Legislature(2005 - 2006)CAPITOL 120
06/06/2006 11:00 AM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| HB2004 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB2004 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
June 6, 2006
11:08 a.m.
MEMBERS PRESENT
Representative Lesil McGuire, Chair
Representative John Coghill
Representative Pete Kott
Representative Peggy Wilson
Representative Les Gara
Representative Max Gruenberg
MEMBERS ABSENT
Representative Tom Anderson
OTHER LEGISLATORS PRESENT
Representative Jay Ramras
Representative Harry Crawford
Representative Ralph Samuels
COMMITTEE CALENDAR
HOUSE BILL NO. 2004
"An Act relating to the Alaska Stranded Gas Development Act,
including clarifications or provision of additional authority
for the development of stranded gas fiscal contract terms;
making a conforming amendment to the Revised Uniform Arbitration
Act; relating to municipal impact money received under the terms
of a stranded gas fiscal contract; and providing for an
effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 2004
SHORT TITLE: STRANDED GAS DEVELOPMENT ACT AMENDMENTS
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
05/31/06 (H) READ THE FIRST TIME - REFERRALS
05/31/06 (H) RES, JUD
06/01/06 (H) RES AT 9:00 AM CAPITOL 124
06/01/06 (H) Heard & Held
06/01/06 (H) MINUTE(RES)
06/02/06 (H) RES AT 9:00 AM CAPITOL 124
06/02/06 (H) Heard & Held
06/02/06 (H) MINUTE(RES)
06/03/06 (H) RES AT 8:30 AM CAPITOL 124
06/03/06 (H) Moved CSHB 2004(RES) Out of Committee
06/03/06 (H) MINUTE(RES)
06/04/06 (H) RES RPT CS(RES) 1DP 5NR 3AM
06/04/06 (H) DP: CRAWFORD;
06/04/06 (H) NR: KAPSNER, OLSON, SEATON, ELKINS,
LEDOUX;
06/04/06 (H) AM: GATTO, SAMUELS, RAMRAS
06/05/06 (H) JUD AT 10:00 AM CAPITOL 120
06/05/06 (H) Scheduled But Not Heard
06/06/06 (H) JUD AT 11:00 AM CAPITOL 120
WITNESS REGISTER
KEVIN JARDELL, Legislative Liaison
Governor's Legislative Office
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Presented HB 2004 on behalf of the
administration.
JOSEPH K. DONOHUE, Attorney at Law
Preston Gates & Ellis, LLP
Anchorage, Alaska
POSITION STATEMENT: Assisted with the presentation of HB 2004
on behalf of the administration.
THOMAS A. LAKOSH
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 2004 and
offered suggestions.
ACTION NARRATIVE
CHAIR LESIL McGUIRE called the House Judiciary Standing
Committee meeting to order at 11:08:04 AM. Representatives
McGuire, Kott, Wilson, and Coghill were present at the call to
order. Representatives Gruenberg and Gara arrived as the
meeting was in progress. Representatives Ramras, Crawford, and
Samuels were also in attendance.
HB 2004 - STRANDED GAS DEVELOPMENT ACT AMENDMENTS
11:08:12 AM
CHAIR McGUIRE announced that the only order of business would be
HOUSE BILL NO. 2004, "An Act relating to the Alaska Stranded Gas
Development Act, including clarifications or provision of
additional authority for the development of stranded gas fiscal
contract terms; making a conforming amendment to the Revised
Uniform Arbitration Act; relating to municipal impact money
received under the terms of a stranded gas fiscal contract; and
providing for an effective date." [Before the committee was
CSHB 2004(RES); included in members' packets was a proposed
committee substitute (CS) for HB 2004, 24-GH2046\F, Bailey,
6/5/06.]
The committee took an at-ease from 11:09 a.m. to 11:14 a.m.
CHAIR McGUIRE outlined her intentions regarding how the meeting
would proceed.
11:16:07 AM
REPRESENTATIVE KOTT moved to adopt the proposed committee
substitute (CS) for HB 2004, 24-GH2046\F, Bailey, 6/5/06, as the
work draft. He offered his understanding that Version F
replicates the latest Senate version of the bill.
REPRESENTATIVE GARA objected to the adoption of Version F as the
work draft, adding that he would prefer to work with CSHB
2004(RES) and just amend it as the committee sees fit.
REPRESENTATIVE COGHILL said he would like to discuss the
amendments adopted by the House Resources Standing Committee.
REPRESENTATIVE GARA withdrew his objection.
CHAIR McGUIRE announced that Version F was before the committee.
[Following was a brief discussion regarding how the committee
would be proceeding.]
11:21:02 AM
KEVIN JARDELL, Legislative Liaison, Governor's Legislative
Office, Office of the Governor, relayed that the Alaska Stranded
Gas Development Act was passed in 1998 and amended twice since
then in an attempt to bring the state's gas to market. House
Bill 2004 is one more instance of bringing to the legislature
suggested changes that the administration feels are necessary to
bring Alaska's gas to market, changes that are incorporated
within the proposed Alaska Stranded Gas Fiscal Contract ("ASGF
Contract") that the administration [will] sign with the
producers: [BP Exploration (Alaska) Inc.; ConocoPhillips
Alaska, Inc.; and ExxonMobil Alaska Production, Inc.].
MR. JARDELL, on the issue of why the amendments to the Alaska
Stranded Gas Development Act are being sought after the [ASGF
Contract was negotiated], said:
As we began negotiating the [ASGF Contract], it was
clear from early on that there were probably going to
be provisions that were going to have to be negotiated
that would require ... [amendments to the Alaska
Stranded Gas Development Act]. What those ultimately
would be, it also became clear, would not be known
until we finalized the negotiations and knew what the
give and take was and what we were able to
successfully achieve and then look back and say,
"Okay, here's a thing we need to change; here's
something we need to change." ...
And we acknowledged ... to each of you very early on
that changes to the [Alaska Stranded Gas Development
Act] would be necessary in the end. ... But we were
comfortable - in talking with members that signed the
confidentiality [agreement] and leadership, and
looking at the purpose of the [Alaska Stranded Gas
Development Act] - that ... [we were] going to develop
[a] fiscal contract [and] that the fiscal terms that
... were somewhat outside were still within the
purpose [of the Alaska Stranded Gas Development Act].
So that's why we are here before you, asking you, with
a contract out that you can see, to agree to give us
the authority, where it's necessary, to conclude [the
ASGF Contract] and put it before you.
11:24:36 AM
REPRESENTATIVE GARA noted that some have questioned whether the
legislature even has the right to approve a contract; a
memorandum from Legislative Legal and Research Services
indicates that the legislature's approval is probably not
constitutional, though whether that is true won't be known until
a court rules on the issue. He said:
This is the rabbit trail I want to make sure we don't
go down: that you ask us for the amendments to make
the [ASGF Contract] legal, which you need or else the
[ASGF Contract] can't go forward, we give them to you,
you come up with a contract, the legislature makes
comments but the administration, for whatever reason,
decides they're not appropriate - ... [for example],
we've said "No" - you have the signed contract and
we've given you all the amendments, [if] ... there's a
ruling that the legislature's confirmation ... power
is determined to be unconstitutional and not needed,
is there a commitment from the governor that he would
not go ahead with a contract that we've said "No" to?
Because otherwise I don't want to give you the
amendments that make the [ASGF Contract] legal until
after we vote on the [ASGF Contract].
MR. JARDELL replied:
The only conversations that I've had with the governor
and with other members of the administration have been
that we will work through the [Alaska Stranded Gas
Development Act], that it is necessary to work through
the [Alaska Stranded Gas Development Act], it's
necessary to have a full and open process so that we
can consider their input, it's necessary to have the
legislative process so we can have the legislator's
input - just as the [Alaska Stranded Gas Development
Act] tells us to do - and it will balance both of
those before we're instructed by the legislature to go
back and renegotiate a contract with those comments in
mind and then ultimately bring that contract back to
the legislature for the legislative approval or
disapproval. We have never had discussions about not
pursuing that path, and so all I can say is, ... I am
operating under the [Alaska Stranded Gas Development
Act] that is the law of the state of Alaska, and,
whether it's constitutional or not, we are proceeding
under the [Alaska Stranded Gas Development Act].
11:27:36 AM
REPRESENTATIVE GARA asked Mr. Jardell to ask the governor to
provide the legislature with written assurance that if the
legislature's role is determined to be unconstitutional, and yet
the legislature says "No" to the [ASGF Contract], the governor
won't go ahead with it.
MR. JARDELL said he would pass along that request, but noted
that because of the way the Alaska Stranded Gas Development Act
is written, his initial observation is that the authority within
the Alaska Stranded Gas Development Act is "because of the
ratification process and the process of the Act, and if that
process was deemed not to be controlling or constitutional," it
would be hard for him to see how the court would believe that
the statutes giving authority on that basis would remain in
effect or would give them meaning.
REPRESENTATIVE GRUENBERG asked whether the attorney general has
yet issued an opinion on this same subject.
MR. JARDELL said he would research that issue.
11:29:46 AM
JOSEPH K. DONOHUE, Attorney at Law, Preston Gates & Ellis, LLP,
relayed that in a bill-review letter that the attorney general
issued at the end of the 1998 legislative process, the
"authorization statute" was identified as possibly raising a
separation of powers question while at the same time legislative
approval was acknowledged as perhaps still being required
because of tax provisions that would be modified through a
contract. So there is a constitutional concern regarding
whether lack of legislative authorization would constitute an
unlawful delegation of the tax power, as well as a
constitutional concern regarding whether a legislative
authorization provision is an intrusion into executive branch
authority. Therefore, he remarked, although this letter was not
a formal opinion, "their basic view was that it would be
constitutional as a result of balancing these two constitutional
values." In addition, the [ASGF Contract] itself is an attempt
to implement the "tax contracting authority" in Article IX,
Section 1, of the Alaska State Constitution. So, again, "we"
think there is a good argument that the [legislative]
authorization provision in the [Alaska Stranded Gas Development
Act] would be upheld as constitutional; therefore, the scenario
that Representative Gara has proposed wouldn't arise, he said.
REPRESENTATIVE GRUENBERG remarked that if in fact the opinion
expressed in that letter proceeds from the premise that the
taxing power is the legislature's, would it not follow that that
can't be divested by tying the legislature's hands for 40 years
in the ASGF Contract? Wouldn't that be a logical conclusion of
the same "opinion?"
MR. DONOHUE said:
No. ... There's two different considerations. One is
... whether authorization itself is constitutional
...; the separate question [is] whether or not the
provisions in the [ASGF Contract] can provide fiscal
certainty through the years. And that's a separate
constitutional argument that will no doubt be raised
in the judicial challenges that follow. But the 1998
Act specifically says that the administration is to
pursue fiscal certainty to the maximum extent provided
by the [Alaska State Constitution], so this will
certainly provide a test case for that, [indisc.] and
probably for the other two.
11:32:40 AM
REPRESENTATIVE GARA pointed out that in 1997 the Office of the
Attorney General concluded that locking in the tax rate would be
unconstitutional, but a few weeks ago the current attorney
general issued an opinion stating that it would be okay to lock
in the tax rate.
MR. DONOHUE, in response to a question, said that the governor's
transmittal letter for HB 2004 discusses that issue only in a
general sense as something that may or may not arise and would
be addressed at the time that the final terms of the ASGF
Contract were negotiated. Also in response to a question, he
indicated that he would provide copies of the aforementioned
bill-review letter to the committee.
MR. JARDELL said that the administration takes the [Alaska
Stranded Gas Development Act] very seriously, that the
information provided by the legislature's consultants is read
and studied, and that legislators' comments and considerations
are taken very seriously as is input from the public. He
pointed out, for example, that the administration was advised by
the Department of Revenue (DOR) and [various] attorneys to make
the legislation broader than was absolutely necessary so as to
be able to fully respond to comments and suggestions made by the
public and the legislature. As early as 1998, the legislature
instructed the administration to negotiate a fiscal contract and
to take into consideration, and perhaps negotiate on, all state
and municipal taxes so as to bring the gas to market - it was
believed that the project was not viable from an economic basis
without first "doing that" - and the administration has now done
just that, and is in the process of presenting to the public and
legislature the current proposed contract; additionally, the
administration has been instructed to take input from the
legislature and public and negotiate the final deal.
11:39:07 AM
MR. DONOHUE explained:
During the course of the administration's negotiations
of [the ASGF Contract], the administration made two
fundamental policy decisions that drive most of the
[proposed changes] ... that you'll be reviewing in ...
[Version F of HB 2004]. ... One [policy decision] was
to have the state become a full commercial partner in
the project, and ... there's three different elements
of that decision: one is to become an equity owner in
the project; the second is to take royalty and
production tax payments in-kind for the life of the
contract; and third, to take a shipping position on
the pipeline - i.e. take responsibility for shipping
and marketing the state's oil and gas. Additionally,
the second major policy decision was to incorporate
terms which would provide oil fiscal certainty in
addition to fiscal certainty relating to gas and the
gas project itself. ... There is a third component of
this bill, and it's contained in Sections 14-18, that
has to do with reconsideration, generally, about how
to deal with impact payments that would be payable by
the [Pipeline Project Mainline Limited Liability
Company (LLC) Entity ("Mainline LLC")] entities and
the "midstream entities"; ... these payments are to be
made to the State of Alaska and ultimately paid back
out to the political subdivisions. ...
REPRESENTATIVE GARA asked whether being a 20-percent pipeline
owner is what requires a capacity commitment from the state, or
whether it is because the state will be receiving royalty and
production taxes in-kind.
MR. DONOHUE offered his understanding that it is always in [an
entity's] best interest to take a proportional share of
ownership in a project which reflects the gas volumes that it
intends to ship through the project. At this point in time,
royalty in-kind (RIK) is about 12.5 percent, and the production
tax on gas is about 7.25 percent; this explains the relationship
between the volume of gas that the state is taking
responsibility for and the ownership interest [amount].
Additionally, in order to take responsibility and actually
market [that gas], the entity has to take a shipping position on
the pipeline.
REPRESENTATIVE GARA surmised, then, that taking payment in-kind
is what engenders the commitment that the state pay for
capacity.
MR. DONOHUE concurred. In response to other questions, he
explained that Section 3 - proposed AS 43.82.020(2) - refers to
Section 7 - proposed AS 43.82.220 - which is the portion of the
bill that provides the broad authority for the state to take
shipping positions with the state's "royalty gas," and that
those two sections work together to highlight some of the major
subject matters of the ASGF Contract that are in turn fleshed
out via other sections of the bill.
11:45:45 AM
REPRESENTATIVE GARA asked whether [deletion of] Section 3 would
allow the state to engage in whichever option [of payment] is
most beneficial to the state at any given point in time as long
as proper notice is provided.
MR. JARDELL indicated that Section 3 addresses the ability of
the state to take payments in-kind, and that it would actually
require doing so. He proffered that the administration has
determined that including such provisions in the bill and in the
contract is a way of ensuring that the project becomes
economically viable to the producers while still providing
revenue to the state through the sale of its gas. Furthermore,
there is a significant difference in the commodity of oil and
the commodity of gas and how each is shipped - for example, gas
is not easily stored; thus it won't be acceptable to the
producers for the state to simply switch back and forth between
taking gas in-kind and taking gas in-value, because the
producers must make a firm commitment regarding how much gas
they will be transporting to their markets over the life of the
pipeline.
REPRESENTATIVE WILSON asked whether the contract contains a
stipulation that the producers are not required to sell their
gas inside the state and, if so, whether that means that the
state will have to do so instead of sending its gas down the
pipeline.
MR. JARDELL said that the producers are entering into this
project as a business, and so if there is a market in Alaska,
the producers will sell gas to it, but not if there is no market
and no value to selling the gas in state. The administration
has made strong efforts to ensure that it has the opportunity to
meet in-state needs.
MR. DONOHUE added that that is generally a question involving
ratemaking and open seasons and the Federal Energy Regulatory
Commission (FERC), and thus would be better answered by Robert
H. Loeffler of Morrison & Foerster, LLP.
11:52:54 AM
REPRESENTATIVE GARA, noting that there is some risk that being
forced to sell gas in state could cut into a company's profit
margins, surmised that that is why the producers have resisted
having the ASGF Contract include such a requirement. The state
faces that same risk if it follows through on its opportunity to
sell gas in state. Once the pipeline is built, those who sell
gas into the pipeline will have a great benefit, thus the state
could make it a condition of a [pipeline] lease that up to 3
percent of a lessee's production be made available for in-state
use, he suggested, that way everyone will share the burden of a
potentially lower in-state gas price.
CHAIR McGUIRE noted that access to gas and affordable energy are
some of the issues that have been raised by constituents.
MR. JARDELL said: "We share those concerns. I can promise you
that the administration has put forth tremendous efforts to make
sure that if there's a viable gas market, we will have gas
available - if it works." There are a lot of variables that
will have to be considered throughout the life of the project,
and the ASGF Contract now contains the provisions necessary to
ensure that the state receives the information it will need to
determine if there is a viable market in Alaska. And of course,
if there is, then everyone will want to sell it. Countless
hours have gone into resolving the issue of ensuring that gas
will be available to Alaskans if there truly is a need for it.
CHAIR McGUIRE surmised that the concern is that it will be the
state's legislators - rather than the producers - who will be
faced with having to explain to constituents why they don't have
a viable supply of gas when the state owns 20 percent interest
in the project.
MR. JARDELL relayed that the administration also has the concern
that "subsidizing gas to one area may not be bringing the
overall value to another area." For example, Southeast Alaska
does not get much from subsidizing gas to an area up north, and
so the questions then become should the state give up revenue
for the whole state and all Alaskans in order to subsidize gas
into one place and, if so, how can that be offset.
11:59:06 AM
CHAIR McGUIRE concurred, adding, "I would certainly hope we
don't cut off our nose to spite our face."
MR. JARDELL said, "We have made every effort not to do that."
REPRESENTATIVE COGHILL said he is not a big fan of state
ownership of big business; government's purpose is to regulate,
tax, and give certainty in law, and by entering into this
project as a business, it will raise conflicts for the state.
In terms of agreeing to "this document," he said, Sections 3 and
7 become huge issues for him.
REPRESENTATIVE WILSON remarked that in deciding which
legislative districts get the gas, it could end up being decided
by which area has the most votes in the legislative process,
which is not always fair; it will be difficult to figure out how
to ensure fairness for all Alaskans.
CHAIR McGUIRE raised the issue of power cost equalization (PCE)
to illustrate that certain issues aren't decided wholly by which
districts have the most legislators, that legislators do look at
the state as a whole when casting their votes.
REPRESENTATIVE GRUENBERG said the question isn't just whether
certain areas of the state will receive benefits from the
pipeline; rather, the question is also at what price will those
benefits come. The producers - like any merchants - just care
about the bottom line, so will there be something in [the ASGF
Contract] that guarantees that Alaskans - the current owners of
the gas - will get part of the benefits of that ownership, which
may very well include having access to a product for a price
below what others pay?
MR. JARDELL indicated that that issue is being considered, but
then noted that to require the producers to pull off a certain
percentage of their gas at a time as yet unknown in order to
guarantee that it will be sold to Alaskans will just add another
economic term to the project, terms which currently are not
good. Furthermore the state has 20 percent of the gas, and it
is hard to envision that that amount won't be sufficient to meet
the state's needs. Again, if there is a market in Alaska and
there is value in selling to that market, the producers will do
so. He asked the legislature to provide suggestions for terms
that it wants included in the ASGF Contract. He also pointed
out, though, that the administration will still have to keep in
mind the economics of the project as it renegotiates the ASGF
Contract.
12:07:07 PM
REPRESENTATIVE GRUENBERG noted that the legislature will have
the authority to legislate what is to become of the 20 percent
of the gas that the state owns; for example, the legislature can
stipulate that a certain percentage of its gas is to be set
aside and sold to Alaskans for a reasonable price.
MR. JARDELL cautioned against that concept, and offered as an
example a hypothetical situation in which the legislature
decides to require that the Alaska Permanent Fund Corporation
(APFC) invest half its funds in Alaska simply because doing so
will benefit Alaskan businesses. Something like that would not
be supported by the administration because it wouldn't be
beneficial to the overall health of the permanent fund, and
doing something similar with Alaska's gas could raise similar
issues; for example, selling Alaska's gas on the open market
might return a great deal more money to the state as opposed to
selling it to Alaskans at a lower rate, and that extra money
could do more for the state as a whole.
REPRESENTATIVE GRUENBERG pointed out, however, that the same
logic could be applied throughout the ASGF Contract; for
example, meeting "Alaska hire" requirements could result in less
revenue for the state. Nonetheless, the state has set policy
with regard to Alaska hire, and so should also set a similar
policy with regard to ensuring that some of the gas comes to
Alaskans at a reasonable price.
MR. JARDELL clarified that he was merely pointing out that any
extra revenue received by selling Alaska's gas on the open
market could do more for Alaskans than merely selling them gas
at a lower rate, adding that the legislature will be able to
make further decisions with regard to who to sell its own gas to
once the state has a contract and a pipeline.
12:11:07 PM
REPRESENTATIVE GARA remarked that selling gas at a lower rate to
Alaskans in some areas of the state could result in less revenue
- and thus less service - to the residents of other parts of the
state. He suggested that the producers be required to also put
a certain portion of their gas production into the state market;
the burden of selling gas to Alaskans at a reduced rate should
be borne by both the state and the producers, rather than just
the state, particularly given that the producers will be
benefiting greatly by their involvement in the pipeline project.
MR. JARDELL indicated that the administration would consider
that suggestion along with all the other suggestions it receives
from the legislature and the public.
REPRESENTATIVE COGHILL referred to Sections 3 and 4, and offered
his understanding that the term, "other agreements" pertains to
"things that would revolve around the gas treatment plant and
things like that." He asked whether the authority being
provided for via [Sections 3, 4, and 7] address the need to
renegotiate all the current leases on the North Slope.
MR. DONOHUE said:
We've provided the [House Resources Standing
Committee] some examples of the types of modifications
of lease agreements and unit agreements that are
reflected by the [ASGF Contract], and ... part of the
... difficulty in presenting these conforming
amendments is that we're talking about making these
amendments retroactive to January 1, 2004. So there's
... three temporal perspectives ... in terms of
reviewing these statutory amendments.
The first perspective is [one of] assuming that the
administration came to the legislature in 2004 and
said, "We don't have any applications, we don't have
any contract yet, but we think we need all of this
authority to start the process, and so we're seeking
broad authority to modify leases, to modify unit
agreements, to make shipping commitments, and what
have you"; that's the pre-contract phase - it's
basically the legislature deciding to send the
administration forth to make the best possible deal.
Then you have the perspective of today, where you are
basically making these amendments with the benefit of
the contract before you so you can see what the
administration did ... between 2004 and today ...; you
can go through those modifications and determine
whether the administration did a good job or a bad job
[or] went beyond ... the types of modifications that
the legislature thinks are appropriate.
And then the third temporal perspective is going
forward; assuming this contract gets approved by the
legislature ... and the contract is signed, then the
perspective is: what is the authority of the
[commissioners of the DOR and the Department of
Natural Resources (DNR)] after the contract is in
effect and going forward. And that is a function of
the terms in the contract itself. ..
MR. DONOHUE continued:
Part of the reasoning for the broad language is ...
we're putting ourselves in ... the perspective of [it]
being January 1, 2004, and we wanted to cover all the
possible modifications that might be involved in this
negotiation. And as Mr. Jardell has indicated, it's
possible [that] as a result of legislative comment or
citizen comment that maybe ... other modifications may
be proposed and negotiated.
So that's why we're looking for the broad language,
but in the end it will be the legislature that makes
the decision as to whether or not the scope of the
modifications are appropriate and you're comfortable
with what the administration has done with the
authority it has requested.
12:18:01 PM
REPRESENTATIVE COGHILL asked whether the authority being asked
for is so broad as to allow the administration to tie up every
lease in Alaska.
MR. JARDELL attempted to clarify that the authority provided for
in the aforementioned sections applies to negotiating terms for
inclusion in the contract, and it is up to the legislature to
determine whether that authority is too broad. He noted,
though, that any terms negotiated must be reasonable to the
contract. He explained that there are a handful of leases that
have a "sliding-scale royalty," which is price based, and that
"when you're taking your gas and you're making firm
transportation commitments, it's very difficult when your gas
fluctuates based on royalty evaluations because of pricing"; so
the ASGF Contract contains a methodology for dealing with [those
leases], and the broad authority provided for via the
aforementioned sections is necessary to evaluate them. He
added, "Through the contract, you'll be able to see how we have
used this authority, and you can today."
12:20:34 PM
REPRESENTATIVE GRUENBERG noted that the title of Version F is
different from the title of CSHB 2004(RES).
MR. DONOHUE went on to explain that Section 1 [of Version F]
provides an exception to the Revised Uniform Arbitration Act
(RUAA), and relates to Section 5, which pertains to the waiver
of sovereign immunity. Theoretically, Section 1 of the bill
provides authority for the state to agree to arbitration under
the federal arbitration Act, and avoids any possible argument
that arbitration consented to by the State of Alaska is limited
to the RUAA.
REPRESENTATIVE GRUENBERG said he has heard the arbitration
clause in the ASGF Contract referred to as "baseball
arbitration."
MR. DONOHUE said, "Baseball arbitration is provided for under
Article 26 and Exhibit C; I believe some producers have insisted
on it, and under certain circumstances I think a third producer
has options between ... substantive arbitration as opposed to
baseball arbitration." It's really a contractual agreement
amongst the parties as to how they are going to resolve their
disputes, and "baseball arbitration" could be implemented under
the state law as well; in "baseball arbitration," each party
puts forth its best position and the arbitration panel is
limited to picking only one of those positions.
MR. DONOHUE went on to explain that Section 2 of Version F is
intended to clarify the [administration's] ability to agree to
terms that will grant fiscal certainty for oil. In response to
a question, he relayed that the language, "including gas
pipeline expansion pricing that encourages further gas
exploration" came about as a result of a discussion in the
Senate regarding "rolled-in pricing versus incremental pricing
for gas line expansions." The legislature's consultants
suggested that the state mandate rolled-in pricing, but the
administration's consultants advised that doing so would be
impractical. The compromise arrived at was that a policy
stipulating that expansion pricing be aimed at encouraging
exploration would be included in the "purpose clause."
REPRESENTATIVE GRUENBERG referred to page 2, line 5, and asked
whether there should be a comma after the word, "party".
MR. DONOHUE indicated that there should be.
REPRESENTATIVE GRUENBERG made a motion to adopt Amendment 1, to
place a comma after the word, "party" on page 2, line 5. There
being no objection, Amendment 1 was adopted.
12:27:25 PM
MR. DONOHUE explained that the term "related party" is defined
in Section 19 and is intended to mean the entities that will own
and operate the midstream entities of the project, and the
midstream entities would include the main line from the North
Slope to the Canadian border, the gas treatment plant on the
North Slope, at least two gas transmission lines, and the
possibility of a natural gas liquids [NGLs] plant; so to the
extent that those entities are beneficiaries of fixed tax rates
during the course of the agreement, this language was added to
clarify that point. In response to a question, he offered his
belief that the "rolled-in pricing requirement" is included in
Section 14, which pertains to collateral agreements. He
characterized Section 14 as the major difference between
Version F and CSHB 2004(RES).
[There was a brief discussion regarding drafting.]
MR. DONOHUE went on to explain that Section 3, paragraph (1),
ensures that "oil fiscal certainty" can be provided even though
a sponsor's activity is not related to the project.
REPRESENTATIVE GRUENBERG questioned why the state should not
limit that certainty to activities related to the project; that
seems to be the intent of the original Alaska Stranded Gas
Development Act. Section 3 broadens the commissioner's
authority considerably; he/she could simply "take entity 'A'
that happens to be a participant in a project, whether it's this
one or another one, and give them all kinds of breaks that
aren't related to ... [the gas pipeline project]," he added.
MR. DONOHUE replied:
Again, this is a statement of broad authority. To the
extent that the administration provides a ... term of
fiscal certainty that the legislature believes is
inappropriate to the [ASGF Contract] and just totally
unrelated, the legislature is free to disagree and to
disapprove the contract. But the economic analysis
from the ... representatives of the administration has
been that oil fiscal certainty is a reasonable request
and should be provided for a reasonable period.
REPRESENTATIVE GRUENBERG said he is not entirely sanguine with
that answer.
12:35:01 PM
MR. DONOHUE said that paragraph (2) of Section 3 proposes a
conforming change intended to broaden the ability of the
administration to negotiate different terms related to royalty
in-kind (RIK), treatment of RIK, and other lease conditions such
field costs "and what have you." This issue will be dealt with
in greater detail in Section 7 via its proposed change to AS
43.82.220; currently AS 43.82.220 only deals with royalty type
issues.
REPRESENTATIVE COGHILL, in response to a question, said he is
trying to get a feel for how the administration's authority is
being broadened and to what extent.
MR. DONOHUE said that paragraph (3) of Section 3 clarifies the
authority of the state to take its payment of production taxes
under AS 43.55 in-kind or as a payment in lieu of production tax
by payment and delivery of gas in-kind. He then noted that
Section 3 of Version F appears to unintentionally be missing a
proposed AS 43.82.020(4), which should say: "(4) acquisition by
the state of an ownership interest in the project that is the
subject of the proposed contract". He mentioned that at some
point in the future, the administration may want to suggest
collateral agreement authorization.
REPRESENTATIVE GARA relayed that one of his concerns could be
alleviated if [the bill stipulates that] royalties and taxes
taken in-kind are to provide substantially equivalent revenue as
royalty and taxes taken in-value. If such a stipulation doesn't
currently exist, either in the bill or in the ASGF Contract,
would Section 3 of the bill be the correct place to insert such
a stipulation?
MR. DONOHUE offered his belief that the preliminary fiscal
interest findings indicate that taking both the production tax
payment and the royalty tax payment in-kind will result in
approximately the same revenue stream as would result from
taking those payments in-value.
12:42:29 PM
REPRESENTATIVE GARA asked whether the legislature's consultants
are correct in stating that taking taxes in-kind will result in
substantially less revenue because the state will be receiving
as payment both sellable gas and non-sellable gas - in other
words, gas that still contains impurities.
MR. DONOHUE relayed that that question might be better answered
by representatives from the DNR.
MR. JARDELL concurred.
[Chair McGuire turned the gavel over to Representative Coghill.]
REPRESENTATIVE COGHILL surmised that that issue should be
researched further. He noted that Section 7, paragraph (2),
refers to, "relating to lease or unit expenses for separation,
cleaning, dehydration, gathering, salt water disposal, and
preparation for transportation on or off the lease".
Considering that the bill proposes to give the administration
more authority on certain issues, it is important for the
legislature to know what the cost will be for that authority.
MR. JARDELL agreed to work on that issue further.
REPRESENTATIVE GRUENBERG asked that a written amendment be
brought forth by the administration regarding inserting the
aforementioned proposed AS 43.82.020(4).
The committee took an at-ease from 12:45 p.m. to 1:11 p.m.
MR. DONOHUE relayed that the first change proposed in paragraph
(1) of Section 4s will clarify that the ASGF Contract can
provide fiscal certainty terms with respect to oil taxes.
Legislative history regarding the Alaska Stranded Gas
Development Act indicates that the commissioner of the DOR
provided testimony that the citations to oil and gas taxes
referred to in AS 43.82.210 were not intended to cover oil;
therefore, Section 4, paragraph (1), inserts the phrase "on oil
or gas or both".
CHAIR McGUIRE characterized the phrase used in the CSHB
2004(RES) - "modifications of taxes on oil and gas, including
terms providing for" - as rather vague.
MR. DONOHUE surmised that that was why the Senate chose to alter
that provision. He went on to explain that the second change
proposed via paragraph (1) relates to credits for investment in
a project and references the commitment allowance in Article 20
of the ASGF Contract that proposes certain allowances or credits
for investing in a gas treatment plant that are outside of the
various credits included in the production profits tax (PPT)
[legislation]. The thought was that [the administration] needed
express authority [in statute] to support that particular
provision of the ASGF Contract.
MR. DONOHUE relayed that paragraph (2) of Section 4 now
references oil and gas agreements, unit agreements, and other
agreements under Title 38, and this issue will be discussed
further in relation to Sections 7-10. Paragraph (6) of
Section 4 conforms current statute with the repeal of AS
43.82.445 [as proposed via Section 20 of the bill]; AS 43.82.445
currently outlines the administrative termination procedures,
and are no longer needed as statutory provisions because two
different but comparable termination procedures have been folded
into Articles 5 and 28 of the ASGF Contract itself. The intent
of paragraph (7) of Section 4 is to broaden and add flexibility
to the "catchall provision"; this change is intended to
encompass all the provisions necessary to implement the
acquisition of an equity ownership. He drew attention to
Exhibit I of the fiscal interest findings, and noted that it
initially proposed the addition of seven specific powers, but it
was then determined that such powers would be covered under the
broad language of Section 4, paragraph (7), and that such was
the preferable route to take.
MR. DONOHUE noted that paragraph (7)(B) of Section 4 proposes to
replace the phrase, "best interests of the state" with the
phrase, "long-term fiscal interests of the state". The
reasoning behind this change is that that is the consistent
finding that needs to be made, "and has been made with regard to
the preliminary fiscal interest findings" that the commissioner
of the DOR has already published and that are in part dependant
on conforming amendments and edits to the current Alaska
Stranded Gas Development Act. Once the commissioner has made
such a finding at the end of the process, he/she can then refer
and recommend the matter to the governor who can then refer and
recommend it to the legislature.
1:20:34 PM
MR. DONOHUE, in response to questions, explained that with the
exception of AS 43.82.200(7)(B), the Alaska Stranded Gas
Development Act uses - and always did use - the phrase, "long-
term fiscal interests of the state". He added that he does not
know why the phrase, "best interests of the state" was used in
AS 43.82.200(7)(B); the change proposed to that provision via
Section 4 is merely an attempt to conform the language for the
sake of consistency.
MR. JARDELL concurred.
REPRESENTATIVE GRUENBERG asked whether the phrase being added
via paragraph (7) - "the commissioner determines" - will require
that specific determinations and factual findings be made.
MR. DONOHUE said that that is not the intention; rather, it is
intended that the commissioner's basic finding that the ASGF
Contract is in the state's long-term fiscal interest shall
constitute the necessary finding.
REPRESENTATIVE GRUENBERG suggested that the administration
consider removing the phrase "the commissioner determines"
because by using the word, "determines", a reviewing court
"might remand" if there are no specific findings.
REPRESENTATIVE GARA said he is concerned with removing the
phrase, "best interests of the state" from proposed AS
43.82.200(7)(B) because he feels that the ASGF Contract should
be in the best interests of the state rather than merely in the
long-term fiscal interests of the state. He surmised that the
phrase, "best interests of the state" is currently in AS
43.82.200(7)(B) because that provision pertains to the contract
that gets negotiated. He suggested that they simply change AS
43.82.200(7)(B) to read, "in the best long-term fiscal interests
of the state".
1:27:53 PM
MR. DONOHUE replied:
We've looked into the definition, the case law,
relating to "best interests" and it basically ties
back to the Article VIII provisions [of] the [Alaska
State Constitution] requiring that resources be
developed to the maximum benefit of the people. And
the way we analyze it is, that's a supervening
requirement; that is, this contract will have to meet
that test. In addition, that particular test, in ...
terms of the case law, is - even though there are
cases discussing "best interest" - ... a fairly
amorphous standard; it's obviously intended to be
flexible, and it doesn't necessarily add light to the
determination. Whereas [for] "long-term fiscal
interests" ..., there are various factors that are set
forth in the [Alaska Stranded Gas Development Act], so
there's some parameters around that concept that we
can use to help defend the contract ... if it's
challenged on that basis.
REPRESENTATIVE GARA offered his belief that the phrase, "best
interests" has been litigated and used for decades but the
aforementioned provision of Article VIII of the Alaska State
Constitution has never been enforced. For example, the economic
limit factor (ELF) has been on the books for 15 years but [for
the last few years] hasn't resulted in the resources of the
state being developed and managed to provide for the maximum
benefit of the state. He opined that there should be
implementation of the phrase "best interests" at the statutory
level rather than at just the constitutional level.
MR. DONOHUE, in response to a comment, said he is not familiar
with any case law in which Article VIII of the Alaska State
Constitution was used to strike down a state tax, though it has
been used to impose controls on the commissioner of DNR in terms
of the requirements of making written findings prior to final
administrative action. For example, in Kachemak Bay, there was
a gas lease sale but there were no written findings, and the
court held that the commissioner had to make written findings.
He concluded:
The ultimate control here is the legislature; the
legislature will be making a judgment. It can apply
the "best interests" test, it can make its own
judgments about what's to the maximum benefit of the
people with respect to this contract. What we're
talking about now is, what findings does the
commissioner of [the DNR} have to make in order to
present this proposed contract to the legislature for
deliberation.
1:31:22 PM
REPRESENTATIVE GARA asked whether Section 4 could be interpreted
to mean that the commissioner could change the oil tax rates
that the legislature passes.
MR. DONOHUE indicated that Section 4 authorizes Payments in Lieu
of Taxes (PILT), a fundamental concept underlying the Alaska
Stranded Gas Act; for example, with respect to property taxes
and other taxes, the commissioner has the authority to come up
with different formulas, different rates, and different timing
of impact. The PILT that the commissioner comes up with may
vary from the precise methodologies contained in the statutes,
and one concern voiced in a prior committee was whether that
authority extends to the commissioner after a contract is
approved by the legislature, and in that context, the
administration's view is that "this contract" did not
contemplate any material amendments to the contract being made
solely by the commissioner's action. So to avoid that issue,
the authorization statute has been altered so as to provide that
the DOR, should it wish to change a particular PILT that's
approved by the legislature this year, will have to come back to
the legislature three years from now for authorization to change
that PILT.
1:34:28 PM
MR. DONOHUE explained that Section 5 authorizes terms relating
to arbitration and alternate dispute resolution that may provide
for a waiver of the state's immunity from suit, and pertains to
Article 26 of the ASGF Contract in which the state has agreed
that an arbitration award against the state would first be
entered as a judgment in the state of Alaska but then, if there
is no satisfaction, the judgment could be entered in another
jurisdiction. Also, if the superior court delays for more 365
days in confirming an award and entering a judgment, the
producers would be allowed to go to another jurisdiction and
enter the judgment and pursue the award.
MR. DONOHUE mentioned that under Article 22 of the ASGF
Contract, an arbitration award is "part of the waterfall - ...
part of the netting of obligations that run back and forth"
between the state and the producers. So a producer that wins an
arbitration has the right to an award, and it will be able to
offset that award against "its obligations running to the
state"; so while the possibility of actually entering the award
as a judgment and pursuing the judgment within the state is
slim, it is still possible. If a judgment is pursued in the
state courts, the only remedy a private litigant with an action
against the state has is to go to the [Alaska] legislature and
request payment, because the state is exempt from attachment and
execution, and should the legislature deny an appropriation to
pay that award - though such has never happened yet - the
producer would be able to enter that award and pursue it in
another state.
MR. DONOHUE said that "this" is all part of the "equal footing"
concept discussed by the administration when the ASGF Contract
was first released, and that the waiver of sovereign immunity is
related to the provision in the ASGF Contract that allows
pursuit of the State of Alaska in other jurisdictions. This
waiver has two functions, one of them being to make it clear
that the state has consented to arbitration using the federal
arbitration Act as a guide. With respect to the pursuit of a
judgment outside the state, there is the issue of what sort of
immunity applies in that instance, and the primary immunity will
be the doctrine of comity between the states; therefore, the
state won't have sovereign immunity in another state's
jurisdiction, but it will have the protection granted by the
doctrine of comity.
MR. DONOHUE noted that it is very common for states to refuse to
pursue another state within their jurisdiction unless that state
has waived sovereign immunity "and consented to jurisdiction."
Section 5 will allow implementation of the provision in
Article 26 of the ASGF Contract and the arbitration procedures
outlined in Exhibit C. The type of concurrence that's
anticipated by the attorney general is his execution of the
final fiscal contract; that [action] would constitute his
concurrence, this statute would authorize the waiver, and the
waivers are present in the ASGF Contract in Article 26.
1:40:14 PM
MR. DONOHUE noted two differences between Version F and CSHB
2004(RES) in the language of Section 5, and said that the
language in Version F is intended to clarify and "line up" the
contractual language with the statutory language. In response
to questions, he offered his understanding that Article 26 of
ASGF Contract stipulates that the producer would have to get a
judgment entered in the state of Alaska, would have to go to the
legislature and seek compensation, and, if there was no
appropriation, then that judgment, itself, could be entered in
[another] state and would be enforced in that other state.
REPRESENTATIVE GRUENBERG suggested using a different term [than
"sought" as used on page 4, line 6 of Version F] that more
accurately denotes and connotes that concept. He asked whether
the phrase, "immunity from suit" is meant to mean both sovereign
immunity and comity immunity; if so, then perhaps such should be
specified as well, he added.
MR. DONOHUE offered his understanding that the phrase, "other
immunity" already covers "comity-type arguments"; the state
would be precluded by the ASGF Contract from raising those types
of arguments in another state's jurisdiction. The other state,
in looking at that provision, would be more likely than not to
allow pursuit of the State of Alaska in its jurisdiction.
REPRESENTATIVE GRUENBERG said he does not necessarily agree with
either that [supposition] or with the policy, though if that is
the intent he wants to ensure that the bill truly says what is
meant. He suggested that the bill should state specifically
that "other immunity" means comity immunity. He noted that
under Section 5, the state would be waiving its right to require
that a dispute be handled via a lawsuit in a court of law rather
than in an alternative dispute resolution format.
MR. DONOHUE, in response to a question, offered his belief that
it is quite common for states to enter into mandatory
arbitration proceedings, which are usually statutory procedures
with the waivers imbedded.
REPRESENTATIVE GRUENBERG sought assurance that there is no
intent to waive sovereign immunity to a foreign jurisdiction.
MR. DONOHUE said that to the extent [that engaging in the gas
pipeline project via the Alaska Natural Gas Pipeline Corporation
("ANGPC") results in the] State of Alaska doing business through
subsidiaries and public corporations in Canada, the State of
Alaska would be subjecting itself to the laws of Canada, and
thus he doubts very much that a state law waiving immunity would
have much impact on a Canadian court.
1:49:54 PM
REPRESENTATIVE GRUENBERG sought assurance that the language in
Section 5 won't waive the state's immunity in a foreign court.
MR. DONOHUE indicated that it wouldn't.
REPRESENTATIVE GRUENBERG asked whether the ANGPC would be
cloaked in the state's sovereign immunity.
MR. DONOHUE offered his belief that the ANGPC would be subject
to suit - just like a private party - though there would be a
test regarding the nature of the proprietary activity that that
public corporation was engaged in.
REPRESENTATIVE GRUENBERG requested that Legislative Legal and
Research Services be asked to provide the committee with
information on this issue.
MR. DONOHUE, in response to another question, surmised that a
subsidiary of the ANGPC - if it's incorporated as a for-profit
corporation - is unlikely to be viewed as having sovereign
immunity in either the U.S. or Canada.
REPRESENTATIVE GRUENBERG asked how any other state would get
jurisdiction over the State of Alaska.
MR. DONOHUE said the intent is to allow a judgment to be entered
in any other state where the State of Alaska has assets that can
be pursued. In response to further questions, he again stated
that Article 26 of the ASGF Contract provides that the state of
Alaska shall waive sovereign immunity, and that Section 5 merely
provides statutory authority for that article of the contract;
furthermore, the waiver is for the term of the contract.
REPRESENTATIVE GRUENBERG asked whether there is precedent for a
state to waive sovereign immunity in foreign jurisdictions for
the life of a contract.
MR. DONOHUE said the administration has not found precedent for
that, though there is precedent in terms of the State of Alaska
becoming involved in arbitrations outside of the state. If the
State of Alaska is acting in a proprietary capacity outside the
state - for example, the Alaska Marine Highway System in British
Columbia or Washington - there is, in effect, a waiver of comity
jurisdiction; for example the State of Washington would likely
pursue the State of Alaska for any negligence, taxes, or "what
have you" that were required by the laws of Washington.
1:57:42 PM
THOMAS A. LAKOSH said he strenuously objects to the passage of
HB 2004 because it conflicts with so many of the state's
constitutional provisions, statutory provisions, and
administrative procedures as presently established, adding that
in his recent discussions with the commissioners of the DOR and
the DNR, he's had an opportunity to take a broader view and hash
out some broader perspectives that the committee might find
useful in its deliberations, though he would prefer to have more
time to address the issues of separation of powers, due process,
the Administrative Procedure Act (APA), and fair and equitable
treatment in administrative and executive investigations. He
suggested that it might be valuable for the committee to
consider other avenues for development of Alaska's stranded
natural gas, though even the issue of whether it is stranded is
debatable.
CHAIR McGUIRE encouraged Mr. Lakosh to submit any of his written
information to the committee as well.
MR. LAKOSH said that the perspective he tried to offer the
commissioners of the DNR and the DOR on the ASGF Contract was
that the state is effectively being forced into becoming an oil
company that owns a pipeline and that must market a large
quantity of natural gas but must do so without any of the
benefits held by a producer in control of facilities or
production of gas, while the producers are, in effect,
negotiating with nine trillion cubic feet (Tcf) of gas, which
they have effectively had an expired lease on, that being Point
Thomson. There is a clear question regarding whether it was
legitimate for the commissioner of DNR to grant an extension on
that [lease]; therefore, he said, he is asking that if the state
is forced into a position of developing the state's natural gas
by effectively becoming an oil company in conflict with other
interests of the state's citizens with respect to pipeline
tariffs, constitutional tax provisions, separation of powers, et
cetera, then the state should clearly jump wholeheartedly into
that prospect by causing the Point Thompson leases to be
terminated, under provisions that the commissioner has already
developed, for failure to develop Point Thomson, and then
negotiate with the U.S. Department of Energy regarding building
the pipeline in partnership with the federal government.
MR. LAKOSH noted that TransCanada already has a set proposal for
development of the line through Canada, and expressed assurance
that the state could come up with "some other arrangement" to
develop the line and necessary facilities with the U.S.
Department of Energy for those facilities that might be in
Alaska and in the Lower 48, and thereby have the ability to not
only take all royalty and taxes in-kind but have an additional
100 percent of the nine Tcf of Point Thomson at the state's
disposal for marketing. It is clearly illegitimate, he opined,
for the citizens of Alaska to go into a debt of a minimum of $4
billion and as much as $56 billion with cost overruns and the
execution of withdrawal by the producers from the contract.
Instead, the state should clearly consider - if it is going to
go the route of becoming an oil company with ownership of
pipeline and facilities - simply developing Point Thomson itself
and then negotiating with the federal government regarding
construction of the gas pipeline from Alaska to the Lower 48.
MR. LAKOSH thanked the committee for the opportunity to speak,
and suggested that everyone should take a few steps back and
look at the larger picture of what the state is being forced to
do with regard to relinquishing its rights as a democracy and a
sovereign state. "We don't have to surrender those rights,
given the fact that we are really the owners of the resources
and we have the federal government, in its own stranded gas Act,
suggesting that they will develop the pipeline in any event," he
concluded.
2:03:41 PM
MR. LAKOSH, in response to a question, said he is a concerned
citizen who has been involved in oil spill prevention and
response issues ever since the Exxon Valdez oil spill, adding
that as a pro per litigant in that issue he has become familiar
with administrative law and due process issues as well as with
dealing with the Department of Environmental Conservation (DEC)
and ensuring that [the state] is obtaining the protections of
law that were intended in the various pieces of legislation that
were designed to prevent and mitigate Exxon-Valdez-type oil
spills. He reiterated that he is very concerned that whatever
protections the state has via a separation of powers and
administrative procedures will be going out the window with
passage of HB 2004. He noted that the commissioners of the DNR
and the DOR seemed somewhat interested in his suggestions,
though he'd not been able to fully develop his suggestions
because of time constraints.
REPRESENTATIVE GARA again referred to proposed AS
43.82.200(7)(B), which would replace "best interests of the
state" with "long-term fiscal interests of the state", and asked
whether the administration would be willing to say on the record
that the proposed new standard is meant to require at least the
same level of protection for the state.
MR. DONOHUE said that although the phrase, "best interests" is
arguably broader than the phrase, "long-term fiscal interests",
the "best interests" test is amorphous and doesn't provide solid
guidance, whereas in the context of the Alaska Stranded Gas
Development Act, the state does have some principles regarding
what the phrase, "long-term fiscal interests" means because they
are set out in statute; so from a litigation perspective, it
would be better to have one consistent standard throughout.
There is no intention to find something that isn't in the best
interests of the state by using the standard of, "long-term
fiscal interests".
2:07:31 PM
REPRESENTATIVE GARA asked Mr. Donohue to state on the record
that "long-term fiscal interests" should be interpreted to also
mean, "to maximize the revenue to the state."
MR. DONOHUE replied:
I can state on the record that this contract would be
judged by the standards of Article VIII of the [Alaska
State Constitution], and that ... there may be
challenges on that basis once the contract is
authorized and challenges arise. And the Alaska
Supreme Court will determine whether this contract
satisfies that standard.
REPRESENTATIVE GARA asked Mr. Donohue whether it is his position
that the phrase, "long-term fiscal interests" should be
interpreted to provide as much revenue to the state as the
phrase, "best interests" would require.
MR. DONOHUE replied:
I think "long-term fiscal interests" can include a
number of different considerations. And ... I think,
in the end, you want at least the same amount of
revenue, maybe more, by getting involved in this
particular project. But you also want to incentivize
the project, because the state will be better off with
the project than without, under the analysis of
administration consultants and officials.
2:09:10 PM
REPRESENTATIVE GARA said he needs an answer to his question
before he agrees to delete what he considers to be a very
important standard.
MR. DONOHUE replied:
There are a number of factors that go into the
determination as to whether the long-term fiscal
interests have been satisfied, and those are laid out
in [AS 43.82.210(b)] and there are eight factors. ...
[That statute] basically contemplates a balancing of a
number of different considerations, so in some sense
it's more defined than some broad constitutional
standard, and ... from the litigation standpoint, to
the extent that we're trying to defend ourselves
within this particular set of findings - which have
existed since 1998 - we want to be able to make sure
that the lawsuit is confined to satisfying ... the
balancing of these principles in [AS 43.82.210(b)].
REPRESENTATIVE GARA argued, though, that AS 43.82.210(b) doesn't
say that "these" are the factors in determining whether
something's in the long-term fiscal interests of the state;
instead, it says that if it's consistent with the long-term
fiscal interests of the state, the state can also develop terms
that are consistent with "the following". But that is a
circular argument and assumes that the phrase, "long-term fiscal
interests" are defined elsewhere. He asked whether "long-term
fiscal interests" is defined somewhere else, and whether "best
interests" is defined in statute apart from the aforementioned
court ruling.
MR. DONOHUE said that the definition of, "long-term fiscal
interests" is not otherwise defined in the Alaska Stranded Gas
Development Act, and that he is not familiar with any statutory
definitions of, "best interests".
[HB 2004, Version F, as amended, was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 2:11 p.m.
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