Legislature(2005 - 2006)SENATE FINANCE 532


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11:06:00 AM Start
11:07:02 AM SB2004
11:10:16 AM Dennis Bailey, Attorney, Legislative Legal Services
11:20:08 AM Jim Baldwin, Counsel to the Office of the Attorney General
02:44:43 PM Steve Thompson, Mayor, City of Fairbanks, and Chair, Municipal Advisory Group
03:32:03 PM Joseph Donohue, Preston Gates & Ellis
04:07:30 PM SB2003
05:00:27 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Time Change --
Heard & Held
Heard & Held
                   ALASKA STATE LEGISLATURE                                                                                   
     SENATE SPECIAL COMMITTEE ON NATURAL GAS DEVELOPMENT                                                                      
                         June 2, 2006                                                                                           
                          11:06 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Ralph Seekins, Chair                                                                                                    
Senator Lyda Green                                                                                                              
Senator Gary Wilken                                                                                                             
Senator Con Bunde                                                                                                               
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Senator Thomas Wagoner                                                                                                          
Senator Ben Stevens                                                                                                             
Senator Kim Elton                                                                                                               
Senator Albert Kookesh                                                                                                          
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
OTHER LEGISLATORS PRESENT                                                                                                     
Senator Gary Stevens                                                                                                            
Senator Hollis French                                                                                                           
Senator Charlie Huggins                                                                                                         
Senator Bettye Davis                                                                                                            
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 2003                                                                                                            
"An   Act  establishing   the  Alaska   Natural  Gas   Pipeline                                                                 
Corporation to  finance, own,  and manage the  state's interest                                                                 
in  the Alaska  North Slope  natural gas  pipeline project  and                                                                 
relating  to that  corporation  and to  subsidiary entities  of                                                                 
that  corporation; relating  to  owner entities  of the  Alaska                                                                 
North Slope natural gas pipeline  project, including provisions                                                                 
concerning  Alaska North  Slope  natural  gas pipeline  project                                                                 
indemnities;  establishing   the  gas  pipeline   project  cash                                                                 
reserves fund  in the corporation  and establishing  the Alaska                                                                 
natural gas pipeline  construction loan fund in  the Department                                                                 
of Revenue; making conforming  amendments; and providing for an                                                                 
effective date."                                                                                                                
     HEARD AND HELD                                                                                                             
SENATE BILL NO. 2004                                                                                                            
"An Act  relating to the  Alaska Stranded Gas  Development Act,                                                                 
including clarifications  or provision of  additional authority                                                                 
for  the development  of stranded  gas  fiscal contract  terms;                                                                 
making   a  conforming   amendment  to   the  Revised   Uniform                                                                 
Arbitration Act;  relating to  municipal impact  money received                                                                 
under  the  terms  of  a  stranded  gas  fiscal  contract;  and                                                                 
providing for an effective date."                                                                                               
     HEARD AND HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 2003                                                                                                                 
SHORT TITLE: NATURAL GAS PIPELINE CORPORATION                                                                                   
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
05/31/06       (S)       READ THE FIRST TIME - HELD ON SECY'S                                                                   
06/01/06       (S)       NGD                                                                                                    
06/01/06       (S)       NGD AT 1:30 PM SENATE FINANCE 532                                                                      
06/01/06       (S)       Heard & Held                                                                                           
06/01/06       (S)       MINUTE(NGD)                                                                                            
06/02/06       (S)       NGD AT 11:15 AM SENATE FINANCE 532                                                                     
BILL: SB 2004                                                                                                                 
SHORT TITLE: STRANDED GAS DEVELOPMENT ACT AMENDMENTS                                                                            
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
05/31/06       (S)       READ THE FIRST TIME - HELD ON SECY'S                                                                   
06/01/06       (S)       NGD                                                                                                    
06/01/06       (S)       NGD AT 1:30 PM SENATE FINANCE 532                                                                      
06/01/06       (S)       Heard & Held                                                                                           
06/01/06       (S)       MINUTE(NGD)                                                                                            
06/02/06       (S)       NGD AT 11:15 AM SENATE FINANCE 532                                                                     
WITNESS REGISTER                                                                                                              
DENNIS BAILEY                                                                                                                   
Legal and Research Services Division                                                                                            
Legislative Affairs Agency                                                                                                      
State Capitol                                                                                                                   
Juneau, Alaska 99801-1182                                                                                                       
POSITION STATEMENT:   Testified  on the constitutional  aspects                                                               
of SB 2004.                                                                                                                     
JIM BALDWIN                                                                                                                     
Counsel to the Office of the Attorney General                                                                                   
Department of Law                                                                                                               
PO Box 110300                                                                                                                   
Juneau, AK  99811-0300                                                                                                          
POSITION STATEMENT:   Testified  on sovereignty  issues related                                                               
to SB 2004.                                                                                                                     
MAYOR STEVE THOMSON, CHAIR                                                                                                      
Municipal Advisory Group                                                                                                        
Fairbanks, AK                                                                                                                   
POSITION  STATEMENT:   Testified  on  economically and  revenue                                                               
impacted municipalities in SB 2004.                                                                                             
JOSEPH K. DONOHUE                                                                                                               
Preston Gates & Ellis                                                                                                           
Counsel to the Governor                                                                                                         
Office of the Governor                                                                                                          
PO Box 110001                                                                                                                   
Juneau, AK  99811-0001                                                                                                          
POSITION   STATEMENT:    Testified   on  the   administration's                                                               
position on SB 2003 and SB 2004.                                                                                                
ACTION NARRATIVE                                                                                                              
CHAIR  RALPH SEEKINS  called  the Senate  Special Committee  on                                                               
Natural  Gas  Development  meeting  to order  at  11:06:00  AM.                                                               
Present  at the  call  to order  were  Senators Lyman  Hoffman,                                                                 
Donny Olson, Fred Dyson, Bert  Stedman, Gary Wilken, Kim Elton,                                                                 
Con  Bunde,  Thomas  Wagoner,   Lyda  Green,  and  Chair  Ralph                                                                 
Seekins; Senator  Ben Stevens  arrived shortly  thereafter, and                                                                 
Senator Albert Kookesh arrived as the meeting was in progress.                                                                  
       SB 2004-STRANDED GAS DEVELOPMENT ACT AMENDMENTS                                                                      
11:07:02 AM                                                                                                                   
^Dennis Bailey, Attorney, Legislative Legal Services                                                                            
DENNIS   BAILEY,   Legal  and   Research   Services   Division,                                                                 
Legislative Affairs Agency, said he would answer questions.                                                                     
SENATOR WAGONER said that he would  like to know what authority                                                                 
the  legislature might  be giving  up if  these amendments  [SB
2004] to the Stranded Gas Development Act (SGDA) pass.                                                                          
MR. BAILEY  responded that there  are essentially two  areas in                                                                 
the bill  that might be  considered as compromising  or eroding                                                                 
the power of the legislature.                                                                                                   
The  first is  related  to taxation.  On page  3  of the  bill,                                                                 
beginning  on  line 3,  there  is  a  section that  allows  the                                                                 
commissioner  to negotiate  terms  related  to modification  of                                                                 
taxes and another that allows him to negotiate credits.                                                                         
The second is  related to the waiver of  sovereign immunity for                                                                 
the entrance  and enforcement  of arbitration awards,  which is                                                                 
also on page 3, lines 29-31.                                                                                                    
11:10:16 AM                                                                                                                   
SENATOR BEN STEVENS arrived.                                                                                                    
11:10:49 AM                                                                                                                   
MR.  BAILEY summarized  by  saying  that the  bill  essentially                                                                 
grants power to the commissioner  to negotiate terms. It really                                                                 
isn't a question of eroding legislative power.                                                                                  
11:11:46 AM                                                                                                                   
SENATOR BUNDE  asked Mr. Bailey  if these two areas  of erosion                                                                 
are policy calls that are allowable,  or if there is a question                                                                 
of constitutionality.                                                                                                           
MR.  BAILEY answered  that,  whether  the administration  could                                                                 
negotiate  the  change  in taxes  essentially  outside  of  the                                                                 
legislative process is a question of constitutional magnitude.                                                                  
The  state  has the  power  to  grant  the authority  to  waive                                                                 
sovereign immunity.  It has  done so in  the general  waiver of                                                                 
sovereign  immunity statute  for contracts  and tortes,  and in                                                                 
the  specific statute  related  to federal  wetland  questions.                                                                 
That is a legislative rather than a constitutional issue.                                                                       
11:13:30 AM                                                                                                                   
CHAIR SEEKINS  asked if  the general  waiver for  contracts and                                                                 
tortes would cover this particular contract.                                                                                    
MR. BAILEY  answered that the  intent of  the bill is  to waive                                                                 
sovereign immunity  for the purpose of entering  an arbitration                                                                 
award as a judgment for enforcement  in federal court, and that                                                                 
would not be covered by the general waiver.                                                                                     
CHAIR  SEEKINS said  that, on  page  3, lines  30-31, it  reads                                                                 
"consent to  entrance and enforcement  of an  arbitration award                                                                 
in any state  court in the United States  that has jurisdiction                                                                 
over  the state."  He asked  what  state courts  in the  United                                                                 
States have jurisdiction over Alaska.                                                                                           
MR. BAILEY replied that he thinks  Chair Seekins has identified                                                                 
a language  problem in  the bill, because  he does  not believe                                                                 
there  are  any.  It  should read,  "consent  to  entrance  and                                                                 
enforcement of  an arbitration award  in any state  court" then                                                                 
the waiver applies  "in the United States,  it has jurisdiction                                                                 
over the  state." It is a  phrasing issue and really  should be                                                                 
CHAIR  SEEKINS asked  if it should  read "any  state of  Alaska                                                                 
MR. BAILEY  replied  that he would  be reluctant  to suggest  a                                                                 
modification without  being really clear about what  the intent                                                                 
of the bill is.                                                                                                                 
CHAIR SEEKINS  said that maybe  he should ask that  question of                                                                 
the administration.                                                                                                             
SENATOR DYSON  wondered if the  word "state" in line  31 really                                                                 
means  a state  in  which there  is  activity  related to  this                                                                 
CHAIR  SEEKINS  asked  Jim  Baldwin  if  he  could  answer  the                                                                 
11:17:11 AM                                                                                                                   
^Jim Baldwin, Counsel to the Office of the Attorney General                                                                     
JIM BALDWIN,  Counsel to  the Office  of the Attorney  General,                                                                 
responded  that  the  administration's  purpose  was  to  allow                                                                 
enforcement of arbitration awards  outside the state of Alaska.                                                                 
This  amendment   is  intended  to  obtain  the   proper  legal                                                                 
authority  for  that from  the  legislature,  because  the  11                                                                  
amendment  of the  constitution and  other common-law  theories                                                                 
hold  that  the  state  is immune  from  suit  outside  of  its                                                                 
11:20:08 AM                                                                                                                   
SENATOR DYSON  said he was thinking  of the matter  in reverse.                                                                 
He  asked if  this  would apply  if the  state  were trying  to                                                                 
enforce compliance  with the terms of an  arbitration agreement                                                                 
with a company headquartered outside of Alaska.                                                                                 
MR. BALDWIN agreed that it might.                                                                                               
SENATOR DYSON  said it appears to  him that there are  at least                                                                 
three different instances in which  the state might seek remedy                                                                 
in another state's  court, and that the committee  really needs                                                                 
to get clarification here.                                                                                                      
CHAIR  SEEKINS asked  if the  state  would have  to obtain  the                                                                 
concurrence of  the attorney  general in  each instance,  or if                                                                 
this would provide for blanket approval.                                                                                        
MR. BALDWIN said  that the Attorney General's  signature on the                                                                 
contract would provide blanket consent.                                                                                         
CHAIR SEEKINS asked  if the attorney general,  the governor, or                                                                 
the commissioner would sign the contract.                                                                                       
MR. BALDWIN replied that there  would be a special jurat on the                                                                 
contract for  the attorney general,  on which he  would express                                                                 
his consent.                                                                                                                    
CHAIR SEEKINS asked  Mr. Baldwin to verify that  there would be                                                                 
blanket consent to waive sovereign  immunity or other immunity.                                                                 
He asked what other immunity there is.                                                                                          
MR.  BALDWIN replied  that there  could  be a  form of  policy-                                                                 
making immunity,  but he  isn't sure  what is contemplated.  He                                                                 
thinks there  is the potential  for an immunity that  would bar                                                                 
this particular type of enforcement action.                                                                                     
SENATOR  ELTON  said  he was  uncomfortable  with  the  blanket                                                                 
consent  and that  it  might be  better  to  have the  attorney                                                                 
general make a  decision in each instance. He  thought it would                                                                 
be wise to have a policy discussion on that point.                                                                              
11:24:03 AM                                                                                                                   
CHAIR SEEKINS  read parts of Section  3, page 2,  regarding the                                                                 
commissioner's  authority  to  develop  a  contract  that  "may                                                                 
include  terms  for modifications  of  taxes  on oil  and  gas,                                                                 
including terms providing  for periodic payment in  lieu of one                                                                 
or more taxes" and terms related  to credits for investment. He                                                                 
asked  if  this  encroaches   on  the  legislature's  power  of                                                                 
MR.  BAILEY   replied   that  the  question   is  whether   the                                                                 
legislature is  giving up  its constitutional  taxing authority                                                                 
by  permitting the  commissioner to  negotiate modification  of                                                                 
taxes.  This is  an unresolved  issue,  but it  appears that  a                                                                 
contractual modification of the  state's taxing system would be                                                                 
CHAIR SEEKINS  asked if other  legislatures would  be prevented                                                                 
from modifying the taxes if they are included in the contract.                                                                  
MR.   BAILEY  answered   that,   in  general   terms,  if   the                                                                 
constitution permits inclusion of  tax modifications within the                                                                 
contract,  and those  modifications  exist,  then a  subsequent                                                                 
legislature would  have difficulty  changing the  tax structure                                                                 
because it would  interfere with an existing  contract. The big                                                                 
question is  whether it is permissible  to include that  in the                                                                 
contract in the first place.                                                                                                    
11:27:42 AM                                                                                                                   
SENATOR BUNDE said  the Supreme Court would  decide whether the                                                                 
administration could set taxes in  the contract. He noted that,                                                                 
if the commissioner  negotiates a contract and  the legislature                                                                 
approves  or  disapproves,  it   is  basically  voting  on  the                                                                 
taxation  in the  contract.  The bigger  issue  is whether  the                                                                 
commissioner  could modify  those taxes  at a  later date  when                                                                 
there  would be  no  way  to bring  the  contract  back to  the                                                                 
MR. BAILEY replied that he believes Senator Bunde is correct.                                                                   
SENATOR  BUNDE  said  that  Section   3  appears  to  have  two                                                                 
applications, and the legislature  would have no authority over                                                                 
changes made  after its initial  vote to approve  or disapprove                                                                 
the contract.                                                                                                                   
11:29:56 AM                                                                                                                   
SENATOR  BEN  STEVENS interpreted  the  SGDA  to say  that  the                                                                 
legislature gave  the commissioner the authority  not to modify                                                                 
the taxes,  but to  negotiate a  payment structure  in lieu  of                                                                 
taxes.  That was  allowed  if the  negotiated  payment in  lieu                                                                 
achieved the  objectives of the  SGDA, which were to  bring the                                                                 
resources  to market  and encourage  development  on the  North                                                                 
Slope.  He  does not  agree  with  the  concept of  giving  the                                                                 
commissioner  the authority  to  negotiate taxes  and does  not                                                                 
think that is what the legislature has done.                                                                                    
He said it seems obvious that,  in terms of Article 9, Sections                                                                 
1  and  4, as  well  as  the  contractual  clause of  the  U.S.                                                                 
Constitution, the question of  whether the legislature can give                                                                 
that  authority  to  the  commissioner  is  one  that  will  be                                                                 
challenged  and will  have to be  resolved in  the courts.  The                                                                 
question now is whether the legislature  wants to commit to get                                                                 
that question to the Supreme Court.                                                                                             
11:32:16 AM                                                                                                                   
SENATOR  HOFFMAN pointed  out that,  on page  3, lines 3-4,  it                                                                 
reads   "terms  concerning modifications  of taxes  on oil  and                                                                 
gas, including terms providing for  periodic payment in lieu of                                                                 
one  or more  taxes".  So, if  modification  of  taxes was  not                                                                 
intended,  maybe the  first  part of  that  sentence should  be                                                                 
11:33:20 AM                                                                                                                   
SENATOR DYSON concurred with Senator Hoffman.                                                                                   
11:34:13 AM                                                                                                                   
MR.  BALDWIN said  the  intent is  to make  it  clear that  the                                                                 
contract  can provide  for  payments  in lieu  of  oil and  gas                                                                 
taxes. The  legislative history  that was  created in  1998 was                                                                 
that the  payment in  lieu authority only  applied to  taxes on                                                                 
gas, even  though the wording  in Section  210 of the  SGDA [on                                                                 
page 4  of SB 2004]  describes the types  of taxes to  which it                                                                 
applies.  He took  responsibility for  the artless  use of  the                                                                 
phrase  "modifications  of taxes",  because  that  was not  the                                                                 
administration's intent.                                                                                                        
11:35:56 AM                                                                                                                   
SENATOR STEDMAN  said he  did not see  the language  that would                                                                 
allow the commissioner to go back in and modify taxes.                                                                          
CHAIR SEEKINS  responded that  he did  not see  it in  the bill                                                                 
either, although  there may be  terms included in  the contract                                                                 
that would  allow a  renegotiation. He  asked what  Mr. Baldwin                                                                 
MR. BALDWIN  replied that he is  not aware of any  provision in                                                                 
the contract that would allow that.                                                                                             
CHAIR  SEEKINS asked  Senators  Bunde,  Stevens,  and Dyson  to                                                                 
provide clarification.                                                                                                          
SENATOR BUNDE said he thought  Mr. Bailey, of legislative legal                                                                 
services, said  it could occur. He  asked Mr. Baldwin if  it is                                                                 
the  administration's intent  that  the  commissioner would  be                                                                 
able  to  renegotiate   taxes  after  the  contract   has  been                                                                 
authorized by the legislature.                                                                                                  
MR. BALDWIN said he is not aware of such intent.                                                                                
SENATOR BUNDE said  he understands that the  language was aimed                                                                 
at  payment   in  lieu  of   taxes;  but  the   phrasing  about                                                                 
modification may  cause a broader interpretation  than he could                                                                 
support. He said he was glad  to hear the administration's view                                                                 
that   the  commissioner's   power  does   not  extend   beyond                                                                 
ratification  of the  contract,  and wondered  if the  language                                                                 
should be rephrased to clarify that.                                                                                            
11:39:40 AM                                                                                                                   
SENATOR KOOKESH joined the committee.                                                                                           
11:39:53 AM                                                                                                                   
SENATOR  BEN  STEVENS  commented  that, in  the  SGDA,  Section                                                                 
43.82.010 Purpose, paragraph (2) is to:                                                                                         
   (2) allow  the  fiscal terms  applicable  to  a qualified                                                                    
   sponsor or the members of a qualified sponsor group, with                                                                    
   respect to  a qualified  project, to  be tailored  to the                                                                    
   particular economic  conditions  of  the  project  and to                                                                    
   establish those  fiscal  terms  in advance  with  as much                                                                    
   certainty as  the  Constitution  of the  State  of Alaska                                                                    
He quoted from  Section 210 Contract terms  relating to payment                                                                 
in lieu of one or more taxes:                                                                                                   
   "... for periodic payment  in lieu of one  or more of the                                                                    
   following taxes  that otherwise  would be imposed  by the                                                                    
   state or municipality on the  qualified sponsor or member                                                                    
   of  a  qualified  sponsor  group   as  a  consequence  of                                                                    
   participating in an approved qualified project."                                                                             
And noted  that the first types  of taxes listed were  "oil and                                                                 
gas production  taxes and oil  surcharges under AS  43.55". The                                                                 
second types  were "oil  and gas  exploration, production,  and                                                                 
pipeline transportation  property taxes under AS  43.56", which                                                                 
are  the transportation  and  tariff charges.  He  said that  a                                                                 
literal interpretation  of the law  shows that these  taxes are                                                                 
subject to negotiation in the payment in lieu of taxes (PILT).                                                                  
11:43:31 AM                                                                                                                   
CHAIR SEEKINS  agreed that 210  appears to be a  restatement of                                                                 
43.82.200 and asked Mr. Baldwin if that is correct.                                                                             
MR.  BALDWIN  agreed  that there  is  some  redundancy  between                                                                 
various sections,  but explained that the problem  presented to                                                                 
lawyers who read this is that lines  8-10 on page 4 of SB 2004,                                                                 
refer to a gas project. Then there  is a string of taxes listed                                                                 
that are identified as oil and  gas taxes. There was also quite                                                                 
a colloquy in  the 1998 House Special Committee on  Oil and Gas                                                                 
about this.  It is based on  that history that legal  was asked                                                                 
to amend 43.82.200 and 210.                                                                                                     
11:45:22 AM                                                                                                                   
BEN STEVENS agreed that the adjustments  in the oil taxes under                                                                 
43.55 that are applied to the  PILT apply only to the qualified                                                                 
sponsor group. So,  his interpretation is that this  is tied to                                                                 
the gas taxes,  because only those who have  signed the sponsor                                                                 
agreement are subject to PILT.                                                                                                  
MR. BALDWIN  said the  administration intends  these amendments                                                                 
to counter the legislative history that was created in 1998.                                                                    
11:46:19 AM                                                                                                                   
SENATOR DYSON said that, if the  modifications to Section 3 are                                                                 
only intended to  give the commissioner authority  to develop a                                                                 
contract that will substitute PILT  for oil tax payments, there                                                                 
is  no reason  not to  clarify the  language on  lines 3-4  and                                                                 
perhaps line  5. He  suggested that  it be  made clear  that it                                                                 
does not authorize him to change the underlying tax structure.                                                                  
11:47:47 AM                                                                                                                   
SENATOR  ELTON shared  Senator Dyson's  concerns and  suggested                                                                 
that  the original  language  on lines  3 and  4  does what  is                                                                 
intended and that the new language is not needed.                                                                               
11:49:09 AM                                                                                                                   
SENATOR HOFFMAN asked why, if the  language in the SGDA Section                                                                 
43.82.210  already includes  provisions  for both  oil and  gas                                                                 
taxes and  surcharges,  does the administration  need to  amend                                                                 
the language in 200.                                                                                                            
MR. BALDWIN said that the administration's  purpose was to make                                                                 
the provisions parallel to the extent it is possible.                                                                           
CHAIR SEEKINS said  that the way he reads it,  Section 200 says                                                                 
"Contract  development"  and  lists   the  terms  that  may  be                                                                 
included  in the  contract development.  Section 210,  contract                                                                 
terms  related  to  payment  in  lieu of  one  or  more  taxes,                                                                 
basically relates back to 200, paragraph (1).                                                                                   
MR. BALDWIN agreed.                                                                                                             
CHAIR  SEEKINS asked  Mr. Baldwin  if he is  correct that  this                                                                 
section allows  the commissioner  to modify  "taxes on  oil and                                                                 
gas, including  terms provided for  periodic payment of  one or                                                                 
more  taxes"  according to  the  terms  contained in  210,  and                                                                 
"terms related to  credits for investment, that  is the subsidy                                                                 
of the  contract developed under  this chapter,"  which doesn't                                                                 
have a statutory reference under the SGDA.                                                                                      
MR. BALDWIN answered yes.                                                                                                       
11:53:12 AM                                                                                                                   
SENATOR ELTON  asked legislative  counsel if  there is  still a                                                                 
constitutional  issue if  they do  not insert  new language  on                                                                 
page 3,  lines 3-4,  and they  delete the  language on  page 4,                                                                 
lines 8-10 that ties the section to gas taxes.                                                                                  
MR. BAILEY  asked if  Senator Elton  could clarify  what  he is                                                                 
suggesting for the language on page 4, lines 4-10.                                                                              
SENATOR  ELTON   responded  that  he  is  not   suggesting  new                                                                 
language. He  is referring  to the  amendment that  strikes the                                                                 
language  on  lines  8-10.  He   asked  whether  striking  that                                                                 
eliminates   the  constitutional   question  that  Mr.   Bailey                                                                 
testified to earlier.                                                                                                           
MR. BALDWIN replied that it does.                                                                                               
SENATOR ELTON recommended that  they keep the original language                                                                 
on page 3 and strike the language on page 4, lines 8-10.                                                                        
11:57:19 AM                                                                                                                   
CHAIR SEEKINS said that they  would start working on amendments                                                                 
at 2:00 pm  on Sunday, and asked  Mr. Bailey to put  together a                                                                 
written summary of the issues surrounding sovereign immunity.                                                                   
SENATOR  OLSON asked  if  Mr. Bailey  is  as  confident of  the                                                                 
Supreme Court ruling as administrative counsel seems to be.                                                                     
MR. BAILEY said he preferred not to speculate.                                                                                  
11:58:24 AM                                                                                                                   
SENATOR BEN  STEVENS said  he wants to  give the  Supreme Court                                                                 
the opportunity to make that decision.                                                                                          
SENATOR   DYSON  stressed   that   he  really   wants  to   get                                                                 
clarification   on  the   sovereignty   issue   and  what   the                                                                 
administration intended.                                                                                                        
12:01:44 PM                                                                                                                   
SENATOR HOFFMAN  asked if  there have  been other  instances in                                                                 
which the state has given up its sovereign rights.                                                                              
12:02:03 PM                                                                                                                   
SENATOR BEN STEVENS jumped back to the discussion of the                                                                        
language inserted in 43.82.200 on page 3, lines 3-5 of the                                                                      
bill. He interprets those lines as relating to Exhibit P.3 on                                                                   
page 360 of the contract, which is a method to determine the                                                                    
Petroleum Production Tax (PPT) PILT payment. That exhibit                                                                       
reads: "P.3 Net Production Value of PPT Oil and PPT Gas                                                                         
(replaces AS 43.55.160)." So, there is a modification of the                                                                    
tax code incorporated into Exhibit P.                                                                                           
Recessed 12:05:12 PM to 2:42:49 PM                                                                                          
CHAIR SEEKINS brought the committee back to order.                                                                              
2:43:12 PM                                                                                                                    
CHAIR  SEEKINS reminded  the  committee that  the  bill up  for                                                                 
consideration is SB 2004, and began  the afternoon session with                                                                 
discussion  of the  provisions  for  economically and  revenue-                                                                 
affected municipalities along the pipeline route.                                                                               
2:44:03 PM                                                                                                                    
^Steve  Thompson,   Mayor,  City   of  Fairbanks,   and  Chair,                                                                 
Municipal Advisory Group                                                                                                        
STEVE THOMPSON, Mayor, City of  Fairbanks, and Chair, Municipal                                                                 
Advisory Group (MAG), said that  13 different communities could                                                                 
be  affected during  the construction  and ramp-up  of the  gas                                                                 
2:44:43 PM                                                                                                                    
SENATOR WILKEN referred Mayor Thompson  to pages 7-8 of version                                                                 
A   concerning   economically-affected   and   revenue-affected                                                                 
municipalities.  He said  that he  has some  concern about  the                                                                 
definitions  of these  terms  and the  differences  in how  the                                                                 
municipalities  might be  treated,  and asked  if  MAG has  had                                                                 
discussions about it.                                                                                                           
MR. THOMPSON replied  yes, economic impacts are  during ramp-up                                                                 
and construction  of the  pipeline. Revenue-affected  refers to                                                                 
how the  revenues would  be handled  in place  of property  tax                                                                 
once the gas  is flowing. MAG's main concern has  been with the                                                                 
economic impacts  during construction,  for which  $125 million                                                                 
has been set aside. It has  passed resolution 2006-01 to change                                                                 
its  term  to  continue  until all  impact  dollars  have  been                                                                 
distributed, or  until construction is complete.  He noted that                                                                 
there is  no direction in  legislation regarding how  the funds                                                                 
should be distributed.  MAG would like to act as  an advisor to                                                                 
the   Commissioner   of  Commerce,   Community   and   Economic                                                                 
Development in order to ensure  that funds are distributed most                                                                 
2:47:35 PM                                                                                                                    
SENATOR  WILKEN  said  that his  concern  is  the  construction                                                                 
period,  and asked  if the $125  million is  dedicated only  to                                                                 
economic impacts.                                                                                                               
MAYOR THOMPSON  replied that  it is. MAG  has been  meeting for                                                                 
two years and has passed numerous  resolutions to address their                                                                 
SENATOR  WILKEN asked  Mayor  Thompson if  he  was aware  that,                                                                 
under  principal number  one  in the  SGDA 43.82.510,  revenue-                                                                 
affected   municipalities    are   given   a    priority   over                                                                 
economically-affected municipalities.                                                                                           
MR. THOMPSON  said that the  advisory group's  understanding is                                                                 
that  the impact  funds  are for  the  construction period  and                                                                 
ramp-up to construction only.                                                                                                   
2:49:25 PM                                                                                                                    
SENATOR  WILKEN said  that he  would research  it further.  His                                                                 
understanding is that the  economically-affected municipalities                                                                 
fall   away  after   first  gas;   then  the   revenue-affected                                                                 
municipalities are addressed.  He said he would  ask someone in                                                                 
the administration  to look at the affected  municipalities and                                                                 
show the committee  first-gas impact and 10 years  after. He is                                                                 
concerned  that this  might set  up an imbalance  on the  North                                                                 
Slope with regard to realizing  the benefit of those assets. He                                                                 
asked Mr. Thompson how much work they've done on this issue.                                                                    
2:51:11 PM                                                                                                                    
MR. THOMPSON replied  that resolution 2006-01  was submitted on                                                                 
Friday,  requesting  that  the   municipal  advisory  group  be                                                                 
extended and that MAG be allowed  to advise the commissioner of                                                                 
commerce  when he  reviews grants  to  communities affected  by                                                                 
construction.  MAG  also  passed   four  resolutions  regarding                                                                 
additional concerns including education  funding, which will be                                                                 
negatively impacted  if property  values are not  excluded from                                                                 
the  annual true  and  full value  determination  of the  local                                                                 
education funding.                                                                                                              
2:52:23 PM                                                                                                                    
SENATOR  WILKEN  said  the committee  received  Mr.  Thompson's                                                                 
email and that  his office will work on  the educational issue.                                                                 
He  noted that  Valdez  and North  Slope  boroughs, those  that                                                                 
benefit by the  45 percent rule, are the ones  most impacted by                                                                 
the throughput calculation rather than a true and full value.                                                                   
2:53:17 PM                                                                                                                    
MR. THOMPSON  said that he hoped  the committee would  take the                                                                 
2006-01 resolution into consideration.                                                                                          
CHAIR SEEKINS asked  Mr. Thompson if he had a copy  of the bill                                                                 
on hand.                                                                                                                        
MR. THOMPSON replied no.                                                                                                        
CHAIR SEEKINS read  from SB 2004 version A,  page 9, subsection                                                                 
   The commissioner of commerce, community, and economic                                                                        
   development, in consultation with the relevant municipal                                                                     
   advisory group established under AS 43.82.510, shall use                                                                     
   money appropriated to the Alaska Natural Gas Pipeline                                                                        
  Construction Impact Fund to make grants to municipalities,                                                                    
   and to nonprofit organizations serving the unorganized                                                                       
   borough, for impacts on transportation, infrastructure, law                                                                  
   enforcement, emergency services, health and human services,                                                                  
   education, labor force, population, wages, and subsistence,                                                                  
   and for socio-cultural impacts, brought about by the                                                                         
   construction of the gas pipeline.                                                                                            
2:54:26 PM                                                                                                                    
MR. THOMPSON said  that is the exact language  submitted by the                                                                 
advisory  board  and  he  appreciates  the  fact  that  it  was                                                                 
included so promptly.  He reminded Chair Seekins  that MAG also                                                                 
submitted  language to  extend  the existence  of the  advisory                                                                 
group  and  allow them  to  advise  the commissioner  on  grant                                                                 
2:55:14 PM                                                                                                                    
CHAIR SEEKINS  said that  the next  sentence may  address that,                                                                 
and continued reading from page 9 subparagraph (e):                                                                             
   In  determining  whether   an  expenditure   or  proposed                                                                    
   expenditure by a municipality  or non-profit organization                                                                    
   is eligible  for a  grant under  this subsection,  and in                                                                    
   allocating available  money  among  grant  proposals, the                                                                    
   commissioner shall  consider  the recommendations  of the                                                                    
   relevant municipal  advisory  group established  under AS                                                                    
   43.82.510 and whether the  proposed expenditure meets the                                                                    
   purposes of this section.                                                                                                    
He asked if this sentence gave  Mr. Thompson some confidence in                                                                 
the total picture.                                                                                                              
MR.  THOMPSON  replied   yes.  He  noted  that   the  nonprofit                                                                 
referenced  would  be the  Tanana  Chiefs' Conference  that  is                                                                 
representing the  unincorporated areas from the  North Slope to                                                                 
the Canadian border.                                                                                                            
CHAIR SEEKINS thanked Mr. Thompson for that identification.                                                                     
2:56:17 PM                                                                                                                    
SENATOR ELTON questioned  the definition of non-profit  in this                                                                 
context. He said that the wording  seemed to be broad enough to                                                                 
allow unintended entities to qualify for impact funds.                                                                          
MR. THOMPSON  said that Steve Porter  is the person to  talk to                                                                 
about that.                                                                                                                     
2:56:57 PM                                                                                                                    
CHAIR  SEEKINS  added  that  he   had  some  questions  on  the                                                                 
"unincorporated borough"  language with  regard to the  list of                                                                 
impacts on  page 9, lines 6-8.  He questioned whether  it would                                                                 
always  be  Tanana  Chiefs  that  would  handle  transportation                                                                 
infrastructure, for example.                                                                                                    
MR. THOMPSON  agreed that the  language is pretty  broad, which                                                                 
is one  of the reasons  he would like  MAG to be  involved with                                                                 
the  Department of  Commerce  in the  selection process  before                                                                 
requests go to the legislature.                                                                                                 
2:58:10 PM                                                                                                                    
MR.  THOMPSON  reiterated  that  MAG   has  sent  a  number  of                                                                 
resolutions  to the legislators  and asked  that the  committee                                                                 
consider them. He thanked the  legislators for their efforts to                                                                 
protect the communities and citizens of Alaska.                                                                                 
2:58:59 PM                                                                                                                    
SENATOR WILKEN  asked for Mr.  Thompson's understanding  of the                                                                 
process  by which impact  requests would  be made,  considered,                                                                 
certified,  and awarded.  For  example, if  a new  pipe-coating                                                                 
yard in Fairbanks made it necessary  to add a new fire station,                                                                 
how would it get the impact money to build that.                                                                                
MR. THOMPSON said that no process has been established yet.                                                                     
3:00:02 PM                                                                                                                    
SENATOR  OLSON asked  Mr. Thompson  whether  the Tanana  Chiefs                                                                 
would represent the North Slope Borough communities.                                                                            
3:00:25 PM                                                                                                                    
MR.   THOMPSON  said   no.   Tanana   Chiefs  only   represents                                                                 
unincorporated entities.                                                                                                        
3:00:57 PM                                                                                                                    
SENATOR ELTON  asked whether this  would be limited  to Alaskan                                                                 
communities, or would extend into Canada.                                                                                       
MR.  THOMPSON  said  impact  funds would  only  be  granted  to                                                                 
Alaskan communities.                                                                                                            
3:01:38 PM                                                                                                                    
CHAIR SEEKINS thanked Mr. Thompson  for his input and asked the                                                                 
committee if they  had questions for Kevin  Ritchie from Alaska                                                                 
Municipal League (AML).                                                                                                         
SENATOR  WILKEN directed  Mr.  Baldwin's attention  to page  9,                                                                 
subsection  (e), which  addresses  the awarding  of grants.  He                                                                 
said he  would like this  process to  be conducted in  a public                                                                 
forum. He  also asked if the  bill might include who  makes the                                                                 
decisions   and  by   what   criteria   they  determine   which                                                                 
communities are considered impacted.                                                                                            
3:04:00 PM                                                                                                                    
MR. BALDWIN answered  that the administration's  approach is to                                                                 
do this  in regulation. If the  legislature desires to  make it                                                                 
more specific, they could try to do  it in statute; but it is a                                                                 
matter of time and effort.                                                                                                      
SENATOR WILKEN speculated that, if  Fairbanks puts in a request                                                                 
for impact  funds to build  a new fire  station, it will  go to                                                                 
someone who will  qualify it, to someone else  who will certify                                                                 
it, and to someone  else for funding. All of  those things must                                                                 
be done in a public forum.                                                                                                      
MR. BALDWIN  responded  that Senator Wilken  is really  talking                                                                 
more in terms of process than in defining what an impact is.                                                                    
SENATOR WILKEN said that is his  next question; but he wants to                                                                 
be sure that, whatever is done, it is done in public.                                                                           
SENATOR  WILKEN directed  Mr.  Baldwin's attention  to page  8,                                                                 
line 24, regarding direct and severe  impacts. He said he has a                                                                 
definition of  impact that he would  like included in  the bill                                                                 
and asked who he should work with on that amendment.                                                                            
MR. BALDWIN said  to give it to  him and his office  would help                                                                 
Senator Wilken to draft it.                                                                                                     
SENATOR WILKEN  moved to page 7  beginning on line  31, through                                                                 
page 9. He  said he understands that  the economically-impacted                                                                 
communities  have  $125 million  available  that  goes away  at                                                                 
first   gas;   then  the   revenue-impacted   communities   are                                                                 
addressed.  He  said  it  appears that  11  entities  would  be                                                                 
affected  by the definition  and  asked if anyone  has run  the                                                                 
pro-formas, given  the throughputs on  which the PILT  will now                                                                 
be based.                                                                                                                       
MR. BALDWIN said he would have to check.                                                                                        
3:07:47 PM                                                                                                                    
SENATOR WILKEN asked  whether he should be  concerned about the                                                                 
language in 43.82.510 in the  stranded gas amendment, principal                                                                 
(1),  with   regard  to  the  revenue-affected   municipalities                                                                 
trumping the economically-affected municipalities.                                                                              
3:08:05 PM                                                                                                                    
MR.  BALDWIN  responded  that  a memo  was  just  delivered  to                                                                 
Senator  Wilken that addresses  that issue.  The criteria  that                                                                 
are listed  in 020(b)  are directory,  not mandatory  and, when                                                                 
referring   to   economically-affected   municipalities,   this                                                                 
doesn't  seem to  be in  the  proper context,  so the  priority                                                                 
would not apply.                                                                                                                
3:09:00 PM                                                                                                                    
SENATOR WILKEN said he is not  concerned about economic impacts                                                                 
here, but about  the revenue-impacted communities.  He wants to                                                                 
know who defines them and how the  money flows all the way from                                                                 
the North Slope  to the Canadian  border.  He wants  to be sure                                                                 
the  state takes  the time  to develop  an infrastructure  that                                                                 
will provide benefits statewide and not just in certain areas.                                                                  
3:10:15 PM                                                                                                                    
SENATOR GREEN  asked if aid to  revenue-affected municipalities                                                                 
would also be  shut down when the $125 million  in impact funds                                                                 
is gone.                                                                                                                        
MR. BALDWIN answered that there  will be a continuing PILT that                                                                 
will be paid under the agreement.                                                                                               
SENATOR GREEN asked if they are separate.                                                                                       
MR. BALDWIN confirmed that they are.                                                                                            
SENATOR  WAGONER  said  that  is  part  of  the  contract,  and                                                                 
payments continue in lieu of taxes at the municipal level.                                                                      
MR. BALDWIN confirmed that Senator Wagoner is correct.                                                                          
3:10:58 PM                                                                                                                    
SENATOR WILKEN  asked if,  when the $125  million is  gone, the                                                                 
economically-impacted definition is moot.                                                                                       
MR. BALDWIN answered that he understands that to be true.                                                                       
3:11:20 PM                                                                                                                    
SENATOR  STEDMAN said  he  assumes that  when  they talk  about                                                                 
spreading the impact  benefits across Alaska,  that means along                                                                 
the gas pipeline and not broadly  across the state. He asked if                                                                 
that is correct.                                                                                                                
CHAIR  SEEKINS said  that is  his understanding,  but it  would                                                                 
help to have a clear definition of "impact".                                                                                    
3:12:59 PM                                                                                                                    
SENATOR WILKEN said that a profit  stream would flow out of the                                                                 
gas pipeline into  a "bucket"; but before it  gets there, areas                                                                 
across the state will be making  claims on it. The state has to                                                                 
be sure  the claims are valid,  because they reduce  the amount                                                                 
available to benefit the state as a whole.                                                                                      
3:14:37 PM                                                                                                                    
MR. THOMPSON interjected that  the revenue-affected communities                                                                 
are only those with a property-taxing  authority. Once the line                                                                 
is  complete and  gas  is flowing,  they will  not  be able  to                                                                 
collect a property  tax, so it has to be paid  with a PILT from                                                                 
the state.                                                                                                                      
CHAIR SEEKINS  asked for confirmation  that it is  not intended                                                                 
to  go to  unincorporated communities  that do  not levy  taxes                                                                 
under state law.                                                                                                                
MR. THOMPSON said that is correct.                                                                                              
3:15:53 PM                                                                                                                    
SENATOR HOFFMAN  said this  might also  be interpreted  to mean                                                                 
that  the unorganized  areas  along the  corridor would  remain                                                                 
unorganized  for 45  years and  could not  collect PILT  during                                                                 
that time.                                                                                                                      
CHAIR  SEEKINS  said  that  is  not  his  understanding.  If  a                                                                 
community  falls  into  the definition  of  a  revenue-affected                                                                 
municipality in  the future,  it could  apply for  PILT through                                                                 
the commissioner. For example, if  the Delta Borough comes into                                                                 
existence after this is executed, it would qualify.                                                                             
3:16:58 PM                                                                                                                    
SENATOR  HOFFMAN said  he thinks  it was  addressed during  the                                                                 
hearings at Centennial  Hall, and that a new  borough would not                                                                 
be  able to  assess  property taxes  or  be  eligible for  PILT                                                                 
because of the  lockdown; so there would be no  reason to form.                                                                 
He said he would like to get clarification on this issue.                                                                       
3:17:21 PM                                                                                                                    
SENATOR  WILKEN  asked  for   confirmation  that  the  revenue-                                                                 
impacted definition exists from first gas to last gas.                                                                          
MR. BALDWIN answered that the  PILT is payable immediately from                                                                 
the effective date.                                                                                                             
SENATOR WILKEN  asked if  revenue-impacted communities  stop at                                                                 
first gas or last gas.                                                                                                          
MR. BALDWIN replied that they stop at last gas.                                                                                 
SENATOR WILKEN  said that, in that  case, the state  is peeling                                                                 
off  .001 and  putting it  into  a bucket  for the  unorganized                                                                 
areas. If a new  borough forms, it can take part  of that money                                                                 
and  attach  itself to  the  revenue  stream,  so there  is  an                                                                 
incentive to  become a  borough, to tap  into the  funding that                                                                 
comes out of the throughput.                                                                                                    
3:18:28 PM                                                                                                                    
MR. BALDWIN said  that there are additional  factors built into                                                                 
the  allocation  formulas to  allow  for  the creation  of  new                                                                 
3:19:20 PM                                                                                                                    
CHAIR SEEKINS  asked for  confirmation that  they would  not be                                                                 
locked out forever.                                                                                                             
MR. BALDWIN replied that is correct.                                                                                            
SENATOR HOFFMAN asked if that is in the contract.                                                                               
MR. BALDWIN answered yes.                                                                                                       
SENATOR HOFFMAN  asked if Mr. Baldwin  would point that  out to                                                                 
MR. BALDWIN said he would do so after the meeting.                                                                              
CHAIR  SEEKINS   thanked  Senator  Hoffman  for   bringing  the                                                                 
question up.                                                                                                                    
3:19:45 PM                                                                                                                    
SENATOR ELTON referred  back to section 3 on page  3, and asked                                                                 
for the rationale  behind the change on line 25  from the "best                                                                 
interest of  the state", to  the "long-term fiscal  interest of                                                                 
the state".                                                                                                                     
3:21:04 PM                                                                                                                    
MR. BALDWIN answered  that the administration  provided a memo,                                                                 
addressed  to  the  chair  of  the  committee,  explaining  the                                                                 
rationale behind that change.                                                                                                   
SENATOR ELTON said he would wait for the memo.                                                                                  
At ease from 3:21:52 PM to 3:29:12 PM                                                                                       
CHAIR  SEEKINS  noted   that  copies  of  the   memo  had  been                                                                 
distributed. He  then referred  to page 3,  paragraph 5  of the                                                                 
^Joseph Donohue, Preston Gates & Ellis                                                                                          
JOSEPH  DONOHUE,  Preston Gates  &  Ellis, explained  that  the                                                                 
reasoning behind the change to 7(b)  on page 3, line 25, was to                                                                 
ensure  that the  court considers  the commissioner's  proposed                                                                 
contract  terms and preliminary  and final  findings  under the                                                                 
same standard.                                                                                                                  
3:32:03 PM                                                                                                                    
MR. DONOHUE went  on to say that the term  "best interests" has                                                                 
been  litigated in  the context  of the  Department of  Natural                                                                 
Resource findings. There  is a body of law that  says it refers                                                                 
back  to Article  8  of the  constitution  and  means that  the                                                                 
decision of  the commissioner  of natural  resources has  to be                                                                 
made to the maximum  benefit of the people and  the best public                                                                 
interest.  So,  there  is little  difference  between  the  two                                                                 
standards.  This  change  is  designed  to  minimize  potential                                                                 
litigation issues and  is, in short, a consistency  edit within                                                                 
the SGDA.                                                                                                                       
3:33:28 PM                                                                                                                    
SENATOR ELTON  said it seems that,  if the goal is  to minimize                                                                 
potential  litigation, moving  from  a standard  that has  been                                                                 
litigated and has some basis in  case law, to one that has not,                                                                 
might increase the potential for lengthy litigation.                                                                            
3:34:12 PM                                                                                                                    
MR. DONOHUE  said that  there is  a body  of law regarding  the                                                                 
best  interests  standard  that  tells the  Supreme  Court  the                                                                 
constitutional  provisions  to  look  at,  but  it  is  a  very                                                                 
amorphous  test.   The commissioner  has  already gone  through                                                                 
elaborate  effort   to  put  forward  the   preliminary  fiscal                                                                 
interest findings  using the  standard that pervades  the SGDA,                                                                 
which  is  whether the  contract  is  in the  long-term  fiscal                                                                 
interest of the state.                                                                                                          
3:35:15 PM                                                                                                                    
CHAIR SEEKINS  said the findings  of long-term  fiscal interest                                                                 
already occur in the SGDA and are  the same as those that could                                                                 
be challenged under 602 of the  Appellate Procedures. So, it is                                                                 
a  matter  of consistency  as  to  what the  commissioner  must                                                                 
provide in his findings.                                                                                                        
MR. DONOHUE agreed.                                                                                                             
3:36:24 PM                                                                                                                    
SENATOR ELTON referred  to an earlier discussion  of Section 4,                                                                 
subsection (b), page  3, line 27, and noted that  this seems to                                                                 
provide  a  producer  the  opportunity  to  "shop  around"  for                                                                 
another court of jurisdiction  that will enforce an arbitration                                                                 
award.  He  asked  if  the  state   of  Alaska  also  has  that                                                                 
3:37:39 PM                                                                                                                    
MR.  DONOHUE replied  that,  under Article  26,  the rights  to                                                                 
enforce arbitration awards are reciprocal.                                                                                      
SENATOR ELTON asked if he means that any party could do it.                                                                     
MR.  DONOHUE answered  yes; any  party can  proceed to  another                                                                 
state  that  has  jurisdiction  over  the  state  or  over  the                                                                 
producing entity involved in the dispute.                                                                                       
3:38:12 PM                                                                                                                    
SENATOR DYSON  referred to  page 3,  line 31,  and asked  if it                                                                 
would be possible to clarify what is meant by "the state".                                                                      
3:40:15 PM                                                                                                                    
MR. DONOHUE  answered that,  given the  substantial  assets the                                                                 
producing  entities have  in Alaska,  it is  unlikely that  the                                                                 
state  would  shop   in  other  jurisdictions   to  enforce  an                                                                 
arbitration award, although  the state could do  that under the                                                                 
contract.  If  it  could  not  confirm  its  award  within  its                                                                 
jurisdiction,  it  could seek  to  have the  arbitration  award                                                                 
entered in  other states where  the entity that owes  the award                                                                 
has assets.                                                                                                                     
3:41:26 PM                                                                                                                    
SENATOR DYSON  said that he was  not thinking of the  remedy in                                                                 
terms of money, but enforcement  of an arbitrator's decision to                                                                 
press for action.                                                                                                               
MR.  DONOHUE  responded  that  what  the  waiver  of  sovereign                                                                 
immunity is intended  to achieve, is to put the  state on equal                                                                 
footing  with   the  producers   in  the  context   of  solving                                                                 
litigation problems and enforcing judgments.                                                                                    
CHAIR  SEEKINS asked  Mr. Donohue  if the state  would have  to                                                                 
waive sovereign immunity to collect against the producers.                                                                      
MR. DONOHUE said no. He explained  that the reason the contract                                                                 
includes a  waiver of  sovereign immunity  is that  the state's                                                                 
commercial  partners fear,  if they  are left  with only  state                                                                 
remedies  to enforce  an arbitration  award,  the remedies  for                                                                 
collection on  a judgment  against the  state are  limited. The                                                                 
state and public  corporation assets are exempt  from execution                                                                 
and attachment,  and the only way  a private party  can collect                                                                 
against  the  state in  Alaska  is  to  take  the case  to  the                                                                 
legislature  and ask for  the money.  Basically, the  companies                                                                 
feel on an unequal footing for litigation within the state.                                                                     
3:44:20 PM                                                                                                                    
SENATOR DYSON  asked why they would  feel the need to  go after                                                                 
us in another state's court.                                                                                                    
MR. DONOHUE  said the primary reason  would be if  the judgment                                                                 
were too  large to be  recouped under the  waterfall provisions                                                                 
of  Article 22,  and  the  legislature refused  to  appropriate                                                                 
funds  to cover it.  At that  point, the  companies could  seek                                                                 
enforcement  against  state  assets   in  other  parts  of  the                                                                 
3:45:06 PM                                                                                                                    
SENATOR  DYSON  asked  Mr. Donohue  to  explain  the  waterfall                                                                 
provisions of Article 22.                                                                                                       
MR. DONOHUE said  that all of the reciprocal  obligations under                                                                 
the contract are described in  Article 22. These are calculated                                                                 
on a monthly basis and then  netted out. Hopefully, most of the                                                                 
time the  companies will owe  the state significant  amounts of                                                                 
money at  the end of the  waterfall. The companies  are allowed                                                                 
to recoup arbitration awards through  this process, so it would                                                                 
be an  unusual circumstance  that could not  be covered  by the                                                                 
recoupment provisions.  It would also  be very unusual  for the                                                                 
legislature not to  appropriate the funds to  cover a judgment.                                                                 
If  that happened  however, they  would be  entitled to  pursue                                                                 
remedy in another state.                                                                                                        
3:46:53 PM                                                                                                                    
SENATOR DYSON said they could come to our state court.                                                                          
MR.  DONOHUE  explained  that  the  dispute  would  be  settled                                                                 
through private arbitration and  the companies would be granted                                                                 
an award.  If the  state continued  to object  and did  not pay                                                                 
through the  accounting process,  they would  seek to  have the                                                                 
judgment  entered  in our  state  court  first. The  remedy  to                                                                 
enforce  a judgment  against  the state  of  Alaska inside  the                                                                 
state  is to  come  to the  state legislature  and  ask for  an                                                                 
appropriation. So, if  the companies are not  treated fairly at                                                                 
the time  they present  an appropriation  request to  the state                                                                 
legislature,  they can  go after  the state's  assets in  other                                                                 
3:48:21 PM                                                                                                                    
SENATOR  DYSON asked  if, on  line  31, "the  state" means  the                                                                 
state of Alaska.                                                                                                                
MR. DONOHUE said yes, that is  common wording and refers to the                                                                 
state of Alaska.                                                                                                                
SENATOR DYSON  asked if there are  any states that do  not have                                                                 
jurisdiction over Alaska.                                                                                                       
MR. DONOHUE  answered that  it is based  on whether  Alaska has                                                                 
any assets in the state.                                                                                                        
SENATOR DYSON restated  that having assets in  another state is                                                                 
what would give that state's court jurisdiction over Alaska.                                                                    
MR. DONOHUE said, in a general sense, yes.                                                                                      
3:49:30 PM                                                                                                                    
CHAIR SEEKINS asked what recourse  the state would have against                                                                 
a company that refuses to pay an award.                                                                                         
3:50:11 PM                                                                                                                    
MR. DONOHUE  answered that the  contract is ambiguous  on that.                                                                 
One reading  is that the state  would enter the award  in state                                                                 
court  and  seek  enforcement   against  the  company.  Another                                                                 
reading  is  that  the  state could  pursue  direct  action  to                                                                 
collect  it.  He suggested  that  the  committee speak  to  Bob                                                                 
Loeffler and the negotiating team to get a clearer answer.                                                                      
CHAIR SEEKINS  said that,  if the producers  can net  out their                                                                 
awards  and  the state  has  to  go through  normal  collection                                                                 
procedures, they are not on equal footing.                                                                                      
MR. DONOHUE  said that,  under waterfall,  the state  could net                                                                 
out  its  obligations  too.  The ultimate  issue  is,  what  if                                                                 
waterfall isn't sufficient to satisfy the obligation.                                                                           
3:51:48 PM                                                                                                                    
SENATOR OLSON  asked whether other  states have given  up their                                                                 
sovereign immunity in similar circumstances.                                                                                    
MR. DONOHUE  said he is unaware  of any other states  that have                                                                 
consciously waived  sovereign immunity  when doing  business in                                                                 
another state, but  there is a U.S. Supreme  Court precedent on                                                                 
the question that goes back to the 19   century, when the state                                                                 
of Georgia  ran a  railroad through  Georgia and  Tennessee and                                                                 
had  a  railroad  asset  in Tallahassee.  The  city  wanted  to                                                                 
condemn it,  but Georgia said that  the asset was  protected by                                                                 
its sovereign immunity. The Supreme  Court ruled that the state                                                                 
has  no  sovereign  immunity  when doing  business  in  another                                                                 
state; it is just another entity.                                                                                               
3:53:08 PM                                                                                                                    
SENATOR  OLSON  asked  if there  were  any  sovereignty  issues                                                                 
surrounding TAPS.                                                                                                               
MR. DONOHUE could not recall any.                                                                                               
SENATOR OLSON  said that  his concern  about trying  to collect                                                                 
from the  companies is  illustrated by  what has happened  with                                                                 
the Exxon Valdez  issue. There has been a  judgment languishing                                                                 
for years without being paid.                                                                                                   
3:53:44 PM                                                                                                                    
SENATOR  BUNDE said  that, as  he  understands it,  the LLC  is                                                                 
contemplating  incorporation  in  Delaware. He  asked  if  this                                                                 
discussion has  anything to do with  the fact that it  would be                                                                 
incorporated in a state other than Alaska.                                                                                      
MR. DONOHUE  answered that  the rules  for the fiscal  contract                                                                 
and disputes  under the  fiscal contract  would be  resolved in                                                                 
accordance with  Alaska law.  The LLC  agreement that  is being                                                                 
negotiated  will be incorporated  under  Delaware Law  and will                                                                 
include  provisions  for  alternative  dispute  resolution.  He                                                                 
believed that  Delaware law would  apply. The reason  for using                                                                 
Delaware rather  than Alaska law  is that Delaware  has decades                                                                 
of case law  interpreting its corporate and LLC  codes, so many                                                                 
states use  Delaware law  to govern  commercial agreements.  In                                                                 
the context  of a  dispute, one  is more likely  to be  able to                                                                 
predict outcomes and resolve them readily.                                                                                      
3:55:26 PM                                                                                                                    
CHAIR SEEKINS said that, according  to the 2006 State Liability                                                                 
Systems Ranking Study conducted  for the U.S. Chamber institute                                                                 
for legal reform,  Delaware is the number one  state for having                                                                 
and enforcing  venue requirements,  overall treatment  of torte                                                                 
and  contract  litigation,  treatment of  class  action  suits,                                                                 
treatment   of   punitive  damages,   timeliness   of   summary                                                                 
judgments, and  so on. It appears  that if a  corporation wants                                                                 
speedy treatment, it goes to Delaware.                                                                                          
3:56:17 PM                                                                                                                    
SENATOR  ELTON  said that  he  recalls  being told  during  the                                                                 
hearings at Centennial  hall, that the arbitrator  is precluded                                                                 
from awarding punitive damages for  losses. If that is correct,                                                                 
he  wonders under  what  circumstances there  would  be a  huge                                                                 
award  that would  prompt a  party  to seek  remedy in  another                                                                 
MR. DONOHUE replied  that Senator Elton is  correct. The fiscal                                                                 
contract has provisions limiting the  types of damages that the                                                                 
parties can pursue  against each other. He admitted  that he is                                                                 
less familiar with the LLC agreement  under negotiation, but he                                                                 
believes it has similar, fairly  standard limitations. He could                                                                 
not think of any example of a huge award against the state.                                                                     
3:57:40 PM                                                                                                                    
CHAIR SEEKINS asked  Mr. Donohue if there is  a situs agreement                                                                 
as to where disputes will be tried.                                                                                             
MR.  DONOHUE answered  that  Exhibit  (C) discusses  where  the                                                                 
tribunal would  sit. He believes  it is by mutual  agreement of                                                                 
parties first, and then there is a default situs.                                                                               
CHAIR SEEKINS preferred that it be sited in Alaska.                                                                             
3:58:41 PM                                                                                                                    
SENATOR ELTON asked that the  administration provide an example                                                                 
to demonstrate the need for this provision.                                                                                     
MR. DONOHUE said that he would try to provide an example.                                                                       
3:59:49 PM                                                                                                                    
SENATOR WILKEN asked  Mr. Donohue to look at page  5, lines 18-                                                                 
20. This section  of the legislation expands the  powers of the                                                                 
Department of  Natural Resources  (DNR) and, with  agreement of                                                                 
the  Department of  Revenue (DOR),  expands the  commissioner's                                                                 
power  to enter  into shipping  commitments  and long-term  gas                                                                 
marketing agreements.  But on lines 18-20, the  sentence really                                                                 
seems  to be divided  into two.  The first  section that  stops                                                                 
with "and" on line  19, has to do with changing  lease and unit                                                                 
expenses  "for  separation, cleaning,  dehydration,  gathering,                                                                 
and saltwater disposal", which means  a gas treatment plant. He                                                                 
asked if the  second part, "and preparation  for transportation                                                                 
on or off the lease", speaks to the gas processing facility.                                                                    
MR. DONOHUE  answered yes; it  deals with upstream  field costs                                                                 
that the  state is  agreeing to  assume and whatever  processes                                                                 
are used  to deal  with impurities  and make  the gas  pipeline                                                                 
quality. He referred the committee  to question number three in                                                                 
the  letter from  Kevin Jardell  to The  Honorable Jay  Ramras,                                                                 
dated June 2, 2006.                                                                                                             
4:02:45 PM                                                                                                                    
SENATOR  WILKEN  said  that   the  next  time  the  legislature                                                                 
confirms  a  commissioner of  DNR  or  DOR,  it had  better  be                                                                 
awfully sure  it knows  what kind of  person it  is confirming,                                                                 
because those  are going to be  very important people  in state                                                                 
4:03:21 PM                                                                                                                    
CHAIR SEEKINS  asked if these  expenses would be  deducted from                                                                 
what the  state receives  if it  takes its  gas in  cash rather                                                                 
than in kind.                                                                                                                   
MR. DONOHUE answered no. The state  has taken these expenses on                                                                 
as part  of the process of  becoming a full  commercial partner                                                                 
in  the project,  and they  would not  otherwise be  authorized                                                                 
under the leases and existing agreements.                                                                                       
CHAIR SEEKINS asked if they reduce  the value of the gas versus                                                                 
taking it in cash.                                                                                                              
4:04:13 PM                                                                                                                    
MR. DONOHUE  said that  sounds like a  question for  Pedro [Van                                                                 
Meurs]. He  thinks that the state,  by taking its gas  in kind,                                                                 
is likely to  make as much or  more than it would  by taking it                                                                 
in cash.                                                                                                                        
4:04:55 PM                                                                                                                    
CHAIR  SEEKINS said  that  public  hearings are  scheduled  for                                                                 
Saturday and  the committee will  start with amendments  to the                                                                 
bill on Sunday.                                                                                                                 
SENATOR BUNDE noted that he gave  Chair Seekins' staff a couple                                                                 
of amendments  and asked  whether they  should be  incorporated                                                                 
into a CS, or be introduced as amendments.                                                                                      
CHAIR SEEKINS said  he would like to look at  each amendment to                                                                 
see what  could be incorporated into  a CS, then work  with the                                                                 
amendments and perhaps come up with a second CS.                                                                                
           SB 2003-NATURAL GAS PIPELINE CORPORATION                                                                         
SENATOR BUNDE referred to page  6, line 29 of Section 41.42.045                                                                 
(b), "the  governor shall  promptly make  an appointment",  and                                                                 
asked whether the term "promptly" should be further defined.                                                                    
4:07:30 PM                                                                                                                    
CHAIR SEEKINS said that is a  point well taken. He reminded the                                                                 
committee  that the  question  of whether  appointments to  the                                                                 
board  would  require  legislative confirmation  has  not  been                                                                 
SENATOR BUNDE advised  that Tam Cooke provided  a legal opinion                                                                 
that legislative confirmation is  unlikely to be enforceable or                                                                 
CHAIR SEEKINS asked for a copy of that opinion.                                                                                 
SENATOR BUNDE said that it is being distributed.                                                                                
CHAIR  SEEKINS commented  that  Senator  Green  said, when  the                                                                 
primary function of a board is  fiduciary, it is not subject to                                                                 
confirmation by the legislature.  The legislature can stipulate                                                                 
that board members cannot be dismissed except for cause.                                                                        
4:09:25 PM                                                                                                                    
CHAIR SEEKINS  said that the  other unresolved  question having                                                                 
to  do  with public  members  of  the  board is  the  residency                                                                 
SENATOR BUNDE  interjected that  he has submitted  an amendment                                                                 
that requires most  of them to be Alaskans. He  also noted that                                                                 
committee members should  now have a copy of the  memo from Tam                                                                 
Cooke before them,  and read the last sentence  from that memo:                                                                 
"The  Board of  Directors of  the Alaska  Natural Gas  Pipeline                                                                 
Corporation do  not fall  within the types  of boards  in which                                                                 
confirmation is required."                                                                                                      
4:10:20 PM                                                                                                                    
CHAIR SEEKINS  thanked Senator  Bunde. He  then brought  up the                                                                 
subject of when  board meetings should be held  and whether the                                                                 
meetings should be public.                                                                                                      
4:10:50 PM                                                                                                                    
SENATOR  ELTON  said  that  he is  more  comfortable  with  the                                                                 
Permanent  Fund Corporation  model  than that  outlined in  the                                                                 
bill. All  of its meetings are  public and, if the  board needs                                                                 
to  address  matters  that  are   confidential,  it  goes  into                                                                 
executive session.                                                                                                              
SENATOR GREEN  asked if there is  or should be a  provision for                                                                 
emergencies in which a decision must be made post-haste.                                                                        
CHAIR SEEKINS  said he  thinks that would  be handled  based on                                                                 
notice, and asked if anyone had an opinion on it.                                                                               
4:11:47 PM                                                                                                                    
SENATOR  WILKEN asked  how the  Alaska  railroad board  handles                                                                 
meetings, and whether that would be a good model to follow.                                                                     
MR. DONOHUE asked Chair Seekins to repeat the question.                                                                         
CHAIR  SEEKINS  explained  that  the discussion  is  about  the                                                                 
public meeting process and how it should be handled.                                                                            
MR. DONOHUE replied  that the plan was to ensure  that at least                                                                 
one of four  meetings would be public, although  that would not                                                                 
preclude making all of them public.  The primary concern of DOR                                                                 
is that the meetings remain exempt  from the Open Meetings Act,                                                                 
because  it puts  constraints on  how quickly  the board  could                                                                 
meet, creates litigation points for  lack of notice and subject                                                                 
matter of  executive sessions. If AK  Pipe is to operate  on an                                                                 
equal footing as a commercial entity  with the other members of                                                                 
the LLC, freedom from the Open Meetings Act is necessary.                                                                       
4:14:33 PM                                                                                                                    
SENATOR  WILKEN restated  his concern  about allowing  votes on                                                                 
fiscal issues via teleconference.                                                                                               
SENATOR ELTON  said that  Mr. Porter stopped  by his  office to                                                                 
discuss the issue  of public meetings. He  understood the model                                                                 
that Chair  Seekins suggested and  had no objection to  it, and                                                                 
may be working on some language now.                                                                                            
CHAIR SEEKINS asked  Senator Wilken whether all  members of the                                                                 
board must be present, or if  a certain number of members could                                                                 
attend via teleconference.                                                                                                      
SENATOR  WILKEN  said  he  prefers that  all  members  must  be                                                                 
SENATOR BUNDE  said that, on  page 6,  line 8, where  it states                                                                 
that board members would be paid  for "each day or portion of a                                                                 
day  spent at  a  meeting  of the  board,"  he  would like  the                                                                 
portion  required to  earn the  honorarium to  be more  clearly                                                                 
defined.  He  said  he  would  prepare  an  amendment  for  the                                                                 
committee's consideration.                                                                                                      
4:16:14 PM                                                                                                                    
CHAIR  SEEKINS said  that, when  he was on  the permanent  fund                                                                 
board  of trustees,  he sometimes  spent  half a  day each  way                                                                 
traveling  to a meeting  and ended  up not  meeting at  all. He                                                                 
asked Senator  Bunde if he  would want  to put members  of this                                                                 
board in the position of doing that without compensation.                                                                       
SENATOR BUNDE said he would like to discuss it.                                                                                 
4:16:59 PM                                                                                                                    
CHAIR  SEEKINS directed  Mr.  Donohue's  attention  to page  9,                                                                 
paragraph (8) starting  on line 3, and asked  whether the board                                                                 
of  directors  could  divest  the   state  of  Alaska  of  it's                                                                 
ownership interest in the project simply by a vote.                                                                             
MR.  DONOHUE  replied  that there  are  provisions  that  would                                                                 
restrict the transfer of assets  as long as the corporation has                                                                 
outstanding obligations.  Since this is a  public organization,                                                                 
its duty is to acquire and  maintain an ownership interest over                                                                 
the life of the project. The provision  on page 9 is focused on                                                                 
allowing the  board to use the  ownership interest as  an asset                                                                 
to secure debt and so on.                                                                                                       
4:19:14 PM                                                                                                                    
MR.  DONOHUE said  that he  does not  think the  administration                                                                 
would have  any objection to amending  the language to  make it                                                                 
clear that the board cannot transfer the entire asset.                                                                          
CHAIR  SEEKINS  asked  for  questions  on  indemnification  and                                                                 
confidentiality agreements, which are discussed on page 10.                                                                     
4:20:01 PM                                                                                                                    
He went on  to page 11, line  9, dealing with police  powers of                                                                 
the state, and  asked Mr. Donohue to explain  what those powers                                                                 
4:20:12 PM                                                                                                                    
MR. DONOHUE answered that the police  powers of the state refer                                                                 
to its sovereign authority to  maintain the health and security                                                                 
of  the state,  to regulate  criminal  matters, and  commercial                                                                 
activity within the state.                                                                                                      
CHAIR SEEKINS  went on to  page 21, line  14, and asked  if the                                                                 
insertion  of the  word  "reasonably"  before "required"  would                                                                 
address some of the concerns the committee has discussed.                                                                       
4:21:43 PM                                                                                                                    
MR. DONOHUE  said that is  a question  for Mr. Porter.  He said                                                                 
that this provision  has been a hot issue  with producers. They                                                                 
are uncomfortable with the administration's  approach and would                                                                 
prefer a complete  exemption from the public  records act. They                                                                 
are insisting  on a  confidentiality agreement  as part  of the                                                                 
LLC agreement.                                                                                                                  
4:22:34 PM                                                                                                                    
CHAIR SEEKINS  said that  he knows  there is a  confidentiality                                                                 
agreement in  the SGDA that  delineates those things  that must                                                                 
be confidential, and  he wonders why that was not  done in this                                                                 
MR. DONOHUE said  that the administration did look  to the SGDA                                                                 
provisions as a model.                                                                                                          
4:23:20 PM                                                                                                                    
CHAIR SEEKINS said  that what concerns him is  the inclusion of                                                                 
a blanket statement  covering "anything that is  required to be                                                                 
kept confidential under an agreement  with an owner entity". He                                                                 
asked  if  that  means  the  state has  to  agree  to  keep  it                                                                 
confidential  first,  or that  there  is  a vote  to  determine                                                                 
whether it is confidential.                                                                                                     
MR. DONOHUE  said that,  under  the LLC agreement,  there  is a                                                                 
standard   definition  of   what   is   confidential  and   how                                                                 
information would  be shared  among the parties.  He reiterated                                                                 
that  the  producers  are  concerned   about  taking  a  public                                                                 
corporation  into their partnership,  which  has not been  done                                                                 
He  said that  he has  no legal  problem with  adding the  word                                                                 
"reasonably", but  that this is  a policy issue that  should be                                                                 
addressed by Mr. Porter.                                                                                                        
4:25:03 PM                                                                                                                    
CHAIR  SEEKINS asked  when the  legislature would  see the  LLC                                                                 
MR.  DONOHUE said  that  he does  not have  an  answer to  that                                                                 
question,  but that  every  effort is  being  made to  complete                                                                 
negotiations as quickly as possible.                                                                                            
4:25:22 PM                                                                                                                    
SENATOR  GREEN   commented  that,  just  because   there  is  a                                                                 
government entity  in partnership  with a private  entity, does                                                                 
not mean that  the same public information  standards should be                                                                 
imposed on the private entity as are required of the state.                                                                     
MR. DONOHUE assured  her that the administration  is not trying                                                                 
to bring the  members of the LLC  or the LLC itself  within the                                                                 
Freedom of Information Act.                                                                                                     
SENATOR  GREEN said  that she  was  referring to  the call  for                                                                 
information  that normally,  under a  government entity,  would                                                                 
not be kept confidential.                                                                                                       
MR. DONOHUE replied that part of  the problem might be that the                                                                 
current public records  act is somewhat vague in  regard to the                                                                 
types of  proprietary information  that  would be protected  if                                                                 
challenged.  Part of  rationale for  the expanded  list in  the                                                                 
bill,  is to  clarify the  nature of  the business  information                                                                 
that  could be  protected  by Alaska  Pipe  Corporation in  the                                                                 
context of this commercial venture.                                                                                             
4:27:32 PM                                                                                                                    
CHAIR SEEKINS  referred Mr. Donohue  to page 27, section  12 of                                                                 
the  bill, and  asked him  to explain  what 45.45.900  actually                                                                 
MR. DONOHUE answered that this  provision is in current law and                                                                 
provides that,  in the  context of  a construction  contract in                                                                 
Alaska, a person  cannot agree to indemnify  another contractor                                                                 
for their sole negligence or  misconduct. So, section 12 amends                                                                 
that rule  by providing  for the exception  that is  added with                                                                 
section 13.                                                                                                                     
He explained  that the standard  mechanism for a  joint venture                                                                 
between oil and gas entities is  to hire an affiliated operator                                                                 
to  manage  the construction  and  operate  the project  at  no                                                                 
profit; so  that operator  would not be  willing to  accept any                                                                 
risk.  The risk  would  be absorbed  by  the  LLC, which  would                                                                 
indemnify   the  operator   against  its   own  negligence   or                                                                 
misconduct  by its  employees,  and the  cost  would be  spread                                                                 
among the LLC  members according to their  membership interest.                                                                 
The members  can insure  against it on  an individual  basis or                                                                 
self-insure, which is what the  oil companies do. The operator,                                                                 
as an  affiliate of one  of the members  of the LLC,  has every                                                                 
incentive to avoid negligence and  misconduct; but in a project                                                                 
as big as this, such things do occur.                                                                                           
CHAIR SEEKINS asked  if this indemnification flows  only to the                                                                 
operating  entity and  is not  a  cross-indemnification of  the                                                                 
owners of the project.                                                                                                          
4:32:53 PM                                                                                                                    
MR. DONOHUE answered  that this provision deals  with two types                                                                 
of indemnification: the  operator, and the members  of the LLC.                                                                 
These are contractual agreements  that will be narrowly drafted                                                                 
to  deal  with   certain  kinds  of  misconduct   by  low-level                                                                 
employees  that  the policy  makers  of  each of  the  partners                                                                 
cannot control.                                                                                                                 
He said  there are also provisions  that allow the  operator to                                                                 
hire experts to assist in construction  or permitting and other                                                                 
special areas.  The entities  providing the consulting  service                                                                 
to the  operator would  be indemnified  in the  same way.  Some                                                                 
companies  may  also  loan employees  to  the  operator  during                                                                 
certain phases  of the project,  and these employees  too would                                                                 
be indemnified.                                                                                                                 
CHAIR  SEEKINS   asked   if  the  actions   of  someone   hired                                                                 
temporarily by  or loaned to the  operator do not flow  back to                                                                 
their original  employer, but are  indemnified as if he  were a                                                                 
regular employee of the operator.                                                                                               
4:34:59 PM                                                                                                                    
MR.  DONOHUE  answered  yes;  the  indemnification  covers  any                                                                 
employee  that  is loaned  to  the  operator, the  entity  that                                                                 
loaned  the  employee,  and  any  entity  providing  consulting                                                                 
services to the  operator. He stressed the fact  that these are                                                                 
entities affiliated with  members of the LLC, and  not just any                                                                 
consultant to the operator.                                                                                                     
CHAIR SEEKINS asked  whether, if the negligence  of an employee                                                                 
of the state of Alaska caused  damages, the cost of the damages                                                                 
would be  shared on an equal  basis between all of  the members                                                                 
of the LLC.                                                                                                                     
MR. DONOHUE answered  yes, as long as the  employee was working                                                                 
for the operator.                                                                                                               
4:35:53 PM                                                                                                                    
SENATOR  GREEN asked  if  Mr. Donohue  said  that the  operator                                                                 
would not have to pay at all.                                                                                                   
MR. DONOHUE  responded that the  producers and the  state would                                                                 
share the  100 percent ownership  interest. The  operator would                                                                 
be  a  separate  entity  affiliated   with  one  of  the  owner                                                                 
entities, but would not have ownership in the LLC.                                                                              
SENATOR GREEN asked if the four  owners would share 100 percent                                                                 
of the liability.                                                                                                               
MR. DONOHUE answered  yes; it would be shared  in proportion to                                                                 
their ownership interest.                                                                                                       
4:37:11 PM                                                                                                                    
SENATOR  BUNDE referred  to  page  5, paragraph  (3)(A),  which                                                                 
lists  specific  things  that  would disqualify  a  person  for                                                                 
membership on  the board and  noted that, although  it excludes                                                                 
employees  of the  state,  it does  not  exclude executives  or                                                                 
employees of the major oil companies.  He asked why that is not                                                                 
CHAIR  SEEKINS also  asked  why state  employees,  but not  oil                                                                 
company employees, are excluded from serving on the board.                                                                      
MR.  DONOHUE  responded that  he  could  not understand  why  a                                                                 
governor would  appoint an oil  company employee to  the board.                                                                 
He said the desire  is to get experienced people  on the board,                                                                 
which might mean  former oil company employees,  who would then                                                                 
be subject to the conflict of interest clause.                                                                                  
4:38:37 PM                                                                                                                    
SENATOR BUNDE said  that the conflict of interest  section says                                                                 
board members  and applicants  to the board  have to  declare a                                                                 
conflict, but does not say it precludes them from serving.                                                                      
SENATOR GREEN asked  where the conflict of  interest section is                                                                 
located, and then found it on page 7.                                                                                           
4:39:20 PM                                                                                                                    
SENATOR  ELTON asked  if  there is  anything  that precludes  a                                                                 
future legislature from tweaking any of these provisions.                                                                       
MR.  DONOHUE  replied  that  there is  nothing  in  the  fiscal                                                                 
contract, but  there are  provisions in  the LLC called  member                                                                 
default provisions,  that would  be triggered by  amendments to                                                                 
this statute in the future. These  are designed particularly to                                                                 
address  producers'  concerns  about  confidentiality  and  the                                                                 
makeup  of  the  board.  They   include  a  dispute  resolution                                                                 
process, and a specific provision  on page 11, section 22, that                                                                 
specifies  the  powers  of  the corporation  in  the  event  of                                                                 
changes  that  adversely  affect  its ability  to  perform  its                                                                 
obligations under the contract.                                                                                                 
4:41:46 PM                                                                                                                    
SENATOR  ELTON  suggested that  it  might  be helpful  for  the                                                                 
Administration  to  identify  elements  in the  bill  that  the                                                                 
legislature will be prevented from changing in the future.                                                                      
MR. DONOHUE  advised that  these issues  are under  discussion.                                                                 
The  triggering  mechanisms and  the  penalties  have not  been                                                                 
resolved;  so he  does not  think the  administration can  give                                                                 
more specific examples at this time.                                                                                            
SENATOR  ELTON likened  this  to putting  the  cart before  the                                                                 
horse, and  said that  he is uncomfortable  not knowing  if the                                                                 
legislature will have the power to change this in the future.                                                                   
4:43:58 PM                                                                                                                    
CHAIR SEEKINS  commented that  it is hard  to predict;  but the                                                                 
LLC  will have  to comply  with the  decisions the  legislature                                                                 
makes now.                                                                                                                      
SENATOR  ELTON   agreed,  and  likened   it  to  the   way  the                                                                 
legislature  is  dealing  with  amendments  to  the  SGDA  that                                                                 
implicate  the  kind  of  contract that  can  come  before  the                                                                 
legislature  for  a  vote.  In   this  situation  however,  the                                                                 
legislature does not have the ability to vote on the LLC.                                                                       
CHAIR  SEEKINS said  that  the  legislature would  provide  the                                                                 
framework within which the LLC can operate.                                                                                     
4:45:19 PM                                                                                                                    
MR. DONOHUE  said that the  legislature would not  be precluded                                                                 
from  changing the  law  in these  areas;  but  there could  be                                                                 
limited  penalties on  the Alaska  member within  the LLC  that                                                                 
would  affect   voting  rights   and  access   to  confidential                                                                 
CHAIR  SEEKINS  said  he could  not  imagine  that  information                                                                 
normally available  to shareholders  of a corporation  would be                                                                 
withheld from  the citizens of  the State.   He said  he thinks                                                                 
the committee  is trying to get  at what information it  is not                                                                 
necessary to share with shareholders  of a corporation, because                                                                 
the people  of the state are  really acting as  shareholders in                                                                 
the LLC.  He asked  Mr. Donohue  if the state  is bound  by the                                                                 
MR.  DONOHUE said  that  changes  could be  made  but might  be                                                                 
subject to  penalties, which are  limited as described  in this                                                                 
power. [page 11, paragraph (22)]                                                                                                
4:48:24 PM                                                                                                                    
SENATOR ELTON said he would describe  a couple of examples, and                                                                 
then go  back to  the situation the  committee finds  itself in                                                                 
with the contract.  By passing this bill,  the legislature will                                                                 
be making decisions  on indemnification in sections  12 and 13.                                                                 
It will be  determining how many board members  there should be                                                                 
and where they  come from. Those are two  examples of decisions                                                                 
that a future legislature may  want to "tweak". The legislature                                                                 
is  adopting  the   SGDA  amendments  after  having   seen  the                                                                 
contract,  to accommodate  the contract.  The other  way to  do                                                                 
this is to wait and adopt  legislation authorizing Pipeco after                                                                 
seeing what the LLC looks like.                                                                                                 
4:49:54 PM                                                                                                                    
MR.   DONOHUE   remarked   that   he   understands   that   the                                                                 
administration intends to bring the  LLC to the legislature for                                                                 
review in conjunction with the Alaska Pipe legislation.                                                                         
4:50:07 PM                                                                                                                    
SENATOR WILKEN  said he is  not comfortable with  his knowledge                                                                 
of  the  subject   matter;  but  he  knows  the   29  pages  of                                                                 
legislation the  committee is dealing with are  very important.                                                                 
He said  he hopes that  Chair Seekins  has asked the  legal and                                                                 
professional advisers  available to the  state to look  at this                                                                 
legislation and advise the committee.                                                                                           
SENATOR  BEN  STEVENS  asked  Mr.  Donohue if  it  is  the  LLC                                                                 
management agreement the committee is talking about.                                                                            
MR. DONOHUE said yes, that is what is being negotiated.                                                                         
SENATOR  BEN STEVENS  asked if  there has  been any  discussion                                                                 
about the LLC operating agreement.                                                                                              
MR. DONOHUE  said that there have  been discussions, but  he is                                                                 
not sure where they stand.                                                                                                      
SENATOR  BEN  STEVENS   said  that  an  LLC   operates  on  two                                                                 
guidelines, a management agreement  and an operating agreement.                                                                 
The first to pass is the  management agreement that defines the                                                                 
members' rights  within the organization.  Then the  parties to                                                                 
the management  agreement develop the operating  agreement that                                                                 
defines how  the organization will  function and how  the money                                                                 
will flow  through the  operation. He  has no expectation  that                                                                 
there will be  an operating agreement by the  time the contract                                                                 
comes up for ratification; it may  take three years before that                                                                 
is developed.  As all Pipeco  will do is  to set up  the public                                                                 
entity that will become a member of the management agreement.                                                                   
SENATOR GREEN asked  if there is a different  standard required                                                                 
when a government entity is involved.                                                                                           
SENATOR  BEN STEVENS  responded  that  he asked  that  question                                                                 
yesterday, specifically regarding Sarbanes-Oxley.                                                                               
4:54:59 PM                                                                                                                    
MR. DONOHUE said  that Louisiana Cutler is looking  into it. He                                                                 
responded  to  Senator  Ben Stevens  that  the  management  and                                                                 
operating  agreements are  very closely  related, even  if they                                                                 
are not created simultaneously.                                                                                                 
SENATOR BEN STEVENS  agreed that they are  closely related, but                                                                 
stressed  that  the  LLC operating  agreement  evolves  through                                                                 
participation of the members and is constantly changing.                                                                        
4:56:59 PM                                                                                                                    
SENATOR BEN STEVENS  voiced concern about the  establishment of                                                                 
the  corporation that  will become  a  member of  the LLC,  and                                                                 
commented that  he will feel better  when he has  actually seen                                                                 
the LLC  agreement.  He does not  have much  concern about  the                                                                 
operating agreement, because the LLC will manage that.                                                                          
4:58:14 PM                                                                                                                    
CHAIR SEEKINS acknowledged Senator Bettye Davis.                                                                                
4:58:36 PM                                                                                                                    
CHAIR  SEEKINS said  that the committee  will  meet at 9:00  am                                                                 
Saturday and  will have comments  from BP,  ConocoPhillips, and                                                                 
ExxonMobil, followed by public comment on SB 2003 and SB 2004.                                                                  
4:59:14 PM                                                                                                                    
He  said  that  on  Sunday  at  2:00  pm  the  committee  would                                                                 
entertain   amendments   from   members.  He   requested   that                                                                 
legislative legal  services draft the amendments  and that they                                                                 
be provided to his staff person, Brian Hove.                                                                                    
CHAIR   SEEKINS   said   that   the   committee   might   begin                                                                 
consideration of amendments on Saturday if there is time.                                                                       
ADJOURN 5:00:27 PM                                                                                                            

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