made with the State.                                   
                                                                               
  Co-Chair MacLean questioned the 1959  retroactive date.  Mr.                 
  Tillinghast stated that the audit  period in controversy was                 
  1984  -1987,  although  there  is  a  six  year  statute  of                 
  limitation.  The federal government  can not legally go back                 
  to 1959 because of the existing statute.  The 1959  date was                 
                                                                               
                                5                                              
                                                                               
                                                                               
  included because it was the date  of statehood at which time                 
  revenue sharing began.                                                       
                                                                               
  Co-Chair MacLean  asked how Chugach  Electric could  legally                 
  charge  for  utilities  which  have  not  been  used.    Mr.                 
  Tillinghast stated the decision  will be made by APUC.   DNR                 
  proclaimed in 1985, that  it is bad public policy  to access                 
  royalties retroactively against utilities.                                   
                                                                               
  Co-Chair  MacLean  inquired  if  the  legislation  would  be                 
  isolated  to  the use  of natural  gas  for utilities.   Mr.                 
  Tillinghast  stated yes.   DNR took  great care  in assuring                 
  that the legislation in  1986 was confined to sales  for gas                 
  and electric utilities.   Representative  Brown pointed  out                 
  that DNR did  not strongly support the  initial legislation.                 
  She stated that the  law does not clarify who qualifies as a                 
  gas utility.   Representative Brown  noted her concern  that                 
  the legislation addresses gas pipelines.   She suggested the                 
  word  "customer",  primarily being  residential,  versus the                 
  word  "consumer",   primarily  interpreted  as   a  pipeline                 
  customer, should be more clearly defined.  Her concern would                 
  be to  limit the legislation to current  production and have                 
  some protection from  the granting of an  unfair competitive                 
  advantage.                                                                   
                                                                               
  Co-Chair  MacLean   expressed  concern   with  the   federal                 
  government  establishing  the  value  of  the leases.    Mr.                 
  Tillinghast explained that the bill  only deals with federal                 
  leases.  The feds will be  establishing the value because it                 
  is their land.                                                               
                                                                               
  Representative Brown  provided the Committee  with Amendment                 
  Tillinghast  stated  that  Chugach   Electric  has  endorsed                 
  Representative   Brown's   recommendation  to   confine  the                 
  legislation either  to  Cook Inlet  or  to fields  that  are                 
  currently in production.  DNR is currently trying to get the                 
  federal government  to  retroactively  access  royalties  by                 
  disregarding the contract  price.   Mr. Tillinghast said  if                 
  the  amendments  proposed   by  Representative  Brown   were                 
  adopted,  they  will kill  the  bill.   Representative Brown                 
  reiterated her concern that the  entity benefitting from the                 
  legislation be residential.  Mr. Tillinghast recommended the                 
  removal of "gas utility" language from the bill  leaving the                 
  remaining standards.  Representative Brown agreed noting her                 
  concern with "gas utility" and who can become one.                           
                                                                               
  Mr. Tillinghast commented that the legislation does not make                 
  policy  but  rather extends  the  1986 decisions  to include                 
  something  overlooked.   If the  bill does not  pass, Golden                 
  Valley Electric Company will be asked to pay a surcharge for                 
  the  years   in  which   they  did   not  buy   electricity.                 
                                                                               
                                6                                              
                                                                               
                                                                               
  Representative  Brown  asked  how  the  surcharge  would  be                 
  distributed.  Mr.  Tillinghast added that decision  would be                 
  decided by APUC.                                                             
                                                                               
  RAGA   ELIM,  SPECIAL   ASSISTANT   TO  COMMISSIONER   OLDS,                 
  DEPARTMENT  OF  NATURAL   RESOURCES,  testified  that  DNR's                 
  position on  HB  116 is  neutral.   He  added that  DNR  has                 
  deferred  to the Legislature to decide  if the policy should                 
  be changed.  He  added that the case addressed  is currently                 
  worth $10.5 million dollars with interest accruing.                          
                                                                               
  Co-Chair  Larson  placed  HB  116 in  a  subcommittee  to be                 
  Chaired    by    Representative    Parnell   with    members                 
  Representatives Hanley,  MacLean and Brown.  HB 116 was HELD                 
  in Committee for further discussion.                                         
  *                                                                            
  ADJOURNMENT                                                                  
                                                                               
  The meeting adjourned at 3:05 P.M.                                           
                                                                               
                                                                               
                     HOUSE FINANCE COMMITTEE                                   
                          March 1, 1993                                        
                            1:40 P.M.                                          
                                                                               
  TAPE HFC 93 - 33, Side 2, #000 - end.                                        
  TAPE HFC 93 - 34, Side 1, #000 - #694.                                       
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Co-Chair Ron  Larson called the meeting of the House Finance                 
  Committee to order at 1:40 P.M.                                              
                                                                               
  PRESENT                                                                      
                                                                               
  Co-Chair Larson                    Representative Brown                      
  Co-Chair MacLean                   Representative Therriault                 
  Vice-Chair Hanley                  Representative                            
  Grussendorf                                                                  
  Representative Navarre             Representative Parnell                    
                                                                               
  Representatives Foster,  Hoffman and Martin were not present                 
  for the meeting.                                                             
                                                                               
  ALSO PRESENT                                                                 
                                                                               
  Jan  DeYoung,  Administrator/Hearing Examiner,  Alaska Labor                 
  Relations  Agency,  Department   of  Labor,  Anchorage   via                 
  Teleconference;   John    Abshire,   Deputy    Commissioner,                 
  Department  of  Labor;  John Tillinghast,  Chugach  Electric                 
  Company, Anchorage, Alaska; Raga  Elim, Special Assistant to                 
                                                                               
                                7                                              
                                                                               
                                                                               
  Commissioner Olds, Department of Natural Resources.                          
                                                                               
  SUMMARY INFORMATION                                                          
                                                                               
  HB 102    An  Act relating  to  the  Alaska Labor  Relations                 
            Agency; and providing for an effective date.                       
                                                                               
            CS HB 102 (FIN) was reported out of Committee with                 
            a "do pass" recommendation and  with a zero fiscal                 
            note  by  the  House  Finance  Committee  for  the                 
            Department of Labor.                                               
                                                                               
  HB 116    An  Act  directing  the  commissioner  of  natural                 
            resources to accept, under  certain circumstances,                 
            the contract price  agreed to between a  lessee of                 
            federal land and a gas or  electric utility as the                 
            value of  the federal  government's royalty  share                 
            from  natural  gas   production  when  royalty  is                 
            payable to the state under applicable federal law;                 
            and providing for an effective date.                               
                                                                               
            HB   116   was  placed   into   subcommittee  with                 
  Representative           Parnell as Chair  and with  members                 
                           Representative             MacLean,                 
                           Representative       Brown      and                 
                           Representative  Hanley.    The bill                 
                           was held in  Committee for  further                 
                           discussion.                                         
                                                                               
  HOUSE BILL 102                                                               
                                                                               
       "An Act relating to the  Alaska Labor Relations Agency;                 
       and providing for an effective date."                                   
                                                                               
  JAN  DEYOUNG,  ADMINISTRATOR/HEARING EXAMINER,  ALASKA LABOR                 
  RELATIONS  AGENCY, DEPARTMENT  OF LABOR,  ANCHORAGE, ALASKA,                 
  testified  via teleconference  in support  of HB  102.   Ms.                 
  DeYoung  explained that  the Alaska  Labor Relations  Agency                 
  hears disputes between  unions, public employers, individual                 
  union members and  the unions.   The Agency administers  the                 
  public Employment  Relations  Act  and  the  Railroad  Labor                 
  Relations Act.  The  Agency, created in 1990, over  the past                 
  two  years has  experienced a  sixty-seven  percent workload                 
  increase.                                                                    
                                                                               
  In 1992, Ms.  DeYoung noted, the volunteer board members met                 
  a  total of  thirty-three days  for agency  business.   This                 
  workload   has  created   a  hardship  for   board  members.                 
  Consequently, the Department of Labor has requested that the                 
  board  be  increased in  order to  share  the workload.   In                 
  addition to increasing the panel, HB  102 would allow for an                 
  honorarium with  compensation reflected in the  $12.8 fiscal                 
                                                                               
                                8                                              
                                                                               
                                                                               
  note.                                                                        
                                                                               
  Co-Chair Larson asked the number of members  necessary to be                 
  present to form an  agency quorum.  Ms. DeYoung  replied for                 
  administrative hearings three members need to be present and                 
  two of those members would make a quorum.  A public business                 
  meeting could not be shared by  the panel, consequently both                 
  panels would need to  be present and a quorum  would consist                 
  of four members.                                                             
                                                                               
  Representative  Hanley  recommended  that  the  fiscal  note                 
  itemize  the per diem  and travel costs  associated with the                 
  hire  of the  additional three board  members.   Ms. DeYoung                 
  pointed out those  costs are insubstantial as  board members                 
  currently reside in Anchorage where all cases are heard.                     
                                                                               
  Representative Therriault asked if an  appeal right would be                 
  granted  for  a  full board  hearing  if  a  person was  not                 
  satisfied  with their  initial determination.   Ms.  DeYoung                 
  stated the appeal from a panel decision goes directly to the                 
  Superior Court.                                                              
                                                                               
  Representative  Parnell  questioned the  honorarium position                 
  and  asked  the  criteria  used  to determine  which  boards                 
  receive  honorariums.    Co-Chair  Larson discussed  various                 
  boards  which   do  have  the  honorarium   paid  positions.                 
  Representative Grussendorf echoed  his concern regarding the                 
  requested honorariums.                                                       
                                                                               
  JOHN  ABSHIRE,  DEPUTY  COMMISSIONER, DEPARTMENT  OF  LABOR,                 
  stated that  honorarium positions pay range from  $50 - $450                 
  dollars per  day and added  that the requested  $100 dollars                 
  per day was a low case medium.  Mr. Abshire recommended that                 
  all new members to the board continue to reside in Anchorage                 
  which would alleviate travel costs.                                          
                                                                               
  Representative  Hanley  asked   the  compensation  for   the                 
  Worker's Compensation Board honorarium.  Mr. Abshire replied                 
  it  was  $50  dollar  per  day  with  additional  per  diem.                 
  Representative Parnell questioned if board members living in                 
  Anchorage receive per diem.  Mr. Abshire stated they do not.                 
  Representative Grussendorf noted his concern  that all board                 
  members be residents of Anchorage solely  to avoid board and                 
  travel costs.                                                                
                                                                               
  Co-Chair MacLean MOVED Amendment #1, the deletion of Section                 
  3, Page 2,  Lines 3  through 7 of  the proposed  legislation                 
  which would delete the honorarium position.   There being NO                 
  OBJECTION, it was adopted.                                                   
                                                                               
  Representative Brown noted  with the deletion of  Section 3,                 
  the fiscal note would  be reduced to zero.   Co-Chair Larson                 
                                                                               
                                9                                              
                                                                               
                                                                               
  MOVED  CS  HB 102  (FIN)  out of  Committee  with individual                 
  recommendations  and a  zero fiscal  note.   There being  NO                 
  OBJECTION, it was so ordered.                                                
                                                                               
  CS HB 102  (FIN) was  reported out of  Committee with a  "do                 
  pass"  recommendation and  with a  zero fiscal  note by  the                 
  House Finance Committee for the Department of Labor.                         
                                                                               
  HOUSE BILL 116                                                               
                                                                               
       "An Act directing the commissioner of natural resources                 
       to  accept, under  certain circumstances,  the contract                 
       price agreed to between a lessee  of federal land and a                 
       gas  or electric  utility as  the value of  the federal                 
       government's royalty share  from natural gas production                 
       when royalty is  payable to the state  under applicable                 
       federal law; and providing for an effective date."                      
                                                                               
  JOHN  TILLINGHAST,  CHUGACH  ELECTRIC   COMPANY,  ANCHORAGE,                 
  ALASKA, testified in support  of HB 116.  He  commented that                 
  Chugach is seeking  to introduce legislation that  will help                 
  resolve a  royalty dispute that Chugach is  involved in with                 
  the Department  of  Natural Resources  (DNR) concerning  the                 
  valuation of federal royalties for  natural gas that Chugach                 
  purchased at the Beluga  River field.  Chugach  thought that                 
  this issue  had been resolved  in 1986 when  legislation (AS                 
  38.05.180(aa)) was passed.                                                   
                                                                               
  That  legislation provides  legislative guidance  to  DNR in                 
  valuing royalties for gas and electric utilities.  He added,                 
  unfortunately,  that  the  current  DNR  administration  has                 
  chosen  to  interpret  the  statute   verbatim  and  is  now                 
  disregarding the legislative intent that was behind the law.                 
  In so doing, the current DNR administration has flip-flopped                 
  the agency's position and is  now apparently in disagreement                 
  with  the  intent behind  the  legislation which  they fully                 
  supported in 1986.                                                           
                                                                               
  Mr.  Tillinghast added, if  DNR prevails  in its  pursuit of                 
  increasing federal royalties for Beluga  gas for prior years                 
  (1984-1992), electric  rate-payers from  Homer to  Fairbanks                 
  will  be  asked to  pay  more  than $21  million  dollars in                 
  additional  royalties.    At  issue  today are  the  federal                 
  royalties  for  the  years  1984-87  totaling $12.4  million                 
  dollars.  However, if  DNR applies the same logic  to future                 
  years (1988-1992), Chugach  rate payers would be  liable for                 
  an additional $9 million dollars.                                            
                                                                               
  Chugach, which  is a member owned cooperative,  will have no                 
  choice  but  to  pass these  additional  costs  on  to their                 
  ratepayer   through    some   type   of    rate   surcharge.                 
  Unfortunately,  today's customers  would  be  forced to  pay                 
                                                                               
                               10                                              
                                                                               
                                                                               
  additional royalty payments for inexpensive natural gas that                 
  they  may  not  have been  there  to  use.   Chugach  firmly                 
  believes that by making royalty demands that  they know will                 
  simply be passed  on to  the consumers, that  the agency  is                 
  actually trying to impose a tax on the Alaska public without                 
  any  notice   to  them,   and   without  the   Legislature's                 
  involvement.                                                                 
                                                                               
  Representative  Brown  referenced  a  chart  on Page  19  of                 
  Attachment #1,  "An Analysis  of the  Department of  Natural                 
  Resources  Demand   for  Additional  Beluga   River  Royalty                 
  Payments from Railbelt Utility  Consumers".  Mr. Tillinghast                 
  stated that Chugach is  being audited for the period  1984 -                 
  1987.   If the  State prevails  and there  is a  delinquency                 
  assessed, there  will be a  one time surcharge  on residents                 
  and businesses.                                                              
                                                                               
  Representative Brown  questioned the benefit  percentages of                 
  the proposed legislation  and asked who would  receive them.                 
  Mr. Tillinghast stated  that the  business impacts would  be                 
  substantial.  Representative  Brown asked  if Chugach  would                 
  object  to  covering  only  the  Cook  Inlet  region.    Mr.                 
  Tillinghast said there would be no  objection to that as the                 
  greatest impact of  the legislation would be  experienced in                 
  that area.                                                                   
                                                                               
  Representative Brown asked for further information as to who                 
  would   benefit   from  the   proposed  legislation.     Mr.                 
  Tillinghast stated that Chugach would benefit from the bill,                 
  and added that all other pricing controversies in Cook Inlet                 
  have been settled.                                                           
                                                                               
  Co-Chair Larson  questioned if  the Power  Cost Equalization                 
  (PCE) subsidy would  be affected  by the proposed  increase.                 
  Mr. Tillinghast stated that PCE is  required to fill the gap                 
  between power  cost expense  between the  urban centers  and                 
  rural areas.                                                                 
                                                                               
  (Tape Change, HFC 93 -34, Side 1).                                           
                                                                               
  Representative Brown noted  for the record that  her husband                 
  is one of  the five members  of the Alaska Public  Utilities                 
  Commission  (APUC).     She   stressed  that  the   proposed                 
  legislation  has  no  effect  on   PCE  until  authority  is                 
  clarified to amend the floor.                                                
                                                                               
  Representative Grussendorf asked where  the State's share of                 
  the federal royalty  would be distributed.   Mr. Tillinghast                 
  replied twenty-five percent  would go to the  Permanent Fund                 
  and seventy-five percent  would be allocated to  the general                 
  fund.   Representative Grussendorf  pointed out that Chugach                 
  is asking that the  Permanent Fund be reduced in  order that                 
                                                                               
                               11                                              
                                                                               
                                                                               
  sixty  percent  of  their consumers  receive  benefit.   Mr.                 
  Tillinghast stated that  Chugach is  a cooperative and  does                 
  not pass  dividends on  to share  holders.   Cost of  direct                 
  royalties   will   be   passed   on   to   the    consumers.                 
  Representative Grussendorf  emphasized that the  PCE program                 
  was a price agreed upon to  allow certain areas of the State                 
  to benefit from hydroelectric projects.                                      
                                                                               
  Representative Hanley stated  that the  policy call made  in                 
  1986 states that in State leases,  the contract price is the                 
  price.   The Legislature  passed legislation  in 1986  which                 
  said that the State will accept  the contract price on State                 
  leases.  Representative  Hanley further discussed  contracts                 
  and royalty agreement made with the State.                                   
                                                                               
  Co-Chair MacLean questioned the 1959  retroactive date.  Mr.                 
  Tillinghast stated that the audit  period in controversy was                 
  1984  -1987,  although  there  is  a  six  year  statute  of                 
  limitation.  The  federal government can not legally go back                 
  to  1959 because of the existing statute.  The 1959 date was                 
  included because it was the date  of statehood at which time                 
  revenue sharing began.                                                       
                                                                               
  Co-Chair MacLean  asked how  Chugach Electric  could legally                 
  charge  for  utilities  which  have  not  been  used.    Mr.                 
  Tillinghast stated the decision  will be made by APUC.   DNR                 
  proclaimed in 1985, that  it is bad public policy  to access                 
  royalties retroactively against utilities.                                   
                                                                               
  Co-Chair  MacLean  inquired  if  the  legislation  would  be                 
  isolated  to  the use  of natural  gas  for utilities.   Mr.                 
  Tillinghast  stated yes.   DNR  took great care  in assuring                 
  that the legislation in  1986 was confined to sales  for gas                 
  and  electric utilities.   Representative Brown  pointed out                 
  that DNR did  not strongly support the  initial legislation.                 
  She stated that the law does not clarify who qualifies as  a                 
  gas utility.   Representative Brown  noted her concern  that                 
  the legislation addresses gas pipelines.   She suggested the                 
  word  "customer", primarily  being  residential, versus  the                 
  word  "consumer",  primarily   interpreted  as  a   pipeline                 
  customer, should be more clearly defined.  Her concern would                 
  be to limit  the legislation to current  production and have                 
  some protection from  the granting of an  unfair competitive                 
  advantage.                                                                   
                                                                               
  Co-Chair  MacLean   expressed  concern   with  the   federal                 
  government  establishing  the  value  of  the leases.    Mr.                 
  Tillinghast explained that the bill  only deals with federal                 
  leases.  The feds will be  establishing the value because it                 
  is their land.                                                               
                                                                               
  Representative Brown provided  the Committee with  Amendment                 
                                                                               
                               12                                              
                                                                               
                                                                               
  Tillinghast  stated  that  Chugach  Electric  has   endorsed                 
  Representative   Brown's   recommendation  to   confine  the                 
  legislation  either  to Cook  Inlet  or to  fields  that are                 
  currently in production.  DNR is currently trying to get the                 
  federal  government  to  retroactively access  royalties  by                 
  disregarding the contract  price.   Mr. Tillinghast said  if                 
  the  amendments   proposed  by  Representative   Brown  were                 
  adopted,  they  will kill  the  bill.   Representative Brown                 
  reiterated her concern that the  entity benefitting from the                 
  legislation be residential.  Mr. Tillinghast recommended the                 
  removal of "gas utility" language from the  bill leaving the                 
  remaining standards.  Representative Brown agreed noting her                 
  concern with "gas utility" and who can become one.                           
                                                                               
  Mr. Tillinghast commented that the legislation does not make                 
  policy  but  rather extends  the  1986 decisions  to include                 
  something overlooked.   If  the bill does  not pass,  Golden                 
  Valley Electric Company will be asked to pay a surcharge for                 
  the  years   in  which   they  did   not  buy   electricity.                 
  Representative  Brown  asked  how  the  surcharge  would  be                 
  distributed.  Mr.  Tillinghast added that decision  would be                 
  decided by APUC.                                                             
                                                                               
  RAGA   ELIM,   SPECIAL  ASSISTANT   TO   COMMISSIONER  OLDS,                 
  DEPARTMENT  OF  NATURAL  RESOURCES,  testified  that   DNR's                 
  position  on  HB 116  is neutral.    He added  that  DNR has                 
  deferred  to the Legislature to  decide if the policy should                 
  be changed.  He  added that the case addressed  is currently                 
  worth $10.5 million dollars with interest accruing.                          
                                                                               
  Co-Chair  Larson  placed  HB 116  in  a  subcommittee  to be                 
  Chaired    by    Representative    Parnell   with    members                 
  Representatives Hanley, MacLean and Brown.   HB 116 was HELD                 
  in Committee for further discussion.                                         
                                                                               
  ADJOURNMENT                                                                  
                                                                               
  The meeting adjourned at 3:05 P.M.                                           
                                                                               
                                                                               
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