Legislature(2005 - 2006)
06/03/2006 12:27 PM House JUD
| Audio | Topic |
|---|---|
| Start | |
| HB2003 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
June 3, 2006
12:27 p.m.
MEMBERS PRESENT
Representative Lesil McGuire, Chair
Representative Tom Anderson
Representative John Coghill
Representative Pete Kott
Representative Peggy Wilson
Representative Les Gara
Representative Max Gruenberg
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Paul Seaton
Representative David Guttenberg
Representative Ethan Berkowitz
Senator Ralph Seekins
COMMITTEE CALENDAR
HOUSE BILL NO. 2003
"An Act establishing the Alaska Natural Gas Pipeline Corporation
to finance, own, and manage the state's interest in the Alaska
North Slope natural gas pipeline project and relating to that
corporation and to subsidiary entities of that corporation;
relating to owner entities of the Alaska North Slope natural gas
pipeline project, including provisions concerning Alaska North
Slope natural gas pipeline project indemnities; establishing the
gas pipeline project cash reserves fund in the corporation and
establishing the Alaska natural gas pipeline construction loan
fund in the Department of Revenue; making conforming amendments;
and providing for an effective date."
- MOVED CSHB 2003(JUD) OUT OF COMMITTEE
HOUSE BILL NO. 2002
"An Act conferring original jurisdiction on the Alaska Supreme
Court for the purpose of providing judicial review of a contract
executed under the Alaska Stranded Gas Development Act, and
setting the time in which a contract developed under that Act,
or a statute of limitations regarding that contract, must be
legally challenged; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB2003
SHORT TITLE: NATURAL GAS PIPELINE CORPORATION
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
05/31/06 (H) READ THE FIRST TIME - REFERRALS
05/31/06 (H) JUD, FIN
06/02/06 (H) JUD AT 10:00 AM CAPITOL 120
06/02/06 (H) Heard & Held
06/02/06 (H) MINUTE(JUD)
06/03/06 (H) JUD AT 11:15 AM CAPITOL 120
WITNESS REGISTER
LOUISIANA W. CUTLER, Attorney at Law
Preston Gates & Ellis, LLP
Anchorage, Alaska
POSITION STATEMENT: On behalf of the administration, continued
with a sectional analysis of HB 2003 and responded to questions.
STEVEN B. PORTER, Deputy Commissioner
Office of the Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: On behalf of the administration, responded
to questions during discussion of HB 2003.
PHILLIP C. GILDAN, Attorney at Law
Greenberg Traurig, LLP
West Palm Beach, Florida
POSITION STATEMENT: Provided comments and suggestions for
change during discussion of HB 2003, and responded to questions.
TAMARA COOK, Director
Legislative Legal and Research Services
Legislative Affairs Agency (LAA)
Juneau, Alaska
POSITION STATEMENT: Responded to questions during discussion of
proposed amendments to HB 2003.
DENNIS DeWITT, Special Staff Assistant
Capitol Office
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Responded to questions during discussion of
proposed amendments to HB 2003.
NICHOLAS J. SPILIOTES, Attorney at Law
Morrison & Foerster, LLP
Washington, D.C.
POSITION STATEMENT: Responded to questions during discussion of
proposed amendments to HB 2003.
ACTION NARRATIVE
CHAIR LESIL McGUIRE called the House Judiciary Standing
Committee meeting, which had been recessed on 6/2/06, back to
order at 12:27:25 PM. Representatives McGuire, Coghill,
Gruenberg, Wilson, Kott, and Gara were present at the call to
order. Representative Anderson arrived as the meeting was in
progress. Representative Seaton was also in attendance.
HB 2003 - NATURAL GAS PIPELINE CORPORATION
12:27:40 PM
CHAIR McGUIRE announced that the only order of business would be
HOUSE BILL NO. 2003, "An Act establishing the Alaska Natural Gas
Pipeline Corporation to finance, own, and manage the state's
interest in the Alaska North Slope natural gas pipeline project
and relating to that corporation and to subsidiary entities of
that corporation; relating to owner entities of the Alaska North
Slope natural gas pipeline project, including provisions
concerning Alaska North Slope natural gas pipeline project
indemnities; establishing the gas pipeline project cash reserves
fund in the corporation and establishing the Alaska natural gas
pipeline construction loan fund in the Department of Revenue;
making conforming amendments; and providing for an effective
date."
12:29:00 PM
LOUISIANA W. CUTLER, Attorney at Law, Preston Gates & Ellis,
LLP, relayed that in Article 5 of HB 2003, proposed AS 41.42.520
provides that the Alaska Natural Gas Pipeline Corporation
("ANGPC") is subject to the Public Records Act though with
certain explicit exceptions outlined on page 21, lines 7-20:
(1) information pertaining to the particulars of the
business or affairs of an owner entity of the project,
including, without limitation, tax returns, financial
statements, and business plans;
(2) information containing a trade secret or other
proprietary information of the corporation or of an
owner entity of the project;
(3) information that is confidential or privileged
under the laws of the state, whether at common law or
by statute or court rule;
(4) information that is required to be kept
confidential under an agreement with an owner entity
of the project, or with other participants in an owner
entity of the project;
(5) information that would affect the competitive
position of the corporation or an owner entity of the
project;
(6) information of the corporation or an owner entity
of the project that has commercial value that might be
significantly diminished by public disclosure.
MS. CUTLER relayed that proposed AS 41.42.520(b) specifies that
the Public Records Act doesn't apply to an owner entity of the
gas pipeline project unless the ANGPC wholly owns that entity.
Proposed AS 41.42.520(c) in part outlines the circumstances
under which confidential information can be disclosed:
(1) for the purpose of an official law enforcement
investigation; (2) when its production is required by
an administrative or court order; (3) when its
production is required for a confidential briefing of
the governor, the legislature, or a legislative
committee; (4) when its production is required to
lenders or potential lenders to the corporation or an
affiliated entity of the corporation, underwriters,
guarantors, or insurers; and (5) in the case of a
public offering of bonds, if such disclosure is
required by law or market practice and all other owner
entities of the project receive prior notice of the
disclosure.
MS. CUTLER mentioned that producing confidential information as
stipulated in paragraph (4) does not mean that that information
will then become public information. She pointed out that page
21, line 31, currently says, "and (5)", but she would like to
see it changed to say "or (5)"; such an amendment will clarify
that information can be disclosed for any one of the
aforementioned purposes rather than needing all five purposes
present.
12:33:24 PM
REPRESENTATIVE GRUENBERG made a motion to adopt Amendment 1, to
change "and (5)" on page 21, line 31, to "or (5)". There being
no objection, Amendment 1 was adopted.
MS. CUTLER explained that proposed AS 41.42.520(c) also
stipulates that the information disclosed under it remains an
exception to the right of inspection of public records under AS
40.25.110 and AS 40.25.120, and that except for information used
in the case of a public offering for bonds, a person receiving
information shall maintain the confidentiality of the
information. She pointed out that for bond issuances, there are
going to be some reporting requirements regarding information
that would otherwise be considered confidential. She mentioned
that proposed AS 41.42.520(d) contains typical language
stipulating that the publication of statistics and other
information is allowed as long as it is done in a manner that
doesn't breach confidentiality.
REPRESENTATIVE GRUENBERG raised the issue of requiring
compliance with Alaska law for all members of the proposed
Pipeline Project Mainline Limited Liability Company (LLC) Entity
("Mainline LLC"). He asked whether HB 2003 currently specifies
that the agreement between the entities forming the Mainline LLC
must include a provision requiring that Alaska law controls to
the extent that it's not prohibited by some other law.
MS. CUTLER said the administration would not be in favor of such
a provision and none such is included in the bill at this time.
REPRESENTATIVE GRUENBERG asked what is to prevent the other
partners in the Mainline LLC from saying they are not bound by
[the bill].
MS. CUTLER again explained that HB 2003 simply creates the
ANGPC, the public corporation through which the state will take
its membership interest in the Mainline LLC, but does not
regulate the Mainline LLC itself, though the bill does include a
few provisions that would apply to the Mainline LLC; for
example, the indemnification provision and the provisions
stipulating that the Open Meetings Act and the Public Records
Act won't apply to the Mainline LLC.
REPRESENTATIVE GRUENBERG noted that language in proposed AS
41.42.530 refers to other owner entities and thus would seem to
govern any disclosures in the state.
MS. CUTLER clarified that this language is merely stipulating
that information in the possession of the ANGPC or another state
entity that pertains to the particulars of the business or
affairs of an owner entity in the project will remain
confidential. She again pointed out that proposed AS
41.42.520(b) specifies that the Public Records Act does not
apply to information in the possession of an owner entity of the
project. In response to a comment, she noted that the Mainline
LLC agreement will also contain confidentiality provisions.
REPRESENTATIVE GRUENBERG surmised that proposed AS 41.42.520(a)
won't prevent a third party such as a reporter from disclosing
the information outlined therein.
12:42:01 PM
STEVEN B. PORTER, Deputy Commissioner, Office of the
Commissioner, Department of Revenue (DOR), concurred; one must
view this legislation as the state's grant of authority and
rights to an entity it's creating, and therefore does not govern
third party actions. Furthermore, if the four partners in the
Mainline LLC together determine that something that is otherwise
confidential can be made public, nothing in HB 2003 prevents
them from doing so.
REPRESENTATIVE GRUENBERG opined that proposed AS 41.42.520(a)(5)
would seem to make everything confidential, and could confer
standing that any owner entity of the Mainline LLC could demand,
even of third parties, that something be kept secret. It also
leaves open the question of who decides whether certain
information would affect the competitive position of an owner
entity. He characterized this language as too broad.
MR. PORTER said that language is very common in the industry.
REPRESENTATIVE GRUENBERG acknowledged that point, but questioned
whether it constitutes good public policy.
MR. PORTER mentioned that the Alaska Stranded Gas Development
Act has similar language. When dealing with private parties,
their competitive positions must be protected; furthermore, as
an owner entity of the Mainline LLC, the state - through the
ANGPC - may be negotiating with contractors and other third
parties, and therefore information vital to the state's
competitive position must also be held confidential.
REPRESENTATIVE GRUENBERG pointed out, however, that in some
sense, the other three owner entities may be competitors of the
state and the ANGPC, and that language is saying that
information about the other three owner entities can't be
disclosed even if it means that the ANGPC - and therefore the
state - would be harmed.
12:46:37 PM
MR. PORTER clarified that the language is not preventing the
partners of the Mainline LLC from disclosing information amongst
themselves. All the partners of the Mainline LLC will have
access to all the information, even confidential information.
REPRESENTATIVE GRUENBERG asked whether the agreement referred to
in proposed AS 41.42.520(a)(4) could be between a third party
and one of the owner entities.
MR. PORTER indicated that it could be.
REPRESENTATIVE GRUENBERG surmised, then, that information which
would otherwise be disclosed under state law could be kept
confidential simply because one of the owner entities and a
third party deem that it should be, thus unilaterally trumping
state law.
MS. CUTLER characterized that as an overstatement, adding that
proposed paragraph (4) can't be read in isolation but must
instead be read in context with subsection (a); the ANGPC, as an
owner entity in the Mainline LLC agreement, will have rights to
confidential information and must therefore maintain
confidentiality. Entering into an agreement with an owner
entity of the Mainline LLC does not mean that confidential
information automatically becomes part of the public record just
because the Mainline LLC has as one of its owners the ANGPC.
MR. PORTER explained that if certain information is already
public, two entities cannot simply agree to make it
confidential, but if an owner entity and a third party enter
into an agreement and then share confidential information with
the ANGPC, that information will remain confidential.
12:53:24 PM
REPRESENTATIVE GARA surmised that nothing in the bill regulates
the information held by the Mainline LLC.
MS. CUTLER concurred.
MR. PORTER clarified that public information held by the
Mainline LLC remains public, and confidential information
remains confidential; existing law is not changed in that
regard, and merely going into partnership with a state-owned
public corporation won't change that.
REPRESENTATIVE GARA opined that the bill ought to contain a
provision that would allow [the legislature] to access
[confidential] information held by the Mainline LLC. He also
opined that proposed AS 41.42.520(a)(4) will allow an owner
entity of the Mainline LLC to keep illegal activities
confidential.
MR. PORTER offered his understanding that criminal acts cannot
be kept secret, and assured the committee that that is not the
intent of that language - should the ANGPC become aware of
illegal acts, it will disclose them.
REPRESENTATIVE GARA argued that as written, that language would
allow information about illegal acts to be kept confidential.
MS. CUTLER echoed that that is not the intent, and reiterated
that proposed AS 41.42.520(c) stipulates that information that
is considered confidential may be disclosed for the purpose of
an official law enforcement investigation. She offered her
understanding that in virtually every joint venture, there are
typical provisions in confidentiality agreements, and evidence
of illegal acts is not considered to be confidential. She
indicated that her firm would be amenable to considering an
amendment clarifying that point.
REPRESENTATIVE GARA offered his belief that law enforcement
agencies won't be investigating possible breaches of contractual
duties. He suggested that language on page 21, line 5, be
changed to say that the information is confidential to the
extent that it doesn't involve illegal conduct. He also offered
his belief that the language in proposed AS 41.42.520(a)(1) -
information pertaining to the particulars of the business or
affairs of an owner entity of the project, including, without
imitation, tax returns, financial statements, and business plans
- is "everything relating to that business"; in other words,
none of the information that the ANGPC has access to is going to
be accessible to the public. He indicated that it would be
acceptable to him to limit the public's access to tax returns
and business plans, but he has a problem with limiting the
public's access to information that could be considered as
pertaining to the affairs or particulars of a business.
MR. PORTER, in response to a question, offered his belief that
there is a conceptual difference between proposed AS
41.42.520(a)(1) and proposed AS 41.42.520(a)(5), and recommended
that both provisions be kept in the bill.
1:02:40 PM
CHAIR McGUIRE noted that Article 6 contains definitions.
MS. CUTLER indicated that Section 3 of HB 2003 exempts the
ANGPC, any subsidiary entities ("Ancillary LLCs") of the ANGPC,
and any owner entity of the project from the procurement code;
that Sections 4 and 5 make changes that will exempt the ANGPC
and any Ancillary LLCs from the prohibitions outlined in AS
37.10.085 - that the state or political subdivisions can't make
a subscription to the capital stock of a corporation, lend its
credit for the use of a corporation, or borrow money for the use
of a corporation; and that Section 6 - Article 7 - establishes
an Alaska natural gas pipeline construction loan fund in the
DOR. This fund will provide the ANGPC another option with which
to meet its financial obligations. For example, if it is
determined that it makes sense for the state to loan money
directly to the ANGPC [or to an Ancillary LLC], this fund could
be utilized.
REPRESENTATIVE GRUENBERG asked whether Article 7 is establishing
a dedicated fund, which is unconstitutional.
MS. CUTLER said it wasn't a dedicated fund according to her
view.
MR. PORTER added that it could be viewed in the same manner as
the state's education fund.
MS. CUTLER relayed that Section 7 of HB 2003 makes the staff of
the ANGPC board exempt service employees; that Sections 8 and 9
pertain to financial disclosures [of staff]; that Section 10
pertains to the Alaska Executive Branch Ethics Act [and boards
of Ancillary LLCs]; that Section 11 exempts [the information
described in proposed AS 41.42.520] from the Public Records Act;
and that Sections 12 and 13 "deal with an issue that has arisen
with respect to how [the ANGPC] and the other members of the
[Mainline LLC] will essentially pay for the inevitable
negligence and other forms of liability that will occur in a
project of this magnitude."
REPRESENTATIVE GRUENBERG asked why, via Section 10, the
administration is proposing to exempt the boards of Ancillary
LLCs from the Alaska Executive Branch Ethics Act.
MS. CUTLER said it is because there may be different ethics
requirements for boards of Ancillary LLCs established in other
jurisdictions, such as Canada, and Canadian counsel has a great
deal of concern that the State be able to take advantage of
having the laws of Canada apply to those Ancillary LLCs.
REPRESENTATIVE GRUENBERG pointed out, however, that as currently
written, Section 10 is just a carte blanche exemption - leaving
the boards of Ancillary LLCs subject to no law with regard to
ethics.
MR. PORTER, in response to a request, pointed out that Ancillary
LLCs would be wholly owned subsidiaries of the ANGPC, as if they
were staff to the ANGPC, and the ANGPC will have absolute
control and authority over the membership of those [boards of
directors], which will have a responsibility to the ANGPC.
Also, nothing exempts the Ancillary LLCs and their boards from
existing laws governing illegal activities. Furthermore, if an
Ancillary LLC is formed in Canada, it will be subject to
Canadian law, including Canadian ethics laws, though they may be
slightly different than Alaska's. He offered his understanding
that the ANGPC will probably own all the interests in Alaska.
1:13:16 PM
REPRESENTATIVE GARA expressed a concern that exempting the
boards of Ancillary LLCs might result in them making decisions
and taking actions that benefit their personal businesses, and
opined that it is not accurate to simply say that those boards
will be subject to the laws of other jurisdictions. He asked
that the ethics laws of Canada be provided to him. He added,
"If we're going to give somebody the privilege of a probably
substantial salary to run an important state project, I don't
think it's too much to ask of them to be subject to our laws
relating to ethics."
MR. PORTER clarified that the boards of directors will not be
receiving substantial salaries.
MS. CUTLER acknowledged Representative Gara's concern;
reiterated that this provision was developed on the advice of
the state's Canadian counsel; and agreed to ask Canadian counsel
for more information [regarding Canadian ethics laws].
REPRESENTATIVE GARA asked whether an [executive director] - who
could be receiving a substantial salary from the state - would
be considered part of the governing body under Section 10.
MS. CUTLER said she would research that issue.
REPRESENTATIVE GRUENBERG opined that the bill's current language
is so broad that it will allow "other things" to occur, and that
the language ought to be narrowed with some sideboards or
control, particularly given that the public is so sensitive to
ethics issues. He said that he would like to have this issue
resolved with the help Ms. Cutler and Mr. Porter, specifically
that they consider the worst case scenario and strive to prevent
it via a change in the language.
MS. CUTLER acknowledged Representative Gruenberg's concern.
1:19:25 PM
MS. CUTLER returned attention to Sections 12 and 13, and said it
attempts to make the project exempt from AS 45.45.900 and any
[similar] common law doctrine, because there is case law, in
addition to AS 45.45.900, that holds that indemnification
agreements in construction contracts are against public policy.
The current statute, she posited, was designed with much smaller
projects in mind. With a project of this magnitude, however,
and with the typical model that is used for building pipelines
and other large construction projects around the world, normally
the operators are indemnified and the parties indemnify each
other, and this is intended to save everyone money. In a
project of such magnitude, there is going to be liability - this
project is expected to employ 10,000 people - things are going
to happen, mistakes are going to be made, and there won't just
be mistakes occurring - there will also be gross negligence and
willful misconduct. Such things are inevitable in a project of
this size, and so what folks can do to prepare themselves is for
either the operator to get all the insurance that's required -
but then members will pay the operator more - or for each
member, as a part of its capital contribution to the Mainline
LLC, to pay the cost of any negligence, willful misconduct, or
[reckless] behavior. Sections 12 and 13 provide the statutory
authority required to do the latter.
MS. CUTLER said the hope is that this statutory authority is
drafted broadly enough to cover any language that's included in
the Mainline LLC agreement, language that will govern "this
particular relationship between the parties." However, the
intent is for this authority to also cover all possibilities,
one of which could include the operator not always being the
entity that has all the people needed to do all the jobs. For
example, it could be that one of the other members has employees
with particular expertise in a particular field, and it could be
better, more efficient, or cheaper for that member's employees -
either via contract or via "subordining" - to perform a
particular function. These provisions, which she characterized
as necessary, are designed to allow all parties, regardless of
who actually fulfills a function, to be indemnified by all the
other parties, so that the inevitable instances of negligence,
willful misconduct, mistakes, et cetera can be dealt with.
1:25:56 PM
REPRESENTATIVE GARA offered his recollection that if the state
were to indemnify another party, it is essentially saying that
the state will pay for that party's costs incurred due to
negligence, willful misconduct, recklessness, or other illegal
activities. He asked why the state should indemnify the members
of the Mainline LLC from such behavior, and whether Section 13
would indemnify an entity from any taxes it owes.
MR. PORTER explained that the State is normally in a position of
hiring contractors to do particular jobs for it, but for the
proposed pipeline project, the State will actually be the
contractor's partner and thus participating in a different role.
Where normally the contractor hired to do a job would buy
insurance and charge its partner more money, the state now - as
a partner - has the choice of either going that route and being
charged overhead by the operator, or sharing equally with all
the other owners in all additional risk. Again, via the
language of Sections 12 and 13, the state is choosing the latter
route. In response to a question, he offered his understanding
that all the partners will be required to indemnify all the
other partners.
MS. CUTLER clarified that the bill itself doesn't require such;
instead it simply provides the authority that allows the
Mainline LLC agreement to contain a requirement that all
partners indemnify all the other partners. In response to a
further question, she assured the committee that the intent is
to have the Mainline LLC agreement contain such a requirement;
furthermore, every entity involved in the project, not just the
four partners in the Mainline LLC, will be required to indemnify
every other entity.
REPRESENTATIVE GARA pointed out, though, that the language in
the bill itself only says every entity may indemnify all other
entities; whether such will actually be required in the Mainline
LLC agreement is as yet unknown.
MS. CUTLER and MR. PORTER concurred.
CHAIR McGUIRE mentioned that the legislature's consultants will
be available later in the meeting to answer questions.
1:32:57 PM
REPRESENTATIVE GARA sought assurance that the aforementioned
indemnification would not be applied to the tax liability from a
proposed reserves tax.
MS. CUTLER said it wouldn't.
REPRESENTATIVE GARA questioned, however, whether a reserves tax
would fit under the language of, "any and all liability ... of
any kind or character" found in proposed AS 45.45.905(a).
MS. CUTLER cautioned that that language should be read in the
context of the sentence as a whole:
An owner entity that constructs, owns, or operates the
Alaska North Slope natural gas pipeline project, or
any portion of the project, or disposes of gas from
the field to a gas treatment plant or that pipeline,
or any person or entity that holds an ownership
interest in such an owner entity, may agree, in whole
or in part, to indemnify, defend, release, and hold
harmless from any and all liability or damages of any
kind or character, including any degree of negligence
or other misconduct, whether sole or partial, direct
or imputed from any other person, arising from or
relating to construction, establishment, ownership,
operation, or any other use or activity relating to
constructing or operating the project, the following:
MS. CUTLER characterized this language as typical indemnity
language, adding that it relates to a particular thing, that
being, "construction, establishment, ownership, operation, or
any other use or activity relating to constructing or operating
the project", and thus won't address anything outside of
constructing or operating the project. It is not the intent of
this language to indemnify "the producers" - the other three
corporations/owners of the [Mainline LLC] - from the
aforementioned proposed reserves tax, she reiterated.
REPRESENTATIVE GARA asked whether the administration would be
amenable to having language inserted that stipulates that this
provision won't apply to state tax or royalty liability.
MR. PORTER characterized the current language as
straightforward, and opined that it would be inappropriate and
an example of poor draftsmanship to insert exclusions into it.
REPRESENTATIVE GARA indicated that he remains concerned with the
current language of proposed AS 45.45.905(a).
1:35:02 PM
MS. CUTLER relayed that she does not have any written comments
from the legislature's consultants regarding this provision of
the bill.
REPRESENTATIVE GARA said he is referring to the May 23, 2006,
memorandum written by Phillip C. Gildan [of the consulting firm
of Greenberg Traurig, LLP], specifically the comments on page 2,
paragraph 3.
MS. CUTLER clarified that she is familiar with those comments,
but had thought that Representative Gara was indicating that the
consultants were suggesting different language for the bill.
REPRESENTATIVE GRUENBERG surmised that the indemnification
provision would indemnify willful misconduct.
MS. CUTLER concurred.
REPRESENTATIVE GRUENBERG suggested to Ms. Cutler that the
language in proposed AS 45.45.905(a) may go beyond "what you're
trying to cover."
MS. CUTLER agreed to research that issue further.
CHAIR McGUIRE announced that the committee would recess for
lunch.
2:51:44 PM
CHAIR McGUIRE called the House Judiciary Standing Committee
meeting back to order. Representatives McGuire, Gruenberg,
Gara, Kott, and Wilson were present at the call back to order.
Representatives Anderson and Coghill arrived as the reconvened
meeting was in progress. Representatives Guttenberg and
Berkowitz were also in attendance.
2:52:40 PM
REPRESENTATIVE GARA, referring to both the aforementioned
memorandum and others by Greenberg Traurig, LLP, asked Mr.
Gildan to express his concerns with HB 2003.
PHILLIP C. GILDAN, Attorney at Law, Greenberg Traurig, LLP,
relayed that his consulting firm has very few concerns with the
bill, but he'd wanted to ensure that the ANGPC has the requisite
flexibility to address all of the various needs likely to arise
once the Mainline LLC is established, and to that end, [his June
2, 2006, memorandums, beginning on page 3,] contain suggested
changes to Section 2 of the bill as well as a new proposed
subsection (c) for AS 42.06.230. He mentioned that his
suggested changes are also intended to provide clarity regarding
the intent of the legislation.
MR. GILDAN relayed that some of his suggestions include adding
six more "powers" to proposed AS 41.42.210; adding a proposed AS
41.42.090 to provide for the appointment of corporation
representatives and ensure that they have more pre-established
authority; and rewriting proposed AS 41.42.220(c) and (d) to
provide that members of the governing body of Ancillary LLCs be
the members of the board of the ANGPC so as to maintain the
administration's chain of command and control and so as to
provide for continuity with regard to board membership. On the
latter point, though, providing an exception for a Canadian
entity might be appropriate, he acknowledged. Another suggested
change would be the addition of a proposed AS 41.42.450 which
would - in subsection (a) - specify that in the event of a
conflict between proposed AS 41.42 and existing AS 43.82, that
AS 43.82 would prevail; he noted, however, that the
administration has made cogent arguments regarding why it may
not want to deal with that issue in advance.
MR. GILDAN indicated that his proposed AS 41.42.450(b) and (c)
would narrow the definition of dispute and clarify what would be
covered under HB 2003, because he wanted to ensure that the
"dispute resolution processes were coordinated among and between
the two ... entities and the various contracts" so as to avoid
"forum shopping" or races to file disputes. He also indicated
that the new proposed subsection (c) for AS 42.06.230 would
allow the ANGPC to operate without running afoul of the
Regulatory Commission of Alaska (RCA); although this provision
may not be necessary, he wanted to ensure that any conflict with
the RCA wouldn't handcuff or delay the project.
MR. GILDAN concluded by saying that all of his concerns are
addressed via his suggested changes.
3:02:50 PM
REPRESENTATIVE GARA, referring to paragraph 3 of page 2 of the
aforementioned May 23 memorandum, again relayed that he still
has concerns that the indemnity provisions in Sections 12 and 13
will allow the producers to indemnify themselves from a proposed
reserves tax that is due be voted on in the general election.
He asked whether these provisions could be interpreted such that
the producers would be indemnified from any tax liabilities
owed, or such that the state would be forced to reimburse the
producers for any taxes they pay.
MR. GILDAN said that there is the possibility that the Mainline
LLC agreement might contain language that could indirectly
create such a situation, but noted that such a concern might be
more directly attributable to HB 2004; he suggested that the
legislature may want to include some form of limitations on the
indemnification provisions. He offered his belief that typical
indemnification provisions don't indemnify an entity for its
intentional or criminal actions. Another option might be to
place a cap on either the amount or the type of damages that
indemnification would apply to.
REPRESENTATIVE GARA asked Mr. Gildan to help draft language that
would ensure that the state won't be required to reimburse a
producer for taxes or royalties owed to the state.
MR. GILDAN suggested adding language to page 28 such that the
[ANGPC] would indemnify the Mainline LLC and any entities that
it creates but not any of the other owners of the Mainline LLC.
He acknowledged, however, that such a change might be too broad.
REPRESENTATIVE GARA said he could accept indemnifying entities
for negligence relating to construction and operation, but since
the language, "all liability ... of any kind or character" is so
broad, he want's to clarify that no one has a right to indemnity
from tax or royalty payments to the state.
MR. GILDAN suggested adding the language: "however, no
indemnity shall extend to tax losses".
REPRESENTATIVE GARA suggested instead: "no indemnity shall be
extended for tax or royalty payments". He asked Mr. Gildan to
comment on whether the proposed indemnification provisions are
really necessary.
3:16:07 PM
MR. GILDAN said that indemnity as an equitable remedy is very
useful in the right situation, and that joint indemnities work
well, particularly if there are proper limits to the indemnity
and as long as one party isn't indemnifying another party for
criminal penalties incurred.
REPRESENTATIVE GARA suggested adding to page 28, line 5, the
language, "indemnity for these things or other non-criminal
misconduct"; this would eliminate indemnification for criminal
conduct.
MR. GILDAN suggested precluding indemnification for intentional
actions also.
REPRESENTATIVE GARA suggested, then, providing indemnification
for, "other non-criminal or unintentional conduct".
MR. GILDAN ventured that such language might help.
REPRESENTATIVE GARA surmised, then, that Mr. Gildan is
suggesting that indemnification be provided for everything
except intentional misconduct and criminal conduct.
MR. GILDAN concurred.
REPRESENTATIVE GARA expressed comfort with such a change.
3:19:31 PM
REPRESENTATIVE GARA [referring to Section 10] relayed to Mr.
Gildan that he has concerns about exempting the governing boards
of Ancillary LLCs from the state's ethics Act. He questioned
whether that exemption would also apply to the executive
directors [or staff] of the Ancillary LLCs.
MR. GILDAN opined that that exemption should apply only to the
boards, and surmised that as written, it does just that.
REPRESENTATIVE GARA asked whether board members ought to be
subject to the state's ethics Act.
MR. GILDAN, acknowledging that he is not familiar with the
Alaska Executive Branch Ethics Act, said that in certain
instances, particularly those involving proprietary
corporations, one would want to provide for the flexibility to
appoint board members who have the necessary expertise, but
sometimes there are elements of an ethics Act that would
prohibit one from recruiting the best people, so exempting board
members from an ethics Act can ensure that that flexibility is
maintained. Also, generally there will be other provisions in
an operating agreement that specify one can't enter into "self
dealing" agreements. He offered his belief that in this
instance, the benefits of being able to appoint the most
qualified people as board members warrants an exemption from the
state's ethics Act.
REPRESENTATIVE GARA indicated that he would be offering an
amendment intended to insure that the ANGPC board members don't
have financial ties to the oil companies, and questioned whether
Ancillary LLC board members ought to be restricted in the same
way.
MR. GILDAN referred to his suggested change to subsections (c)
and (d) of proposed AS 41.42.220, and reiterated that it would
provide that the ANGPC board members be the Ancillary LLC board
members, though, again, there might need to be an exception to
that requirement with respect to any Canadian Ancillary LLC.
3:25:21 PM
REPRESENTATIVE GARA suggested adding to that proposed change
language along the lines of, "unless the laws of another
sovereign require otherwise".
MR. GILDAN concurred.
REPRESENTATIVE GARA questioned whether requiring the ANGPC board
members to be the board members of all the Ancillary LLCs would
be practical.
MR. GILDAN opined that it would be practical, remarked that
other entities already do something similar, and noted that he'd
included language stipulating that the corporate entity remains
intact notwithstanding the interlocking board and that having an
interlocking board shall not be cause for piercing the corporate
veil or disregarding that legal entity.
MR. GILDAN, in response to a question, offered his belief that
as the bill is currently written, the ANGPC would be subject to
the jurisdiction of the RCA, and his suggestion to add a new
subsection (c) to AS 42.06.230 is intended to provide the ANGPC
with the flexibility to address its own issues without the RCA
looking over its shoulder.
REPRESENTATIVE GARA mentioned that he'd like to ensure that the
ANGPC's revenue is exempt from federal taxes.
3:29:59 PM
MR. GILDAN indicated that he is not aware of anything missing
from the bill that could further that end. In response to a
question regarding the bill's proposal to exempt the ANGPC from
the Open Meetings Act, relayed that he had merely flagged that
point in his comments because although there are good policy
reasons for doing so, there are also "lots of cons" to doing so.
For example, in operating a proprietary business for the state
as is being proposed via HB 2003, there are very good reasons
for not having the same open meeting and public record
requirements as would normally apply to a government entity;
however, on the flip side of that is that there will be less
transparency. He acknowledged, though, that the bill does
attempt to address that issue by requiring that at least some
meetings occur in the public realm. He said he has no specific
recommendations for change regarding that issue, and surmised
that it is addressed sufficiently in the bill, though perhaps
more flexibility ought to be provided for as well.
REPRESENTATIVE GARA referred to proposed AS 41.42.520, which
outlines the types of information that the Public Records Act
won't apply to, remarked that generally his preference is to
always give the public access to information, and asked Mr.
Gildan to comment on that issue.
MR. GILDAN pointed out that the types of information listed in
that provision generally are exempted from public records Acts,
but suggested that the legislature ought to make sure that there
is some mechanism in place to determine whether particular
information really counts as one of the listed types.
REPRESENTATIVE GARA said he wants to ensure that conduct which
violates Alaska law won't be kept from the public via the use of
that provision.
3:35:36 PM
MR. GILDAN surmised that including a caveat to that effect would
be reasonable and won't change the intent of the provision. He
offered his belief that as that provision is currently written,
only those items that are proper and legal and above board will
be exempted from the Public Records Act.
REPRESENTATIVE GARA opined that the first listed exception -
proposed AS 41.42.520(a)(1) - seems to be written very broadly,
so much so that it might be interpreted to mean "everything"
relating to the business.
MR. GILDAN acknowledged that the current language is broad, but
remarked that it would be difficult to tighten up that language
and still ensure that confidential information remain so. He
pointed out that although the provision exempts certain
information from public disclosure, the ANGPC, as a state
corporation, should have a duty and responsibility to make as
much information as possible available to the public.
REPRESENTATIVE GARA acknowledged that ideally it should work
that way.
MR. GILDAN also pointed out that the state's attorney general
will be the ANGPC's legal counsel and as such will have access
to the types of information listed.
MS. CUTLER said her firm agrees with Mr. Gildan that it is a
policy call whether to exempt the ANGPC from the state's Open
Meetings Act, and appreciates his comment that the drafters have
done a pretty good job with the language in question. Her firm
does not agree, however, with Mr. Gildan's comments regarding
Section 13, and would prefer not to mix up the indemnification
already provided for therein with the royalty and reserves tax
issue raised by Representative Gara; instead the royalty and
reserves tax issue would be better addressed via the Alaska
Stranded Gas Fiscal Contract ("ASGF Contract"). The
indemnification provision is intended to deal with the need to
move the project forward and indemnify entities in the context
of construction agreements, and is not intended to embrace the
reserves tax issue, but by specifically stating that that
provision is not intended to be used to indemnify a tax
liability, it may bring that reserves tax issue into HB 2003,
something her firm would prefer didn't happen.
3:44:33 PM
REPRESENTATIVE GARA questioned why they shouldn't simply clarify
the issue of the reserves tax in HB 2003.
MS. CUTLER suggested that there is a difference of opinion
between the administration and Representative Gara regarding the
reserves tax initiative, and reiterated her belief that the
administration doesn't want the initiative issue brought into
the bill and is not appropriately addressed in the context of
the bill.
REPRESENTATIVE GARA repeated his question.
CHAIR McGUIRE surmised that the sponsors simply are not amenable
to including language drafted in the negative stating all the
things that the bill is not meant to do.
MS. CUTLER, with regard to the comments by Mr. Gildan regarding
not indemnifying criminal conduct and intentional actions,
offered her understanding that the bill's current language is
indeed intended to indemnify the parties for more than just
simple negligence, particularly given that in a workforce of
10,000 people, someone could do something that is grossly
negligent. She pointed out that the language of the
indemnification provision says in part, "any degree of
negligence or other misconduct, whether sole or partial, direct
or imputed from any other person, arising from or relating to
...", adding that she will check to see if that language is
intended to cover criminal misconduct, though she believes it
is.
MS. CUTLER added that if there is a bad act that occurs with
respect to the line workers on the pipeline, that is something
that everyone will have to pay for anyway, and so the best way
to deal with such potential situations is through the mechanism
outlined in the bill. She offered her understanding that there
will be a two-tiered approach: for higher level personnel,
there would not be indemnification for really bad acts such as
fraud or embezzlement, but for lower level personnel there could
indeed be indemnification for some bad conduct.
3:50:43 PM
MR. GILDAN remarked that that two-tiered approach makes sense,
adding that his concern pertains to crimes and intentional acts
committed by upper level personnel, whereas bad acts undertaken
by lower level personnel are just part of doing business. He
offered his hope that there is a mechanism for addressing this
issue as she described.
MS. CUTLER, acknowledging that HB 2003 is just the authorizing
legislation, reiterated that it is the administration's intent
to provide such a mechanism, and indicated that the sponsor
would be amenable to an amendment to that effect.
REPRESENTATIVE GARA asked why they would not simply authorize
self insurance to cover the potential risks associated with the
project.
MS. CUTLER again pointed out that the bill governs the ANGPC and
not the Mainline LLC, which would have the authority to get
insurance; the language in the bill is simply meant to allow for
indemnification but does not stipulate how that indemnification
will be paid for.
CHAIR McGUIRE surmised that such indemnification is standard.
What is unique in this situation is that it is the state
entering into an LLC, and the provisions of the bill are simply
meant to provide guidance for the state as it undertakes that
role.
MS. CUTLER concurred.
3:55:22 PM
MS. CUTLER, with regard to the additional powers proposed by Mr.
Gildan in his May 23 memorandum, offered her belief that
"powers" (25), (26), (27), and (28) are already dealt with via
the other powers already listed in proposed AS 41.42.210, but
noted that the sponsor would be amenable, with certain caveats,
to including the additional wording if the committee would
prefer doing so. The caveat with regard to suggested power (25)
is that the state's eminent domain laws will need to be
researched to ensure that there isn't a conflict. The caveat
with regard to suggested power (28) is that most of the statutes
that deal with public corporations don't specifically
[highlight] the option to hire independent counsel, and so the
sponsor would prefer that the status quo be maintained, that
being that the attorney general will act as the ANGPC's counsel
and then it will be up to him/her to hire independent counsel.
MS. CUTLER said that [she and the sponsor] would prefer not to
include suggested power (29) in the bill because of a concern
that it will limit power (24).
MR. GILDAN said he would be comfortable with removing power (29)
from his recommendations, and that he concurs with Ms. Cutler's
comments regarding power (28) and the attorney general.
MS. CUTLER, referring to power (30) as articulated in Mr.
Gildan's June 2 memorandum, relayed that she and the sponsor
would prefer not to include it at all in the bill, since as yet
the statute referenced therein doesn't exist because the
legislation proposing it is still pending. If either HB 2003
doesn't pass, or the ANGPC isn't ready by the time the Mainline
LLC agreement or any Ancillary LLC agreements are ready to be
signed, then - in the first instance - the commissioner of the
DOR, with the concurrence of the commissioner of the Department
of Natural Resources (DNR), could sign the ASGF Contract on
behalf of the state and the ANGPC would have to implement it, or
- in the second instance - there might be a need for a modified
quorum requirement if only part of the ANGPC board was
functioning so that the project could still implemented. She
elaborated:
We don't think that without power (30) those two
things can't happen as along as they're in the other
bill, and, second of all, ... it's obviously our
position that the collateral agreements, although it's
fully the intent of the administration to share them
with the legislature, it's not our intent that those
amendments require legislative approval, and therefore
we would not necessarily be in agreement with
including power (30) here at all. I recognize that's
completely a policy call as to whether or not the
legislature is going to approve those agreements or
not; we also believe there's a potential separation of
powers issue here because we do think that that's
within the administration's bailiwick, and that the
collateral agreements are different from the [ASGF
Contract] and the reasons for which there will be
legislative approval of the [ASGF Contract]. So
that's our position with respect to power (30).
4:02:09 PM
MS. CUTLER referred to Mr. Gildan's suggested change regarding
proposed AS 41.42.090 - corporation representative - and said
that [her firm and the sponsor] chose to deal with this issue
via proposed AS 41.42.050 and the use of an executive director.
She characterized the approach in the bill as broader and
simpler than what Mr. Gildan is proposing, but noted that if the
committee feels it is important to spell out the details as is
done in proposed AS 41.42.090, then [her firm and the sponsor]
would be willing to mesh the two. One of her concerns, she
relayed, is that Mr. Gildan's recommendation may not give the
board the ability to appoint a staff member as its
representative, and, whether it does or doesn't, she doesn't
want there to be confusion in the legislation because it will
probably be the model envisioned - that the executive director
or one of the staff of the ANGPC would be the representative to
the management committee or other committees, though the bill
doesn't currently say that; so, again, she would be willing to
see how the two proposals could fit together if that's the
desire.
MS. CUTLER referred to Mr. Gildan's recommendation to rewrite
proposed AS 41.42.220(c) and (d) to provide that members of the
governing body of Ancillary LLCs be the members of the board of
the ANGPC, and said that she has not been able to reach [the
state's] Canadian counsel yet, and although perhaps some of the
"simple fixes that were discussed" would be okay, she would
still prefer to leave the language in the bill as is for the
time being and get Canadian counsel's input before changing it.
MS. CUTLER referred to Mr. Gildan's recommendation to add a
proposed AS 41.42.450(a)-(c), and noted that they have agreed
that proposed subsection (a) is no longer required. With regard
to proposed subsection (b), she relayed, it is not currently the
intent to have the same alternative dispute-resolution mechanism
provided for in the Mainline LLC agreement as is provided for in
the ASGF Contract, and therefore [she and the sponsor] are not
in favor of the language in proposed subsection (b);
furthermore, [she and the sponsor] do not agree with Mr. Gildan
that language in the ASGF Contract already covers the Mainline
LLC agreement, and therefore would prefer that dispute
resolution mechanisms be dealt with in the context of the
individual agreements. What is designed for the ASGF Contract
is somewhat unusual and specific to the unique circumstances of
the ASGF Contract, and thus not necessarily transferable to all
the other agreements.
MS. CUTLER, with regard to Mr. Gildan's proposed AS
41.42.450(c), remarked that it is [her firm and the sponsor's]
view that using Delaware law and requiring the members of the
Mainline LLC to comply with the duties imposed by Delaware law
will favor Alaska as a minority interest holder. She pointed
out that having Delaware law apply to the members of the
Mainline LLC will not affect the ANGPC's duty to the state of
Alaska or the ANGPC's duty of care to the people of Alaska;
instead, Delaware law will define the ANGPC's duty of care to
the other members of the Mainline LLC, and that duty of care
will be more minimal than it would be under Alaska law. A more
minimal duty of care can often benefit the minority interest
holder because it will be able to vote in a way that favors its
own interest, over the interests of the larger entity as a
whole, without being sued.
MS. CUTLER went on to say:
As we keep stressing here, this is a proprietary and
commercial venture that the state is getting involved
in. As the chair pointed out, that's what makes all
of this so difficult, because we're used to thinking
of ourselves in a public role, which we obviously are
still in here - obviously we have duties to the public
- but we're trying to be involved in essentially a
private commercial venture. And again, because we're
the minority interest holder, this could be helpful to
us. There are various provisions that are under
negotiation in the [Mainline LLC] agreement where ...
[the ANGPC] has the ability to block a vote, and with
the minimal duty of care, there's ... less likely the
possibility that if you do block then somehow you can
be sued for not having fulfilled your duties to the
entity as a whole. My understanding is, [there are]
over 150,000 LLCs that are organized under the law of
Delaware, so Delaware law is a well known entity when
it comes to operating LLCs, and I'm not aware that
this is always ... used to perpetrate some sort of
fraud or some sort of bad act. That is not the intent
here; the intent is to protect the state of Alaska and
its ability to do everything it can, under the
[Mainline LLC] agreement, to make sure that [the
ANGPC] is taken care of, again, because it is a
minority interest holder.
MS. CUTLER referred to Mr. Gildan's recommendation to remove the
ANGPC from the jurisdiction of the RCA, and said that [she and
the sponsor] are not sure that that issue needs to be dealt with
via HB 2004, particularly given that the issue is being dealt
with in the ASGF Contract. She offered her belief that Mr.
Gildan was merely making broad suggestion regarding
jurisdiction. Furthermore, the Mainline LLC will fall under the
jurisdiction of the Federal Energy Regulatory Commission (FERC).
MS. CUTLER said she would want to see any proposed language
change designed to make sure that the ANGPC's exemption from the
Public Records Act won't apply in instances of fraud or [other
crimes], but doesn't have a problem with such a change in
concept.
4:12:01 PM
REPRESENTATIVE GARA, referring to Mr. Gildan's May 22, 2006,
memorandum regarding the issue of allowing Delaware law to
govern the Mainline LLC, noted that it says in part:
... decisions by Delaware courts on business entity
issues more often favor management/majority owners
over minority owners. ... Without the duty of care
that the Alaska Act provides, a manager or managing
members controlling an entity could act in their own
self interest and contrary to the interest of the
entity's business, ....
REPRESENTATIVE GARA asked Mr. Gildan whether those points are
still of concern.
MR. GILDAN, referring to Ms. Cutler's comments that Delaware law
would favor the state as a minority interest holder, pointed out
that it would work the same way in favor of a majority interest
holder - a majority interest holder could, for example, take an
action contrary to the state's interest without being penalized.
Therefore, the question from a policy perspective is: Who is
more likely to take an action in its own self interest contrary
to the project or the Mainline LLC as a whole? Alaska, or one
of the other Mainline LLC partners? If the legislature believes
that it wouldn't be Alaska, then the state would be better
served by Alaska law. He opined that all the Mainline LLC
partners should have a duty to the project and a duty to make
sure that it goes forward regardless of whether doing so is
contrary to an individual partner's self interest.
4:16:51 PM
REPRESENTATIVE GRUENBERG made a motion to adopt Amendment 2,
which read [original punctuation provided]:
page 4 line 31 after "revenue" insert "or the
commissioner's designee"
page 5 line 1 after "public facilities" insert "or the
commissioner's designee"
page 5 lines 11-16 delete all of subsection "(b)"
Make conforming amendments as necessary
REPRESENTATIVE ANDERSON objected.
REPRESENTATIVE GRUENBERG asked members to [compare] Amendment 2
with Amendment 3, which read [original punctuation provided]:
Pg. 5 line 14
delete: The designee appointed under this
subsection is a member of the board at the meeting
designated in the instrument
renumber accordingly
REPRESENTATIVE GRUENBERG characterized Amendment 2 as broader
than Amendment 3, noting that it would eliminate the need for
proposed AS 41.42.020(b).
REPRESENTATIVE KOTT said he favors the approach of Amendment 3
because part of the language currently in proposed subsection
(b) allows a commissioner to appoint either a deputy
commissioner or an assistant commissioner as a designee, adding
that he takes some comfort that the designee won't be anyone
below that level and that the commissioner has to file an
instrument with the board stating who his/her designee is.
REPRESENTATIVE GRUENBERG pointed out, however, that proposed
subsection (b) seems to require that a commissioner file an
instrument for each meeting that he/she was going to miss. He
said he would have no problem changing Amendment 2 to specify
that the designation must be in writing and that a designee must
be either a deputy commissioner or an assistant commissioner.
REPRESENTATIVE GRUENBERG [made a motion to] conceptually amend
Amendment 2 such that the designation must be in writing via an
instrument filed with the board, and that the designee must be a
deputy commissioner or assistant commissioner. [Amendment 2 as
treated as amended.]
REPRESENTATIVE KOTT opined that simply deleting the last
sentence in proposed AS 41.42.020(b) accomplishes the same
thing. Without removing that last sentence, then the instrument
must be filed for each meeting the commissioner can't attend, he
surmised.
REPRESENTATIVE GRUENBERG said his intent is for the instrument
naming the designee to just be on file so that it doesn't have
to be submitted for each meeting.
REPRESENTATIVE KOTT again pointed out that the last sentence,
which would be deleted via Amendment 3, uses the phrase, "a
member of the board at the meeting designated in the
instrument".
MS. CUTLER indicated that either Amendment 2, as amended, or
Amendment 3 would be acceptable.
REPRESENTATIVE WILSON said she would like the last sentence of
proposed AS 41.42.020(b) to be removed.
REPRESENTATIVE KOTT noted that both amendments would do so.
4:25:05 PM
TAMARA COOK, Director, Legislative Legal and Research Services,
Legislative Affairs Agency (LAA), relayed that as long as the
committee's intent is clear, Legislative Legal and Research
Services can come up with the appropriate language.
REPRESENTATIVE COGHILL expressed a preference for Amendment 3,
characterizing its proposed change as cleaner.
REPRESENTATIVE GRUENBERG withdrew Amendment 2, as amended.
REPRESENTATIVE KOTT made a motion to adopt Amendment 3 [text
provided previously]. There being no objection, Amendment 3 was
adopted.
4:26:22 PM
REPRESENTATIVE GRUENBERG made a motion to adopt Amendment 4,
which read [original punctuation provided]:
page 4 line 11 add a new "(b)"
"All board members shall be Alaskan residents."
renumber following subsections.
REPRESENTATIVE WILSON objected and made a motion to amend
Amendment 4 such that the language being inserted would say,
"All board members, with the exception of one, shall be Alaskan
residents." Such a change would allow for the appointment of
someone with the appropriate expertise even if he/she is not an
Alaskan resident.
MS. CUTLER said that the administration's position is that it
would like to have as much flexibility as possible in order to
find board members with the appropriate expertise.
REPRESENTATIVE KOTT pointed out that there might also be a need
to have a Canadian serve on the board, and so he is not sure
that he wants to restrict the board to only one non Alaskan
resident.
MS. CUTLER indicated that the administration has that same
concern - the administration wants the flexibility to get the
best people.
REPRESENTATIVE WILSON concurred, and acknowledged that perhaps
her amendment to Amendment 4 might still be too limiting. [Her
amendment to Amendment 4 was treated as withdrawn.]
REPRESENTATIVE KOTT suggested using the phrase, "majority of the
board".
REPRESENTATIVE GRUENBERG expressed acceptance of that language.
CHAIR McGUIRE offered her understanding that the Senate "went
with three Alaska residents."
REPRESENTATIVE KOTT reiterated his suggestion.
MS. CUTLER indicated that using the phrase, "a majority of the
board" would be fine.
REPRESENTATIVE GRUENBERG concurred.
4:29:27 PM
CHAIR McGUIRE ascertained that the amendment to Amendment 4
would specify that a majority of the board members shall be
Alaskan residents.
REPRESENTATIVE COGHILL objected for the purpose of discussion,
and questioned how "resident" would be defined.
REPRESENTATIVE KOTT asked whether there is a difference between
a "resident" and a "citizen".
REPRESENTATIVE GRUENBERG indicated that he wouldn't be limiting
the term, "resident".
CHAIR McGUIRE observed that this point could raise
constitutional issues.
REPRESENTATIVE COGHILL removed his objection.
CHAIR McGUIRE indicated that the amendment to Amendment 4 was
adopted.
REPRESENTATIVE COGHILL [made a motion to amend] Amendment 4, as
amended, such that it applied to page 5 rather than page 4.
There being no objection, Amendment 4, as amended, was again
amended.
CHAIR McGUIRE asked whether there were any objections to
Amendment 4, as amended [twice]. There being none, Amendment 4,
as amended, was adopted.
REPRESENTATIVE KOTT made a motion to adopt Amendment 5, which
read [original punctuation provided]:
Pg 5 line 4
delete: except as a member of the armed forces of
either the United States or this state
renumber accordingly
REPRESENTATIVE KOTT opined that such individuals should also be
precluded from serving on the ANGPC board, since they could be
deployed, thus leaving the board short of members.
REPRESENTATIVE ANDERSON objected.
MS. CUTLER indicated that the sponsor doesn't have any problem
with Amendment 5. She asked whether there might be any
constitutional issues raised by it.
MS. COOK said not that she is aware of.
REPRESENTATIVE ANDERSON removed his objection.
CHAIR McGUIRE asked whether there were any further objections to
Amendment 5. There being none, Amendment 5 was adopted.
4:33:23 PM
REPRESENTATIVE KOTT made a motion to adopt Amendment 6, which
read [original punctuation provided]:
Page 5
delete lines 6 and 7
replace with: have extensive experience in one or
more of the following
renumber accordingly
REPRESENTATIVE KOTT explained that Amendment 6 would rewrite
proposed AS 41.42.020((a)(3)(B). He said he has some concerns
over how the current language of, "recognized competence and
wide experience" would be defined. He opined that if a person
has extensive experience, then he/she is, in fact, competent,
and that they oughtn't leave room for someone to argue over
whether that person is "recognized."
CHAIR McGUIRE asked whether there were any objections to
Amendment 6. There being none, Amendment 6 was adopted.
[Members briefly mentioned a language change that had already
been adopted as Amendment 1.]
REPRESENTATIVE GRUENBERG asked whether the board of the ANGPC
should be confirmed by the legislature.
MS. CUTLER offered her understanding that Ms. Cook has issued an
opinion that doing so would not be constitutional.
REPRESENTATIVE GRUENBERG said he would withdraw that [concept]
for the moment.
4:35:56 PM
REPRESENTATIVE GARA [made a motion to adopt Conceptual
Amendment 7], that no [public] member [of the ANGPC board] may
have current employment, either directly or on a contract basis,
with a company affiliated with one of the [other Mainline LLC]
members or with a company that primarily performs oil field
service work.
MS. CUTLER sought verification that Representative Gara did not
mean to exclude retirees of the aforementioned companies.
REPRESENTATIVE GARA said he would like to exclude those that are
either currently working for such companies or have worked for
them within the prior two years.
MS. CUTLER relayed that she would like to speak with Mr. Porter
about this issue before providing the committee with a position
on [Conceptual Amendment 7].
CHAIR McGUIRE noted that this issue could also be addressed in
the House Finance Committee.
REPRESENTATIVE GARA expressed a preference for addressing it in
the House Judiciary Standing Committee.
MS. COOK relayed that she could include a "prior two year" test
in the wording of [Conceptual Amendment 7].
REPRESENTATIVE COGHILL pointed out that legislators are
precluded from acting as lobbyists for only one year after they
are no longer legislators.
REPRESENTATIVE GRUENBERG opined that there should also be a
stipulation that a former board member can't begin working for
such a company immediately after his/her service on the board.
REPRESENTATIVE ANDERSON noted that for legislators, the year
begins when their term of office expires, not just from the date
they leave office.
REPRESENTATIVE KOTT concurred that certain opportunities are not
available to legislators for at least a year [after their terms
expire].
REPRESENTATIVE GARA, in response to comments, acknowledged that
a one-year restriction makes more sense.
CHAIR McGUIRE announced that Conceptual Amendment 7 has been
amended such that prospective board members cannot have worked
for the aforementioned companies within one year of being
appointed to the board.
REPRESENTATIVE WILSON said she would prefer a two-year
restriction.
4:44:15 PM
REPRESENTATIVE KOTT expressed a preference for not having any
time restriction; such a restriction could limit the pool of
available qualified people. Furthermore, former employees of
the aforementioned companies would have nothing to gain by
becoming board members. He indicated that perhaps a restriction
on seeking employment with such companies after serving on the
board might be appropriate, but pointed out that such
restriction might raise constitutional issues.
REPRESENTATIVE GRUENBERG asked whether the executive director or
other staff of the ANGPC board would also be included under
Conceptual Amendment 7, as amended.
REPRESENTATIVE GARA agreed with Representative Kott that there
probably doesn't need to be a "cooling off" period before
serving on the board. He emphasized that he doesn't want board
members to also be working for one of the aforementioned
companies at the same time they are serving on the board.
MS. COOK, in response to a question, indicated that she doesn't
see any constitutional problem with clarifying that a
prospective board member can't be presently employed by certain
companies. She questioned whether this restriction would also
apply to perspective board members that are state employees.
REPRESENTATIVE GARA said he means to just restrict prospective
board members from being employed by one of the private Mainline
LLC partners, and pointed out that the bill already precludes
state employees from serving on the board.
MS. COOK, on the issue of instituting a "cooling off" period for
board members after they have served on the board, asked how
such a restriction would be enforced and who would enforce it.
REPRESENTATIVE GRUENBERG noted that language on page 8, lines 8-
9, stipulates that the ANGPC board shall, in its bylaws or other
governing document, adopt conflict of interest policy and
procedures.
MS. COOK pointed out, however, that any such could not be
enforced once one is no longer on the board because the board
won't have any enforcement powers over former board members.
The committee took an at-ease from 4:49 p.m. to 4:52 p.m.
4:52:18 PM
REPRESENTATIVE GARA made a motion to amend Conceptual Amendment
7, as amended, such that it will only stipulate that one can't
serve on the ANGPC board if one is also working for one of the
aforementioned companies. [This second amendment to Conceptual
Amendment 7, as amended, was treated as adopted.]
REPRESENTATIVE ANDERSON objected [to Conceptual Amendment 7, as
amended].
MS. CUTLER said she would prefer that the committee delay its
decision regarding Conceptual Amendment 7, as amended, until she
has had a chance to speak with Mr. Porter. She expressed
concern with including vague language about people [employed by
companies that] deal with the other three partners in the
Mainline LLC. The sponsor, she relayed, wants to ensure that
there are competent people serving on the board, and given that
there is now a restriction that a majority of board members must
be Alaskan residents, there are only so many people in the state
with the required expertise and almost all of them are connected
with the oil/gas industry in some fashion.
REPRESENTATIVE GARA clarified that he simply doesn't want people
to hold a position on the board at the same time that they hold
a position with one of the other Mainline LLC partners.
REPRESENTATIVE GRUENBERG surmised that the public would not want
the ANGPC's board members to also be working for one of the
other companies at the same time - such would be a serious
conflict of interest. He indicated that he supports Conceptual
Amendment 7, as amended.
REPRESENTATIVE KOTT suggested that at some point it might be
necessary to draw prospective board members from the pool of
people who are working in the industry, though the governor
probably ought to only consider appointing people who aren't
also working in the industry; furthermore, the governor has the
ability to remove a board member for cause if he/she doesn't
perform up to the standards set [in the bill]. He suggested
leaving the language of the bill as is.
4:58:27 PM
A roll call vote was taken. Representatives McGuire, Wilson,
Gruenberg, and Gara voted in favor of Conceptual Amendment 7, as
amended. Representatives Anderson, Coghill, and Kott voted
against it. Therefore, Conceptual Amendment 7, as amended, was
adopted by a vote of 4-3.
CHAIR McGUIRE, in response to a question regarding proposed AS
41.42.070, offered her understanding that the attorney general,
as legal counsel for the ANGPC, will have the right to hire
independent counsel as necessary.
REPRESENTATIVE GRUENBERG opined that there should be a "cooling
off" period of at least one year between serving on the board of
the ANGPC and going to work for one of the [other Mainline LLC
partners].
REPRESENTATIVE GRUENBERG made a motion to adopt Conceptual
Amendment 8, to include a provision that states that the board
members and the executive director must agree not to work for
the industry for at least one year after leaving his/her
position with the ANGPC.
REPRESENTATIVE COGHILL pointed out that [such an agreement]
would be unenforceable.
REPRESENTATIVE KOTT concurred.
REPRESENTATIVE GARA offered his belief that such an agreement
could be enforced via the filing of an injunction, perhaps at
least in the case of the executive director.
REPRESENTATIVE KOTT pointed out that [Conceptual Amendment 8]
doesn't address the situation of someone working under contract.
MS. CUTLER again reiterated that the administration wants the
flexibility to find the most qualified people, and pointed out
that Conceptual Amendment 8 wouldn't just restrict people from
going to work for the other partners of the Mainline LLC, but
rather the entire industry; such a restriction could potentially
discourage someone who might otherwise be very interested in
working on the project.
CHAIR McGUIRE said she don't disagree, but pointed out that the
policy behind having a "cooling off" period is so that the
decisions being made are not going to financially benefit those
making the decisions. So although such a restriction in future
employment could be difficult to enforce, she agrees with
Representative Gruenberg's point regarding the appearance of
impropriety.
5:06:46 PM
REPRESENTATIVE KOTT opined that the bill already addresses such
situations and thus any further restrictions are unnecessary.
REPRESENTATIVE GARA made a motion to amend Conceptual
Amendment 8 such that the restriction would only apply to the
other partners of the Mainline LLC.
REPRESENTATIVE GRUENBERG added: "The partners, their parents,
or their subsidiaries." [Conceptual Amendment 8 was treated as
amended in this fashion.]
MS. CUTLER pointed out that the ANGPC will be adopting conflict
of interest policies, that "the ethics Act" will apply to the
board members, and that there is a requirement that one not do
something during the course of one's service that will directly
[benefit oneself].
MS. COOK concurred that there are some restrictions about the
kinds of things one can do when involved in making decisions
directly affecting a particular issue, but noted that Conceptual
Amendment 8, as amended, seeks to restrict employment after one
is no longer involved in the decision-making process.
REPRESENTATIVE GARA remarked that the ethics Act provisions are
useful but not perfect; for example, under that Act one can
serve two masters as long as one is not trying to benefit both
of them. "We just don't want you even serving two masters," he
added.
5:10:57 PM
A roll call vote was taken. Representatives Gara and Gruenberg
voted in favor of Conceptual Amendment 8, as amended.
Representatives Coghill, Wilson, Kott, McGuire, and Anderson
voted against it. Therefore, Conceptual Amendment 8, as amended
failed by a vote of 2-5.
REPRESENTATIVE WILSON made a motion to rescind the committee's
action in adopting Conceptual Amendment 7, as amended. There
being no objection, the question of whether to adopt Conceptual
Amendment 7, as amended, was again before the committee.
A roll call vote was taken. Representatives Gara, McGuire, and
Gruenberg voted in favor of Conceptual Amendment 7, as amended.
Representatives Wilson, Kott, Anderson, and Coghill voted
against it. Therefore, Conceptual Amendment 7, as amended
failed by a vote of 3-4.
5:13:20 PM
REPRESENTATIVE COGHILL made a motion to adopt Amendment 9, which
read [original punctuation provided]:
Pg. 6 line 29
Delete "promptly"
Pg. 6 line 30 following "board"
Insert "within 30 days after the seat becomes vacant
REPRESENTATIVE COGHILL remarked that a similar amendment was
being considered by the Senate, and opined that having a
specific [timeframe] would be appropriate.
REPRESENTATIVE KOTT objected for the purpose of discussion; he
asked whether 30 days would be sufficient to search out someone
with the necessary expertise.
MS. CUTLER opined that it would be better to use the term
"promptly".
REPRESENTATIVE COGHILL characterized that term as subjective.
5:15:00 PM
DENNIS DeWITT, Special Staff Assistant, Capitol Office, Office
of the Governor, said he appreciates the intent of Amendment 9,
and that while [the administration] doesn't have great
objections to it, as a practical matter, the kind of person
being sought for appointment to the ANGPC board is not the
easiest person in Alaska to find given the expertise
requirements. He questioned what the consequence would be if
the governor was not able to fill a vacancy within the 30-day
timeframe. "The spirit is willing, I don't know whether the
body can make it work," he remarked.
REPRESENTATIVE KOTT indicated that that was also his concern.
REPRESENTATIVE COGHILL withdrew Amendment 9.
5:17:34 PM
REPRESENTATIVE GRUENBERG referred to proposed AS 41.42.080(b) -
specifically the language which stipulates that the ANGPC's
staff, executive director, and board members must immediately
disclose, in writing, any [financial] interest in an entity with
an interest in or doing business with the project or an owner
entity of the project - and pointed that a person might have no
way of knowing whether his/her investment portfolio includes
such an interest.
REPRESENTATIVE GRUENBERG made a motion to adopt Conceptual
Amendment 10, to add [to the end of the first sentence in
proposed AS 41.42.080(b)] the phrase, "as soon as it becomes
known to the person".
MS. CUTLER offered her belief that the sponsor would not object
to such a change.
REPRESENTATIVE GARA opined that Conceptual Amendment 10 would
not solve the problem, and made a motion to amend Conceptual
Amendment 10 to say that a mutual fund does not constitute an
interest that must be disclosed.
REPRESENTATIVE GRUENBERG agreed to the amendment to Conceptual
Amendment 10. [The amendment to Conceptual Amendment 10 was
treated as adopted.]
REPRESENTATIVE COGHILL questioned the placement of the language.
CHAIR McGUIRE acknowledged that Conceptual Amendment 10, as
amended, might be better placed elsewhere and so should be
considered conceptual in that regard.
CHAIR McGUIRE asked whether there were any objections to
Conceptual Amendment 10, as amended. There being none,
Conceptual Amendment 10, as amended, was adopted.
[Following was a brief discussion regarding how the committee
would be proceeding.]
The committee took an at-ease from 5:21 p.m. to 5:24 p.m.
CHAIR McGUIRE announced that the committee would recess for
dinner.
6:44:15 PM
CHAIR McGUIRE called the House Judiciary Standing Committee
meeting back to order. Representatives McGuire, Coghill,
Wilson, Anderson, Kott, and Gara were present at the call back
to order. Representative Gruenberg arrived as the reconvened
meeting was in progress. Senator Seekins and, again,
Representative Seaton were also in attendance.
REPRESENTATIVE GARA referred to Conceptual Amendment 11, which
read [original punctuation provided]:
Delete Findings
CHAIR McGUIRE indicated that she was objecting to Conceptual
Amendment 11 for the purpose of discussion.
MS. CUTLER, in response to a question, said:
We would prefer to have the findings. We do think
that it would be helpful to have the legislature
articulate the ... findings for why the legislation is
necessary. We ... recognize that that is a call for
you guys to make, but we do think that they do have
some value. There was a question that was asked with
respect to ... how does a court really look at
findings. I think it sort of depends on the
circumstances of the case and what's at issue. Often
what you find at issue in that kind of case is,
somebody tries to argue that the findings either do or
don't provide some sort of a power, or whatever, that
isn't explicitly authorized in the legislation.
Hopefully the legislation does provide for the powers
and the other things that ... [the ANGPC] is going to
need to go forward. I guess to sum it all up, we
would prefer to have them, but we recognize that it's
your choice as to whether or not they should be in
there ....
REPRESENTATIVE GARA made a motion to adopt Conceptual
Amendment 11. He pointed out that nothing in the findings
specifically tells the court how the legislature would like the
court to interpret the proposed legislation; instead, they are
all statements of "hopes" for the future of the state.
Representative Gara opined that Representative Stoltze is
sometimes correct when he's stated that findings are often used
as a form of press release about a bill. He opined that the
finding which begins on page 2, line 28, is inaccurate because
he believes that taking royalty in-kind (RIK) will actually
minimize the benefits to Alaskans by causing the state to lose
money. The finding that says acquiring ownership in the
pipeline is in the best interest of the state is debatable, he
opined, adding his belief that to pretend that all the findings
are true when many legislators think that they are not is wrong.
REPRESENTATIVE COGHILL said he tends to agree with
Representative Gara's points, and remarked that he doesn't know
that adopting Conceptual Amendment 11 will change the structure
of the ANGPC.
6:49:59 PM
MS. CUTLER expressed her hope that in voting to remove the
findings the legislature is not saying it disagrees with the
findings.
REPRESENTATIVE GARA relayed that he would next be explaining
several amendments while the committee awaits the return of
Representative Gruenberg, at which time the amendments can then
be voted on.
REPRESENTATIVE GARA withdrew Conceptual Amendment 11, indicating
that he would re-offer it later.
6:51:39 PM
REPRESENTATIVE GARA referred to Amendment 12, which, along with
some handwritten changes, read [original punctuation provided]:
The corporation must require an annual audit for the
state of the operation of the LLC. A version of the
audit containing information not otherwise
confidential under this statute shall be made publicly
available.
(page 20)
REPRESENTATIVE GARA, offering his belief that Mr. Porter has
stated that the ANGPC will be requesting an annual audit of the
Mainline LLC, remarked that the question then becomes whether
any of the resulting information will be seen by the public.
Conceptual Amendment 12 specifically states that an audit must
be asked for annually by the ANGPC and that the ANGPC must then
provide the public with the points of that audit that are not
confidential under the various provisions of this legislation.
REPRESENTATIVE GARA referred to Conceptual Amendment 13, which
read [original punctuation provided]:
The LLC shall be governed by the LLC rules of the
state of Alaska
REPRESENTATIVE GARA and CHAIR McGUIRE remarked, "As opposed to
Delaware."
REPRESENTATIVE GARA referred to [what later became known as
Conceptual Amendment 15] which, along with a handwritten change,
read [original punctuation provided]:
The LLC cannot sell any portion of its interest in the
mainline entity without the approval of the Governor
p. 16
REPRESENTATIVE GARA referred to the language on page 16, line
26, which says in part, "This section does not prohibit the
corporation from selling assets", and offered his belief that
this language would allow the ANGPC to sell Alaska's 20 percent
interest in the pipeline. He said he wants the governor to
approve any sale by the ANGPC of any interest in the state's
portion of the Mainline LLC.
MS. CUTLER, in response to questions, relayed that it is the
plan for the "mainline entity" to be the Mainline LLC.
REPRESENTATIVE GARA [again made a motion to adopt] Conceptual
Amendment 11 [text provided previously].
A roll call vote was taken. Representatives Gruenberg, Gara,
and Coghill voted in favor of Conceptual Amendment 11.
Representatives Kott, Wilson, McGuire, and Anderson voted
against it. Therefore, Conceptual Amendment 11 failed by a vote
of 3-4.
6:58:00 PM
REPRESENTATIVE GARA made a motion to adopt Conceptual Amendment
12 [text provided previously].
MS. CUTLER asked whether the intent - through use of the word
"operation" - is for the audit to be a performance audit rather
than a financial audit.
REPRESENTATIVE GARA said he just thought that the term
"operation" was all encompassing. He asked whether a
performance audit reviews the operations.
MS. CUTLER, after suggesting that perhaps someone else might be
better able to address that question, noted that the Legislative
Budget and Audit Committee does two kinds of audits, one being a
performance audit - for example, an audit of a particular
program - and that she is not sure what kind of audit is being
referenced in Conceptual Amendment 12, and so would prefer to
discuss this issue with Mr. Porter as well as see the specific
language before taking a position on it. She offered her
understanding that under the Mainline LLC agreement, the ANGPC
will have the ability to ask for what are more along the lines
of financial audits of the operations of the Mainline LLC, but
she does not know how the details of those provisions will be
put together such that she can say whether the administration
would have any objections to Conceptual Amendment 12. She
acknowledged, however, that she and Mr. Porter have said that it
would be the intent of the ANGPC to audit the Mainline LLC
operations to ensure that there weren't problems and then share
whatever information could be made public.
REPRESENTATIVE COGHILL noted that language on page 20, lines 9-
14, says in part:
The corporation shall provide annual audited financial
statements to the governor and the Legislative Budget
and Audit Committee on or before the 150th day after
the end of each fiscal year. The Legislative Budget
and Audit Committee may provide for an internal audit
of the corporation's books, records, and accounts, and
for annual operational and performance evaluations of
the corporation's operations and budget."
REPRESENTATIVE COGHILL surmised, therefore, that [the
legislature] is already getting an inside look, and so he isn't
sure that anything beyond that is [practical]. Furthermore,
according to proposed AS 41.42.510, a report of the corporation
will be made available by September 30 of each year.
REPRESENTATIVE GARA pointed out, however, that the audits and
report in the aforementioned language are of the ANGPC, whereas
he wants the ANGPC to conduct an audit of the Mainline LLC
because the public is going to want to know that the Mainline
LLC is operating properly; thus he used the term "operation".
And although Mr. Porter said that as a 20 percent owner, the
ANGPC will of course ask for audits of the Mainline LLC,
currently nothing in the bill requires the ANGPC to make
information from those audits available to the public.
Conceptual Amendment 12 says that the state - via the ANGPC -
shall ask for annual audits of the Mainline LLC and that non-
confidential information gleaned from those audits shall be made
available to the public. Without Conceptual Amendment 12, the
state won't receive information regarding whether the Mainline
LLC is efficient, or whether it's charging too much for the
price of gas, or whether it's deterring entry of producers' gas
into the pipeline, or whether there is waste.
REPRESENTATIVE GARA, in response to comments and questions,
again explained that he is proposing that the ANGPC, not the
Legislative Budget and Audit Committee, annually request an
independent audit of the Mainline LLC, and that the information
from those audits that is not confidential be provided to the
public.
7:08:21 PM
MS. CUTLER, in response to a question and comment, offered that
although the Legislative Budget and Audit Committee has the
right to audit the ANGPC, Representative Gara is speaking of a
different audit power, that being that the ANGPC, as a member of
the Mainline LLC, will have the right to audit the operations of
the Mainline LLC. She again noted that Mr. Porter has stated
that it is the intent for the ANGPC - as a means of doing its
duty to ensure that the Mainline LLC is performing properly - to
ask for that kind of audit on the operations of the Mainline
LLC, perhaps annually, perhaps more often. The idea that any
non-confidential information that comes out of that audit could
be made public is not a problem, she remarked, surmising that
that information could be made public through the Legislative
Budget and Audit Committee audit of the ANGPC or through the
annual report provided for in proposed AS 41.42.510 or through
some other method. Her concern, she reiterated, is that she
doesn't know the exact wording that will be put in place via the
adoption of Conceptual Amendment 12, though, again, the
administration's intent is to make sure that the Mainline LLC is
operating properly.
A roll call vote was taken. Representatives Gruenberg and Gara
voted in favor of Conceptual Amendment 12. Representatives
McGuire, Wilson, Anderson, Coghill, and Kott voted against it.
Therefore, Conceptual Amendment 12 failed by a vote of 2-5.
7:11:50 PM
REPRESENTATIVE GARA made a motion to adopt Conceptual
Amendment 13 [text provided previously].
REPRESENTATIVE COGHILL objected for the purpose of discussion.
REPRESENTATIVE GARA - offering his understanding that those who
are negotiating the Mainline LLC agreement intend for the
Mainline LLC to be governed by the LLC laws of Delaware, and
that the legislature's consultants have indicated that the
state, as a minority interest holder, will get less protection
and have fewer rights under Delaware law than it would under
Alaska law - opined that it will compromise Alaska's sovereignty
to say that Alaska's laws don't apply to the biggest project in
the history of the state. He offered his belief that the
legislature should require that the LLC laws of Alaska apply to
the Mainline LLC.
MS. CUTLER said:
I stated several reasons for why, as a minority owner
in the [Mainline LLC], the state strongly believes
that Delaware law will favor it and strongly opposes
this kind of an amendment. ... I heard Mr. Gildan to
say, when he responded to what I said, that he was
sort of positing the theoretical construct of the
opposite side, which was that the majority owners
could also act in their self interest as well, and of
course that's true, but ... he also said that he was
not familiar with what was going on in the [Mainline
LLC] negotiations and that he recognized that it was
just a theoretical point as opposed to actually
dealing with the facts of the [Mainline LLC]
negotiations themselves.
And furthermore I ... would just point out that I
think that with respect to the minority interest that
we're going to have, that's probably ... potentially
what's important to the state, more so than the
majority interest of the parties. ... As I understand
it, ... I think this is the kind of thing that would
... - if it were to remain as part of the overall
legislative practice - ... have a very detrimental
impact on the possibility of this particular project
coming together.
REPRESENTATIVE COGHILL characterized the sovereignty question as
a legitimate one. He said he is envisioning the state as a
[minority interest holder] and having an issue with the basis of
LLC law, having to go to court in Delaware, as a state, amongst
aggrieved partners; it strikes him as odd in that the state
could be subject to the laws [of another state], and this is of
concern to him. He acknowledged, though, that if the Mainline
LLC is organized under Alaska law, then the state, which will
have the negotiating power, could change those laws.
7:16:30 PM
MS. CUTLER characterized that concern as valid, and noted that
one of her first questions when getting involved in this
legislation was, why is the Mainline LLC being incorporated
under Delaware law when Alaska already has an LLC statute. The
thinking of the state on this issue, she relayed, is that as a
minority interest holder, it will be in the state's best
interest for the Mainline LLC to be incorporated under Delaware
law. She offered her belief that it is not unusual [for a state
to] to allow the laws of another state to apply; [case in
point,] the 150,000 LLCs incorporated under the LLC laws of
Delaware are not all operating within the state of Delaware.
Whether to incorporate under Delaware law is a policy call, she
remarked, and she does not view it, necessarily, as a question
of giving up the state's sovereignty so much as allowing for a
known set of rules to govern the Mainline LLC agreement. Again,
it is the administration's view that incorporating under
Delaware law will be the best way to protect the state's
minority interest.
REPRESENTATIVE GARA argued, however, that Mr. Gildan has
indicated that Delaware law will favor the majority interest
owners - those who, together, will own 80 percent of the project
- by providing weak duties for them as well. The LLC laws that
the Mainline LLC are incorporated under will determine how the
members will treat each other with regard to the sharing of
information, the degree of fair dealing and honesty that must be
accorded each other, and what accounting and fair conduct duties
must be observed. He opined that as a minority interest owner,
the state should want the other owners to accord it strong
duties with regard to fair dealing, forthrightness, and
accountability. Alaska laws will be more protective of the
state, and he opined that it's important to get that protection,
particularly since - according to his understanding - the state
won't have any veto power under the Mainline LLC agreement
because everything will be decided by a majority vote and so
Alaska will lose all the votes.
REPRESENTATIVE COGHILL, on the latter point, said, "We don't
know that."
REPRESENTATIVE GARA concurred, but argued that that's what has
been represented to him.
7:21:17 PM
MS. CUTLER asked that the state's chief negotiator of the
Mainline LLC agreement be allowed to provide comments on this
issue.
The committee took an at-ease from 7:22 p.m. to 7:23 p.m.
NICHOLAS J. SPILIOTES, Attorney at Law, Morrison & Foerster,
LLP, relayed that he has been working on the Mainline LLC
agreement on behalf of the State of Alaska for about 18 months.
CHAIR McGUIRE recounted for him the discussion thus far
regarding Conceptual Amendment 13.
MR. SPILIOTES said he can see why on its face it would seem to
make sense to have Alaska law govern the Mainline LLC and have
that entity be an Alaskan LLC, and surmised that Representative
Gara is concerned about the duty of care with regard to things
like loyalty and fiduciary duties in an LLC.
REPRESENTATIVE GARA concurred.
MR. SPILIOTES explained:
We all looked at this issue on the state's side, and,
setting aside all the other stuff you've probably
heard - which is that most oil and gas joint ventures
are ... Delaware LLC, and Delaware has a fully
developed corporate law, and all that stuff - one of
the real key issues that has evolved for the state
with the negotiations over the past ... year and a
half has been the need for the state to have,
essentially, ... the unfettered right to make its
decisions within the context of the management
committee in whatever way it deems appropriate in its
own interests.
And the reason why this is particularly important and
a little different than it is for ... the producers is
that the state - [the ANGPC] - is going to have as an
affiliate the State of Alaska, and the State of Alaska
will have, I think, a broader set of interests and
concerns with respect to this project. And when I say
project, I don't mean just the pipeline but I mean the
total project - ... the gas marketing side, the gas
sales side, regulation of the pipeline, environmental
issues, tax [issues] - I mean the whole panoply of
state interests, and [the ANGPC], although it will be
a public corporation and the idea is it's supposed to
be as commercial as possible, it is in fact not a
commercial entity and it's part of the state
government.
So one of our concerns was that we don't want the
producers to be able to sue us for breach of fiduciary
[duty] or duties such as duty of care [or] duty of
loyalty. If the state has a blocking vote on a
particular item - and we haven't finalized exactly
where there are going to blocking votes and where
there won't be, but the state will have blocking votes
on a very ... significant number of items - [and] if
the state decides to block and it's not in the
interest of the other members and it's not in the
interest of the [Mainline LLC] itself, that could be a
real problem.
The producers have a similar concern but for other
reasons: ... they actually, in all of their deals ...
that we know about ..., fight with each other all the
time, and ... any of the three don't want to have,
vis-a-vis themselves, any obligations, any fiduciary
duties, so that they can't vote or ... [so] they can
be challenged if they vote solely in their own
interest and make a decision for any reason under the
sun including ... [simply that the producers don't
like each other]. ...
So it works for them as well as for us, but that's a
key element, and I think, again, initially it might
not appear to be favorable for the state, but I think
... we concluded that ... having the kind of minimal
duties to each other - because the state is very
different than the producers ... - makes a lot of
sense. ...
7:30:29 PM
MS. CUTLER asked Mr. Spiliotes to discuss the issue of blocking
votes and veto powers, and the issue of whether being
incorporated under Delaware law would improperly interfere with
the state's sovereignty.
MR. SPILIOTES, on the issue of blocking votes, relayed that
there are going to be about 50 or 60 different votes made in the
Mainline LLC by the management committee, and a significant
number of them will be majority votes wherein any three of the
four members can approve something, but there will be another
category of super majority votes requiring three out of four [to
agree], as well as another category of votes requiring unanimous
or near unanimous agreement. For the latter type of votes, if
the state votes "no", than it's a block and whatever was being
voted on doesn't happen, and the state is still negotiating a
significant number of those key votes. With regard to those
blocking votes, one of the concerns is that if a member has
fiduciary duties to other the members or the Mainline LLC, then
a vote by the state to block something the other members are in
favor of could result in them suing the state for breaching its
fiduciary duties.
MR. SPILIOTES said, for example, that in a situation wherein the
Mainline LLC is involved in litigation with another entity and
the other members want to settle, the state, after taking into
account all its sovereign and state-regulatory interests with
respect to the project, ought to be able to vote against such a
settlement - if it feels that doing so is not in the best
interest of the state - without being sued for breach of duty.
The Delaware LLC statutes permit the parties to structure their
obligations to each other in just about any way the parties want
to, and what the state is seeking in the Mainline LLC
negotiations is the total freedom, via Delaware LLC laws, for
the ANGPC to vote and block and do whatever it wants for
whatever reason - even a reason unrelated to the project -
without being challenged.
7:34:40 PM
REPRESENTATIVE GARA acknowledged that the legislature doesn't
want the state to be sued for standing up for its own interest,
but offered his understanding that an LLC member will always
have the right to vote to promote its own financial interest
regardless of whether it is incorporated under Delaware law or
Alaska law.
MR. SPILIOTES pointed out, though, that at least under Delaware
law, the only duty that can't be contracted away is the duty to
act in good faith, so as long as a member is acting in good
faith, it can decide why it will vote and how it will vote
without being challenged. The concern regarding stepping away
from just that bare minimum duty of good faith and fair dealing
and then layering on fiduciary obligations, duty of care, and
duty of loyalty is that it allows a member to potentially be
challenged for a vote that was not necessarily in the best
interest of the entity as a whole. "From the state's
perspective, we want to have unfettered freedom and not have
imputed obligations under common law or under a statute [that
would] essentially muck up the waters for the state, and the
producers want the same thing for their own reasons," he
remarked.
MR. SPILIOTES added:
For example, ... if you have a board of directors ...
in a corporation, [and] if a director is a
shareholder, he can't act just in the interest of his
one ... [share]; he has to think more broadly about
the whole corporation, and the board of directors has
fiduciary duties to all shareholders. What we want in
the [Mainline LLC] is for [the] state to have a duty
only to itself, and so long as it acts in good faith
and deals fairly with the other members, it can't be
challenged.
7:38:02 PM
MR. SPILIOTES, in response to a comment, he said:
There are different crosscutting alliances and
interests that ... have already formed, and that will
form, among the parties to the pipeline. One of the
three producers - and ... it hasn't been decided yet
[which one] - ... is going to be the operator, and the
operator will ... play the lead role in the project.
The other two producers - their pipeline entities -
will be non-operators along with the state. There
actually is a fair amount of alignment of interest
among the three non-operators to make sure that the
operator is doing the right thing, ... broadly
defined, in terms of entering into contracts, in terms
of committing the [Mainline LLC], [and] in terms of
engaging the right advisors. ...
So there's a situation where you really don't have a
majority oppressing a minority. One of the [dominant]
crosscutting cleavages in this entity is going to be
operator versus non-operator. ... We don't know
exactly what the percentage interest of the three
producers is going to be, but there's going to be no
one that's going to have a majority. So it's
conceivable that you have an operator with 30-
something percent, and then you have three non-
operators who have a majority. So I think I wouldn't
necessarily always look at it as if the state's going
to be in the minority; there is no majority owner
here.
Although there are three pipeline companies and they
do have aligned interests on many things, they will
not always be aligned, and, in fact, ... an important
fundamental aspect of the [Mainline LLC] is going to
be [that it will be] one producer company against
three non-operators, and the state's going to have a
very close set of interests with the other non-
operators. The state, as a 20 percent owner, ... is
negotiating this set of rights it feels it needs in
order to participate as a full ... member in the
project, and I think that having protections imputed
in from the common law into the [Mainline LLC
agreement] - when, in fact, what we're doing is really
putting everything ... the state wants to have in the
[Mainline LLC agreement] - isn't really something that
is an unalloyed benefit. ...
The state's not necessarily ... always in a minority,
there's no one with a majority, and we can't ...
assume that the three producers will be aligned in
their interests.
7:41:58 PM
REPRESENTATIVE GARA asked whether the state will have veto power
to stop the majority members from seeking from the FERC the
ability to charge what the state might consider to be too high a
price for transportation.
MR. SPILIOTES relayed that the "FERC votes" are still under
discussion in the negotiations, and that he would be deferring
to Robert H. Loeffler, his firm's "FERC expert," on such
matters. With regard to the ANGPC having a blocking vote, if
duties additional to the ones provided by Delaware law are
imposed, then the other members - the oil companies, which don't
need any protection - will have the right to challenge the
state's blocking vote on the basis that the state breached its
additional duties.
MS. CUTLER offered her belief that generally the FERC will set
tariffs based on what's fair and reasonable, rather than on what
the parties propose.
MR. SPILIOTES concurred; the FERC will do what it wants
regardless of what the members propose and regardless of whether
the state has the ability to block a particular proposal.
REPRESENTATIVE GARA pointed out, though, that the rates set by
the FERC will be influenced greatly by what is being sought by
the members of the Mainline LLC. He asked Mr. Spiliotes whether
he is aware of any provision in Alaska's LLC statutes that would
prevent the state from voting in a way that protected its own
financial interest.
MR. SPILIOTES said he is not aware of anything, but acknowledged
that he is not familiar with Alaska LLC law.
REPRESENTATIVE GARA asked Mr. Spiliotes whether he is aware of
any other state which has LLC laws that would preclude it from
voting in a way that protects its own financial interest.
MR. SPILIOTES instead reiterated that under Delaware LLC law,
there is a freedom to contract away all fiduciary duties other
than the duty of good faith and fair dealing, and surmised that
this is one reason why over 150,000 LLCs have incorporated under
Delaware law.
7:48:10 PM
REPRESENTATIVE GARA offered his understanding that the
legislature's consultants say that minority rights will be
better protected under Alaska's LLC laws as opposed to
Delaware's LLC laws, and that there is no evidence that Alaska's
LLC laws will pose a danger to the state as a member of the
Mainline LLC. Alaska will be "a minority owner on very
important issues where we won't have a veto power," he remarked,
adding that this is a big concern of the legislature's
consultants. Alaska's LLC laws won't preclude the ANGPC from
voting in the state's best interest, but it will impose duties
to be honest and duties not to hide things from the other
parties, and he wants those duties to be strong, he relayed,
because Alaska, as a 20 percent owner, will be at a disadvantage
in the Mainline LLC agreement. So for both the issue of
sovereignty and the concerns that the legislature's consultants
have expressed, it's important that the state have Alaska's LLC
laws apply, he opined.
MR. SPILIOTES opined that Delaware has a "very well-developed
jurisprudence of corporate governance," and surmised that that's
why Delaware is the preferred venue for complex joint ventures.
REPRESENTATIVE GRUENBERG pointed out that there is a difference
between "preferred venue" and choice of law.
MR. SPILIOTES clarified that he meant that Delaware is the
preferred location for incorporating an LLC.
REPRESENTATIVE GRUENBERG noted that even in his field of
practice the issue of choice of law comes up not infrequently.
He surmised that people/entities from the East Coast are more
used to dealing with Delaware law whereas Alaska courts are used
to dealing with Alaska law and are very familiar with it, and
presumably any litigation [occurring because of this project]
will largely take place in Alaska courts. Again, Alaska's
lawyers, judges, and courts are used to dealing with Alaska law,
not Delaware law.
MS. CUTLER reiterated her belief that Mr. Gildan, in his
comments regarding Delaware law, was simply speaking from a
theoretical standpoint and is not that familiar with the
particular facts and circumstances at issue in negotiating the
Mainline LLC agreement. Mr. Spiliotes, however, is very
familiar with the negotiations and so brings to the table
knowledge of what is specifically at issue in the Mainline LLC
agreement, Ms. Cutler remarked.
7:54:09 PM
REPRESENTATIVE GARA remarked:
People come up from "Outside," they come up here, they
assume that we're not talented, they assume that we
don't know what we're doing, and it's the exact
opposite. The reason our constitution is so much
better than the constitutions of other states is we
saw what everybody did for a long time and we picked
the best things and we came up with our constitution.
... We also have a later LLC law in this state but
it's not like we made it up - this legislature looked
at what other states did, and they picked model
provisions from the model code, they picked whatever
wrinkles worked out best in the other places.
It's not like we picked the law out of thin air, and
we often benefit from seeing what's not worked in
other places, and we end up with better things. And
this conjecture that our law maybe is newer so
therefore isn't somehow enforceable or interpretable
is just complete conjecture; ... there's been no
example that anybody's pointed out to where our law is
deficient. So it's the sovereignty issue and it's the
main point of our consultants - we know that Delaware
[law] protects minorities in a lesser way than Alaska
law does.
7:55:26 PM
CHAIR McGUIRE noted, though, that she has been approached by
people asking that she introduce legislation that would make
Alaska's LLC laws more like Delaware's LLC laws. Therefore, not
everyone agrees that Alaska's LLC laws are the most progressive
and shouldn't be changed; furthermore, perhaps changes to the
deficiencies in Alaska's LLC laws might encourage more business
incorporation in the state. And although Alaska will hold a
minority interest in the Mainline LLC, the state is looking at
going into business via the ANGPC, and Delaware has long been a
preferred place to do business for a variety of reasons. She
said she would continue to look at the issue of how minority
interests are treated, but pointed out that in some instances
the Legislature's consultant's opinions have turned around after
he'd had a chance to speak with [Ms. Cutler and Mr. Porter].
She predicted that a more [in depth] look might reveal that a
lot of Alaska companies and partnerships actually are
incorporated in Delaware. She remarked that a vote against
Conceptual Amendment 13 should not be construed as a vote
against Alaska or its laws or as a sign that the legislature is
caving into the oil companies and shirking the state's
responsibility as a minority interest holder.
7:59:28 PM
REPRESENTATIVE GARA, in response to a question, relayed that the
bill itself doesn't stipulate that Delaware law will apply; that
stipulation is part of the Mainline LLC agreement.
CHAIR McGUIRE suggested that Conceptual Amendment 13 will
authorize incorporation under Alaska law as a tenet of the
Mainline LLC agreement.
REPRESENTATIVE GRUENBERG offered his belief that generally the
law that applies will be the law of the states where the parties
reside - and in this situation, one of the parties is the State
of Alaska - or where the contract is to be performed. This
contract is to be performed, at least for the Alaska portion, in
Alaska, and the "center of gravity" for this contract is Alaska
- the contract is with the State of Alaska and it's to be
largely performed in Alaska. He elaborated:
Under choice of law, the parties can contract for
another jurisdiction's law to apply, and that is done
sometimes in these cases, but if nothing is said, the
default rule would be the center of gravity rule here,
where the parties reside in the state of Alaska and
where the contract's to be performed. So we are doing
something that's at least a little unusual: (indisc.)
the law of a state based on that state's public
policy, and we're favoring that over the policy of our
own state. And I want you to be aware [that] if you
reject this amendment, that that's setting a precedent
that in other major contracts this state may well
adopt the law of another state over its own. And
that's something that I think has some policy
implications that we ought to really be concerned
about.
CHAIR McGUIRE remarked that a different type of analysis must be
done when entering into a venture as a business. She said she
doesn't believe that the Alaskans that have been negotiating the
ASGF Contract have simply decided to adopt Delaware's law
regardless that Alaska's laws really are better for the
interests of Alaska.
8:03:38 PM
REPRESENTATIVE GRUENBERG posited that the laws of Delaware have
been chosen simply because some of people involved in the
negotiations [on behalf of Alaska] live on the East Coast and
are therefore more familiar with the laws of Delaware, and
offered his belief that any ensuing court cases will be
litigated in an Alaskan court, not a Delaware court, and so
those involved will be more familiar with Alaska law.
MS. CUTLER offered her belief that the attorneys at Morrison &
Foerster, LLP, who have been involved in the Mainline LLC
negotiations have a duty of loyalty to the State of Alaska and
have the best interests of the ANGPC and the state at heart
regardless of where they reside; these attorneys are making
their recommendation to incorporate under Delaware law because
they fully believe it is the right thing to do, and the
administration agrees.
REPRESENTATIVE GRUENBERG reiterated his belief that the judges
involved in any ensuing court cases will be Alaskan judges.
REPRESENTATIVE GARA said:
The duty of the lawyers who represent us in this, they
do not represent this broad spectrum of the interests
of the people of the state - they represent the
governor's office. ... The governor is their client,
the governor has a position, and they have a duty to
uphold it.
MR. SPILIOTES clarified that his firm's client is the Department
of Law (DOL) and has been so through many different
administrations.
REPRESENTATIVE GARA asked, then, "Is your duty of loyalty to
represent the interests of the Department of Law?"
MR. SPILIOTES replied, "I don't have the engagement here, but
our duty is to represent the interests of the State of Alaska,
the State of Alaska is our client, and the Department of Law is
our immediate ... -- we are engaged through the Department of
Law."
8:06:32 PM
REPRESENTATIVE GARA surmised, "Their duty is to the person who
hires them: that's the governor, it's the Department of Law who
works for the governor." On the issue of why so many companies
choose to incorporate under Delaware law, he opined that
"companies register in Delaware because Delaware imposes the
lowest level of duties on corporations to the people who they
might harm or be sued for harming." "That's the exact point
that we need to protect ourselves from," he added, remarking
also, "That's why we have to be cautious - we're the minority
owner - and the reason you go to Delaware [is] because Delaware
has the laws that most adequately protect the majority."
MR. SPILIOTES again opined that there will be no majority owner
because "this group of producers" does not see eye to eye on a
lot of issues.
REPRESENTATIVE GARA said he does not anticipate that the
producers will start siding with the State that much.
A roll call vote was taken. Representatives Gara and Gruenberg
voted in favor of Conceptual Amendment 13. Representatives
Coghill, Wilson, Kott, McGuire, and Anderson voted against it.
Therefore, Conceptual Amendment 13 failed by a vote of 2-5.
8:08:51 PM
REPRESENTATIVE GARA made a motion to adopt Conceptual
Amendment 14, which read [original punctuation provided]:
The Board members of the subsidiaries shall be the
same as the Board members of the Corporation, except
when required by the law of another jurisdiction.
REPRESENTATIVE COGHILL objected.
REPRESENTATIVE GARA said that Conceptual Amendment 14 implements
[Mr. Gildan's] recommendation that the ANGPC's board members be
the board members of the Ancillary LLCs except where prevented
by the laws of another jurisdiction.
MS. CUTLER said she has still not had a chance to discuss this
issue with Canadian counsel and therefore doesn't feel
comfortable saying that Conceptual Amendment 14 would be
acceptable; however, from a conceptual basis the amendment seems
like it might be acceptable to Canadian counsel.
MR. SPILIOTES acknowledged that Canada does have different rules
regarding [LLCs and their board members], but ventured that as
long as the exception language is included, Conceptual Amendment
14 seems reasonable.
REPRESENTATIVE COGHILL removed his objection.
CHAIR McGUIRE asked whether there were any further objections to
Conceptual Amendment 14. There being none, Conceptual
Amendment 14 was adopted.
REPRESENTATIVE GARA made a motion to adopt Conceptual
Amendment 15 [text provided previously].
REPRESENTATIVE COGHILL objected.
REPRESENTATIVE GARA referred to page 16, line 26 - the start of
proposed AS 41.42.330(b) - and reiterated his understanding that
the language, "This section does not prohibit the corporation
from selling assets" could be interpreted to mean that the ANGPC
could sell part or all of Alaska's 20 percent interest in the
pipeline. This interest would involve so much money and would
be of such value to the state, he opined, that the state's
elected officials should be allowed to chime in on the sale of
any such interest, and although he would prefer that it be the
legislature that oversees such a sale, it would probably be more
streamlined to have the governor do it.
CHAIR McGUIRE questioned whether such language would have any
negative impact on the bond agreements that proposed AS
41.42.330(b) deals with.
8:13:46 PM
MS. CUTLER opined that it would make more sense to include the
proposed new language on page 9, under power (8) - proposed AS
41.42.210(8) - because that provision goes specifically to the
ANGPC's ability to sell, lease, exchange, donate, convey, or
encumber property including ownership interest in the project or
in a subsidiary entity. The pledge language on page 16, line 26
- proposed AS 41.42330(b) - pertains specifically to bonded
indebtedness, and so including the language of Conceptual
Amendment 15 in that location could potentially cause unintended
problems. She also pointed out that Conceptual Amendment 16
currently says that the Mainline LLC may not sell its interest
in the Mainline LLC, rather than that the ANGPC may not sell its
interest.
MS. CUTLER said that another problem with Conceptual
Amendment 15 is that it uses the phrase, "any portion of its
interest in the mainline entity", and it is her understanding
that the sponsor wants the flexibility to sell a portion of the
state's interest in the pipeline at certain points in time. She
said that she was under the impression that the concept they had
discussed earlier was what would happen should the ANGPC want to
sell its entire interest in the pipeline, and she'd agreed that
such a sale ought to be subject to some sort of additional
consent. Therefore, as currently written, Conceptual
Amendment 15 could be problematic.
MR. SPILIOTES said that the goal of having the ANGPC be as
commercial as possible is to have it be independent and staffed
with pipeline experts, and one if the issues discussed in the
negotiations is the ability of the state to sell its interest
back to the Mainline LLC or the other members at various points
in time - essentially an option out. So the preferred
arrangement would be to have the ANGPC make such a decision on
its own, but if it is necessary to have some sort of additional
consent provision included, it would make sense to have it apply
only in the case of a total sale, particularly given that there
may be a need for some readjusting of the state's interest
percentage over time and a second layer of approval would
complicate the process.
MS. CUTLER indicated that [she and the sponsor] would need to
consider whether requiring an extra layer of consent would
somehow suggest that the ANGPC isn't really a separate and
independent entity for purposes of liability protection, revenue
bonds, and not creating state debt.
MR. SPILIOTES concurred.
8:18:54 PM
REPRESENTATIVE GARA made a motion to conceptually amend
Conceptual Amendment 15 such that it says in part "The
corporation cannot sell" rather than "The LLC cannot sell" and
such that it shall be placed in the most appropriate part of the
proposed statute. There being no objection, the conceptual
amendment to Conceptual Amendment 15 was adopted.
REPRESENTATIVE GARA, in closing, said:
This is going to be the biggest asset this state has
ever owned ... except for the permanent fund, and god
forbid we let somebody sell the permanent fund without
us having a say or the governor having a say. ... That
would shock people. It would also shock people that
... the head of the state has no say in how much we
sell a portion of our [$5 billion] or $6 billion
interest in a pipeline for. Whether it's a 50 percent
portion [or] a 25 percent portion, if this major asset
is going to be sold, or a part of it, I think the
public would want the head of the state to have some
say, not a board and an executive director who could
be fired after they made the decision ...; that's a
big decision to leave to somebody who's not an elected
official.
CHAIR McGUIRE said she takes some comfort that the permanent
fund is managed by a board of individuals who aren't elected,
because of the volatility of the whole election process, and are
thus able to make the best decisions in managing the state's
assets. She mentioned that she also takes some comfort in the
fact that the ANGPC is set up in a similar fashion, because it
may not necessarily be in the best financial interest of the
state to have the governor make certain decisions regarding the
state's assets.
8:22:06 PM
REPRESENTATIVE WILSON suggested changing the language of
Conceptual Amendment 15, as amended, such that it would say in
part, "any major portion of its interest".
REPRESENTATIVE GARA indicated that using the phrase "any major
portion" would be fine with him, but pointed out that even
1 percent of the project could amount to $50 million.
Therefore, should they stipulate that anything over 1 percent
needs the governor's approval? He noted that although the
Alaska Permanent Fund Corporation (APFC) gets to manage the
permanent fund, the APFC is not allowed to spend the permanent
fund without approval, and he would like to have the ANGPC set
up in a similar fashion such that the ANGPC gets to manage the
state's interest in the pipeline project but isn't allowed to
sell the state's biggest asset without the governor's approval.
8:23:33 PM
A roll call vote was taken. Representatives Wilson, Gara,
Gruenberg, and Coghill voted in favor of Conceptual Amendment
15, as amended. Representatives Kott, McGuire, and Anderson
voted against it. Therefore, Conceptual Amendment 15, as
amended was adopted by a vote of 4-3.
REPRESENTATIVE GARA said the only concern he has about
Conceptual Amendment 15, as amended, is that it might get rid of
the tax exemption that the state might otherwise get without it.
CHAIR McGUIRE remarked also that more research might need to be
done in the House Finance Committee regarding what "any portion"
means and whether there is a threshold [that will trigger it].
8:25:21 PM
REPRESENTATIVE GARA - referring to page 27 - made a motion to
adopt Conceptual Amendment 16 to say that "the state or the
corporation shall not provide indemnity to pay for a tax or
royalty that is due to the state or a political subdivision".
The intention is to correct an unintentional potential
consequence of the indemnification provisions, and clarify that
"we don't want to allow and require that the state indemnify the
companies for when they pay taxes or royalties, and that's the
whole gas reserves [tax] issue," he added.
MS. CUTLER opined that Conceptual Amendment 16 goes way beyond
that; it is instead a statement that there will be no such
indemnity, and that is entirely contrary to the administration's
position as put forth in the ASGF Contract. It is not the
intent of proposed AS 45.45.905 to deal with "that issue," so to
then go so far as to actually add that issue to proposed AS
45.45.905 is the exact opposite of what the administration
intends in the sense that that would be a positive statement by
the legislature that it doesn't support what is in the ASGF
Contract. Although the question of whether to adopt Conceptual
Amendment 16 is a policy choice, she remarked, it is not
something that the administration would support.
REPRESENTATIVE COGHILL, remarking that this issue can be
addressed in a different piece of legislation due to come before
the committee, indicated that he would be opposing Conceptual
Amendment 16.
A roll call vote was taken. Representatives Gara and Gruenberg
voted in favor of Conceptual Amendment 16. Representatives
McGuire, Coghill, Wilson, Anderson, and Kott voted against it.
Therefore, Conceptual Amendment 16 failed by a vote of 2-5.
8:28:50 PM
REPRESENTATIVE GARA made a motion to adopt Conceptual
Amendment 17, to delete from page 21, lines 7-8, the words, "the
particulars of the business or affairs of an owner entity of the
project, including, without limitation,".
CHAIR McGUIRE objected for the purpose of discussion.
REPRESENTATIVE GARA, acknowledging that certain things about a
business must remain confidential, opined that "the particulars
of the business or affairs on an owner entity" is simply a
catchall phrase that could be used to make everything
confidential because everything could be said to pertain to the
particulars of a business. In response to a question, he
clarified that under Conceptual Amendment 17, proposed AS
41.42.520(a)(1) would simply read: "(1) information pertaining
to tax returns, financial statements, and business plans;".
MS. CUTLER asked whether paragraph (1) would then apply to
anyone.
REPRESENTATIVE GARA made a motion to amend Conceptual
Amendment 17 such that paragraph (1) would then read: "(1)
information pertaining to tax returns, financial statements, and
business plans of an owner entity of the project;". [Conceptual
Amendment 17 was treated as amended in this fashion.]
MS. CUTLER offered her understanding that the legislature's
consultant indicated that as currently written, AS
41.42.520(a)(1) is not of concern and is standard language. She
also offered her belief that this language regarding
confidentiality is very similar to what's contained in the
Freedom of Information Act (FOIA) and the Alaska Stranded Gas
Development Act, and that a similar concept is included in the
statutes pertaining to the APFC, the Alaska Industrial
Development and Export Authority (AIDEA), the Alaska Energy
Authority (AEA), and the Alaska Natural Gas Development
Authority (ANGDA). She said that the language which Conceptual
Amendment 17, as amended, proposes to delete adds to the meaning
of proposed paragraph (1), and that it is not the intention to
have it mean everything; furthermore, Conceptual Amendment 17,
as amended, is not something the administration would support
because it is too limiting.
8:34:38 PM
REPRESENTATIVE GARA opined that the language currently included
in paragraph (1) is not at all consistent with what's in the
FOIA. He said he can't think of a single example of information
that should be kept confidential that couldn't still be kept
confidential under Conceptual Amendment 17, as amended.
MS. CUTLER suggested that tax information other than tax
returns, as well as other information that governs the
particulars of a business or affairs of an owner entity, could
fall into the category of information that should be kept
confidential but wouldn't be should Conceptual Amendment 17, as
amended, be adopted.
REPRESENTATIVE GARA reiterated his previous comment, adding that
he also doesn't want the other members of the Mainline LLC to be
able to hold back evidence of illegal conduct.
A roll call vote was taken. Representatives Gara and Gruenberg
voted in favor of Conceptual Amendment 17, as amended.
Representatives Coghill, Wilson, Kott, McGuire, and Anderson
voted against it. Therefore, Conceptual Amendment 17, as
amended, failed by a vote of 2-5.
8:36:42 PM
REPRESENTATIVE GARA made a motion to adopt Conceptual
Amendment 18, to add to page 21, line 5, after the word,
"project", the words: ", to the extent it does not involve
illegal conduct,". He explained that Conceptual Amendment 18
will ensure that everything listed in proposed AS
41.42.520(a)(1)-(6) shall remain confidential except for
documentation that involves evidence of illegal conduct.
MS. CUTLER expressed disfavor with Conceptual Amendment 18,
suggesting that documentation of instances of illegal conduct
shouldn't necessarily be made available to the public because
doing so might violate someone's rights, and offered her belief
that without speaking further with the administration, she
doesn't think that she ought to support Conceptual Amendment 18
as it is currently worded. Perhaps acceptable alternative
language could be drafted with more time, though, since no one
has the desire to keep information that could provide evidence
of fraud confidential, but whether that information should
become "public" information, as opposed to simply providing for
the ability to tell the proper authorities that fraud could be
occurring, is a different issue.
MS. CUTLER, in response to a question, opined that there should
be an ability to disclose - but not through the public
information request process - to the proper authorities that
fraud [or a similar crime] is occurring, and reiterated her
belief that Conceptual Amendment 18 as currently written doesn't
accomplish that goal.
MR. SPILIOTES offered:
Just one example would be when ... there are
disclosures to the [Federal Communications Commission
(FCC)] or to the federal or state prosecutors: those
are not disclosed publicly, they're disclosed to
investigative authorities, and ... what would be
disclosed is a set of facts that potentially could be
indictable ...; [in other words] a person could become
a defendant and be indicted and tried. Having it go
through the public ... information process might be
the wrong channel. ...
MR. SPILIOTES indicated that as currently written, Conceptual
Amendment 18 sounds quite broad.
8:42:51 PM
Mr. DeWITT expressed the concern that Conceptual Amendment 18
presumes that the ANGPC would be judge and jury in determining
whether someone has violated the law; allowing for such would
certainly violate a person's due process rights. He opined that
there are other ways, via other language, for information to be
disclosed than what is proposed via Conceptual Amendment 18.
CHAIR McGUIRE suggested amending Conceptual Amendment 18 such
that the release of information was compelled by law enforcement
- something more specific than just an allegation of wrongdoing.
REPRESENTATIVE COGHILL questioned, though, whether there is any
law currently that would stop a court from issuing a subpoena to
investigate wrongdoing. If not, then "we're probably already
served well" by current law, he remarked.
MS. CUTLER relayed that proposed AS 41.42.520(c) also covers
that issue because it says in part that information considered
confidential may be disclosed for the purpose of an official law
enforcement investigation or when its production is required by
an administrative or court order.
CHAIR McGUIRE indicated that all members want the ANGPC to be
required to disclose information [to the proper authorities] in
order to resolve a criminal issue. She asked Representative
Gara for an example of something that isn't already covered
[under the aforementioned language].
8:46:10 PM
REPRESENTATIVE GARA said he is troubled by the broad
confidentiality provisions [of proposed AS 41.42.520] and the
limited public access to information that will result, and wants
to ensure that documentation of illegal conduct is made public.
CHAIR McGUIRE asked what is supposed to trigger that duty to
disclose - would a newspaper article alleging illegal conduct be
sufficient? Or someone's opinion? Or an indictment? Or a
conviction? And who determines that any wrongdoing has
occurred?
REPRESENTATIVE GARA said:
We would like to know of information relating to
illegal conduct that the corporation knows about; "the
corporation" will be its employees and its management.
So file a public information request; if, in looking
at the request, there is somebody who knows that
there's illegal information pertaining to the request,
it's got to be released, then the knowledge of the
employees is imputed to the agency. ... I'm less
concerned about employee crime than I am about
evidence that maybe the state has been shortchanged
through/for fraudulent reasons and things like that.
... It's improper conduct that I think we have the
right to know about.
MS. CUTLER reiterated that even when there is an allegation of
wrongdoing, questions of constitutional privacy rights will
arise, and that releasing the information to the public is a
different concept than making sure that if the ANGPC thinks that
fraud has potentially taken place that it has the ability to
inform the proper law enforcement authorities, and that
Conceptual Amendment 18 might not accomplish that latter goal.
CHAIR McGUIRE suggested that Representative Gara continue to
work in this issue further.
A roll call vote was taken. Representatives Gruenberg and Gara
voted in favor of Conceptual Amendment 18. Representatives
Kott, McGuire, Wilson, and Coghill voted against it. Therefore,
Conceptual Amendment 18 failed by a vote of 2-4.
8:51:55 PM
REPRESENTATIVE KOTT moved to report HB 2003, as amended, out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSHB 2003(JUD) was
reported from the House Judiciary Standing Committee.
ADJOURNMENT
The House Judiciary Standing Committee was recessed at 8:53 p.m.
to a call of the chair. [The meeting was never reconvened.]
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