Legislature(1999 - 2000)

01/26/2000 02:12 PM House RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                          JOINT MEETING                                                                                         
               HOUSE RESOURCES STANDING COMMITTEE                                                                               
               SENATE RESOURCES STANDING COMMITTEE                                                                              
                        January 26, 2000                                                                                        
                            2:12 p.m.                                                                                           
                                                                                                                                
                                                                                                                                
HOUSE RESOURCES MEMBERS PRESENT                                                                                                 
                                                                                                                                
Representative Bill Hudson, Co-Chair                                                                                            
Representative Beverly Masek, Co-Chair                                                                                          
Representative John Cowdery, Vice Chair                                                                                         
Representative John Harris                                                                                                      
Representative Jim Whitaker                                                                                                     
Representative Reggie Joule                                                                                                     
                                                                                                                                
HOUSE RESOURCES MEMBERS ABSENT                                                                                                  
                                                                                                                                
Representative Ramona Barnes                                                                                                    
Representative Carl Morgan                                                                                                      
Representative Mary Kapsner                                                                                                     
                                                                                                                                
SENATE RESOURCES MEMBERS PRESENT                                                                                                
                                                                                                                                
Senator Rick Halford, Chairman                                                                                                  
Senator Robin Taylor, Vice Chairman                                                                                             
Senator Pete Kelly                                                                                                              
Senator Lyda Green                                                                                                              
Senator Georgianna Lincoln                                                                                                      
Senator Jerry Mackie                                                                                                            
                                                                                                                                
SENATE RESOURCES MEMBERS ABSENT                                                                                                 
                                                                                                                                
Senator Sean Parnell                                                                                                            
                                                                                                                                
OTHER HOUSE MEMBERS PRESENT                                                                                                     
                                                                                                                                
Representative Fred Dyson                                                                                                       
Representative Scott Ogan                                                                                                       
Representative Bill Williams                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
BRIEFING:  FINAL JUDGMENT ON KATIE JOHN CASE                                                                                  
                                                                                                                                
PRESENTATION BY ALASKA GASLINE PORT AUTHORITY                                                                                   
                                                                                                                                
PREVIOUS ACTION                                                                                                                 
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                                
                                                                                                                                
JOANNE GRACE, Assistant Attorney General                                                                                        
Natural Resources Section                                                                                                       
Civil Division-Anchorage                                                                                                        
Department of Law                                                                                                               
1031 West Fourth Avenue, Suite 200                                                                                              
Anchorage, Alaska  99501                                                                                                        
POSITION STATEMENT:  Reported on  and answered questions regarding                                                              
the Katie John case.                                                                                                          
                                                                                                                                
KATHRYN SWIDERSKI, Assistant Attorney General                                                                                   
Natural Resources Section                                                                                                       
Civil Division-Anchorage                                                                                                        
Department of Law                                                                                                               
1031 West Fourth Avenue, Suite 200                                                                                              
Anchorage, Alaska  99501                                                                                                        
POSITION STATEMENT:  Reported on  and answered questions regarding                                                              
the Katie John case.                                                                                                          
                                                                                                                                
HANK HOVE, Chairman                                                                                                             
Alaska Gasline Port Authority                                                                                                   
(address not provided)                                                                                                        
POSITION  STATEMENT:   Presented  information  on  the Alaska  LNG                                                              
(liquid natural gas) Project.                                                                                                   
                                                                                                                                
BRENT SHERFEY, Project Manager                                                                                                  
Petroleum and Chemical North America                                                                                            
Bechtel Corporation                                                                                                             
(address not provided)                                                                                                        
POSITION STATEMENT:  Spoke on behalf of the Bechtel Corporation.                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                                
                                                                                                                                
TAPE 00-3, SIDE A [HOUSE RESOURCES TAPE]                                                                                        
Number 0001                                                                                                                     
                                                                                                                                
CHAIRMAN  HALFORD of  the Senate  Resources  Committee called  the                                                              
joint  meeting of  the House  and Senate  Resources Committees  to                                                              
order at 2:12 p.m.   Members of the two committees  present at the                                                              
call  to order  were  Representatives  Hudson, Masek,  Harris  and                                                              
Joule, and  Senators Halford,  Taylor, Kelly,  Green and  Lincoln.                                                              
Representatives  Whitaker and Cowdery  and Senator Mackie  arrived                                                              
as the meeting was in progress.                                                                                                 
                                                                                                                                
BRIEFING:  FINAL JUDGMENT ON KATIE JOHN CASE                                                                                  
                                                                                                                                
JOANNE  GRACE,  Assistant  Attorney   General,  Natural  Resources                                                              
Section,  Civil   Division-Anchorage,  Department  of   Law,  came                                                              
forward to present a report on the  status of the Katie John case.                                                            
She  informed listeners  that  the  state had  filed  a notice  of                                                              
appeal  that morning  in  the Katie  John  case,  to appeal  final                                                            
judgment  of the district  court  that was entered  on January  7,                                                              
2000.  The state has appealed the  Katie John case before, and the                                                            
Ninth Circuit  Court of Appeals has  issued a decision  adverse to                                                              
the state.  The  purpose of taking appeal from  the final judgment                                                              
at this point is  to try again to convince the  U.S. Supreme Court                                                              
to review  the Ninth Circuit  decision finding that  the authority                                                              
of the  Federal Subsistence Board  extends to navigable  waters in                                                              
Alaska in which  the United States has the federal  reserved water                                                              
rights.                                                                                                                         
                                                                                                                                
MS. GRACE  explained that the reason  there is a chance  to appeal                                                              
at this  point, five  years after the  Ninth Circuit  decision, is                                                              
that  the original  Ninth Circuit  decision  was an  interlocutory                                                              
appeal.  That means  it was an appeal of an order  by the district                                                              
court that  was not  a final disposition  of the  case; it  was an                                                              
intermediate appeal  of a  controlling point of  law but not  of a                                                              
final judgment.   Normally, a  party in a  case must wait  until a                                                              
federal district  court is completely  finished with the  case and                                                              
has  entered  final  judgment  before  having  an  opportunity  to                                                              
appeal.  In some  rare cases where there is an  important point of                                                              
law that  the district  court has  decided, however,  a party  can                                                              
petition the  district court and  then petition the  Ninth Circuit                                                              
to consider the issue immediately.   That is what the state did in                                                              
this case.                                                                                                                      
                                                                                                                                
MS.  GRACE reported  that  in the  Katie  John  case, the  federal                                                            
district court  in 1994 ruled that  the public lands to  which the                                                              
subsistence  priority applied  extend to  all navigable waters  in                                                              
Alaska by virtue of navigational  services.  At the same time, the                                                              
district court ruling  did not depend on a second  argument by the                                                              
plaintiff in that  case that the extent of public  lands should be                                                              
determined  by  the  existence  of   a  reserved  water  right  in                                                              
navigable  waters.    At  that  point,   the  state  asked  for  a                                                              
interlocutory appeal to the Ninth  Circuit, and the plaintiffs did                                                              
as well.   So  the Ninth  Circuit then  decided that public  lands                                                              
consisted  of navigable  waters  in which  the  United States  has                                                              
reserved water  rights.  At that  point, the state  petitioned the                                                              
U.S. Supreme Court to review that decision.                                                                                     
                                                                                                                                
MS. GRACE  explained that  one of the  major points in  opposition                                                              
that the  United States  made at that  point was that  the Supreme                                                              
Court should not  consider this issue on an  interlocutory appeal;                                                              
rather, the  Supreme Court  should wait  until the district  court                                                              
had  completely  decided the  case  and  issued a  final  judgment                                                              
because  considering it  would be  premature at  that point.   The                                                              
United States told the Supreme Court  that they should wait to see                                                              
what the federal regulations looked  like, and they should wait to                                                              
see  if the  state  amended its  constitution  before [the  court]                                                              
decides the issue.                                                                                                              
                                                                                                                                
MS. GRACE noted  that the case went back to the  district court in                                                              
1995.  The federal  agencies began the process  of identifying the                                                              
waters in  Alaska where the right  exists, and the  district court                                                              
case was stayed  until those regulations became  final in October.                                                              
Now these regulations  have become final.  The  district court has                                                              
issued a  final judgment, which the  state has the  opportunity to                                                              
appeal.   They do have  to go through  the Ninth Circuit  again to                                                              
try to  get the  Supreme Court  to review  the case.   They  don't                                                              
expect  the  Ninth   Circuit  to  reconsider  its   decision,  but                                                              
jurisdictionally  they have  to appeal  to the  Ninth Circuit  and                                                              
then, from  that decision, petition  the Supreme Court and  try to                                                              
convince them to take up the issue.                                                                                             
                                                                                                                                
Number 0108                                                                                                                     
                                                                                                                                
CHAIRMAN HALFORD noted that this  question strictly deals with the                                                              
water side, so  it does not challenge the subsistence  federal law                                                              
on federal lands.                                                                                                               
                                                                                                                                
MS. GRACE  agreed.   She said the  only issue  on appeal  would be                                                              
whether  the  public  land  to which  the  right  applies  in  the                                                              
corresponding  authority  of  the  Federal  Subsistence  Board  to                                                              
regulate  includes navigable  waters  in which  the United  States                                                              
holds a reserved  water right.  That  would be the one  issue that                                                              
the state would be appealing.  It  is possible that the plaintiffs                                                              
would  cross-appeal  and argue  that  public  lands by  virtue  of                                                              
navigational servitude  - an alternative theory  that the district                                                              
court  originally  accepted  - would  include  all  the  navigable                                                              
waters in Alaska.  That may happen.                                                                                             
                                                                                                                                
Number 0127                                                                                                                     
                                                                                                                                
SENATOR TAYLOR  asked if the  federal agencies have  withdrawn the                                                              
regulations  that were  imposed in  January regarding  subsistence                                                              
fishing in marine waters.                                                                                                       
                                                                                                                                
KATHRYN SWIDERSKI,  Assistant Attorney General,  Natural Resources                                                              
Section,  Civil Division-Anchorage,  Department  of Law,  answered                                                              
that  the  federal   agencies  have  not  withdrawn   any  of  the                                                              
regulations that were published last  January and became effective                                                              
October 1, 1999.   Those regulations specifically  exclude federal                                                              
subsistence jurisdiction  in the marine waters of  the Tongass and                                                              
Chugach National Forests.  There  are some smaller areas of marine                                                              
waters  that appear  to fall  within their  assertions of  federal                                                              
jurisdiction, and those have not been revised.                                                                                  
                                                                                                                                
SENATOR TAYLOR  noted there are  several definitions here,  and it                                                              
is tough  to keep track  of them.  He  said they did  specify that                                                              
these regulations would  not be in effect in marine  waters of the                                                              
Tongass  and the  Chugach.   What  about the  rest  of the  marine                                                              
waters? he asked.  Those are two  withdrawals which they made that                                                              
might have  some implied claim of  a reserved water right.   There                                                              
is no withdrawal on the rest of Alaska's coast.                                                                                 
                                                                                                                                
MS. SWIDERSKI said that is correct.   The regulations apply to all                                                              
waters,  navigable   and  non-navigable,  that  fall   within  the                                                              
boundaries of identified  federal units.  In the  regulation there                                                              
is a listing  of 33 federal units  and then a list of  about seven                                                              
wild  and scenic  river components,  so roughly  40 federal  areas                                                              
would  also  include  inland  waters  that  are  adjacent  to  the                                                              
boundaries of those  units.  Marine waters would  only be included                                                              
to the  extent they fall within  the declared boundaries  of those                                                              
units.   Significant  marine waters  would fall  similarly in  the                                                              
Tongass  and  Chugach  boundaries,  but  those  were  specifically                                                              
excluded from the scope of the regulations.                                                                                     
                                                                                                                                
SENATOR TAYLOR  said he  wanted to be  clear that those  have been                                                              
specifically excluded,  and that the only ones  included are those                                                              
40 areas  mentioned  that were federal  units  or wild and  scenic                                                              
rivers.                                                                                                                         
                                                                                                                                
MS. SWIDERSKI affirmed that.                                                                                                    
                                                                                                                                
SENATOR  TAYLOR asked  how that  compares with  the Supreme  Court                                                              
decision in the "Volcanic (ph)" case.                                                                                           
                                                                                                                                
MS. GRACE  said the recent assertion  of authority over  waters in                                                              
which there  is a reserved  water right is  not based on  title to                                                              
the submerged land.  The definition  of public lands in Title VIII                                                              
-  to which  the subsistence  priority  and the  authority of  the                                                              
Federal Subsistence  Board applies  - is  public lands  are lands,                                                              
waters  and interest  therein, title  to  which is  in the  United                                                              
States.   The Ninth Circuit  decision in  this case says  that the                                                              
reserved  water rights  in particular  navigable  waters in  these                                                              
federal areas (indisc.--coughing)  an interest to which the United                                                              
States has title  in those waters, and that thereby  renders those                                                              
waters as public  lands.  It is unrelated to the  ownership of the                                                              
submerged lands.   The United States  isn't claiming any  title or                                                              
authority based on  title to a submerged land.  It  is based on an                                                              
interest that  they have  in a reserved  water right in  the water                                                              
that the Ninth Circuit has held -  therefore rendered public lands                                                              
under  this  particular  definition  in  ANILCA  [Alaska  National                                                              
Interest Lands Conservation Act].                                                                                               
                                                                                                                                
SENATOR TAYLOR asked  if there are any navigable  waters in Alaska                                                              
today where the federal government has title to those waters.                                                                   
                                                                                                                                
MS. GRACE explained that the United  States doesn't claim title to                                                              
the  water.    There  are  certainly  areas  it  claims  title  to                                                              
submerged  lands; those  are pre-statehood  withdrawal areas.   It                                                              
claims title to interest in the water,  being a right to in-stream                                                              
flows.                                                                                                                          
                                                                                                                                
SENATOR TAYLOR asked if this was  based on the navigable servitude                                                              
question or on the implied reservation  of waters on a withdrawal.                                                              
                                                                                                                                
MS. GRACE replied:                                                                                                              
                                                                                                                                
     The  current  Ninth Circuit  decision  is based  on  the                                                                   
     existence  of  [a]  reserved  water right,  not  on  the                                                                   
     navigational servitude.   The reserved water  right is a                                                                   
     doctrine  that  says  when the  United  States  reserves                                                                   
     federal lands  for a particular purpose, such  as a park                                                                   
     or  wildlife refuge,  by  implication  it also  reserves                                                                   
     water  necessary   to  fulfill   the  purposes   of  the                                                                   
     reservation.   For example,  if the United States  takes                                                                   
     federal  land and  creates a national  park or  wildlife                                                                   
     refuge  as of  the  date they  are  creating  it, it  is                                                                   
     implicitly  reserving  -- say,  if  one of  the  primary                                                                   
     purposes of  a park or  national wildlife refuge  was to                                                                   
     protect fish habitat, then by  implication it would also                                                                   
     be reserving  sufficient in-stream  flows in the  rivers                                                                   
     within  the park  or wildlife  refuge  to preserve  fish                                                                   
     habitat.                                                                                                                   
                                                                                                                                
SENATOR TAYLOR  asked whether they  are reserving this in  all the                                                              
post-statehood   withdrawals   as   well  as   the   pre-statehood                                                              
withdrawals.    Are  they  exerting  this  based  on  the  federal                                                              
reserved water rights that predate statehood, or on all?                                                                        
                                                                                                                                
MS. GRACE  answered that it  is all of them.   It is not  an issue                                                              
related to title to the submerged  land.  Whenever the reservation                                                              
occurs, the water  rights are created.  Generally,  in the context                                                              
of reserved  water rights,  it is  significant  when the right  is                                                              
created, because it  determines the right of the  United States to                                                              
that water in relation to other water  claims.  But in the context                                                              
of Title VIII  of ANILCA, it doesn't make any  difference when the                                                              
right occurs because  the mere existence of the  right creates the                                                              
water right that  creates the determination that  those rivers are                                                              
public land,  and that  thereby creates  the subsistence  priority                                                              
and the  authority of the Federal  Subsistence Board to  take over                                                              
state management of those fisheries.                                                                                            
                                                                                                                                
SENATOR TAYLOR  commented, "That's the double shuffle  of rhetoric                                                              
by which  they say they're  not taking back  what they gave  us at                                                              
statehood."  He  thanked Ms. Grace for that  clarification, adding                                                              
that he  was shocked to  hear they are  even making that  claim in                                                              
areas where  withdrawal occurred  after statehood.   He concluded,                                                              
"But I understand  the subtle distinction you are  trying to make.                                                              
You're indicating  what their position is; that's  not our state's                                                              
position, is it?"                                                                                                               
                                                                                                                                
MS. GRACE  said [the  state's] position  is that  Congress  had no                                                              
intent, in  creating that definition  of public lands,  to include                                                              
navigable waters because there was a reserved water right.                                                                      
                                                                                                                                
SENATOR  TAYLOR indicated  that  he is  aware  of litigation  that                                                              
occurred  in Colorado  where  attempts were  made  by the  federal                                                              
government  to  utilize  a reserved  water  right  designation  to                                                              
control in-stream flow  and other uses of waters  there.  Colorado                                                              
had the  same choice to roll  over and surrender  everything, like                                                              
Alaska is  being told, and to  let the federal  government control                                                              
the waters,  but they chose to  fight; each individual  stream was                                                              
litigated to  find out the purpose  of the withdrawal  and whether                                                              
water had anything  to do with it.  As a consequence,  the federal                                                              
government ended up  with about 6 rivers out of  600, and Colorado                                                              
won the rest of them.                                                                                                           
                                                                                                                                
Number 0261                                                                                                                     
                                                                                                                                
MS.  GRACE  explained  that  the doctrine  states  that  when  the                                                              
reservation  is created  the federal  government, by  implication,                                                              
reserves sufficient  water to fulfill  the primary purpose  of the                                                              
reservation.                                                                                                                    
                                                                                                                                
Number 0265                                                                                                                     
                                                                                                                                
SENATOR  TAYLOR   pointed  out  that   in  Colorado   the  federal                                                              
government would frequently come  in and list five or six purposes                                                              
for  which  they have  withdrawn  the  waters.   Under  the  court                                                              
decision, the federal government  was only allowed to maintain its                                                              
reservation  for  the  primary  purpose,   not  the  secondary  or                                                              
tertiary purpose.   He asked whether anything  indicates that when                                                              
the federal  government  created the Tongass  National Forest,  it                                                              
reserved the  water rights  and had a  specific purpose  for doing                                                              
so.                                                                                                                             
                                                                                                                                
MS. GRACE  indicated the  doctrine has  been applied generally  in                                                              
case law,  as of  the date the  reservation was  created.   She is                                                              
quite sure that when the Tongass  National Forest was created, the                                                              
primary purposes of the reservation  would not have been furthered                                                              
by  reserving water  rights.   However,  it is  possible that  the                                                              
federal  government will  argue  that it  can  change the  primary                                                              
purpose of  a reservation after it  is created, and at  that point                                                              
implicitly reserve  water rights.   She added that even  though in                                                              
1907 the  primary purpose of the  national forest did  not include                                                              
reserving water rights,  if the U.S. Congress  changed the primary                                                              
purpose of  the national  forest to require  water, at  that point                                                              
they would argue that the right is created.                                                                                     
                                                                                                                                
SENATOR TAYLOR  explained that in Colorado the  federal government                                                              
was not  allowed to  invent new reasons  for having reserved  land                                                              
and thus, by implication, water rights.   [The federal government]                                                              
was held  accountable for what it  reserved [the land] for  at the                                                              
time and what the primary purpose was at the time.                                                                              
                                                                                                                                
MS. GRACE agreed.   She said they  were not allowed to  create new                                                              
purposes after the fact.  She explained  that she was referring to                                                              
an Act of Congress that changed the  purposes of national forests,                                                              
for example, to include recreational use.                                                                                       
                                                                                                                                
SENATOR TAYLOR said that in 1907 it was multiple use.                                                                           
                                                                                                                                
MS. GRACE  said they may  have a stronger  basis for  arguing that                                                              
further  rights were created  when Congress  changed the  purposes                                                              
outside the context of litigation.   She referred to Title VIII of                                                              
ANILCA.  She said  it is not so much a question  of when the water                                                              
right was created; it is more a question  of the mere existence of                                                              
a water right.                                                                                                                  
                                                                                                                                
Number 0312                                                                                                                     
                                                                                                                                
SENATOR  TAYLOR  indicated  that   this  is  going  to  have  huge                                                              
implications  not only  in Alaska  Western state  where there  are                                                              
large blocks of  federal land and water flowing through  them.  He                                                              
wanted  to  know  if  [U.S.  Supreme  Court  Justice]  Sandra  Day                                                              
O'Connor  was  completely  out of  her  mind  when she  wrote  the                                                              
decision in  Dinkum Sands,  which was only  three years  ago, that                                                            
said Alaska  controls not  only the submerged  lands but  also the                                                              
water above them and the fish that swim therein.                                                                                
                                                                                                                                
MS. GRACE responded that the question  of reserved water rights in                                                              
Alaska has never been a big issue,  because there are not a lot of                                                              
competing interests claiming water  rights.  It was not a doctrine                                                              
that really  had any  application in Alaska  until the  Katie John                                                            
case.   She indicated that  it is [the  state's] hope  to convince                                                              
the  Supreme Court  to review  the Ninth  Circuit decision,  which                                                              
will  eliminate  the  problem  about  where,  exactly,  the  right                                                              
exists.   If the definition  of public lands  is not based  on the                                                              
existence  of federally  reserved  water rights,  in essence,  the                                                              
issue goes away.                                                                                                                
                                                                                                                                
Number 0338                                                                                                                     
                                                                                                                                
SENATOR TAYLOR  wondered if  procedurally they  are back  into the                                                              
Ninth Circuit on the appeal of the Katie John case.                                                                           
                                                                                                                                
MS.  GRACE  indicated that  they  have  to  go through  the  Ninth                                                              
Circuit,  because the  Supreme Court  cannot be  petitioned for  a                                                              
review.                                                                                                                         
                                                                                                                                
SENATOR TAYLOR  explained that the  Peratrovich case,  which deals                                                            
directly  with the  reserved water  rights claims  in the  Tongass                                                              
National Forest, has now been stayed  by the filing of the Glacier                                                              
Bay lawsuit.  He wondered why it  would not be a waste of judicial                                                              
time to  go through  the Ninth  Circuit again,  and to go  through                                                              
that briefing  just to petition again  on the very same  subset of                                                              
issues  that is encompassed in the Peratrovich case.                                                                          
                                                                                                                                
MS. GRACE indicated that the main  issue the plaintiffs seem to be                                                              
pushing in  the Peratrovich case is  the question of title  to the                                                            
submerged   land.    They   did  raise   other  claims   based  on                                                              
navigational  servitude and  possibly water  rights, but  they are                                                              
not pursuing  those at this time  because of the Katie  John case.                                                            
They are pursuing the claim that  the federal government has title                                                              
to the  submerged land  underlying the  waters within the  Tongass                                                              
National Forest and,  therefore, those are all  public lands under                                                              
ANILCA.  The Supreme Court's review  of the Ninth Circuit petition                                                              
of the  Katie John case  might have some  impact on claims  in the                                                            
Peratrovich case, but those aren't  claims that the plaintiffs are                                                            
really pursuing at this time.                                                                                                   
                                                                                                                                
Number 0364                                                                                                                     
                                                                                                                                
CO-CHAIR HUDSON wondered when they would be filing.                                                                             
                                                                                                                                
MS. GRACE indicated  that they filed that morning,  and there is a                                                              
copy of the notice of appeal.                                                                                                   
                                                                                                                                
CO-CHAIR  HUDSON wondered  when the next  substantive action  will                                                              
take place.                                                                                                                     
                                                                                                                                
MS. GRACE  stated that  she expected  a briefing  to be  scheduled                                                              
with the  Ninth Circuit within six  to eight weeks.   The briefing                                                              
will take  three months,  but the  real issue  is how quickly  the                                                              
Ninth  Circuit will  decide  on the  case;  some  cases have  been                                                              
pending before  the Ninth  Circuit for years.   She believes  that                                                              
the case  will go  quickly;  she expects  it to take  less than  a                                                              
year.   At  that point,  the party  has  90 days  to petition  the                                                              
Supreme  Court,  and  the  United  States has  about  30  days  to                                                              
respond.   How quickly the Supreme  Court would decide  whether to                                                              
take the  case depends  on whether the  Ninth Circuit  petition is                                                              
filed during  the Supreme Court  session, which goes  from October                                                              
to June.   She concluded  that it would take  one to two  years to                                                              
find out whether or not the Supreme Court would take the case.                                                                  
                                                                                                                                
CO-CHAIR HUDSON wondered what the  relationship is between the two                                                              
filings:  the Katie John case and the Glacier Bay case.                                                                       
                                                                                                                                
MS.  GRACE explained  that the  issue in  the Katie  John case  is                                                            
whether public lands under ANILCA  include waters that are subject                                                              
to a  federal reserved  water right.   At  this point, they  don't                                                              
believe that the federal agencies  are claiming to have a reserved                                                              
water  right in  marine waters,  because  it has  been uniquely  a                                                              
freshwater issue.   The Glacier Bay  case seeks to quiet  title of                                                              
the lands  underlying the marine  waters, so the Glacier  Bay case                                                              
should not  have any impact  on the Katie  John decision  and vice                                                            
versa.                                                                                                                          
                                                                                                                                
Number 0403                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DYSON  wondered  if  there  are  any  cases  where                                                              
reserved  water rights  have  been assumed  to  extend beyond  the                                                              
reserved  lands,  for  example, the  tributaries  of a river  that                                                              
flow through a federal area.                                                                                                    
                                                                                                                                
MS. SWIDERSKI responded  that she is not aware of  any cases where                                                              
they have extended the water rights  upstream or downstream from a                                                              
particular federal  area; however,  with the reserved  water right                                                              
would come  the right to  enjoin other users, presumably  upstream                                                              
users, who  are interfering  with the water  right as  [the water]                                                              
flows through the federal area.                                                                                                 
                                                                                                                                
Number 0417                                                                                                                     
                                                                                                                                
SENATOR LINCOLN wondered whether  or not the Katie John case would                                                            
be  an  issue,  currently,  if  the  subsistence  issue  had  been                                                              
resolved during the special session.                                                                                            
                                                                                                                                
MS.  GRACE  indicated that  if  there  had been  a  constitutional                                                              
amendment  during the  special session,  the subsistence  priority                                                              
would apply everywhere, and there  would not be a concern with the                                                              
federal government usurping state  authority to regulate navigable                                                              
waters; the state would have authority to regulate everywhere.                                                                  
                                                                                                                                
SENATOR LINCOLN  wondered what the  impact of the judgment  on the                                                              
Katie John case  will be on Alaska's resources,  specifically, the                                                            
fisheries.                                                                                                                      
                                                                                                                                
MS. GRACE said that it would have  no impact because as it stands,                                                              
the Federal Subsistence Board has  authority to regulate fisheries                                                              
in the waters that the agencies have identified.                                                                                
                                                                                                                                
SENATOR LINCOLN  asked what the  basis was for  the Administration                                                              
to decide to go forward with the appeal.                                                                                        
                                                                                                                                
Number 0436                                                                                                                     
                                                                                                                                
MS. GRACE explained that the Governor  [Knowles] believes that the                                                              
subsistence priority  should apply everywhere  in the state.   The                                                              
problem  with the  definition of  public  lands in  Title VIII  of                                                              
ANILCA is  that there are  two sides of that  coin:  on  one side,                                                              
public land defines where the subsistence  priority applies, which                                                              
is something  that the  Governor wants to  maximize; on  the other                                                              
side,  public   land  determines   the  area  where   the  federal                                                              
government  can usurp  the state  authority  to regulate  fishing.                                                              
Maximizing  the  public  lands,  as  it  pertains  to  the  right,                                                              
minimizes the area that the state has authority to regulate.                                                                    
                                                                                                                                
MS. GRACE  said it  is her understanding  that the  Administration                                                              
supports  the subsistence  right  everywhere  and  believes it  is                                                              
something  that  must be  accomplished  through  a  constitutional                                                              
amendment.   This appeal is really  about the fact that  the Katie                                                            
John decision took away the state's  authority to regulate its own                                                            
resources.   One of the main arguments  in the Katie John  case is                                                            
that  there  is  a court  doctrine  called  the  "clear  statement                                                              
doctrine,"  which  says  courts will  not  infer  a  congressional                                                              
intent to usurp  a traditional state police power  unless Congress                                                              
makes  that  intent manifestly  apparent.    The reason  for  that                                                              
doctrine is to ensure that federal  legislation is not interpreted                                                              
in such a  way as to alter  the delicate balance of  power between                                                              
the federal and  state governments unless Congress  has thoroughly                                                              
considered it and fully intended that to be the result.                                                                         
                                                                                                                                
MS.  GRACE pointed  out that  the argument  in this  case is  that                                                              
Congress did not  make clear in ANILCA an intent  to take away the                                                              
state's authority  to regulate navigable waters in  which there is                                                              
a federal reserved  water right.  She indicated  that although the                                                              
Governor  does   support  a   subsistence  right  everywhere   and                                                              
continues  to fight  for that,  he also  believes that  he has  to                                                              
defend  the state's  authority  to  regulate its  resources  where                                                              
Congress  really  didn't  make  clear  any intent  to  usurp  that                                                              
authority.                                                                                                                      
                                                                                                                                
Number 0468                                                                                                                     
                                                                                                                                
SENATOR LINCOLN wondered if they  anticipate requesting additional                                                              
funds to appeal the case.                                                                                                       
                                                                                                                                
MS. GRACE indicated  she is not authorized to talk  about it.  She                                                              
said it is a matter for the Department of Law.                                                                                  
                                                                                                                                
SENATOR  LINCOLN  wondered  how aggressively  they  are  going  to                                                              
proceed with the appeal process.                                                                                                
                                                                                                                                
MS. GRACE  said they  have discussed  hiring outside counsel  with                                                              
specialized knowledge  in Supreme Court  practice; it is  really a                                                              
specialized  area, and  although the  Department of  Law has  many                                                              
fine attorneys,  there have  not been  enough Supreme Court  cases                                                              
for the attorneys to develop that kind of expertise.                                                                            
                                                                                                                                
Number 0478                                                                                                                     
                                                                                                                                
SENATOR  KELLY asserted  that  the Governor  does  not believe  in                                                              
subsistence rights everywhere, as  Ms. Grace stated three times in                                                              
her testimony.  He does not believe  in subsistence for the people                                                              
in his district; he believes in subsistence apartheid.                                                                          
                                                                                                                                
SENATOR TAYLOR said  he was fascinated by Ms.  Grace's response to                                                              
Senator  Lincoln's question  about  the constitutional  amendment,                                                              
which  was   very  carefully  worded,   because  the   answer  was                                                              
absolutely correct but only gave half the story.  He stated:                                                                    
                                                                                                                                
     In  answer to her  question  - when she  said, "If  we'd                                                                   
     have   passed   a   constitutional    amendment,   would                                                                   
     subsistence  not now  be in  all our  waters?," and  you                                                                   
     said,  "Well, yes,  it would,"  and that  we would  then                                                                   
     regulate  them -  the other  half of the  shoe that  you                                                                   
     didn't  mention was  that  that regulation  is  required                                                                   
     under the  federal law, as we  know.  We've  all written                                                                   
     letters  to  the  Secretary  of the  Interior  how  many                                                                   
     different  times, on how  many different  modifications,                                                                   
     that federal  law has  to be  mirrored within our  state                                                                   
     laws, and that the ultimate  resolver of all disputes on                                                                   
     subsistence, after  we've adopted it, is going  to be in                                                                   
     federal court, not the state court.                                                                                        
                                                                                                                                
     A federal judge sitting someplace,  even in Anchorage or                                                                   
     San  Francisco or  the Ninth Circuit  Court of  Appeals,                                                                   
     will decide  whether or not  a commercial fishery  opens                                                                   
     or closes,  whether or not  sport fishing is  allowed or                                                                   
     closed,  all  personal  use permits,  according  to  the                                                                   
     regulations  you  and  I  were  talking  about  earlier,                                                                   
     personal use  permits that all  of Alaskans are  used to                                                                   
     and understand  if you come  from a community  too large                                                                   
     those will  not be allowed -  if, in fact, they  have to                                                                   
     close any fisheries to protect subsistence.                                                                                
                                                                                                                                
     It's a  nice half-answer, but  it fails to  mention what                                                                   
     the ramifications are of us  adopting a law, so I'd have                                                                   
     to question it  a little different way.   Had we adopted                                                                   
     the amendment  - whichever one  over the last  ten years                                                                   
     you want to  take, assuming one, I guess,  in compliance                                                                   
     with what the Secretary [of  the Interior] would accept,                                                                   
     because he is the ultimate arbitrator  of every decision                                                                   
     we  make  around  here,  whether  it's  good  or  bad  -                                                                   
     assuming we had done that, what  basis would you have at                                                                   
     this point in time to even be  appealing or stay, as you                                                                   
     have in the Peratrovich case?                                                                                            
                                                                                                                                
     ... All of  those legal arguments on the  reserved water                                                                   
     right  question that  you claim this  Governor wants  to                                                                   
     defend us  on, you'd have given  up all those  things by                                                                   
     adopting  or  conceding to  the  fact that  the  federal                                                                   
     government  does,  in fact,  have this  reserved  right,                                                                   
     which  I  think most  of  us  here  at the  table  would                                                                   
     dispute  that they have  such a right.   Can you  answer                                                                   
     that?                                                                                                                      
                                                                                                                                
Number 0508                                                                                                                     
                                                                                                                                
MS.  GRACE  replied  that  if they  had  passed  a  constitutional                                                              
amendment, then Alaska would have  management of the fisheries and                                                              
there  would be  a statewide  subsistence priority  for the  rural                                                              
residents of Alaska.  There would  be no need to litigate reserved                                                              
water rights or title to submerged  land in order to determine the                                                              
scope  of the  right,  because the  scope of  the  right would  be                                                              
statewide.                                                                                                                      
                                                                                                                                
SENATOR  TAYLOR responded,  "To finish your  sentence:   statewide                                                              
and   dictated  to   us   by  the   federal   government  on   its                                                              
interpretation of what  its federal law means when  applied in the                                                              
field."                                                                                                                         
                                                                                                                                
MS. GRACE  indicated it is correct  that the federal  courts would                                                              
be able to review state management statewide.                                                                                   
                                                                                                                                
SENATOR  TAYLOR pointed  out that  at  any time,  if [the  federal                                                              
government]  did  not  find  the  state  in  compliance  with  its                                                              
interpretation of the  federal law, it would assert  the very same                                                              
jurisdiction  it  claims to  assert  today, because  the  reserved                                                              
water rights question would have been forfeited.                                                                                
                                                                                                                                
MS. GRACE said the reserved water  rights question would just have                                                              
no relevance.   It would not  necessarily be forfeited in  a legal                                                              
sense.                                                                                                                          
                                                                                                                                
SENATOR TAYLOR stated that Alaska's  right to manage its fisheries                                                              
in the navigable waters, which has  been assumed throughout in the                                                              
Submerged Lands  Act and the Alaska  Statehood Act, would  go down                                                              
the drain,  because Alaska would  have embraced a  federal concept                                                              
that  the federal  government  has the  authority,  and the  state                                                              
would  not now  be contesting  it and  fighting to  keep it  under                                                              
state control.                                                                                                                  
                                                                                                                                
MS.  GRACE explained  that state  management would  be subject  to                                                              
judicial review  in isolated  cases, but she  doesn't think  it is                                                              
fair to say that the state would  be giving up its right to manage                                                              
its waterways;  the state would have  that right in a way  that it                                                              
doesn't have  it when  the Federal  Subsistence Board is  managing                                                              
subsistence.                                                                                                                    
                                                                                                                                
SENATOR TAYLOR  asked why the reserved  water rights issue  is not                                                              
being contested  in any of the  cases, and why  the Administration                                                              
dodging the issue.  He mentioned the issue in Glacier Bay.                                                                      
                                                                                                                                
Number 0538                                                                                                                     
                                                                                                                                
MS. GRACE responded  that the federal authority  that the National                                                              
Park  Service is  claiming to  have  on fisheries  in Glacier  Bay                                                              
National  Park [and  Preserve] is  not based on  a reserved  water                                                              
right; Title VIII does not apply  there.  The federal authority is                                                              
based on  the fact  that it  claims title  to the submerged  land,                                                              
that  the  submerged  land  is parkland  that  the  National  Park                                                              
Service has authority  over.  The state's claim is  that those are                                                              
not National Park  Service lands but state lands,  and that is why                                                              
the reserved water  rights issue has not been raised,  and that is                                                              
why it is being limited to a title issue.                                                                                       
                                                                                                                                
SENATOR TAYLOR said:                                                                                                            
                                                                                                                                
     So,  we could  win Glacier  Bay  on your  brief and  the                                                                   
     federal   government  would   still   regulate  on   the                                                                   
     fisheries,  because they would  say that no  subsistence                                                                   
     is allowed  there .... You're  arguing only  the limited                                                                   
     technical aspects of who owns the submerged land.                                                                          
                                                                                                                                
MS. GRACE  said the fact that  there is no Title  VIII subsistence                                                              
right  in Glacier  Bay  National Park  [and  Preserve] really  has                                                              
nothing to  do with the title  to the land.   It is not  really an                                                              
issue between the  state and federal governments;  it is something                                                              
that is in federal law.                                                                                                         
                                                                                                                                
SENATOR TAYLOR  indicated that if  it doesn't have anything  to do                                                              
with it, then  why is the federal government paying  some $300,000                                                              
to fishermen so that they won't catch crab there anymore?                                                                       
                                                                                                                                
MS. GRACE stated her understanding  that Senator Taylor was saying                                                              
that if they were to establish that  those are state waters rather                                                              
than park  service lands,  then the  exception  to Title VIII  for                                                              
Glacier Bay National Park [and Preserve]  would not apply to those                                                              
waters.                                                                                                                         
                                                                                                                                
SENATOR TAYLOR responded, "Right."                                                                                              
                                                                                                                                
MS. GRACE  stated, "There  would be a  subsistence right  in those                                                              
waters."                                                                                                                        
                                                                                                                                
SENATOR  TAYLOR  pointed out  that  they  haven't extended  it  to                                                              
marine waters  yet.   If the  state sells  a crab fishing  license                                                              
that  says that  the fishermen  are allowed  to fish  for crab  in                                                              
Southeast Alaska, then that fishing  license would still have some                                                              
validity  in those waters  if the  state fought  for its  right to                                                              
issue that license in those waters.                                                                                             
                                                                                                                                
MS. GRACE reiterated  that the National Park Service  is asserting                                                              
authority on  the basis that it  considers the submerged  land its                                                              
claim.                                                                                                                          
                                                                                                                                
Number 0571                                                                                                                     
                                                                                                                                
SENATOR TAYLOR said that he understands  their claim.  He wondered                                                              
why they are  not fighting on behalf of those  fishermen and users                                                              
of that  water.  He asked  why the state  has failed to  request a                                                              
stay pending the outcome in the Katie John case.                                                                              
                                                                                                                                
MS. GRACE replied  that it is probably not too late  to do it, but                                                              
it is  extremely unlikely  that they  would receive  such a  stay.                                                              
She indicated it is not something  they have really thought about,                                                              
but they will now think about it.                                                                                               
                                                                                                                                
CO-CHAIR MASEK  agreed with  Senator Taylor that  if there  were a                                                              
constitutional  amendment  .... [ends  midspeech  because of  tape                                                              
change].                                                                                                                        
                                                                                                                                
TAPE 00-3, SIDE B [HOUSE RESOURCES TAPE]                                                                                        
                                                                                                                                
CO-CHAIR  MASEK continued.   Referring  to ANILCA,  she said  that                                                              
unless there  are changes  that go  along with the  constitutional                                                              
amendment,  the state  will  not  get its  management  back.   She                                                              
asked:   If  the judgment  were overturned  by  the Ninth  Circuit                                                              
Court  of Appeals  or  the U.S.  Supreme  Court,  would the  state                                                              
retain its existing management authority in navigable waters?                                                                   
                                                                                                                                
MS.  GRACE explained  that the  Federal  Subsistence Board,  since                                                              
October  1,  1999,   has  taken  over  fisheries   management  for                                                              
subsistence   purposes in  navigable waters.   She indicated  that                                                              
the state would not maintain its  current status, but would regain                                                              
its former  status as  the regulator  of fisheries  in almost  all                                                              
waters  of  Alaska.   Before  the  Katie  John case,  the  Federal                                                            
Subsistence  Board had  authority  to regulate  fisheries in  non-                                                              
navigable  waters on public  land, which  is fairly  insignificant                                                              
compared to the authority it has now.                                                                                           
                                                                                                                                
Number 0577                                                                                                                     
                                                                                                                                
SENATOR  MACKIE indicated  he  understood some,  but  not all,  of                                                              
Senator Taylor's  line of  questioning.   He suggested  to Senator                                                              
Taylor  that  some of  the  questioning  was going  toward  policy                                                              
decisions, and some of the policy  decisions are not for Ms. Grace                                                              
and Ms. Swiderski to make.                                                                                                      
                                                                                                                                
SENATOR KELLY agreed with Senator  Mackie, but said he cannot help                                                              
but notice  the absence of the  Attorney General when it  comes to                                                              
discussing an incredibly important case.                                                                                        
                                                                                                                                
CO-CHAIR HUDSON  said he feels encouraged that  the Administration                                                              
is filing on the Glacier Bay case;  if they win that one, they win                                                              
something substantive.  He indicated  that if the state can make a                                                              
clear   understanding    of   what   the   federal    government's                                                              
responsibilities  and authorities are,  and what the  state's are,                                                              
then they will be miles ahead of where they are now.                                                                            
                                                                                                                                
Number 0542                                                                                                                     
                                                                                                                                
SENATOR TAYLOR  said he  appreciates Ms.  Grace and Ms.  Swiderski                                                              
coming before  the committee,  but he  is disappointed  that cases                                                              
which appear to relate to some of  the narrowest, most constrained                                                              
arguments and issues are not yet  being addressed.  He pointed out                                                              
that  the  overriding   questions  are:    What   is  the  federal                                                              
government's authority  in Alaskan waters?  And  what was conveyed                                                              
to the state at statehood?  The argument  that they are giving has                                                              
been constrained by  the Administration in the way  that they have                                                              
approached  it.   When  he hears  statements  like  "we could  win                                                              
Glacier Bay,"  and still  there is no  resolution of the  issue of                                                              
reserved water rights, that is frightening.                                                                                     
                                                                                                                                
SENATOR  TAYLOR  indicated it  is  possibly  to the  benefit,  for                                                              
political purposes,  for some individuals to keep  that issue from                                                              
being determined.    He believes  that when it  is determined  the                                                              
state wins.   He voiced  his frustration  that they are  not being                                                              
allowed  to defend  the state  as vigorously  as the  constitution                                                              
calls upon the Attorney General's  office to defend it; it is that                                                              
lack of defense  that has caused them to sit on  the issue for ten                                                              
years, he said.   He encouraged doing whatever they  can to ensure                                                              
that the state is  protected and that the matters  go forward.  He                                                              
wondered  if the Attorney  General's office  would appreciate  the                                                              
support of the legislature  in the form of an amicus  brief on the                                                              
Katie John case and Glacier Bay case.                                                                                         
                                                                                                                                
MS.  GRACE  responded that  it  is  a question  for  the  Attorney                                                              
General.    She  added  that the  decision  to  appeal  the  final                                                              
judgment on the Katie John case is  very much a decision to defend                                                            
the  state's authority  to  regulate  its resources  in  navigable                                                              
waters, which has been the position  of the Governor since he came                                                              
into office; the appeal is a demonstration of that.                                                                             
                                                                                                                                
Number 0474                                                                                                                     
                                                                                                                                
CO-CHAIR  MASEK wondered  if the case  challenges the  subsistence                                                              
priority on public lands.                                                                                                       
                                                                                                                                
MS.  GRACE explained  that  the  subsistence priority  applies  to                                                              
public lands, and that is the way  that the scope of the right was                                                              
determined:    a rural  resident  has a  right  to  a priority  in                                                              
hunting and  fishing on  public lands.   This case does  challenge                                                              
the  current   definition  of  public   lands,  not   because  the                                                              
Administration  would like to  challenge the subsistence  priority                                                              
in that area, but because the authority  of the federal government                                                              
to take over fisheries management also applies to public lands.                                                                 
                                                                                                                                
CO-CHAIR MASEK  wondered what would  happen on the Yukon  River if                                                              
the state  lost the appeal  on the Katie  John case and  the final                                                            
judgment went through.                                                                                                          
                                                                                                                                
MS. SWIDERSKI  replied that  if the state  did not prevail  on the                                                              
Katie John appeal,  then the status quo would remain  in place and                                                            
the federal agencies, which have  asserted authority over segments                                                              
of  the Yukon  River,  would continue  to  manage for  subsistence                                                              
purposes in those segments.                                                                                                     
                                                                                                                                
Number 0448                                                                                                                     
                                                                                                                                
CO-CHAIR  HUDSON  wondered if  the  court's determination  on  the                                                              
Katie  John  case  would  have  to  take  into  consideration  the                                                            
agreement between  Canada and the  United States,  specifically on                                                              
the river system.                                                                                                               
                                                                                                                                
MS. SWIDERSKI indicated  those obligations are overriding,  so the                                                              
United  States' commitment  to the  treaties would  stand and  the                                                              
federal agencies would regulate within  the context of meeting the                                                              
treaty obligation.                                                                                                              
                                                                                                                                
CHAIRMAN  HALFORD  said [the  committees]  would  look forward  to                                                              
seeing the initial briefs.  He called  an at-ease at 3:15 p.m. and                                                              
called the meeting back to order at 3:35 p.m.                                                                                   
                                                                                                                                
Number 0419                                                                                                                     
                                                                                                                                
HANK HOVE, Chairman,  Alaska Gasline Port Authority,  testified as                                                              
follows:                                                                                                                        
                                                                                                                                
     In  October  of  1999,  the   voters  of  the  Fairbanks                                                                   
     Northstar Borough  and the North  Slope Borough  and the                                                                   
     City of Valdez  formed a port authority for  the purpose                                                                   
     of  the construction  and operation  of a gas  pipeline,                                                                   
     which would finally, after over  20 years, commercialize                                                                   
     that vast natural resource which  we as residents of the                                                                   
     state of Alaska  possess on the North Slope.   We have a                                                                   
     nine-member  board of  directors ...  composed of  three                                                                   
     individuals  from  each community.    In the  Northslope                                                                   
     Borough,  we have Mayor  George Ahmaogak, Richard  Glenn                                                                   
     and Thomas Napageak; and from  the City of Valdez, Mayor                                                                   
     Dave Cobb will be joining us  here just momentarily when                                                                   
     he  completes  another  meeting, Dave  Dengel  and  John                                                                   
     Kelsey;  and  from Fairbanks,  myself,  former  Attorney                                                                   
     General Charlie Cole, and Barbara Schuhmann.                                                                               
                                                                                                                                
     We  have, we  think,  made considerable  progress  since                                                                   
     October,  and we  have now  formed  a development  team,                                                                   
     which  consists  fundamentally  of  the  port  authority                                                                   
     itself, and we have secured  ... an EPC (ph) role player                                                                   
     in  the  form  of Bechtel,  which  is  a  world-renowned                                                                   
     construction  and engineering  firm.   We  have with  us                                                                   
     Yukon Pacific  Corporation [YPC],  which has worked  for                                                                   
     18 years and has expended considerable  sums of money to                                                                   
     obtain  the permits  necessary to build  an LNG  [liquid                                                                   
     natural  gas] facility  and a  pipeline.   We have  also                                                                   
     secured  the  services  of Taylor  Dejongh  and  Merrill                                                                   
     Lynch, and also  general counsel from the  Lower 48 with                                                                   
     great expertise  in areas of the this  nature, O'Melveny                                                                   
     and Myers;  and our  general counsel  from the state  of                                                                   
     Alaska is Walker, Walker, Wendlandt and Osowski ... .                                                                      
                                                                                                                                
                                                                                                                                
     The  overview   of  the  project  is,  of   course,  the                                                                   
     treatment  and transport  of  natural  gas via  pipeline                                                                   
     from  Prudhoe   Bay  to  Valdez.    This   pipeline,  as                                                                   
     permitted by Yukon Pacific [Corporation],  fundamentally                                                                   
     parallels  the  existing  TAPS   [Trans-Alaska  Pipeline                                                                   
     System]  line,  and  at  Valdez  we  would  convert  the                                                                   
     natural  gas to liquid  natural gas and  ship it  to the                                                                   
     Far East  markets, which  all the  markets plan for  the                                                                   
     sale of  Alaska natural  gas.  At  Prudhoe Bay we  would                                                                   
     build  a  conditioning  plant;  that plant  is  for  the                                                                   
     purpose of  removing water and  carbon dioxide  from the                                                                   
     gas  as  it  comes  up  out   of  the  field,  and  then                                                                   
     transporting  it  to  tidewater  in a  pipeline  with  a                                                                   
     diameter  of  up to  48  inches,  and which  would  have                                                                   
     future  capacity  for transporting  up  to four  billion                                                                   
     cubic feet of gas per day, should the markets demand.                                                                      
                                                                                                                                
     At  Valdez we  would construct  the  liquid natural  gas                                                                   
     plant that  chills the gas to  a liquid and  prepares it                                                                   
     for shipment.   The chilling of the gas  essentially ...                                                                   
     reduces the volume  of the gas down to  one-sixteenth of                                                                   
     its former  level when  it was  a vapor or  a gas.   The                                                                   
     technical   environmental  challenges   to  building   a                                                                   
     pipeline  in Alaska  are considerable,  as we all  know.                                                                   
     As residents  of this state,  we know that it  braces us                                                                   
     with  challenges of  some of  the harshest  cold-weather                                                                   
     environments in the United States,  if not in the world,                                                                   
     and that the pipeline of the  sort that is proposed here                                                                   
     by the port authority would  be passing through areas of                                                                   
     continuous and discontinuous permafrost.                                                                                   
                                                                                                                                
     The pipeline would have pressures  of greater than 2,000                                                                   
     pounds per square inch, and  the gas would be chilled to                                                                   
     a temperature  lower  than 32 degrees  Fahrenheit.   And                                                                   
     the preservation  of the  sensitive habitat of  wildlife                                                                   
     and migratory  herds and birds  and streams  and rivers,                                                                   
     continued Native  fisheries, is extremely  important and                                                                   
     was  given   particular  attention  in   the  permitting                                                                   
     process as  YPC went through  that process in  obtaining                                                                   
     the permits.                                                                                                               
                                                                                                                                
     The  challenge  also before  us  is that  of  minimizing                                                                   
     impact  on the ongoing  operation of  the TAPS  pipeline                                                                   
     due to construction  and operation of the  new gas line.                                                                   
     [It]  would require  considerable  coordination  between                                                                   
     our contractor and Alyeska,  who is the present operator                                                                   
     of  TAPS,   and  we  also   need  to  arrange   for  the                                                                   
     minimization   of   impact   to  existing   Purdoe   Bay                                                                   
     operations  due to construction,  and later through  the                                                                   
     operation  of the  new gas conditioning  facility.   So,                                                                   
     those are  some of the challenges  that face us  in that                                                                   
     area.                                                                                                                      
                                                                                                                                
     In  implementation challenges  we find  that there  have                                                                   
     been a number of studies - and  I'm sure members of this                                                                   
     committee are very well aware  of all of them - over the                                                                   
     past 20 years  to define a project, to design  a project                                                                   
     and to market and fund a project.  ... Under the typical                                                                   
     private-enterprise  kind of approach to  this particular                                                                   
     problem, none  of them have demonstrated that  they have                                                                   
     associated with  any of the plans sufficient  margins to                                                                   
     be able  to attract financing,  [for] one thing,  or for                                                                   
     being able to deliver gas to  its market at a price that                                                                   
     would find a buyer.                                                                                                        
                                                                                                                                
     The  project  viability -  and  the schedule  driven  by                                                                   
     energy supply  and market conditions - is  a factor that                                                                   
     challenges  us.   Our  project viability  has  increased                                                                   
     because  of the  nature of  the  public-private kind  of                                                                   
     enterprise ...  which we are proposing.   Where we bring                                                                   
     certain advantages  in terms of financing,  and in terms                                                                   
     of tax  structure on net  revenues that markedly  change                                                                   
     the  economics  of  a  gas pipeline  -  where  it  might                                                                   
     formerly have  been at the margins,  or less or  lower -                                                                   
     this project ... operated through  a port authority kind                                                                   
     of scheme, in  fact, changes the economics  of an Alaska                                                                   
     gas pipeline in a very positive direction.                                                                                 
                                                                                                                                
     The   final   bullet   there    on   this   page   ["The                                                                   
     Implementation  Challenges"]  kind of  says  it all,  in                                                                   
     terms  of what  I've already  said, in terms  of in  the                                                                   
     past  the   minimal  financial  benefits  for   a  pure,                                                                   
     private-sector solution just  did not work out, in terms                                                                   
     of commercializing Alaska's  gas, and created a need for                                                                   
     this kind of innovative public-private solution.                                                                           
                                                                                                                                
     So,  why is  our  project different?    Well, there  are                                                                   
     substantial  fiscal  advantages  [in]  using  an  Alaska                                                                   
     gasline port  authority method.  There is  the matter of                                                                   
     not  having exposed  the net profits  to federal  income                                                                   
     tax,  which   is  the  most  dramatic  example   of  the                                                                   
     advantage offered  by a port authority kind  of approach                                                                   
     to this problem.   Also, to a lesser extent  in terms of                                                                   
     importance, is  the availability to some extent  to tax-                                                                   
     exempt  financing for  such a project,  which would  not                                                                   
     typically  be  available to  a  strictly  private-sector                                                                   
     kind  of approach.   Also,  as  Alaskans and  as a  port                                                                   
     authority  formed only for  one purpose, we,  therefore,                                                                   
     only  have  one   focus,  and  that  focus   is  on  the                                                                   
     commercialization  of Alaska's  gas.   ...  We have  one                                                                   
     project  that is driving  us, and we  only will  ever do                                                                   
     one project, and that is an Alaska gas pipeline.                                                                           
                                                                                                                                
     Regulatory  efficiency is also  an advantage because  of                                                                   
     our  association and  their association  with us of  the                                                                   
     Yukon Pacific  Corporation, which presently has  many of                                                                   
     the  permits  required  to not  only  construct  but  to                                                                   
     operate   this  pipeline   -   and  the   cost-effective                                                                   
     technology of the conversion  to LNG that we think is an                                                                   
     efficient  method of  conversion that  we planned.   And                                                                   
     the project  economies that we  think that we  can bring                                                                   
     to this  project further  enhance the possibilities  and                                                                   
     probabilities, in fact, we think  of achieving:  success                                                                   
     and the schedule and speed of development.                                                                                 
                                                                                                                                
     Most  other   proposals  that   have  to  do   with  the                                                                   
     commercialization of Alaska  gas and the construction of                                                                   
     the pipeline  say that  there is a  market out there  in                                                                   
     2010.   That, we think, is  also true, ... but  there is                                                                   
     also  a market  window open  in roughly  the year  2005.                                                                   
     So,  our proposal  envisions  bringing  Alaska's gas  to                                                                   
     market five  years sooner than  anyone else  claims that                                                                   
     it  is  possible to  do,  and  we think  only  we  could                                                                   
     actually  meet that  timetable.   Presently,  any  other                                                                   
     proposal  would need  to be  permitted  from the  start,                                                                   
     from the  first permit  to the last  permit.  That  is a                                                                   
     long and expensive  process; it would take  a great deal                                                                   
     of time and, if engaged in,  would cause you to miss the                                                                   
     2005 time frame,  which is the earliest that  Alaska gas                                                                   
     can find a  market.  We are the only ones  that can meet                                                                   
     that timetable.                                                                                                            
                                                                                                                                
     The benefits  to Alaskans  are many.   We will  finally,                                                                   
     for the first  time, be able to provide for  gas to many                                                                   
     of  Alaska's  communities  who presently  do  not  enjoy                                                                   
     access to this low-cost and  lower-polluting fuel.  Only                                                                   
     Anchorage,  the  Mat-Su  Borough   and  Kenai  Peninsula                                                                   
     presently in  the state of  Alaska enjoy access  to this                                                                   
     fuel.    If  this  pipeline   is  constructed,  Alaska's                                                                   
     second-largest   borough,  Fairbanks,  would   now  have                                                                   
     access  to  it; Valdez  would,  and all  other  corridor                                                                   
     communities up and down the  pipeline as well would have                                                                   
     access to this efficient and lower-cost fuel supply.                                                                       
                                                                                                                                
     And  we would  expect  that  these new  energy  supplies                                                                   
     would  also stimulate  business  development  throughout                                                                   
     the state,  which can also  have a very beneficial  side                                                                   
     effect on  our economy, at  a time when we're  wondering                                                                   
     what we're really  going to do about our  economy.  Also                                                                   
     it provides  for, when sized properly, a  potential spur                                                                   
     line to  the Cook Inlet to  provide for an  expanded gas                                                                   
     supply  for  consumers  there,   and  also  possibly  to                                                                   
     provide   for   fuel   for    gas-intensive   industrial                                                                   
     applications, and, finally,  and for us most importantly                                                                   
     - for  us as Alaskans -  the insurance of  long-term gas                                                                   
     availability.                                                                                                              
                                                                                                                                
     Also to  the benefit of  Alaskans, during the  course of                                                                   
     constructions  of the  pipeline  it is  the estimate  of                                                                   
     Bechtel  that over  10,000  construction  jobs would  be                                                                   
     created.   This would not  quite reach the  magnitude of                                                                   
     the construction  of TAPS,  but nonetheless there  would                                                                   
     be  a  very,  very  significant  boost  to  the  Alaskan                                                                   
     economy for the  period of the construction  of the line                                                                   
     and would have, also, direct  contribution to the Alaska                                                                   
     economy  of   $2 to  $3 billion  in  local purchases  of                                                                   
     goods  and services  in support of  the construction  of                                                                   
     the pipeline.                                                                                                              
                                                                                                                                
     After  construction would be  completed, permanent  jobs                                                                   
     in  the form  of 400  in-plant  and pipeline  operations                                                                   
     jobs would  be in  the economy of  Alaska over the  long                                                                   
     term, for the life of the project,  in fact, which would                                                                   
     be several  decades.  And,  of course, then  there's the                                                                   
     indirect  service  and  support  employment  that  would                                                                   
     result in the increased activity  surrounding operations                                                                   
     of the  pipeline.  This  would have a  $100-million-per-                                                                   
     year impact on  the Alaskan economy and would  improve -                                                                   
     by  the  way,   not  something  that  we   are  directly                                                                   
     responsible for,  but as a  member of the  United States                                                                   
     of America citizenry,  I think it's important  for us to                                                                   
     consider these  smaller matters as well -  would improve                                                                   
     a very  serious balance-of-payments  problem to  make up                                                                   
     for all the Toyotas and Nissans  and Hondas that we have                                                                   
     bought  over the  years and  no doubt  will continue  to                                                                   
     purchase.  And  selling natural gas back  to Japan would                                                                   
     be  an excellent  way to  at  least partially  eliminate                                                                   
     that as a  problem for the United States.   And it would                                                                   
     very  significantly  contribute  to the  state  revenue,                                                                   
     directly to the State of Alaska and to its citizens.                                                                       
                                                                                                                                
     Gas is  the cleanest-burning  fuel that is  commercially                                                                   
     available,  and we have  in Fairbanks -  as some  of you                                                                   
     may  know - a  very serious  air quality  problem.   And                                                                   
     there is an  air quality problem in Anchorage,  as well,                                                                   
     for that  matter, and they  presently consume gas.   But                                                                   
     we in  Fairbanks and in other  places in the  state will                                                                   
     benefit  greatly  in terms  of  the improvement  in  air                                                                   
     quality  as a  result  of burning  this  clean fuel,  as                                                                   
     opposed  to coal,  and as opposed  to oil  and to  wood.                                                                   
     And this  pipeline would  be an exemplary  environmental                                                                   
     project, adhering  to the new regulations  regarding air                                                                   
     quality, and it would make it  a model for future Alaska                                                                   
     projects.   And  it  would be  designed  for the  utmost                                                                   
     safety  both  during  the construction  phases  and  the                                                                   
     operational phases.                                                                                                        
                                                                                                                                
     And there  are even  benefits to  the gas producers  who                                                                   
     are   presently engaged in  the production of  crude oil                                                                   
     on  the  North  Slope.    First,  there  is  no  capital                                                                   
     required of  them to construct  this gas line,  and that                                                                   
     is a matter of some advantage  that they would then have                                                                   
     capital available to do other  projects of other sorts -                                                                   
     maybe not -  elsewhere in the world.  We'll  provide the                                                                   
     capital  for  the construction  of  this pipeline.    It                                                                   
     would also provide for significant  revenues as a result                                                                   
     of the purchase  of gas from the producers  on the North                                                                   
     Slope and over  the long term would increase  field life                                                                   
     and oil recovery rate on the North Slope.                                                                                  
                                                                                                                                
     What we are  doing presently, at this moment  and in the                                                                   
     near term, is that we are making  gas market initiatives                                                                   
     both including  direct contacts  with LNG off-takers  in                                                                   
     the Far East.   We plan a trip to the Far  East sometime                                                                   
     probably in  March, possibly  even in February,  for the                                                                   
     purpose  of  meeting  with  possible  buyers  in  China,                                                                   
     Taiwan, Korea and Japan.                                                                                                   
                                                                                                                                
     Also,  we will,  sometime in  the next  few months,  ...                                                                   
     receive the response to our  ruling request from the IRS                                                                   
     [Internal   Revenue   Service]   concerning   the   port                                                                   
     authority's exemption  from federal income tax.   We are                                                                   
     very  confident about  the  outcome of  this  particular                                                                   
     ruling, but it  is -- and we asked for  it, really, only                                                                   
     in  order  to  provide  a  degree   of  comfort  to  the                                                                   
     investors in  the pipeline who without it  might find it                                                                   
     somewhat less attractive as an investment vehicle ....                                                                     
                                                                                                                                
Number 0178                                                                                                                     
                                                                                                                                
BRENT  SHERFEY,  Project  Manager, Petroleum  and  Chemical  North                                                              
America, Bechtel  Corporation, indicated that first  is the review                                                              
of  the  existing  regulatory  and  environmental  permitting  and                                                              
approval  processes that  this project  will entail.   There  have                                                              
been many studies  done in the past,  but this is probably  one of                                                              
the most highly  visible projects from an  environmental viewpoint                                                              
and will set a precedent in the future.   They are also conducting                                                              
the initial design basis for the  gas plant on the North Slope for                                                              
the  pipeline itself,  which  involves engineering  and  hydraulic                                                              
studies.                                                                                                                        
                                                                                                                                
MR.  SHERFEY pointed  out that  the study  is one  of the  largest                                                              
procurement  programs  [involving]  procurement  of  some  of  the                                                              
largest  pipe in the  world, which  also entails  delivery  of 800                                                              
miles  of  pipe and  the  construction  of  the facilities.    The                                                              
logistics program  is enormous  and a study  in itself.   They are                                                              
also  concentrating  on  maximizing  the Alaskan  content  of  the                                                              
procurement activities, finding suppliers  and sources of material                                                              
in  Alaska  to make  sure  that it  is  an  Alaskan project.    He                                                              
explained that the construction plan  and schedule is a process of                                                              
sequencing  the  construction  process   and  putting  it  into  a                                                              
schedule  in which  the 2005  completion  is still  targeted.   He                                                              
indicated that there are such issues  as working during the winter                                                              
months and windows  of opportunity to ship materials  into Prudhoe                                                              
Bay, as  well as issues relating  to construction camps  along the                                                              
pipeline,   specifically,  locating   and  pre-building   them  in                                                              
adequate time to accommodate the various crews.                                                                                 
                                                                                                                                
MR. SHERFEY  informed the  committee that  part of the  permitting                                                              
process  is the  environmental monitoring  and inspection  process                                                              
during construction  and operations.   He mentioned  the assurance                                                              
that  all the  construction activities  adhere  to the  regulatory                                                              
requirements  imposed  by  the agencies  in  good  sound  business                                                              
practices;  he   said  this  will   be  a  major  part   of  their                                                              
construction activity.  He said that  there will be a study of the                                                              
Alaska  labor market  ensuring  that  there are  skilled  Alaskans                                                              
available  for  construction  of   the  project.    The  operating                                                              
maintenance  plan  is  an  overall  program  for  identifying  the                                                              
operational   components  and   maintenance   components  of   the                                                              
facilities.    He  indicated  that with  regard  to  the  economic                                                              
analysis,  they are running  various scenarios.   The  preliminary                                                              
financial plan is taking a look at  optimizing the various sources                                                              
of  financing available  and also  taking  a look  at the  various                                                              
risks.                                                                                                                          
                                                                                                                                
SENATOR KELLY  asked Mr. Hove how  the rest of the  state benefits                                                              
from this project.                                                                                                              
                                                                                                                                
Number 0037                                                                                                                     
                                                                                                                                
MR. HOVE responded that any activity  that they may be involved in                                                              
that  produces  revenue should  probably  be shared  with  Alaska,                                                              
because all  citizens in the state  have an interest in  the North                                                              
Slope and what is there.  He indicated  that they proposed sharing                                                              
more than half  with the State of Alaska, directly  to its general                                                              
fund, for appropriation  by the legislature for  whatever purpose.                                                              
They also  considered the  application of  about half that  amount                                                              
for distribution directly to every  resident of Alaska and a small                                                              
fraction,  about   10  percent,  directly  to  residents   in  the                                                              
communities that  formed the port authority originally  in October                                                              
of 1999.   After putting aside  reserves for ensuring  ongoing and                                                              
efficient operations,  and that all costs have been  met and paid,                                                              
then the  net amount left over  will be distributed  directly back                                                              
to the State of Alaska in one form or another.                                                                                  
                                                                                                                                
TAPE 00-4, SIDE A [HOUSE RESOURCES TAPE]                                                                                        
                                                                                                                                
SENATOR  LINCOLN said  she hoped  the lack of  attendance was  not                                                              
viewed as a lack  of interest in the project.   She knows there is                                                              
a lot  of interest  due to the  questions posed.   She  declared a                                                              
conflict of interest because Valdez  is part of her district.  She                                                              
said  she  had questions  regarding  alternative  routes  and  the                                                              
impact of a merger on the port authority.                                                                                       
                                                                                                                                
Number 0039                                                                                                                     
                                                                                                                                
MR. HOVE  stated that  he appreciates  the questions being  asked.                                                              
He noted  the lack  of attendance  is not interpreted  negatively.                                                              
He said only one route is being proposed.   This is the route that                                                              
is presently permitted.   The route goes from  Prudhoe Bay through                                                              
Fairbanks  paralleling TAPS  to Valdez.   He  indicated there  are                                                              
other organizations  with different routing ideas,  but the Alaska                                                              
Gasline Port Authority  has not analyzed any of those.   He thinks                                                              
a time window  of 2005 needs to  be made for sales to  the market.                                                              
Taking the  time now to  permit a new route  would use up  so much                                                              
time  and resources  and  cause  failure  to meet  that  marketing                                                              
window.  It is  his opinion that an alternative  stream of revenue                                                              
is needed in the state and is needed as soon as possible.                                                                       
                                                                                                                                
MR. HOVE referred to the BP Amoco  merger with ARCO.  He indicated                                                              
the difficulties  encountered have not enhanced  the opportunities                                                              
to engage in  substantive discussion with the  producers regarding                                                              
the sale of  natural gas to the  port authority.  He  believes the                                                              
merger has  had a negative effect  on "their being able  to remove                                                              
their focus, particularly  on the part...of BP from  the merger to                                                              
a supply of gas."                                                                                                               
                                                                                                                                
CO-CHAIR  HUDSON  said there  was  a  recent presentation  on  the                                                              
proposal for the  gas-to-liquids which would require  a portion of                                                              
the gas  to be converted  to liquids  then move down  the pipeline                                                              
through  the batch  process.   He does  not believe  there is  any                                                              
negative  effect on  the project  proposed by  the Alaska  Gasline                                                              
Port Authority.  He asked if this is Mr. Hove's understanding.                                                                  
                                                                                                                                
Number 0101                                                                                                                     
                                                                                                                                
MR. HOVE  thinks there  is room for  both projects.   He  does not                                                              
feel  there is  an  impact in  any  way on  their  project by  the                                                              
existence of  the gas-to-liquid demonstration project  or outright                                                              
commercial  production of  gas-to-liquids.   He said  it does  not                                                              
concern  them  so long  as  there is  an  adequate  supply of  gas                                                              
available to make the project economical.                                                                                       
                                                                                                                                
REPRESENTATIVE  HARRIS referred to  Mr. Hove's earlier  discussion                                                              
of the IRS  ruling.  He wondered  what would happen if  the ruling                                                              
is not positive to the economics of the project.                                                                                
                                                                                                                                
MR. HOVE  said it would  not be positive.   He commented  it would                                                              
essentially  return them to  a completely  private sector  type of                                                              
economic  model   which  would  not   allow  them  to   offer  any                                                              
significant advantage as a port authority.   He explained the port                                                              
authority has never  received a negative opinion on  this from any                                                              
counsel they have sought.  He stated,                                                                                           
                                                                                                                                
     It  was  more or  less  a  Pro  Forma  thing and,  as  I                                                                   
     indicated    before,   we...are    going   through    it                                                                   
     fundamentally...to assure the  financial markets that we                                                                   
     have  done what  we  need to  do  to ensure  that  their                                                                   
     investment  is more  secure than it  might otherwise  be                                                                   
     should we not  seek the ruling and later  learn that the                                                                   
     income was  not tax exempt...We're very,  very confident                                                                   
     that it will come through.                                                                                                 
                                                                                                                                
SENATOR KELLY asked if the IRS determination  would be strictly up                                                              
or down, or something in-between.                                                                                               
                                                                                                                                
MR. HOVE replied it is his understanding  that it is an up or down                                                              
situation.                                                                                                                      
                                                                                                                                
Number 0150                                                                                                                     
                                                                                                                                
CO-CHAIR  MASEK inquired  how far  along the  Alaska Gasline  Port                                                              
Authority  is with  their  permits  and if  those  permits are  in                                                              
place.                                                                                                                          
                                                                                                                                
MR.  HOVE explained  that  everyone  engaged  in this  process  is                                                              
essentially  a team  player.   The  port  authority developed  the                                                              
concept  and provides  the  legal authority  for  proceeding.   He                                                              
noted  that  Williams  Company,   should  they  be  successful  in                                                              
concluding  an  agreement, will  provide  great  expertise in  the                                                              
construction  and   operation  of  gas  pipelines.     He  further                                                              
commented,  "Bechtel brings what  we all  know Bechtel  brings ...                                                              
they're  probably the  world's largest  engineering firm,   and  a                                                              
terribly successful firm, too."   With respect to permits, he said                                                              
YPC, another  team member,  is the owner  of the permits,  not the                                                              
port  authority.    All  these major  players  have  been  brought                                                              
together for  one purpose:   to commercialize Alaska's  gas, which                                                              
has  been stranded  on the  North  Slope for  over 20  years.   He                                                              
stressed that everyone wins here, if everyone plays well.                                                                       
                                                                                                                                
Number 0190                                                                                                                     
                                                                                                                                
CO-CHAIR MASEK, on  the issue of construction jobs,  would like to                                                              
see a plan  on getting people to  work on the pipeline.   She also                                                              
wanted to  know which  agencies will  be used  to get Alaskans  to                                                              
work on the construction of the project.                                                                                        
                                                                                                                                
MR. HOVE said local unions need to  be engaged to develop training                                                              
programs  that will  enable members  to work on  this pipeline  or                                                              
even other pipelines.  He thinks  this needs to be done across the                                                              
state  whether  it is  a  union  or  a non-union  situation.    He                                                              
mentioned that YPC, in the course  of securing permits, engaged in                                                              
some project labor  agreements with union locals  across a quarter                                                              
of the  pipeline.  There  exist today  agreements which  relate to                                                              
those permits and  address the issue of preparing  Alaskan workers                                                              
to work on  this project.  He  is vitally interested in  the local                                                              
hire.                                                                                                                           
                                                                                                                                
CO-CHAIR MASEK asked Mr. Hove to  provide later on, as the project                                                              
progresses, an outline of the plan to hire local Alaskans.                                                                      
                                                                                                                                
MR. HOVE expressed it would be a privilege to do so.                                                                            
                                                                                                                                
REPRESENTATIVE  WHITAKER  asked Mr.  Hove  to put  the  permitting                                                              
advantage in a time frame.                                                                                                      
                                                                                                                                
MR. HOVE  estimated a new  permitting process would  consume three                                                              
unnecessary years of work.                                                                                                      
                                                                                                                                
REPRESENTATIVE WHITAKER  wondered if it would assume  a successful                                                              
culmination to that extra three years of effort.                                                                                
                                                                                                                                
MR. HOVE replied that would be the  assumption.  He asked if there                                                              
was a satisfactory outcome.                                                                                                     
                                                                                                                                
REPRESENTATIVE  WHITAKER   responded  yes.    He   asked  if  that                                                              
assumption is not a given.                                                                                                      
                                                                                                                                
MR. HOVE said that is true.                                                                                                     
                                                                                                                                
REPRESENTATIVE  WHITAKER indicated  he would  like to run  through                                                              
some key  components to  taking a commodity,  such as gas,  to the                                                              
market place.  He requested Mr. Hove  provide an estimation of his                                                              
confidence level with  regard to those key components.   The first                                                              
component he asked Mr. Hove to address is the market.                                                                           
                                                                                                                                
Number 0244                                                                                                                     
                                                                                                                                
MR. HOVE  said it  is the belief  that the  market for  Alaska gas                                                              
exists in  the Far East.   He explained the market  exists because                                                              
the economy  is recovering  and growing in  the Far East  and will                                                              
once again become a vital and growing  consumer of Alaska gas.  In                                                              
addition, there is a considerable  effort being undertaken for the                                                              
privatization  of electric  power plants.   Electric power  plants                                                              
presently consume  either coal or  oil.  According to  the current                                                              
plan, these power  plants would be converted to  burn natural gas.                                                              
It is  believed this natural  gas should  come from Alaska  in the                                                              
form of  LNG.  He said  these are the  two principal causes  for a                                                              
market to be created in the Far East.                                                                                           
                                                                                                                                
REPRESENTATIVE  WHITAKER   wondered  what  Mr.  Hove's   level  of                                                              
confidence is with respect to penetrating that market.                                                                          
                                                                                                                                
MR.  HOVE  stated  there  is  an  assumption,  based  on  previous                                                              
discussions  with  potential buyers  in  the  Far East,  that  the                                                              
market does  and will exist over  there.  He explained,   "Though,                                                              
what  we are  going  to do  is engage  in  discussions with  those                                                              
markets ourselves,...to  judge for  ourselves, probably  this next                                                              
month or  the month after, first  of all, the extent  of interest,                                                              
and,  secondly, the  level  of consumption,  and  perhaps even  to                                                              
engage  in some  very preliminary  discussions about  terms."   He                                                              
noted  Representative  Whitaker's  question  would  be  easier  to                                                              
answer in  a matter  of weeks.   He indicated  the port  authority                                                              
would  not have  progressed  to the  extent  they  have by  simply                                                              
betting on a market or expecting one to appear.                                                                                 
                                                                                                                                
Number 0277                                                                                                                     
                                                                                                                                
REPRESENTATIVE WHITAKER asked what  Mr. Hove's level of confidence                                                              
is regarding financial feasibility.                                                                                             
                                                                                                                                
MR.  HOVE  wondered  if  he meant  financial  feasibility  by  the                                                              
investor.                                                                                                                       
                                                                                                                                
REPRESENTATIVE WHITAKER said that is correct.                                                                                   
                                                                                                                                
MR. HOVE stated,                                                                                                                
                                                                                                                                
     Well,  actually,  we  often,  when we  get  bogged  down                                                                   
     internally  discussing   issues  that  relate   to  your                                                                   
     question, we often have to come  back to the fundamental                                                                   
     realization  that the...investors  in  this project  are                                                                   
     going  to  be  making  the  final  determination  as  to                                                                   
     whether  it's  viable or  not  viable.   They  will  not                                                                   
     invest  in  a  market...they  don't think  is  a  viable                                                                   
     investment...So,  we're  counting,   first  of  all,  on                                                                   
     bringing  to them the  absolute best  data that we  can,                                                                   
     the  most accurate  and  refined data  that  we can,  in                                                                   
     order to assure the financial  investment community that                                                                   
     what we are  proposing is in fact real and  is worthy of                                                                   
     their   attention,  and,   finally,   worthy  of   their                                                                   
     investment.                                                                                                                
                                                                                                                                
Number 0296                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WHITAKER asked  what  the obstacle  is that  would                                                              
keep the  project from moving ahead.   He wondered  what component                                                              
of success is lacking at this point.                                                                                            
                                                                                                                                
MR.  HOVE replied  the  single biggest  obstacle  is  the lack  of                                                              
access to the supply of gas from the North Slope.                                                                               
                                                                                                                                
REPRESENTATIVE  WHITAKER inquired if  there have been  discussions                                                              
with the North Slope producers.                                                                                                 
                                                                                                                                
MR. HOVE said yes.                                                                                                              
                                                                                                                                
REPRESENTATIVE WHITAKER asked if  there have been discussions with                                                              
ARCO.                                                                                                                           
                                                                                                                                
MR. HOVE said no.                                                                                                               
                                                                                                                                
REPRESENTATIVE  WHITAKER wondered  if  attempts had  been made  to                                                              
have initial discussions with them.                                                                                             
                                                                                                                                
MR. HOVE said, "Yes, indeed, we did."                                                                                           
                                                                                                                                
REPRESENTATIVE WHITAKER asked what their answer was.                                                                            
                                                                                                                                
MR. HOVE responded,  "They could not talk about sale  of gas until                                                              
the merger was concluded."                                                                                                      
                                                                                                                                
REPRESENTATIVE  WHITAKER wondered if  there have been  discussions                                                              
with Exxon.                                                                                                                     
                                                                                                                                
MR. HOVE replied yes.                                                                                                           
                                                                                                                                
REPRESENTATIVE WHITAKER asked how Exxon responded.                                                                              
                                                                                                                                
MR. HOVE indicated  Exxon's response was not positive  in terms of                                                              
being able to secure a supply of  gas.  He said there had been two                                                              
meetings with Exxon.  Exxon responded  to their terms sheet, which                                                              
had been  submitted to them in  revised form twice.   He explained                                                              
that  Exxon  does  not  have much  hope  for  the  port  authority                                                              
achieving a supply of gas from them.                                                                                            
                                                                                                                                
Number 0317                                                                                                                     
                                                                                                                                
REPRESENTATIVE WHITAKER asked if  there have been discussions with                                                              
BP.                                                                                                                             
                                                                                                                                
MR. HOVE said yes.                                                                                                              
                                                                                                                                
REPRESENTATIVE WHITAKER wondered what BP's response was.                                                                        
                                                                                                                                
MR.  HOVE commented  that BP  feels  their terms  sheet is  wholly                                                              
unsatisfactory and had other concerns with the proposal.                                                                        
                                                                                                                                
REPRESENTATIVE  WHITAKER asked  if  there is  an ongoing  dialogue                                                              
with BP at this time.                                                                                                           
                                                                                                                                
MR. HOVE  stated there are no  scheduled meetings with any  of the                                                              
producers at this time.                                                                                                         
                                                                                                                                
REPRESENTATIVE WHITAKER asked if  there have been discussions with                                                              
the State of Alaska regarding its royalty gas.                                                                                  
                                                                                                                                
MR.  HOVE said  there was  considerable discussion  going on  with                                                              
Commissioner Shively and Commissioner  Condon during the course of                                                              
the development  of  the charter  agreement.   He believes  it was                                                              
ultimately assumed  by both commissioners that "the  amount of gas                                                              
we required, being  (indisc.) of that which the  charter agreement                                                              
called for, would  be made up for the by royalty  gas owned by the                                                              
State  of  Alaska."    He  pointed out  this  would  be  a  wholly                                                              
unsatisfactory situation  because it presumes the  continuation of                                                              
the consumption  of  gas in those  relative ratios.   The  problem                                                              
with this  is the royalty gas  would run out years  before running                                                              
out of (indisc.)  gas from the producers.   He does not  think the                                                              
financial community would look beneficially  upon the circumstance                                                              
for the supply  hanging upon such  a tenuous thread.  He  said the                                                              
field  needs  to be  drawn  down so  the  State has  a  one-eighth                                                              
royalty interest.  He feels if this  is not done sooner there will                                                              
be a gas supply problem again.                                                                                                  
                                                                                                                                
Number 0346                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WHITAKER  wondered   if  Mr.  Hove  had  made  the                                                              
Administration aware of that.                                                                                                   
                                                                                                                                
MR. HOVE said he had.                                                                                                           
                                                                                                                                
REPRESENTATIVE WHITAKER wondered what their response was.                                                                       
                                                                                                                                
MR. HOVE  replied, "It  was one and  a half  billion cubic  feet a                                                              
day, and that's it."                                                                                                            
                                                                                                                                
REPRESENTATIVE  WHITAKER asked  if  Mr. Hove  has had  discussions                                                              
with the Alaska North Slope sponsor group.                                                                                      
                                                                                                                                
MR. HOVE indicated there have been two meetings.                                                                                
                                                                                                                                
Number 0355                                                                                                                     
                                                                                                                                
REPRESENTATIVE WHITAKER  asked Mr. Hove how he  would characterize                                                              
the meetings with everyone excluding  the industry sponsor groups.                                                              
He excluded the industry sponsor  groups because he feels they are                                                              
taking Mr.  Hove seriously  and attempting to  work with him.   He                                                              
thinks it  is important that everyone  understand that this  is an                                                              
opportunity to take  a huge commodity resource to  market, but not                                                              
all is being done to do this.                                                                                                   
                                                                                                                                
MR.  HOVE  said   it  struck  him,  as  a  participant   in  these                                                              
discussions, that  the producers either  do not realize  or choose                                                              
not  to recognize  the effect  of  their decision  not to  produce                                                              
Alaska's gas prior to today.  He stated:                                                                                        
                                                                                                                                
     I was  struck, I guess, by  the fact that they  think of                                                                   
     it as  theirs.  They are  the owners, but they  are only                                                                   
     lease  holders,   and  we  only   leased  it   to  them,                                                                   
     originally,  with the  intent of  their doing  something                                                                   
     with  it, and  they never  have done  anything with  it.                                                                   
     And we  as the  State of Alaska  in this residence  have                                                                   
     suffered for that for many,  many years...that they have                                                                   
     a mandate,  actually, or a duty,  at the very  least, to                                                                   
     contribute to the  state and to the State  of Alaska and                                                                   
     its  residents, but  they haven't,  and so they've  made                                                                   
     their  investments elsewhere  in the  world and  they've                                                                   
     produced  gas  elsewhere in  the  world; places  in  the                                                                   
     world that  charge rent for  keeping gas in  the ground.                                                                   
     Only  in Alaska,  to the  best  of my  knowledge, do  we                                                                   
     offer to warehouse  for free...a natural resource  for a                                                                   
     company  that  has  that  resource  under  a  lease-hold                                                                   
     interest.   Only  in Alaska  can  that occur.   Free  of                                                                   
     charge.    No   penalty.        And    that   is    why,                                                                   
     fundamentally,...we  have not seen Alaska's gas  come to                                                                   
     be  produced or  to reach  a  market because  we do  not                                                                   
     extract rent for the privilege of storing it here.                                                                         
                                                                                                                                
Number 0392                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HARRIS asked,   "What  is the  philosophy of  this                                                              
group as  far as the  use of Yukon  Pacific both with  its permits                                                              
and its expertise in the market place in the Orient?"                                                                           
                                                                                                                                
MR. HOVE responded  that YPC has  been engaged in all of  the work                                                              
that has gone into the creation of  the permits to the extent that                                                              
they exist  today.  He  said it is  not 100 percent  permitted and                                                              
there are  still some  permits that are  required to  be obtained.                                                              
He indicated  YPC has developed  relationships with people  in the                                                              
process.  He feels these relationships  will be extremely valuable                                                              
in the  construction and  operations phase.   He referred  back to                                                              
his  mention of  the  existence of  certain  labor agreements  and                                                              
stated  he is  very  pleased that  YPC engaged  the  environmental                                                              
community throughout  the process.   It is  his hope this  will in                                                              
someway  make the job  easier.   He explained  that YPC  possesses                                                              
considerable historical knowledge and technical expertise.                                                                      
                                                                                                                                
Number 0424                                                                                                                     
                                                                                                                                
REPRESENTATIVE HARRIS asked Mr. Hove  to clarify how long it would                                                              
take without the permits in place.                                                                                              
                                                                                                                                
MR.  HOVE replied  it  would be  three years  and  cost over  $100                                                              
million for a newly permitted pipeline.                                                                                         
                                                                                                                                
REPRESENTATIVE HARRIS asked, "If you can get the permits?"                                                                      
                                                                                                                                
MR. HOVE said that is correct.                                                                                                  
                                                                                                                                
SENATOR KELLY  requested Mr. Hove  explain the tax-exempt  status,                                                              
how it works, and why it works for investors.                                                                                   
                                                                                                                                
MR. HOVE  reemphasized that the  tax-exempt part of  the financing                                                              
is a very small part and somewhat complex.  He explained:                                                                       
                                                                                                                                
     To the  extent that  Alaska's gas  would be consumed  by                                                                   
     Alaskans  in-state, there  is an  excellent chance  that                                                                   
     bonds that  could be pro-rated  against the  expenses to                                                                   
       the extent that we sell the gas.  Say it's (indisc.-                                                                     
       coughing) then maybe 7 percent of the bonds sold to                                                                      
      finance the construction of the line would enjoy tax-                                                                     
     exempt status.                                                                                                             
                                                                                                                                
SENATOR  KELLY wondered  about the  income from  the project  that                                                              
goes to the investors.                                                                                                          
                                                                                                                                
MR. HOVE  indicated the income would  be in the form  of repayment                                                              
of the bonds bearing a certain interest rate.                                                                                   
                                                                                                                                
SENATOR KELLY asked what the tax implications are of those.                                                                     
                                                                                                                                
MR. HOVE  responded that  93 percent of  them will not  enjoy tax-                                                              
exempt  status  and will  be  paying taxes  on  that  part of  the                                                              
income.                                                                                                                         
                                                                                                                                
Number 0451                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WHITAKER said  he thought  Senator Kelly  was also                                                              
asking about  the revenue stream  associated with the  project and                                                              
the tax implications thereof.                                                                                                   
                                                                                                                                
MR.  HOVE indicated  he understood.    He clarified  that the  net                                                              
revenues  would not  be  exposed  to federal  income  taxes.   The                                                              
distribution  of  the  revenues to  residents  of  Alaska  becomes                                                              
ordinary income and is subject to  taxation.  If the revenues were                                                              
distributed to municipalities or  to the state, they would forever                                                              
escape federal taxation.                                                                                                        
                                                                                                                                
Number 0471                                                                                                                     
                                                                                                                                
ADJOURNMENT                                                                                                                     
                                                                                                                                
CHAIRMAN HALFORD  adjourned the joint meeting of  the House/Senate                                                              
Resources Committees at 4:39 p.m.                                                                                               
                                                                                                                                
                                                                                                                                

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