Legislature(2005 - 2006)SENATE FINANCE 532


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02:13:31 PM Start
02:13:55 PM SB2003 || SB2004
02:24:37 PM Joseph K. Donohue, Preston Gates & Ellis
03:15:54 PM Ken Konrad, Bp
03:28:24 PM Brian Wenzel, Conocophillips
03:41:37 PM Wendy King, Conocophillips
05:33:02 PM Donald Shepler, Greenberg Traurig
05:56:07 PM Bob Loeffler, Morrison and Foerster
06:02:36 PM Wendy King and Pete Frost, Conocophillips
06:31:16 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a 06/05/06 7 AM --
Heard & Held
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
      SENATE SPECIAL COMMITTEE ON NATURAL GAS DEVELOPMENT                                                                     
                          June 4, 2006                                                                                          
                           2:13 p.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 Johnny Ellis                                                                                                            
Senator Gene Therriault                                                                                                         
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: SB2003                                                                                                                  
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)       REFERRALS - 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                                                                     
06/02/06       (S)       Heard & Held                                                                                           
06/02/06       (S)       MINUTE(NGD)                                                                                            
06/03/06       (S)       NGD AT 9:00 AM SENATE FINANCE 532                                                                      
06/03/06       (S)       Heard & Held                                                                                           
06/03/06       (S)       MINUTE(NGD)                                                                                            
06/04/06       (S)       NGD AT 2:00 PM SENATE FINANCE 532                                                                      
BILL: SB2004                                                                                                                  
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)       REFERRALS - 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                                                                     
06/02/06       (S)       Heard & Held                                                                                           
06/02/06       (S)       MINUTE(NGD)                                                                                            
06/03/06       (S)       NGD AT 9:00 AM SENATE FINANCE 532                                                                      
06/03/06       (S)       Heard & Held                                                                                           
06/03/06       (S)       MINUTE(NGD)                                                                                            
06/04/06       (S)       NGD AT 2:00 PM SENATE FINANCE 532                                                                      
WITNESS REGISTER                                                                                                              
JOSEPH K. DONOHUE                                                                                                               
Preston Gates & Ellis                                                                                                           
Counsel to the Governor                                                                                                         
Office of the Governor                                                                                                          
PO Box 110001                                                                                                                   
Juneau, AK 99811-0001                                                                                                           
POSITION STATEMENT:  Answered questions during hearing on                                                                     
SB 2003 and SB 2004.                                                                                                            
SENATOR GENE THERRIAULT                                                                                                         
Alaska State Legislature                                                                                                        
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Commented on Amendment 4 to SB 2004.                                                                     
KEN KONRAD, Senior Vice President - Gas                                                                                         
POSITION STATEMENT:  Testified during hearing on SB 2003 and                                                                  
SB 2004; opposed Amendment 4 to SB 2004.                                                                                        
BRIAN WENZEL, Vice President                                                                                                    
Finance and Administration                                                                                                      
ConocoPhillips Alaska, Inc.                                                                                                     
POSITION STATEMENT:  Testified during hearing on SB 2003 and                                                                  
SB 2004; opposed Amendment 4 to SB 2004.                                                                                        
WENDY KING, Director of External Strategies                                                                                     
ANS Gas Development Team                                                                                                        
ConocoPhillips Alaska, Inc.                                                                                                     
PO Box 100360                                                                                                                   
Anchorage, AK  99510                                                                                                            
POSITION STATEMENT:  Testified during hearing on SB 2003 and                                                                  
SB 2004; opposed Amendment 9 to SB 2004.                                                                                        
JIM BALDWIN                                                                                                                     
Counsel to the Office of the Attorney General                                                                                   
Department of Law                                                                                                               
PO Box 110300                                                                                                                   
Juneau, AK  99811-0300                                                                                                          
POSITION STATEMENT:  Answered questions on amendments to                                                                      
SB 2004.                                                                                                                        
DONALD SHEPLER                                                                                                                  
Greenberg Traurig, LLP                                                                                                          
Consultant to the Legislature                                                                                                   
POSITION  STATEMENT:     Answered  questions  on   amendments  to                                                             
SB 2004.                                                                                                                        
BOB LOEFFLER                                                                                                                    
Morrison & Foerster                                                                                                             
Counsel to the Governor                                                                                                         
Office of the Governor                                                                                                          
PO Box 110001                                                                                                                   
Juneau, AK 99811-0001                                                                                                           
POSITION STATEMENT:  Testified on Amendment 9 to SB 2004.                                                                     
PETE FROST, Director of Regulator Affairs                                                                                       
Washington, DC                                                                                                                  
POSITION STATEMENT:  Testified on Amendment 9 to SB 2004.                                                                     
ACTION NARRATIVE                                                                                                              
CHAIR  RALPH  SEEKINS  called the  Senate  Special  Committee  on                                                             
Natural Gas Development meeting to  order at 2:13:31 PM.  Present                                                             
at the call  to order were Senators Lyda Green,  Gary Wilken, Con                                                               
Bunde,  Fred Dyson,  Bert Stedman,  Lyman  Hoffman, Donny  Olson,                                                               
Thomas Wagoner, Ben Stevens, Kim  Elton, Albert Kookesh and Chair                                                               
Ralph Seekins.   Also in  attendance were Senators  Gary Stevens,                                                               
Hollis French, Johnny Ellis and Gene Therriault.                                                                                
            SB 2003-NATURAL GAS PIPELINE CORPORATION                                                                        
        SB 2004-STRANDED GAS DEVELOPMENT ACT AMENDMENTS                                                                     
CHAIR  SEEKINS  announced SB  2003  and  SB  2004  to be  up  for                                                               
consideration.   Pending  was a  motion to  adopt Amendment  4 to                                                               
SB 2004, which had been discussed the previous day.                                                                             
2:13:55 PM                                                                                                                    
CHAIR SEEKINS  informed members there  was an updated  version of                                                               
Amendment 4, labeled 24-GS2046\A.12, Bailey, 6/3/06, which read:                                                                
                      A M E N D M E N T  4                                                                                  
    OFFERED IN THE SENATE            BY SENATOR BEN STEVENS                                                                     
          TO:  SB 2004                                                                                                          
     Page 6, following line 8:                                                                                                  
          Insert a new bill section to read:                                                                                    
        * Sec. 10.  AS 43.82 is amended by adding a new                                                                       
     section to read:                                                                                                           
               Sec. 43.82.255. Terms of contract provisions                                                                   
          related  to  oil.  (a)   The  provisions  of  this                                                                  
          section  apply  to   a  contract  developed  under                                                                    
          AS 43.82.020  that provides  for periodic  payment                                                                    
          in lieu of taxes on oil under AS 43.55.                                                                               
               (b) For the part of the contract term                                                                            
          beginning  immediately  after  the  date  of  full                                                                    
          project  funding  or the  date  of  issuance of  a                                                                    
          certificate  of public  convenience and  necessity                                                                    
          for  construction  and  initial operation  of  the                                                                    
          Alaska  Natural Gas  Pipeline,  whichever date  is                                                                    
          later, and  ending 14 years  after that  date, the                                                                    
          commissioner may  develop a term for  the contract                                                                    
          that provides  for payments in  lieu of  the taxes                                                                    
          on oil  set out in  AS 43.55. For the part  of the                                                                    
          contract  term  covered  by this  subsection,  the                                                                    
          payments in lieu of taxes  may be established with                                                                    
          as  much  certainty  as the  Constitution  of  the                                                                    
          State of Alaska allows.                                                                                               
               (c) For the part of the contract term                                                                            
          beginning immediately  after the  period described                                                                    
          in (b) of  this section, and ending on  a date not                                                                    
          later than  25 years  after the effective  date of                                                                    
          the contract,  the amount of  the payment  in lieu                                                                    
          of tax on oil under  AS 43.55 must be equal to the                                                                    
          amount  of the  tax  levied by  law. However,  the                                                                    
          commissioner may develop a  contract term that, in                                                                    
          the  event  of  a  material change  in  the  taxes                                                                    
          enacted after the effective  date of the contract,                                                                    
          establishes a procedure  for restoring the parties                                                                    
          to substantially  the same economic  position they                                                                    
          had as of  the end of the period  described in (b)                                                                    
         of this section immediately before the change.                                                                         
               (d) Implementation of a contract provision                                                                       
          authorized in this section may  be made subject to                                                                    
          the   dispute   resolution   procedures   of   the                                                                    
     Renumber the following bill sections accordingly.                                                                          
     Page 10, line 23:                                                                                                          
          Delete "Sections 1 - 12, 15, 16, and 18"                                                                              
          Insert "Sections 1 - 13, 16, 17, and 19"                                                                              
     Page 10, line 25:                                                                                                          
          Delete "Section 17"                                                                                                   
          Insert "Section 18"                                                                                                   
SENATOR  BEN STEVENS  told members  the words  were identical  to                                                               
previous Amendment 4,  except for language added  to renumber the                                                               
bill  sections.    He  thanked Senator  Wilken  for  providing  a                                                               
related  handout  labeled "Oil  Tax  Certainty."   He  asked  for                                                               
unanimous consent for the adoption of Amendment 4.                                                                              
2:15:54 PM                                                                                                                    
SENATOR  ELTON  began  discussion  that led  to  Amendment  1  to                                                               
Amendment  4.   He reiterated  his question  of the  previous day                                                               
relating to the dispute resolution  language in subsection (d) of                                                               
the  amendment.    He  read  the  phrase,  "Implementation  of  a                                                               
contract provision  authorized in  this section", and  asked what                                                               
its net effect would be on subsection (b).                                                                                      
SENATOR  BEN STEVENS  gave his  view that  the only  new contract                                                               
provision  would   relate  to  lines  18-19   of  the  amendment,                                                               
subsection  (c),   "However,  the  commissioner  may   develop  a                                                               
contract term  ... in the event  of a material change".   He said                                                               
that takes  place in  the third  component of  the timeline.   He                                                               
noted  the  provision  that  would  be  challenged  in  court  is                                                               
mentioned on lines  13-14, subsection (b), which  talks about "as                                                               
much  certainty  as  the  Constitution of  the  State  of  Alaska                                                               
allows."   He highlighted  this as  a term  in the  contract that                                                               
already is  subject to  the dispute  resolution procedure.   This                                                               
just  says  that if  a  new  provision under  a  fiscal-balancing                                                               
scenario  is  developed,  it  also shall  be  under  the  dispute                                                               
resolution scenario, he added.                                                                                                  
SENATOR  ELTON  offered  an  example,   reading  from  the  first                                                               
sentence  in (b).   He  said  this seems  to be  a contract  term                                                               
subject  to   arbitration,  rather  than  a   court  decision;  a                                                               
determination as  to when the  14-year clock would  start running                                                               
could be highly important.                                                                                                      
SENATOR  BEN STEVENS  responded that  the aforementioned  isn't a                                                               
contract term.   It would  be in statute,  not the contract.   He                                                               
indicated this doesn't affect any  term of the contract, but adds                                                               
timelines as to whether the  legislature will agree not to change                                                               
AS  43.55,  which  would  affect  the  contract;  subsection  (d)                                                               
implements  a  contract  provision authorized  by  this  section,                                                               
which is mentioned on lines 18-19, subsection (c).                                                                              
2:20:05 PM                                                                                                                    
SENATOR  BEN STEVENS  suggested  replacing  "contract term"  with                                                               
"contract  provision"  in  (c),   on  line 19,  because  in  this                                                               
instance it isn't talking about a time period.                                                                                  
CHAIR   SEEKINS   proposed   adding  "(c)   of"   to   subsection                                                               
(d), line 23,  so   it  would  read:     "a   contract  provision                                                               
authorized in (c) of this section".                                                                                             
SENATOR  BEN  STEVENS  indicated  the  above  could  be  done  if                                                               
necessary for clarification, or as an alternative.                                                                              
SENATOR  DYSON  agreed with  the  need  for clarification,  since                                                               
"term"  has different  meanings.   He  suggested  hearing from  a                                                               
legal expert.                                                                                                                   
2:22:23 PM                                                                                                                    
^Joseph K. Donohue, Preston Gates & Ellis                                                                                       
JOSEPH  K.  DONOHUE,  Preston  Gates  &  Ellis,  Counsel  to  the                                                               
Administration, opined  that "term"  is used properly  within the                                                               
context  of the  Alaska Stranded  Gas Development  Act ("Stranded                                                               
Gas Act").  He gave an example.   To the extent Amendment 4 deals                                                               
with a specific contract provision,  he suggested "contract term"                                                               
is appropriately  used.  He indicated,  however, that consistency                                                               
would be attained  by amending (d) as proposed  by Chair Seekins,                                                               
adding  "(c) of"  so that  line  23 would  read "in  (c) of  this                                                               
2:24:37 PM                                                                                                                    
SENATOR BEN STEVENS suggested "in section (c)" for simplicity.                                                                  
CHAIR  SEEKINS asked  whether "provision"  should  be changed  to                                                               
"term" on line 23 for consistency.                                                                                              
MR.  DONOHUE  related  his  belief that  within  the  context  of                                                               
Section 10  of  the  bill,   "contract  provision  authorized  in                                                               
section (c)"  would be as  clear as "contract term  authorized in                                                               
this section".                                                                                                                  
SENATOR  DYSON highlighted  the  unclear meaning  of the  various                                                               
uses of "term"  and "terms".  For example, does  "the part of the                                                               
contract  term" refer  to the  extent  of time  during which  the                                                               
contract  is  in  place?    Does  "contract  term"  on  line  15,                                                               
subsection (c),  deal with the  length of the contract  in force?                                                               
Does "terms"  in the  title, line  4 of  the amendment,  refer to                                                               
both the  length of time  that the contract  is in force  and the                                                               
individual provisions within the contract?                                                                                      
MR. DONOHUE announced he was  changing his mind.  He acknowledged                                                               
the  potential for  ambiguity and  said he  needed time  to think                                                               
about the appropriate language to clarify the distinction.                                                                      
2:28:16 PM                                                                                                                    
SENATOR BEN STEVENS  said he appreciated attempts  to clarify the                                                               
intention,  but  brought  attention   to  the  title,  "Terms  of                                                               
contract provisions related  to oil", as well  as subsection (d).                                                               
He  said the  question that  brought them  to this  point is  the                                                               
creation of  a new provision  in the contract that  is authorized                                                               
by this amendment.  It is  the only mention of the development of                                                               
a  new  provision; all  other  "terms  of the  contract"  already                                                               
exist.  He  acknowledged "terms" could mean  either provisions or                                                               
periods of time.                                                                                                                
CHAIR SEEKINS opined that the  amendment was pretty clear, except                                                               
for line 23.                                                                                                                    
2:29:55 PM                                                                                                                    
CHAIR SEEKINS  requested a  motion to delete  the word  "this" on                                                               
line  23 after  "in"  and then  add "(c)"  after  "section".   In                                                               
response to  staff, he  said he'd  have no  objection to  "(c) of                                                               
this section".   Thus it would read in  part: "(d) Implementation                                                               
of a contract provision authorized in (c) of this section".                                                                     
SENATOR  GREEN moved  to adopt  the foregoing  as Amendment  1 to                                                               
Amendment 4.  There being no objection, it was so ordered.                                                                      
2:31:17 PM                                                                                                                    
SENATOR ELTON  requested a legal  opinion as to whether  the last                                                               
sentence of (b)  affects issues relating to legal  standing.  For                                                               
example,  does it  change who  has  standing?   Does it  preclude                                                               
going to court until a lockdown on taxes begins?                                                                                
MR. DONOHUE  replied that as  he understands Amendment 4,  a term                                                               
in  the contract  that is  authorized at  the conclusion  of this                                                               
process would lay out this proposal.   It would say the producers                                                               
agree  there is  no fiscal  certainty with  respect to  oil until                                                               
such-and-such a  time, and they'd  agree to fiscal  certainty for                                                               
the  middle period,  and to  a  balancing for  the third  period.                                                               
There would be standing to  challenge whether fiscal certainty is                                                               
authorized by  the state  constitution.   In addition,  the basic                                                               
theory  of providing  fiscal certainty  associated  with all  the                                                               
other provisions  - including tax  rates for  gas and so  forth -                                                               
would be at  issue and resolved.  Even if  there were an argument                                                               
that  this issue  needed to  await the  mid-phase agreement,  the                                                               
constitutional question would be addressed.                                                                                     
CHAIR SEEKINS added  that under SB 2002, which  passed the Senate                                                               
that  afternoon, the  constitutional challenge  would have  to be                                                               
brought  within 120  days  of  execution of  the  contract as  an                                                               
original action in the Alaska Supreme Court.                                                                                    
2:34:04 PM                                                                                                                    
SENATOR  DYSON  began  discussion  that led  to  Amendment  2  to                                                               
Amendment 4.  Returning to the  meaning of "term" in Amendment 4,                                                               
he interpreted  it to always  refer to periods when  the contract                                                               
is in force.                                                                                                                    
CHAIR SEEKINS compared line 19,  subsection (c), with language in                                                               
the Stranded Gas  Act set out in  SB 2004 on page 3, line  3.  He                                                               
indicated he  read "contract term"  on line 19 to  mean "contract                                                               
provision," but otherwise thought Senator Dyson was correct.                                                                    
SENATOR  DYSON  suggested  that if  the  foregoing  was  correct,                                                               
perhaps  it should  be  plural:   "the  commissioner may  develop                                                               
contract  terms".    He  said  more than  one  component  of  the                                                               
contract might need  alteration, and thus it wouldn't  be good to                                                               
limit the  commissioner to  only one provision.   He  deferred to                                                               
Chair Seekins to propose an amendment, if appropriate.                                                                          
2:36:42 PM                                                                                                                    
SENATOR GREEN  suggested leaving the  language as is.   She noted                                                               
that  "contract term"  is  linked to  the  phrase "establishes  a                                                               
procedure" on line 20 of the amendment.                                                                                         
MR.  DONOHUE said  it was  fairly  clear, but  he didn't  believe                                                               
making it plural  would either help or hurt.   He then noted that                                                               
both  (b) and  (c)  begin, "For  the part  of  the contract  term                                                               
beginning".   He recommended perhaps  citing AS  43.82.250, where                                                               
the statute says  "the term of the contract";  there, however, it                                                               
means length  of time.   He  pointed out "term"  is used  in both                                                               
senses in the statute, as well as in Amendment 4.                                                                               
2:38:42 PM                                                                                                                    
CHAIR SEEKINS informed members that  his own notes said, "For the                                                               
period of the contract term".                                                                                                   
MR. DONOHUE agreed that would provide clarity.                                                                                  
2:39:18 PM                                                                                                                    
SENATOR GREEN  moved to adopt  the aforementioned as  Amendment 2                                                               
to Amendment 4,  to change "part" to "period" on  lines 7 and 15,                                                               
at the beginning of subsections (b) and (c).                                                                                    
SENATOR DYSON proposed the same  change on line 12, in subsection                                                               
(b), where it says, "For the part of the contract term".                                                                        
SENATOR GREEN incorporated  that change to line  12; thus revised                                                               
Amendment 2  to Amendment  4 would change  "part" to  "period" on                                                               
lines  7,  12 and  15.    There being  no  objection,  it was  so                                                               
2:40:37 PM                                                                                                                    
SENATOR  WAGONER  requested  confirmation of  his  understanding:                                                               
after  year 18  so,  after capital-cost  recovery,  there'd be  a                                                               
"reopener,"  except a  future legislature  couldn't increase  the                                                               
tax without a compensating reaction as  far as oil tax versus gas                                                               
tax;  that would  happen if  there were  a material  change, more                                                               
than  3  percent  up or  down.    He  asked  why they  were  even                                                               
considering  having a  reopener there,  because he  could see  no                                                               
advantage to the legislature.                                                                                                   
SENATOR BEN  STEVENS pointed  out that  line 19  in (c)  says the                                                               
commissioner "may" develop  a contract term.  He  said he'd agree                                                               
with Senator  Wagoner only if  it said  "shall".  He  referred to                                                               
the previous  day's discussion  about uncertainty  and discretion                                                               
given  to  the commissioner  to  develop  a  contract term  if  a                                                               
material change  occurred as a  result of an effective  change in                                                               
the tax.   He  said it  leaves flexibility  for a  legislature to                                                               
force a reopener,  but also gives discretion  to the commissioner                                                               
and the sponsor  group to say this likely will  end up in dispute                                                               
resolution.  He concluded that  "shall" would provide a mandatory                                                               
reopener  and  rebalancing.   However,  "may"  leaves it  to  the                                                               
discretion of the participants 18 years in the future.                                                                          
SENATOR  WAGONER   asked  what  the   point  is  of   giving  the                                                               
legislature  a chance  to reopen  the  tax structure  for oil  in                                                               
year 18, for  instance, if the  final result is a  rebalancing by                                                               
decreasing taxes on gas -  which he suggested the companies would                                                               
propose and the commissioner may concur with.                                                                                   
2:45:05 PM                                                                                                                    
SENATOR BEN  STEVENS replied that  it doesn't say  anything about                                                               
the  terms   with  regard   to  gas;   rather,  it   talks  about                                                               
"substantially  the same  economic position",  which he  called a                                                               
"distribution of the  economic rents."  He indicated  that if the                                                               
legislature  reacted  to a  change  in  market conditions,  "may"                                                               
would  give the  commissioner  flexibility if  he  or she  didn't                                                               
believe there was a need for rebalancing.                                                                                       
SENATOR DYSON surmised Senator Wagoner's  point linked to his own                                                               
concern voiced  yesterday:  Even  if the commissioner  decided to                                                               
go  ahead, the  net cost  to the  producers couldn't  change very                                                               
much - within 3 percent up  or down, as discussed yesterday.  The                                                               
net government take under (c)  would have to be substantially the                                                               
same  as what  was  in  effect in  (b)  after the  commissioner's                                                               
decision, even  if net  profits were low  and the  companies were                                                               
going broke.                                                                                                                    
SENATOR WAGONER  clarified his concern:   Because of how  this is                                                               
constructed, why are they even  looking at an opportunity for the                                                               
legislature to revisit this?                                                                                                    
SENATOR BUNDE  suggested it costs  nothing and yet  provides some                                                               
flexibility for  future situations  that the legislature  may not                                                               
be aware of.                                                                                                                    
2:48:53 PM                                                                                                                    
SENATOR BEN STEVENS, in response  to Chair Seekins, specified the                                                               
intent that it be left open, not  locking in a change at year 18,                                                               
but locking in the ability to  make a change if so required, with                                                               
CHAIR SEEKINS  expressed concern that the  language may authorize                                                               
that term to be negotiated in the contract from day one.                                                                        
SENATOR  BEN  STEVENS  opined  it  was pretty  clear.    He  read                                                               
portions of (c).  Proposing  that members think theoretically, he                                                               
said the  contract has provisions locked  in for 14 years,  and a                                                               
future legislature, in year 15,  could change the rate that would                                                               
become  effective immediately  after year  18; thus  it could  be                                                               
changed before the time.                                                                                                        
2:51:01 PM                                                                                                                    
SENATOR BEN STEVENS, in further  response, said the intent of (c)                                                               
is to  leave it  flexible; to  not make it  part of  the contract                                                               
now; and to say  that the terms to be locked  in at sanction will                                                               
be firm until the end of  the cost-recovery period, at which time                                                               
there would  be "flexibility  and opportunity."   He said  if the                                                               
situation posed by Senator Dyson  were to come into effect, there                                                               
will be  opportunity.  He  specified that it isn't  intended that                                                               
the terms from years 18-25, give or take, be negotiated now.                                                                    
CHAIR SEEKINS  highlighted the need  to ensure that  the language                                                               
clearly says this is an option  to be exercised at a future date,                                                               
rather than negotiated into the contract from day one.                                                                          
SENATOR BEN  STEVENS added there  is certainty in (c),  lines 17-                                                               
18, which says the amount of  the payment in lieu of taxes (PILT)                                                               
on oil must equal the amount of tax levied by law.                                                                              
2:52:43 PM                                                                                                                    
SENATOR  DYSON asked  whether he  meant  to imply  that "must  be                                                               
equal to the  amount of tax levied by law"  includes changes that                                                               
the legislature might make in the law at that time.                                                                             
SENATOR  BEN  STEVENS  replied  he  thinks  that's  inherent  and                                                               
imbedded in  it, because it  speaks of that  period of time.   He                                                               
read  from the  first sentence  of (c):   "beginning  immediately                                                               
after the period  described in (b)".  He  remarked, "Beginning at                                                               
that point,  whatever is law  then, ... the production  value tax                                                               
calculated under 43.55  must equal the PILT payment,  or the PILT                                                               
payment must equal that."                                                                                                       
He  said he  wasn't  trying  to trigger  an  automatic change  in                                                               
taxes, but also wasn't trying  to say that if future legislatures                                                               
see the need for a change, the PILT  shall equal it.  If there is                                                               
a  material change  in the  distribution  of economic  rent as  a                                                               
result, however,  the commissioner  may go  in with  the sponsors                                                               
and make  the modifications.   This  is so  far over  the horizon                                                               
that  the economic  conditions  are unknown.    Referring to  his                                                               
testimony the previous  day, he highlighted the  desire to create                                                               
a stable taxation  rate during the period  of firm transportation                                                               
(FT)  commitments,  to  provide  a  mechanism  for  stability  if                                                               
required,  as  well  as  to   provide  the  legislature  with  an                                                               
opportunity  for change.   He  said  that's the  purpose of  that                                                               
SENATOR  DYSON asked,  however, whether  lines 19-21  in (c)  say                                                               
that  whatever those  changes are,  they must  balance with  some                                                               
other changes in order to leave  the parties in the same position                                                               
as they were before.                                                                                                            
SENATOR BEN STEVENS  agreed that's what it says,  but opined that                                                               
subsection  (c) pivots  on "may"  versus "shall".   He  specified                                                               
that he intentionally chose "may" to leave flexibility.                                                                         
2:56:06 PM                                                                                                                    
SENATOR ELTON proposed  that not having (c) at  all would provide                                                               
maximum flexibility, leaving it to  the legislature at that time,                                                               
after  14  years,  to  determine  tax  rates  or  anything  else.                                                               
However, (c)  seems to  cede some  current legislative  powers to                                                               
the  commissioner; it  suggests  the legislature  can increase  a                                                               
tax, but if it's a material  change - defined the previous day as                                                               
plus or minus  3 percent - then the commissioner  has the ability                                                               
to keep  the other parties  whole by making  economic adjustments                                                               
that would  essentially change the  government take.   Suggesting                                                               
it gets  back to Senator  Wagoner's point,  he spoke in  favor of                                                               
maximum  flexibility  for  the   legislature,  which  would  mean                                                               
removing (c).                                                                                                                   
SENATOR HOFFMAN  agreed the aforementioned  would be  optimum for                                                               
the legislature,  but suggested also  looking at the  position of                                                               
the oil companies  in order to get their commitment  to build the                                                               
gas  pipeline.   Stating his  belief  that the  consensus of  the                                                               
majority of  legislators is  that the contract  is too  long, and                                                               
referring  to  Senator  Wagoner's  previous  discussion,  Senator                                                               
Hoffman  classified this  as an  opener -  the legislature  would                                                               
have  the  option,  at  that  point,  to  evaluate  the  economic                                                               
conditions in the market and make a change accordingly.                                                                         
2:59:01 PM                                                                                                                    
SENATOR  WAGONER   remarked  that   with  Senator   Ben  Stevens'                                                               
definition  of "material  change" the  previous day,  it provides                                                               
flexibility; he mentioned 3 percent.                                                                                            
SENATOR BEN  STEVENS said  material change  is incorporated  in a                                                               
generally  accepted  accounting  principles (GAAP)  or  Financial                                                               
Accounting Standards  Board (FASB)  terminology that  he believes                                                               
is plus or minus 3 percent.                                                                                                     
CHAIR SEEKINS surmised it would be around $90 million.                                                                          
SENATOR WAGONER said it depends.                                                                                                
CHAIR SEEKINS offered his understanding  that the reason for this                                                               
is to  cover the period  through the first  shipping commitments,                                                               
to ensure the project economics  aren't altered materially during                                                               
that time.                                                                                                                      
SENATOR  BEN  STEVENS  affirmed   that.    He  suggested  Senator                                                               
Wilken's chart  defines it best.   During that time,  phase three                                                               
is  meant   to  provide  stabilization.     As   Senator  Hoffman                                                               
accurately  described  it, Senator  Ben  Stevens  said, there  is                                                               
opportunity for  the legislature  to modify  it, if  justified by                                                               
conditions at that point.  However, it isn't mandatory.                                                                         
SENATOR GREEN  thanked Senator Ben  Stevens for  bringing forward                                                               
such an  amendment, which addresses  two main issues  heard about                                                               
from the  producers and  the administration.   While the  idea of                                                               
certainty is important,  the public perspective is  that 30 years                                                               
is too long.  She surmised  the public would find the idea behind                                                               
this   amendment  reasonable,   since   it   provides  a   future                                                               
opportunity to look at it.                                                                                                      
3:01:43 PM                                                                                                                    
SENATOR BEN  STEVENS wrapped  up his  discussion of  Amendment 4,                                                               
suggesting  it  is the  legislature's  answer  to concerns  about                                                               
fiscal certainty relating  to oil and its  relationship to moving                                                               
this  gas project  forward.   He  emphasized that  the terms  and                                                               
concept  weren't provided  by consultants;  it  is a  legislative                                                               
CHAIR SEEKINS added, "With as  much certainty as the Constitution                                                               
of the State of Alaska allows."                                                                                                 
3:04:09 PM                                                                                                                    
SENATOR OLSON referred  to the 14 years  on line 10, in  (b).  If                                                               
the supreme  court determines there  is only a 2-year  period for                                                               
certainty, he  asked, does it  change the flavor  of Amendment 4,                                                               
since  2  years   is  the  period  of  a   legislature,  and  one                                                               
legislature's binding another may not be what they have in mind?                                                                
SENATOR BEN  STEVENS replied  he didn't have  the answer,  but it                                                               
would dilute  the amendment because  the supreme court  would say                                                               
that certainty couldn't be provided under the constitution.                                                                     
3:05:22 PM                                                                                                                    
SENATOR DYSON offered his belief  that the House had amended this                                                               
to  12 years  instead  of  14.   He  also  recalled hearing  from                                                               
Senator  Ben  Stevens   yesterday  that  the  14   years  was  an                                                               
approximation of what  was appropriate.  Senator  Dyson asked how                                                               
he'd feel about amending this to 12 years.                                                                                      
SENATOR BEN  STEVENS opposed  the concept,  saying the  period of                                                               
project sanction  to first gas  is the uncertain period  of time.                                                               
There  could  be delays  because  of  a  shortage of  steel,  for                                                               
instance; thus he'd "erred with that in mind."                                                                                  
3:07:02 PM                                                                                                                    
SENATOR DYSON  asked whether language had  been considered saying                                                               
this period  ends when  cost recovery is  complete.   He recalled                                                               
hearing that once  the gas pipeline is largely  full, costs would                                                               
be recovered in about 6 years.                                                                                                  
SENATOR BEN STEVENS  said he had considered it.   A hard date was                                                               
chosen  instead   of  capital-cost  recovery,   however,  because                                                               
disputes would arise from trying  to account for all expenditures                                                               
and determine when they began.                                                                                                  
CHAIR SEEKINS invited Senator Therriault to comment.                                                                            
3:08:19 PM                                                                                                                    
SENATOR  GENE  THERRIAULT,  Alaska State  Legislature,  expressed                                                               
pleasure that  the portion  up to  project sanction  isn't locked                                                               
in.  However,  he offered his understanding  that if construction                                                               
was thought to last 4 years,  there'd been past testimony - which                                                               
probably needed  to be updated  - that the recovery  period would                                                               
be fairly quick for capital outlay, 5  or 6 years.  Thus 14 years                                                               
seems overly  generous for recapturing the  investment, since the                                                               
rate  of return  should  be substantial.    Referring to  Senator                                                               
Elton's  discussion  of  (c)  and the  House's  action,  he  also                                                               
questioned whether any legislature would  adjust the oil tax once                                                               
they  were  past the  construction  and  cost recovery  for  oil,                                                               
despite the  "may", since  they'd have  to give  back dollar-for-                                                               
dollar on the gas side.  He said it's a mixed bag.                                                                              
3:10:37 PM                                                                                                                    
SENATOR BUNDE surmised that if,  for some reason, North Slope oil                                                               
became  like Cook  Inlet production  and  there was  a desire  to                                                               
lower oil taxes,  then the state would benefit  from an increased                                                               
take on  gas.  He  said it seems it  should work both  ways, even                                                               
though  such  a scenario  is  unlikely.    He asked  whether  his                                                               
understanding was correct.                                                                                                      
SENATOR BEN STEVENS replied yes.                                                                                                
CHAIR SEEKINS said  that's how he reads it too:   it restores the                                                               
parties, and the state is a  party.  He asked whether Mr. Donohue                                                               
wished to comment.                                                                                                              
3:11:55 PM                                                                                                                    
MR. DONOHUE noted  he wasn't authorized to  address policy issues                                                               
from  the  administration's  standpoint,  since  he  was  outside                                                               
counsel to  the administration.   He did point out,  though, that                                                               
this is a  significantly different approach from  the "oil fiscal                                                               
term" in  the proposed contract,  and is likely  problematic from                                                               
the  producers' standpoint;  however, the  producers could  speak                                                               
for themselves.   Noting a legal concern, he  said he'd initially                                                               
read  it to  have a  term at  the outset  perhaps not  locking in                                                               
rates,  but creating  parameters for  the "reopener"  conditions.                                                               
If this is  merely an agreement to agree in  the future, however,                                                               
there'd be  a question of whether  anyone would want to  agree to                                                               
that from the producers' perspective.                                                                                           
CHAIR SEEKINS invited further testimony on Amendment 4.                                                                         
3:13:26 PM                                                                                                                    
^Ken Konrad, BP                                                                                                                 
KEN KONRAD, Senior Vice President  - Gas, BP, began by addressing                                                               
fiscal  stability  in general.    He  said sovereign  governments                                                               
around  the world  enter into  contracts that  specify government                                                               
take  for very  large energy  projects.   They do  it to  attract                                                               
expertise and capital investment,  which creates wealth and vital                                                               
economic activity  for their countries.   Similarly,  U.S. states                                                               
and  municipalities   negotiate  contractual  PILTs   to  attract                                                               
investment  for factories,  for example,  which can  create long-                                                               
term economic benefits  for citizens.  Although  the projects are                                                               
smaller than the  proposed Alaskan gas project,  the principle is                                                               
the  same.   Mr. Konrad noted  similar contractual  tax-stability                                                               
concepts were  employed in  Alaska over 40  years ago  to attract                                                               
the investment  necessary to  build large  gas facilities  on the                                                               
Kenai Peninsula; Alaska still benefits from those.                                                                              
He said  in all  these cases,  governments working  with industry                                                               
have  proactively  encouraged  investment,  providing  clear  and                                                               
certain rules, to the mutual benefit  of both.  While benefits to                                                               
Alaska  from  a  gas  project   would  span  generations  and  be                                                               
enormous, risks  for investors also  would be quite  large, given                                                               
the  massive  investments  and the  production  timeframe.    The                                                               
largest cost for this project, by  far, is not the $25 billion in                                                               
capital costs;  rather, it is the  payments that will be  made to                                                               
Alaska.  Thus it's important to know what the rules are.                                                                        
3:15:54 PM                                                                                                                    
MR.  KONRAD addressed  stability relating  to  oil and  gas.   He                                                               
suggested fiscal certainty  as introduced in SB 2004  isn't a new                                                               
concept;  it was  a key  purpose when  the Stranded  Gas Act  was                                                               
enacted in  1998 and reenacted  in 2003 with strong  support from                                                               
the  legislature.    Although  the  original  bill  provided  for                                                               
replacing  both  oil  and  gas production  taxes  with  PILTs  in                                                               
AS 43.82.210, it's worth  ensuring that this intent  is made very                                                               
clear, he told members.                                                                                                         
He said SB 2004, as  originally written, clearly extends PILTs to                                                               
both oil and gas.  This  is of critical importance in letting the                                                               
project advance.   The economics of oil and  gas are inextricably                                                               
linked  on the  North Slope:   oil  and gas  are formed  together                                                               
underground,  co-exist  in  the  same  reservoirs,  are  produced                                                               
through the same wells, flow through  the same flow lines and are                                                               
processed in the same facilities.   This linkage is recognized by                                                               
governments  and investors  around the  world, Mr.  Konrad noted;                                                               
royalty contracts  cover both  oil and  gas, as  do international                                                               
production-sharing  contracts,  although  the terms  may  not  be                                                               
He advised  members that  this linkage  is particularly  acute in                                                               
Alaska in  the mature basin on  the North Slope.   Building a gas                                                               
pipeline is  effectively a commitment  by the major  producers to                                                               
maintain  the  vital North  Slope  infrastructure  for 40  to  50                                                               
years.  Unless all the  oil and gas infrastructure is maintained,                                                               
the gas  pipeline cannot be supplied  with gas.  Thus  it's a 40-                                                               
to  50-year commitment  to keep  the machinery  operating in  its                                                               
entirety.    Mr.  Konrad highlighted  protecting  investors  from                                                               
after-the-fact tax  increases.  Once  the gas pipeline is  up and                                                               
running, there  is no choice but  to produce in order  to recover                                                               
the  investment;  that  is why  these  large  energy  investments                                                               
around the  world have fiscal-stability  parameters for  both oil                                                               
and gas.                                                                                                                        
3:19:13 PM                                                                                                                    
MR.  KONRAD cited  the Caspian  region as  a germane  example; he                                                               
provided  details,  saying BP  wants  the  same results  for  the                                                               
Alaskan gas  pipeline project.   Knowing the  rules for  both oil                                                               
and gas  is of key  importance, and  fiscal stability on  gas but                                                               
not oil is  close to having no fiscal stability  at all.  Changes                                                               
to the  oil taxes could  more than  offset the benefits  from the                                                               
gas pipeline project, he said.   That's why sovereign governments                                                               
such as  in the  Caspian region offer  fiscal stability  for both                                                               
oil and gas.                                                                                                                    
He suggested SB 2004 makes  this inextricable linkage between oil                                                               
and  gas  very  clear.    Recognizing  that  the  legislature  is                                                               
carefully  considering  options,  he  discounted  the  idea  that                                                               
decisions regarding  the duration and nature  of fiscal stability                                                               
should be made now.  The  contract details were only released two                                                               
weeks ago, he said, and public  review is underway.  The ultimate                                                               
decision on  any contract  and its  duration by  this legislature                                                               
should be  taken at the  appropriate time, after  the legislature                                                               
understands  the   benefits  and   attributes  of   the  project.                                                               
Mr. Konrad  questioned the  benefits to  anyone of  significantly                                                               
altering or  foreclosing a  fundamental, underpinning  concept at                                                               
this  juncture, in  what he  said feels  like a  bit of  a rushed                                                               
He  told  members SB  2004  as  originally written  provided  the                                                               
necessary framework for the legislature  to either approve or not                                                               
approve  the  proposed  contract  -  in its  current  form  or  a                                                               
modified form -  at some point in the future,  following a public                                                               
comment period and full legislative  review.  For that reason and                                                               
other  important  attributes  of   fiscal  stability,  he  voiced                                                               
opposition  to  this type  of  amendment,  which would  foreclose                                                               
fiscal-stability  provisions.    "We   just  don't  believe  it's                                                               
appropriate right now," Mr. Konrad concluded.                                                                                   
3:23:20 PM                                                                                                                    
SENATOR BUNDE  pointed out that  the total project cost  won't be                                                               
known  for  many  years.     Noting  Mr.  Konrad  had  spoken  of                                                               
$25 billion, he asked whether this  was a conscious effort to use                                                               
a more  accurate figure than  the ballpark number  of $18 billion                                                               
to $20 billion he'd heard earlier.                                                                                              
MR. KONRAD indicated  BP hadn't done a reestimate  since the work                                                               
done in  2001, discussed the previous  day.  If the  project were                                                               
done today, however,  it certainly would cost a lot  more.  Steel                                                               
prices  have  doubled,  for  instance;  the  Canadian  dollar  is                                                               
stronger; and  there is  inflation because  of the  current boom.                                                               
Although the price of steel five  years from now isn't known, the                                                               
general cost  environment is measurably  higher than in  2001 and                                                               
so prices are expected to be higher.                                                                                            
3:25:20 PM                                                                                                                    
^Brian Wenzel, ConocoPhillips                                                                                                   
BRIAN  WENZEL,   Vice  President,  Finance   and  Administration,                                                               
ConocoPhillips Alaska, Inc.,  began by saying he  would echo many                                                               
of  Mr. Konrad's  comments.    In addition,  he  noted  the  bill                                                               
provides  instructions and  a toolkit  for the  administration to                                                               
use in developing a contract with  the producers to provide a gas                                                               
pipeline.    However,  an  amendment  like  this  removes  tools,                                                               
limiting the  degrees of freedom  provided to  the administration                                                               
to negotiate a contract - a  philosophy Mr. Wenzel said he wasn't                                                               
sure he  understood.   He expressed  concern that  this amendment                                                               
reduces  the  administration's  ability  to  bring  in  a  viable                                                               
project for consideration by the  legislature, and also increases                                                               
project risk to  be borne by the producers, since  it reduces the                                                               
amount of fiscal stability available to them.                                                                                   
3:28:24 PM                                                                                                                    
MR.  WENZEL referred  to testimony  about capital-cost  recovery,                                                               
saying he wasn't  sure he understood the definition  of that term                                                               
as discussed by the committee.   He discounted the idea that this                                                               
project could have  a reasonable payout in 5  years, barring very                                                               
high prices.  He cautioned  members to consider this when looking                                                               
at the definition.                                                                                                              
He agreed with  Senator Ben Stevens that  this amendment attempts                                                               
to  deal with  legislator's concerns  about the  duration of  oil                                                               
fiscal stability  proposed in the contract.   However, Mr. Wenzel                                                               
reported  hearing  previously  from legislators  that  they  were                                                               
looking to the petroleum production  tax (PPT) bill to counteract                                                               
this, expecting or  requiring a higher rate on the  base tax rate                                                               
as the mechanism.  He said  he didn't support this amendment, but                                                               
expressed  hope that  removing the  fiscal  stability would  also                                                               
remove the need for such a "premium" in the PPT base tax rate.                                                                  
3:31:30 PM                                                                                                                    
SENATOR DYSON asked  what a reasonable period would  be to expect                                                               
that a project would pay for its capital construction costs.                                                                    
MR. WENZEL  replied that he  didn't have exact numbers  with him,                                                               
but  his point  is that  just paying  off the  capital investment                                                               
isn't sufficient.   There  are operating  costs and  other costs.                                                               
Simply paying  off capital costs  is by no means  recognizing the                                                               
risks for the producers, and their expected returns.                                                                            
SENATOR DYSON  said he understood  that and wanted  the producers                                                               
to be  rewarded for their  risks.  He asked,  generally speaking,                                                               
how  quickly construction  costs are  amortized on  mega-projects                                                               
like this.                                                                                                                      
MR. WENZEL replied that from  an economic-return standpoint, it's                                                               
not about how long accounting  principles or tax principles allow                                                               
amortizing  particular costs.   Rather,  it's about  how long  it                                                               
takes to get to the expected return, which is much longer.                                                                      
SENATOR DYSON  said he'd thought  there'd be some basis  on which                                                               
there was an  expectation to recover the money  put into building                                                               
a project.   He expressed  disappointment that Mr.  Wenzel hadn't                                                               
answered that.                                                                                                                  
3:33:31 PM                                                                                                                    
SENATOR STEDMAN  spoke in support of  Amendment 4.  He  said some                                                               
legislators  would argue  that the  PPT is  at a  discount, while                                                               
others  would  argue  it's  at  a premium.    Clearly,  there  is                                                               
discomfort  around the  state as  the  gas line  project and  oil                                                               
taxes are  looked at.   He lauded the amendment's  strong points,                                                               
saying it leaves flexibility to ensure  that the oil tax in place                                                               
at the  end of year  4 is in the  best interests of  the industry                                                               
and the state, in order  to have a long-term working relationship                                                               
through the next several decades.                                                                                               
He pointed  out that legislators work  to come up with  a balance                                                               
in order  to move tough issues  forward.  He said  he thinks this                                                               
is a good amendment and certainly  helps to protect the people of                                                               
the state,  who own the resources,  and it helps ensure  that the                                                               
industry  won't be  put  at a  disadvantage in  the  future.   He                                                               
surmised operating in Alaska, where  there is stability and where                                                               
the tax  structure isn't changed arbitrarily,  is more beneficial                                                               
than in Bolivia or possibly the Caspian region.                                                                                 
3:35:30 PM                                                                                                                    
SENATOR  BEN STEVENS  clarified that  "capital cost  recovery" is                                                               
used to say "total revenues  equals total expenditures."  He told                                                               
Mr. Wenzel it's by no means  intended to be when payout begins on                                                               
the project or  when debt is retired.  It's  not mentioned in the                                                               
amendment  because it  has  different  interpretations and  would                                                               
take a long  effort to describe in statute,  he explained, saying                                                               
that methodology had been used to come up with a timeline.                                                                      
3:36:30 PM                                                                                                                    
SENATOR BUNDE remarked  that he respects the  industry's point of                                                               
view.   However, one "given" for  him is that unless  the general                                                               
public  has   reasonable  comfort   with  the   contract's  major                                                               
provisions -  including this issue of  certainty, which currently                                                               
causes discomfort -  the contract won't pass.   If this amendment                                                               
increases the  public's comfort level,  which is unknown  at this                                                               
point, then it's a positive step forward.                                                                                       
3:38:10 PM                                                                                                                    
SENATOR  WAGONER concurred,  noting  he has  often heard  concern                                                               
from  constituents  about  locking  in fiscal  certainty  for  35                                                               
years.   Calling  it  a  good compromise,  he  specified that  he                                                               
supported the amendment.                                                                                                        
CHAIR  SEEKINS  asked Mr.  Wenzel  whether  he'd seen  the  chart                                                               
provided by Senator Wilken.                                                                                                     
MR. WENZEL said yes.                                                                                                            
CHAIR  SEEKINS pointed  out that  the  first section  is plus  or                                                               
minus 4 years, up to project  sanction.  He asked whether that is                                                               
a reasonable time.                                                                                                              
MR. WENZEL deferred to Wendy King.                                                                                              
3:39:20 PM                                                                                                                    
^Wendy King, ConocoPhillips                                                                                                     
WENDY KING, Director of External  Strategies, ANS Gas Development                                                               
Team,  ConocoPhillips Alaska,  Inc.,  noted there  is a  publicly                                                               
available version of the project summary.  She explained:                                                                       
     In that project summary,  in our success-based case, it                                                                    
     is anticipated  that we would  take roughly 1  year for                                                                    
     project planning,  have an  additional year  of permit-                                                                    
     application  work, and  then  another  couple years  of                                                                    
     permit application,  ... the  actual submission  of the                                                                    
     applications.    So  this  4-year  timeframe  would  be                                                                    
     consistent with the current anticipated schedule.                                                                          
     And,  as   we've  highlighted  in   a  number   of  our                                                                    
     discussions with  individuals, the provisions  that are                                                                    
     currently  within   Article  5,  the   work  commitment                                                                    
     section  with a  diligence standard,  were specifically                                                                    
     crafted to allow  us to use industry  best practices on                                                                    
     gated decision making, to help  us to be able to adjust                                                                    
     schedule if  it's deemed appropriate  at that  point in                                                                    
     time,  subject to  that diligence  standard.   So, yes,                                                                    
     this is  consistent with what  we would know  about the                                                                    
     schedule today, to have 4 years to project sanction.                                                                       
CHAIR SEEKINS asked about a  reasonable estimate of the time from                                                               
project sanction to first gas.                                                                                                  
MS.  KING replied  that the  publicly available  schedule has  an                                                               
estimate of  9 years  to first  gas, with  an additional  year of                                                               
ramp-up  to  get  to  full  project volumes.    She  referred  to                                                               
testimony from Mr. Konrad and emphasized  it's an estimate, not a                                                               
guaranteed date to first gas delivery.                                                                                          
3:41:37 PM                                                                                                                    
CHAIR SEEKINS  returned to  the chart, noting  it shows  about 18                                                               
years  to get  to "capital  cost  recovery complete."   He  asked                                                               
whether Ms.  King was saying that,  after first gas, it  would be                                                               
approximately 8 years  more to get  to that point, with  the same                                                               
MS. KING affirmed that.                                                                                                         
CHAIR  SEEKINS  asked  whether  8  years after  first  gas  is  a                                                               
reasonable timeframe for capital-cost recovery.                                                                                 
MS. KING replied:                                                                                                               
     I'll reiterate  a point that  Mr. Wenzel  made earlier:                                                                    
     We do not  know what payout will be, and  I do not know                                                                    
     for sure  what capital-cost  recovery will be  for this                                                                    
     project.  We do not know  what the actual costs of this                                                                    
     project  are going  to be.   We  do not  know what  the                                                                    
     natural gas  prices are going  to be.   We do  not know                                                                    
     how long it will take  to actually deliver the project.                                                                    
     So  we  would not  have  an  estimate for  capital-cost                                                                    
     recovery or  payout, because I  can't predict  what the                                                                    
     prices of gas would be.                                                                                                    
CHAIR SEEKINS asked about rules of thumb or a target.                                                                           
MS. KING answered:                                                                                                              
     We will look  at a wide range of  uncertainties, and we                                                                    
     will  carry a  wide  range of  what  this project  will                                                                    
     deliver  going  forward.    And  that  range  would  be                                                                    
     substantially  wide  for  a project  that  has  a  cost                                                                    
     estimate associated  with this project of  $20 billion,                                                                    
     ...  which Mr.  Konrad very  eloquently spoke  to, that                                                                    
     there's  large  uncertainties  already with  that  cost                                                                    
     estimate.   We could  provide a  range, but  that range                                                                    
     would be very, very  large because of the uncertainties                                                                    
     associated with this project.                                                                                              
3:44:11 PM                                                                                                                    
SENATOR BEN  STEVENS reiterated that capital-cost  recovery isn't                                                               
mentioned in  statute.  He said  what is meant by  that period of                                                               
time is  "when total revenues  minus corporate income  tax equals                                                               
total costs."   He added, "That is the timeframe  that we used in                                                               
saying total  costs may be 6  years, 8 years; total  revenues may                                                               
occur in  6 years  or 8 years  - we don't  know."   He emphasized                                                               
that by  no means does he  want Amendment 4 to  be interpreted as                                                               
saying this project will reach payout in 5 years.                                                                               
CHAIR SEEKINS remarked that many  people he has talked with don't                                                               
mind  having  some kind  of  certainty,  as  long as  it  doesn't                                                               
negatively affect  the economics of  the deal.   But how  do they                                                               
know  when that  point  in time  is  reached?   Even  in his  own                                                               
business, he cannot  make those kinds of predictions  with a high                                                               
degree of certainty, he noted.                                                                                                  
3:45:47 PM                                                                                                                    
MR.  WENZEL apologized  and clarified  that the  estimate Senator                                                               
Dyson  had asked  for earlier,  on  capital-cost recovery,  isn't                                                               
something  his  company  tracks;  it  isn't  how  they  determine                                                               
returns.  Thus he didn't know the answer.                                                                                       
SENATOR DYSON said he appreciated that.   He recalled that in the                                                               
years he worked  for BP, the general manager would  say that if a                                                               
desired  project wouldn't  start making  money in  3 years,  they                                                               
wouldn't do  it.  Senator  Dyson surmised he now  understood what                                                               
Senator Ben  Stevens was talking  about:  14 years  after project                                                               
sanction,  the  expectation would  be  that  the producers  would                                                               
begin to make money.  He asked whether that's a bad assumption.                                                                 
MR.  WENZEL offered  his understanding  of  Senator Ben  Stevens'                                                               
intention:   after 14  years, capital  costs would  be recovered,                                                               
but not necessarily operating costs or  any return.  "So it's not                                                               
the point  we start  first making  money, in  my mind,"  he said,                                                               
adding that  it's an  interim point which  he doesn't  believe is                                                               
SENATOR DYSON thanked Mr. Wenzel, but expressed confusion.                                                                      
3:48:04 PM                                                                                                                    
SENATOR ELTON objected  to Amendment 4 as amended.   He explained                                                               
that he  was uncomfortable  handcuffing future  legislatures with                                                               
respect  to the  power of  taxation.   He agreed  with producers'                                                               
testimony  that it  seems extremely  difficult to  make decisions                                                               
like this  before the public comment  period has ended.   He also                                                               
pointed out that this is  legislators' opportunity to decide what                                                               
they want the contract to look  like; once they get the contract,                                                               
it will  be an "up  or down" vote.   He specified his  reason for                                                               
opposing the amendment wasn't because  of an issue of when fiscal                                                               
stability begins  or ends,  but related  to the  constitution and                                                               
the legislature's power of taxation.                                                                                            
SENATOR BEN STEVENS removed his objection.                                                                                      
3:50:17 PM                                                                                                                    
A roll  call vote  of 11  yeas and  1 nay  proved Amendment  4 as                                                               
amended  passed,  with  Senators Stedman,  Bunde,  Olson,  Dyson,                                                               
Wilken,  Hoffman,  Kookesh,  Ben   Stevens,  Green,  Wagoner  and                                                               
Seekins voting yea and Senator Elton voting nay.                                                                                
The committee took an at-ease from 3:50:54 PM until 4:10:39 PM.                                                             
The committee took an at-ease from 4:11:04 PM until 4:13:02 PM.                                                             
SENATOR  DYSON moved  to  adopt Amendment  5 to  SB  2004.   With                                                               
original  language, spelling  and  punctuation, as  well as  line                                                               
numbers relating to the previous day's Amendment 4, it read:                                                                    
                      A M E N D M E N T  5                                                                                  
     OFFERED BY:  Senator Fred Dyson                                                                                          
     Subparagraph (b), lines 5 and 6:                                                                                           
     Delete [DEVELOP A TERM FOR THE CONTRACT T]                                                                                 
     Insert  "modify those  terms of  the contract  relating                                                                
     Subparagraph (c), line 4:  After "equal to" insert:                                                                        
     Delete [EQUAL TO THE AMONT OF THE TAX LEVIED BY LAW.]                                                                      
     Insert "equal to or greater  than the amount of the tax                                                                
     then levied by law."                                                                                                   
     Subparagraph  (c), lines  4 through  9:   Replace  last                                                                    
     sentence with the following:                                                                                               
     "In the  event taxes  levied by  law have  changed, and                                                                
     remain in effect, in excess  of three percentage points                                                                
     from those  taxes in  effect at the  end of  the period                                                                
     described in (b) of this  section, the commissioner may                                                                
     develop contract provisions for  payment in lieu of tax                                                                
     equivalent to  the taxes  in effect at  the end  of the                                                                
     period described in (b) of this section."                                                                              
SENATOR  DYSON objected  for discussion  purposes.   He explained                                                               
that  he'd  discussed  this  with Senator  Ben  Stevens,  who  he                                                               
believed was  fine with  the first two  portions.   Senator Dyson                                                               
suggested  the need  to either  divide the  amendment or  do more                                                               
work on the third portion.                                                                                                      
SENATOR  BEN STEVENS  pointed  out that  the  line references  in                                                               
Amendment 5 relate to  yesterday's version of Amendment  4.  Thus                                                               
the first  portion, amending (b),  relates to line 11  of today's                                                               
version  of  Amendment  4;  the  second  portion,  amending  (c),                                                               
relates to line  18 of today's version.  He  agreed with dividing                                                               
the amendment.                                                                                                                  
4:15:46 PM                                                                                                                    
SENATOR  DYSON moved  to divide  Amendment 5,  with Amendment  5A                                                               
including all but  the third portion.  There  being no objection,                                                               
it was so ordered.                                                                                                              
4:16:04 PM                                                                                                                    
SENATOR  DYSON moved  to adopt  Amendment 5A  to SB  2004.   With                                                               
original  language, spelling  and  punctuation, as  well as  line                                                               
numbers relating to the previous day's Amendment 4, it read:                                                                    
                     A M E N D M E N T  5A                                                                                  
     OFFERED BY:  Senator Fred Dyson                                                                                          
     Subparagraph (b), lines 5 and 6:                                                                                           
     Delete [DEVELOP A TERM FOR THE CONTRACT T]                                                                                 
      Insert "modify those terms of the contract relating                                                                   
     Subparagraph (c), line 4:  After "equal to" insert:                                                                        
     Delete [EQUAL TO THE AMONT OF THE TAX LEVIED BY LAW.]                                                                      
     Insert "equal to or greater than the amount of the tax                                                                 
     then levied by law."                                                                                                   
CHAIR SEEKINS objected for discussion  purposes.  He surmised the                                                               
first part of Amendment 5A  would cause the beginning sentence in                                                               
(b) to end as follows:   "the commissioner may modify those terms                                                               
of the contract relating to payments  in lieu of the taxes on oil                                                               
set out in AS 43.55."  The  second part would cause the beginning                                                               
sentence of  (c) to end as  follows:  "the amount  of the payment                                                               
in lieu of tax on oil under  AS 43.55 must be equal to or greater                                                               
than the amount of the tax then levied by law."                                                                                 
4:17:49 PM                                                                                                                    
SENATOR BEN STEVENS  said after seeing how it fits  in, he wasn't                                                               
sure it  would achieve  what Senator Bunde  had mentioned  in the                                                               
discussion relating to  Amendment 4.  This way, it  would only be                                                               
one-sided.  He asked whether that was Senator Dyson's intention.                                                                
SENATOR  DYSON  responded  yes,  but  indicated  he'd  understood                                                               
Senator  Ben Stevens  to  say that  after the  time  in (b),  the                                                               
legislature could  change the  tax laws.   As he  understood this                                                               
amendment, inserting  "then" indicates  it would be  whatever the                                                               
law  had become  at that  point.   It allows  the legislature  to                                                               
adopt a  tax rate up or  down, but doesn't give  the commissioner                                                               
discretion to have  the PILT be lower than  what the legislature,                                                               
in its  wisdom, has  decided.  Senator  Dyson indicated  that was                                                               
his intention.                                                                                                                  
4:19:39 PM                                                                                                                    
SENATOR GREEN asked whether this  is designed so the commissioner                                                               
would develop a  contract term and subsequently it  would come to                                                               
the legislature  for approval.   She then  asked whether  this is                                                               
designed to be  only a one-way street, that only  the state would                                                               
have to receive more, as she read the proposed amendment.                                                                       
SENATOR DYSON  reiterated his understanding  of what  Senator Ben                                                               
Stevens  had said,  that after  the (b)  portion of  the contract                                                               
period is  over, in  the period of  capital-cost recovery  and so                                                               
forth, then  the legislature is  free to  adjust oil taxes  up or                                                               
down.  This  wording change would only say  that the commissioner                                                               
could not modify the PILT below  what the legislature had, by its                                                               
actions,  put  in  place.    In further  response,  he  said  the                                                               
commissioner  could only  go up  or down  in putting  in place  a                                                               
payment in  lieu of taxes.   So whatever was in  statute, or that                                                               
the  legislature  decided,  would  be  the  basis  on  which  the                                                               
commissioner could exercise discretion in applying a PILT.                                                                      
4:21:34 PM                                                                                                                    
SENATOR BUNDE  expressed concern  about letting  the commissioner                                                               
raise taxes, but not lower them.                                                                                                
SENATOR DYSON  answered that the constitutional  role of imposing                                                               
taxes is  within the  legislature's purview.   When  getting into                                                               
this  business  of  authorizing  a  payment  in  lieu  of  taxes,                                                               
however,  it authorizes  the commissioner,  in this  contract, to                                                               
have a PILT,  but not to ignore what the  legislature has done in                                                               
SENATOR  BUNDE replied,  "Unless  you raise  them;  then you  can                                                               
ignore it."                                                                                                                     
SENATOR DYSON  responded, "Well, sure.   And we would  trust that                                                               
he would be doing that for good public purposes and so on."                                                                     
SENATOR BUNDE said  he'd trust the commissioner  would lower them                                                               
for good public purposes as well.                                                                                               
SENATOR DYSON replied, "And then I  don't believe that we want to                                                               
give away that constitutional mandate  that establishing taxes is                                                               
our purview."                                                                                                                   
SENATOR BUNDE  responded, "Raising it  is giving away  our right.                                                               
I don't see how that's any different than lowering."                                                                            
SENATOR DYSON said  he didn't see it  as giving it away.   If the                                                               
administration wants  a surcharge, it  would still be  subject to                                                               
contract  negotiations.    Furthermore,   with  Amendment  4  the                                                               
commissioner can put  in changes to other parts  of the agreement                                                               
to  bring  it   back  to  "the  net  that's   not  a  substantial                                                               
modification to what was in place before."                                                                                      
4:23:44 PM                                                                                                                    
SENATOR BEN  STEVENS, in response  to Chair  Seekins, interpreted                                                               
the  second part  of Amendment  5A  to say  the commissioner  can                                                               
modify the  PILT, not the taxes,  and could only change  the PILT                                                               
to be a greater amount.  He asked whether that is correct.                                                                      
SENATOR DYSON affirmed that as his understanding.                                                                               
SENATOR GREEN asked how that  differs from surrendering the right                                                               
of the  legislature.   She also  asked whether  this is  how it's                                                               
done currently.                                                                                                                 
SENATOR  BEN STEVENS,  in  response to  Senator  Green and  Chair                                                               
Seekins, alluded to  (c) of Amendment 4.  He  clarified that this                                                               
amendment is confined to the PILT  as determined on oil, not gas.                                                               
He surmised  Senator Dyson's intention  was to maintain  that, so                                                               
the PILT  on oil  couldn't be adjusted  downward from  the amount                                                               
due under the calculation under the oil tax.                                                                                    
4:26:29 PM                                                                                                                    
SENATOR  HOFFMAN  said  it  must  be  equal  under  the  existing                                                               
CHAIR  SEEKINS  asked how  something  can  be  taken in  lieu  of                                                               
something that isn't due.                                                                                                       
SENATOR BEN  STEVENS suggested that  may be an issue  for dispute                                                               
CHAIR SEEKINS  observed that,  in effect, there  would be  a PILT                                                               
greater than the taxes due; it would equate to a tax increase.                                                                  
SENATOR DYSON responded, "We are willing to give this one up."                                                                  
4:27:34 PM                                                                                                                    
SENATOR BEN STEVENS  moved to amend Amendment 5A  by deleting the                                                               
second portion,  relating to (c).   There being no  objection, it                                                               
was so ordered.                                                                                                                 
4:27:58 PM                                                                                                                    
CHAIR SEEKINS asked  whether there was any  objection to adopting                                                               
Amendment 5A as  amended.   There being no  objection, it  was so                                                               
4:28:15 PM                                                                                                                    
SENATOR  DYSON moved  to adopt  Amendment 5B  to SB  2004.   With                                                               
original  language  and  punctuation,  as well  as  line  numbers                                                               
relating to the previous day's Amendment 4, it read:                                                                            
                     A M E N D M E N T  5B                                                                                  
     OFFERED BY:  Senator Fred Dyson                                                                                          
     Subparagraph  (c), lines  4 through  9:   Replace  last                                                                    
     sentence with the following:                                                                                               
     "In the  event taxes  levied by  law have  changed, and                                                                
     remain in effect, in excess  of three percentage points                                                                
     from those  taxes in  effect at the  end of  the period                                                                
     described in (b) of this  section, the commissioner may                                                                
     develop contract provisions for  payment in lieu of tax                                                                
     equivalent to  the taxes  in effect at  the end  of the                                                                
     period described in (b) of this section."                                                                              
SENATOR  DYSON objected  for discussion  purposes.   Noting  this                                                               
adds  a definition  to  "material change",  he  said Senator  Ben                                                               
Stevens told him  during the recess that "we didn't  quite get it                                                               
done  because  we  were  talking  about the  tax  rate,  not  the                                                               
effective  tax   rate."    He   indicated  the   effective  state                                                               
government  take  needs to  be  defined  as  being in  excess  of                                                               
3 percent, but asked Senator Ben Stevens whether that was right.                                                                
SENATOR BEN  STEVENS said he  believed the issues  revolve around                                                               
the  definition of  materiality and  what is  a material  change.                                                               
There are  two issues:  the  material change in revenues  and the                                                               
material  change  in  the  government  take  or  distribution  of                                                               
economic rent.                                                                                                                  
SENATOR DYSON concurred.                                                                                                        
SENATOR BEN  STEVENS highlighted the  need for deliberation.   He                                                               
said the intent  of the original amendment was to  say a material                                                               
change as defined  by GAAP or FASB, which he  interpreted to be a                                                               
plus-or-minus-3-percent  change on  revenues.    After giving  it                                                               
more  thought,  however,  that wouldn't  trigger  a  distribution                                                               
change in  the economic  rents.  He  suggested Senator  Dyson had                                                               
pointed  out a  deficiency  because of  the  lack of  definition,                                                               
saying  "we need  to have  a material  change in  distribution of                                                               
economic  rents,  which  would   be  plus  or  minus  3 percent."                                                               
Senator Ben  Stevens said  the question in  his mind,  though, is                                                               
whether  to  apply  that  to  revenue or  to  the  percentage  of                                                               
government  take.   He  suggested  that  a  1 percent  change  in                                                               
government take would  be a material change in  funds or revenue.                                                               
He urged caution.                                                                                                               
4:31:34 PM                                                                                                                    
SENATOR DYSON  asked whether  Mr. Donohue or  someone else  had a                                                               
good way to resolve this.   Otherwise, he said, he'd withdraw the                                                               
amendment and work on it.                                                                                                       
MR.  DONOHUE said  one  possible  approach is  to  add  to (c)  a                                                               
definition  that  gets  at  these   concepts  of  economic  rent,                                                               
beginning  with  "For purposes  of  this  subsection, a  material                                                               
change in the taxes means  ..."; however, those are sophisticated                                                               
notions and would take some time  to develop.  Hence he suggested                                                               
a simpler  approach:  go  to the effective  tax rate at  the time                                                               
under  AS 43.55,  which  might be  a shorthand  for  some of  the                                                               
"economic notions that you're driving at in this measure."                                                                      
4:32:58 PM                                                                                                                    
SENATOR STEDMAN  asked what  effect a change  in the  federal tax                                                               
rate  would have,  since it  would affect  economic rent.   Would                                                               
that put the state in a position  of having to lower its share to                                                               
achieve balance?                                                                                                                
SENATOR BEN  STEVENS answered that  in developing  the amendment,                                                               
there wasn't consideration that a  change in a tax structure over                                                               
which the state  has no authority would initiate a  change by the                                                               
commissioner;  he  wasn't  sure  whether the  contract  had  that                                                               
provision.   Returning  to Mr.  Donohue's definition  of material                                                               
change, he agreed with the concept,  but cautioned to use care in                                                               
crafting it.   He reiterated  his belief that a  1 percent change                                                               
in tax rate would have a material impact on project economics.                                                                  
MR.  DONOHUE   concurred,  indicating  these  issues   should  be                                                               
discussed with state economists, for instance.                                                                                  
4:34:54 PM                                                                                                                    
SENATOR  DYSON  committed  to work  on  the  aforementioned  with                                                               
Mr. Donohue and  Senator Ben  Stevens if  the bill  wasn't moving                                                               
from committee that day.                                                                                                        
CHAIR SEEKINS set aside Amendment 5B to SB 2004.                                                                                
4:35:24 PM                                                                                                                    
SENATOR DYSON moved to adopt Amendment  6 to SB 2004, labeled 24-                                                               
GS2046\A.8, Bailey, 6/4/06, which read:                                                                                         
                      A M E N D M E N T  6                                                                                  
    OFFERED IN THE SENATE                  BY SENATOR DYSON                                                                     
          TO:  SB 2004                                                                                                          
     Page 3, line 28, following "waiver":                                                                                       
          Insert "on a case-by-case basis"                                                                                      
     Page 3, line 28, following "general":                                                                                      
     Insert "and the consent of the legislature"                                                                                
CHAIR SEEKINS objected for discussion purposes.                                                                                 
SENATOR  DYSON  said  this  is  to provide  clarity  on  page  3,                                                               
line 28, of  the bill with regard  to waivers.  It  also adds the                                                               
consent of  the legislature  in the process,  in addition  to the                                                               
attorney general.                                                                                                               
4:37:11 PM                                                                                                                    
SENATOR GREEN  asked Mr. Baldwin  how it affects  the arbitration                                                               
and  alternate dispute  resolution  setup if  the legislature  is                                                               
thrown into  it.   Also, if  waivers are  done on  a case-by-case                                                               
basis,  will  the  standard  vary  according  to  the  person  or                                                               
4:37:53 PM                                                                                                                    
JIM  BALDWIN, Counsel  to  the Office  of  the Attorney  General,                                                               
Department  of Law,  surmised  this  to be  in  reaction to  "our                                                               
testimony the other  day" that said the waiver  would be effected                                                               
on a  one-time basis  only, when the  attorney general  signs the                                                               
agreement.  He also surmised  that with "case-by-case basis" this                                                               
intends  that each  time there  is an  intent to  waive sovereign                                                               
immunity for  a specific action, it  would need to be  a separate                                                               
CHAIR SEEKINS  recalled that the discussion  had included whether                                                               
this allowed the attorney general  to negotiate into the contract                                                               
a  blanket ability  to use  arbitration as  an alternate  dispute                                                               
resolution process.   He asked whether that  was what Mr. Baldwin                                                               
was saying here,  that this amendment would change it  to be on a                                                               
case-by-case basis and to require legislative approval to do so.                                                                
MR. BALDWIN affirmed that and elaborated:                                                                                       
     What we're intending  to do here, really,  is to obtain                                                                    
     the  legislature's consent  on a  one-time basis  to be                                                                    
     able  to agree  ...  to waive  the sovereign  immunity.                                                                    
     And so  what this would do,  as I read it,  would be to                                                                    
     say that we cannot do it  on a one-time basis, and that                                                                    
     if we're  going to  do it,  we have to  go back  to the                                                                    
     legislature  each  time  to  obtain  the  legislature's                                                                    
     consent, ...  which really kind  of leaves us  where we                                                                    
     are today, which is, we  can't waive sovereign immunity                                                                    
     unless we have specific  authority from the legislature                                                                    
     to do  it.  So this  is really leaving us  where we are                                                                    
     today, basically,  I think.   And  I'm not  sure that's                                                                    
     what  the  maker of  the  amendment  is intending,  but                                                                    
     that's how I'm reading it.                                                                                                 
4:40:04 PM                                                                                                                    
SENATOR GREEN  asked whether inserting  the legislature  into the                                                               
process creates a separation-of-powers issue.                                                                                   
MR.  BALDWIN answered,  "When we  need to  or want  to waive  our                                                               
immunity  as  a  state,  we   have  to  get  authority  from  the                                                               
legislature to do that."                                                                                                        
SENATOR   GREEN   requested   confirmation  that   this   happens                                                               
MR. BALDWIN replied:                                                                                                            
     We currently  must do that, particularly  in dealing in                                                                    
     federal court,  if we're going to  subject ourselves to                                                                    
     the jurisdiction  of the  federal court.   And  the way                                                                    
     we're  acting here  is,  we  believe we  need  to do  a                                                                    
     similar  thing   in  order  to  subject   ourselves  to                                                                    
     jurisdiction  of ...  another  state's court.   So  ...                                                                    
     we're asking  for this statutory  authority so  that we                                                                    
     can agree to that.                                                                                                         
     And so that's why I'm saying  I think it leaves us kind                                                                    
     of where we  are today, without this  authority. ... We                                                                    
     wouldn't  be  gaining  much   ...  if  Senator  Dyson's                                                                    
     amendment were  to be  accepted.   I'm not  sure that's                                                                    
     what he intends,  but ... I'm starting  to assume maybe                                                                    
     that is what he intends.                                                                                                   
4:41:30 PM                                                                                                                    
SENATOR  DYSON  indicated  the   drafters  in  Legislative  Legal                                                               
Services  had alerted  him  to  a potential  separation-of-powers                                                               
issue on this.                                                                                                                  
CHAIR SEEKINS  related his understanding  that the intent  of the                                                               
waiver of sovereign immunity is basically  to put the state on an                                                               
equal footing  with the  other partners, the  producers.   If the                                                               
state is going  to act as a partner in  an organization, it needs                                                               
to  act as  if it  were a  corporation, rather  than a  sovereign                                                               
state.   Otherwise,  the state  could sue  the producers  without                                                               
their  permission,  but  the producers  couldn't  sue  the  state                                                               
without its permission.  He asked whether that is correct.                                                                      
MR. BALDWIN  said the partners are  not on an equal  footing with                                                               
the state, which as a sovereign  entity can avoid suit in distant                                                               
jurisdictions.  In order to  equalize their remedies - from their                                                               
viewpoint - the producers are  asking that the state's ability to                                                               
agree to a waiver of  sovereign immunity be incorporated into the                                                               
Stranded Gas Act.                                                                                                               
CHAIR  SEEKINS asked  whether  there is  a  blanket waiver  under                                                               
contract for sovereign immunity.                                                                                                
MR.  BALDWIN  answered that  AS  09.50  says that  under  certain                                                               
circumstances,  for  actions  in  tort  or  contract,  the  state                                                               
consents to be sued as a general matter.                                                                                        
CHAIR  SEEKINS suggested  that is  basically what  is being  said                                                               
here, that  in terms of  enforcement of this contract,  the state                                                               
is allowing the  other parties to sue  the state as if  it were a                                                               
corporation, rather than a state.                                                                                               
MR.  BALDWIN  replied   it  adds  the  element   of  "in  distant                                                               
jurisdictions."   The consent referred  to in  Title 9 is  in the                                                               
state courts.                                                                                                                   
CHAIR SEEKINS  surmised this lowers  the state's position,  so to                                                               
speak, to  be on  an equal  basis with the  other parties,  as is                                                               
done already in contract or tort.                                                                                               
MR. BALDWIN responded,  "Yes, in our jurisdiction."   He said the                                                               
legislature has  made that  policy decision, and  it's up  to the                                                               
legislature to  make the further  policy decision as to  "what we                                                               
would do in district courts."                                                                                                   
SENATOR DYSON withdrew Amendment 6 to SB 2004.                                                                                  
4:45:15 PM                                                                                                                    
SENATOR DYSON moved to adopt Amendment  7 to SB 2004, labeled 24-                                                               
GS2046\A.9, Bailey, 6/3/06, which read:                                                                                         
                      A M E N D M E N T  7                                                                                  
    OFFERED IN THE SENATE                  BY SENATOR DYSON                                                                     
          TO:  SB 2004                                                                                                          
     Page 3, line 31:                                                                                                           
          Delete "state"                                                                                                        
          Insert "project"                                                                                                      
CHAIR SEEKINS objected for discussion purposes.                                                                                 
SENATOR DYSON  offered his  belief that  this clarifies  what was                                                               
understood from the previous day's discussion.                                                                                  
MR.  DONOHUE  opined it  would  be  incorrect to  substitute  the                                                               
concept  of  "project"  for  the   concept  of  "state"  in  this                                                               
amendment and in Section 4 of the bill.  He explained:                                                                          
     We  are  talking about  allowing  the  producers, in  a                                                                    
     dispute, to  pursue the  state in  other jurisdictions,                                                                    
     but it's  limited to jurisdictions ...  where the state                                                                    
     is doing business or otherwise  has assets or what have                                                                    
     you.   So  that state  court has  to have  jurisdiction                                                                    
     over the  State of Alaska.   If that fact  exists, then                                                                    
     the state  is ...  waiving sovereign  immunity pursuant                                                                    
     to this provision.   So I believe, if  I understand the                                                                    
     concern,  maybe  the  amendment   would  be  "that  has                                                                    
     jurisdiction over the State of Alaska."                                                                                    
SENATOR  DYSON said  those  were words  he'd  penciled in  during                                                               
yesterday's discussion.   He asked Mr. Donohue  to explain, under                                                               
the federal  constitution, how any  other state  has jurisdiction                                                               
over the State of Alaska.                                                                                                       
4:48:45 PM                                                                                                                    
MR. DONOHUE replied  the issue may arise when states  engage in a                                                               
proprietary activity  in other states.   For example,  the Alaska                                                               
Marine Highway  System uses facilities and  wharves in Washington                                                               
State that  are owned or  leased by the  State of Alaska.   There                                                               
could be accidents and so  forth, and those issues probably would                                                               
be resolved  initially in Washington  State.  Thus  the sovereign                                                               
immunity of the State of  Alaska does not automatically translate                                                               
into sovereign  immunity in another  jurisdiction when  the state                                                               
is acting in a proprietary capacity.                                                                                            
4:49:42 PM                                                                                                                    
CHAIR SEEKINS asked whether it made  sense to say "over the State                                                               
of Alaska related to this project".                                                                                             
SENATOR  DYSON proposed  "or a  portion of  this project  that is                                                               
happening" or something that is related to this project.                                                                        
CHAIR SEEKINS asked about "on matters related to this project".                                                                 
MR. DONOHUE replied  the jurisdiction that this  section tries to                                                               
clarify arises  when there is  an enforcement action  against the                                                               
State  of  Alaska  that  hasn't  been  satisfied  by  either  the                                                               
recoupment provisions in Article 22  of the fiscal contract or by                                                               
an  appropriation from  the state  legislature.   So it  wouldn't                                                               
necessarily  be project  assets or  jurisdiction related  to this                                                               
project itself.                                                                                                                 
CHAIR  SEEKINS  asked about  "or  to  the contract"  or  "matters                                                               
related to ...  the fiscal contract".  He  surmised Senator Dyson                                                               
was saying  it's only when  there is jurisdiction over  the state                                                               
in matters related to this particular project or contract.                                                                      
MR. DONOHUE  replied by giving the  example that if the  State of                                                               
Alaska  were  engaged  in  an enforcement  action  to  collect  a                                                               
significant  amount  of  revenues  from the  producers,  and  for                                                               
whatever  reason   the  producers'  assets  in   the  state  were                                                               
insufficient to  satisfy the judgment entered  after arbitration,                                                               
the  State of  Alaska would  be pursuing  the producers  in other                                                               
states such  as Texas or  Colorado; those  assets may or  may not                                                               
have anything  to do with the  project.  Thus the  producers here                                                               
are seeking reciprocal rights, essentially.                                                                                     
SENATOR DYSON said this is what  he was trying to get at, because                                                               
he'd thought  of what the  State of  Alaska might be  pursuing in                                                               
other  states.    For  example,   a  module  might  be  built  in                                                               
Louisiana,  or the  organization from  which the  state sought  a                                                               
remedy might  have a bank account  in Massachusetts.  He  said it                                                               
would  be a  place  where  some of  the  assets  related to  this                                                               
project reside when the state seeks a remedy.                                                                                   
4:52:03 PM                                                                                                                    
MR. DONOHUE pointed  out that someone engaging  in an enforcement                                                               
activity would be looking for  highly liquid assets, and probably                                                               
not going  after assets that  are under construction  and related                                                               
to this project.                                                                                                                
CHAIR SEEKINS asked whether an  enforcement action would be filed                                                               
for  collection  of  a  judgment  wherever  the  money  was;  for                                                               
example, the  state may have  money in a  Boston bank.   He asked                                                               
whether that is a common practice among states.                                                                                 
MR.  DONOHUE  replied  it  is a  common  practice  among  private                                                               
parties pursuing  each other  when there  is an  unpaid judgment.                                                               
It  is  relatively  uncommon,  however,  for  a  state  to  waive                                                               
sovereign  immunity  to   allow  itself  to  be   sued  in  other                                                               
jurisdictions.  But  this is a very uncommon  and historic fiscal                                                               
contract under consideration, he noted,  and so the state and the                                                               
producers have  incorporated this provision to  create more equal                                                               
SENATOR DYSON  announced he was  now convinced that  the language                                                               
in the bill was probably okay.                                                                                                  
4:54:11 PM                                                                                                                    
SENATOR  DYSON moved  to amend  Amendment 7, leaving  "state" and                                                               
inserting  "of Alaska"  following that.   Thus  it would  clarify                                                               
which  state it  is talking  about, especially  for lay  readers.                                                               
There being no objection, it was so ordered.                                                                                    
4:54:57 PM                                                                                                                    
SENATOR  GREEN referred  to the  top of  page 4,  line 2,  of the                                                               
bill.  He  asked Mr. Donohue whether that refers  to any state in                                                               
which the litigation occurs or refers to the State of Alaska.                                                                   
MR. DONOHUE  answered it  is only  after the  initial arbitration                                                               
award  is entered  in  superior court;  there  is an  enforcement                                                               
action sought in Alaska Superior Court.                                                                                         
CHAIR SEEKINS said he hadn't read  it that way.  He asked whether                                                               
it is an  arbitration award and they would have  tried to collect                                                               
in the Alaska Superior Court.                                                                                                   
MR. DONOHUE affirmed that.                                                                                                      
CHAIR SEEKINS  first proposed saying  "of Alaska", but  then said                                                               
it was all right with him either way.                                                                                           
4:55:58 PM                                                                                                                    
CHAIR SEEKINS removed  his objection and asked  whether there was                                                               
any  further  objection to  adopting  Amendment 7  to SB 2004  as                                                               
amended.  There being no objection, it was so ordered.                                                                          
SENATOR   ELTON   requested   that  Mr.   Donohue   confirm   his                                                               
understanding:   If there is  an arbitration award and  the state                                                               
doesn't pay, a  private partner first must go  to Alaska Superior                                                               
Court; if  the court  doesn't agree  and enforce  the arbitration                                                               
award, the partner  can then go to another state.   He asked what                                                               
happens  if  the  Alaska Superior  Court  enters  an  enforcement                                                               
order,  but the  legislature  refuses to  appropriate the  funds.                                                               
Could the partner still go to another state to seek relief?                                                                     
4:57:01 PM                                                                                                                    
MR.  DONOHUE answered  there are  two  categories of  arbitration                                                               
awards  within the  fiscal  contract.   One  is  for  a class  of                                                               
indemnification-type   obligations,   which    are   limited   to                                                               
enforcement  in Alaska,  seeking  appropriations  from the  state                                                               
legislature; he  mentioned the  recoupment and  offset provisions                                                               
in  Article  22   of  the  fiscal  contract.     Other  types  of                                                               
arbitration awards,  relating to other issues  and obligations of                                                               
the  state  within  the  contract, would  then  go  through  this                                                               
process  and   would  go   to  the   state  legislature   for  an                                                               
appropriation;   without   an   appropriation,  they   would   be                                                               
authorized to seek enforcement in other states.                                                                                 
He noted Article  26 also provides that if, for  some reason, the                                                               
superior  court didn't  act to  confirm an  arbitration award  of                                                               
this  other category  of  obligations that  don't  relate to  the                                                               
indemnification provisions  under the  contract, then  they would                                                               
be free to pursue state assets  and enforce the judgment in other                                                               
states.   Mr.  Donohue said  this is  unlikely, however,  because                                                               
once  an arbitration  award  has been  decided,  it's usually  an                                                               
administerial act for  the court to enter and  confirm that award                                                               
and enter judgment.                                                                                                             
4:59:06 PM                                                                                                                    
SENATOR WAGONER asked  how this applies to  the limited liability                                                               
companies (LLCs)  that will  be created.   Would  it be  the same                                                               
application even if the LLC  was registered in Delaware, or would                                                               
the Delaware court take precedence over the Alaska court?                                                                       
MR.  DONOHUE  offered  his understanding  that  these  provisions                                                               
relate only to the fiscal  contract terms; they don't necessarily                                                               
dictate what will happen under the  LLC agreement.  The LLC being                                                               
negotiated   has   mandatory  arbitration   requirements;   those                                                               
obligations and disputes would be resolved under Delaware law.                                                                  
SENATOR  OLSON asked:   If  there is  a pipeline  to Chicago  and                                                               
there are sales agreements or  gas reserves in some other states,                                                               
are those counted as assets that  allow the State of Alaska to be                                                               
sued there?                                                                                                                     
MR. DONOHUE replied,  generally speaking, that is  correct if the                                                               
state  is doing  business.   He noted  the state  would be  doing                                                               
business through LLCs;  generally, the asset to  be pursued would                                                               
be the state's  ownership interest in the LLC, but  "on the sales                                                               
side" there could be assets available as well.                                                                                  
SENATOR  OLSON   asked:    Anywhere   we're  selling   gas,  that                                                               
jurisdiction prevails?                                                                                                          
MR.  DONOHUE answered  that the  rules of  that jurisdiction  can                                                               
vary by  state.  One  reason the contract  calls for a  waiver of                                                               
sovereign  immunity is  to make  it more  certain that  the state                                                               
cannot assert  sovereign immunity, in these  other jurisdictions,                                                               
as a defense against a judgment in an enforcement action.                                                                       
5:02:18 PM                                                                                                                    
CHAIR  SEEKINS again  asked whether  there was  any objection  to                                                               
adopting  Amendment 7  to SB  2004 as  amended.   There being  no                                                               
objection, it was so ordered.                                                                                                   
5:02:41 PM                                                                                                                    
SENATOR DYSON moved to adopt Amendment  8 to SB 2004, labeled 24-                                                               
GS2046\A.10, Bailey, 6/3/06, which read:                                                                                        
                      A M E N D M E N T  8                                                                                  
     OFFERED IN THE SENATE                  BY SENATOR DYSON                                                                    
          TO:  SB 2004                                                                                                          
     Page 9, line 14, following "section.":                                                                                     
          Insert "Before making a final determination of                                                                        
     the  grants  to  be  awarded,  the  commissioner  shall                                                                    
     submit recommendations for  annual grant allocations to                                                                    
     the   Legislative  Budget   and  Audit   Committee  for                                                                    
     approval.   The Legislative Budget and  Audit Committee                                                                    
     shall    approve   or    modify   the    commissioner's                                                                    
     recommendations within  10 days after receipt  from the                                                                    
     commissioner.   If  the  Legislative  Budget and  Audit                                                                    
     Committee does  not respond to the  commissioner within                                                                    
     10  days,  the  commissioner  may  proceed  with  grant                                                                    
     payments as recommended."                                                                                                  
SENATOR DYSON  objected for discussion purposes.   Recalling that                                                               
yesterday Senator Wilken had expressed  concern about the ability                                                               
of   the  Department   of   Commerce,   Community  and   Economic                                                               
Development (DCCED)  to award  grants without  oversight, Senator                                                               
Dyson said it seemed that could  be improved upon.  Notice to the                                                               
legislature  wouldn't be  given until  the first  10 days  of the                                                               
regular  session,  which  occurs  after  the  fact.    Thus  this                                                               
amendment requires the department to  solicit the approval of the                                                               
Legislative  Budget   and  Audit  Committee  for   these  grants,                                                               
inserting the  legislature into the  approval process.   He noted                                                               
Legislative  Legal  Services  had  suggested  this  may  raise  a                                                               
separation-of-powers issue.                                                                                                     
CHAIR SEEKINS  asked Mr. Baldwin to  respond.  He also  noted the                                                               
Department of  Revenue (DOR) wished  to comment  on Amendment 10,                                                               
but Steve Porter wasn't available.                                                                                              
MR.  BALDWIN agreed  this raises  separation-of-powers issues  in                                                               
that it would  have a legislative committee executing  the law by                                                               
being able to  declare who were the approved  grantees under this                                                               
program.    It  would  not  be the  legislature  itself,  the  60                                                               
members; rather,  the committee would  be attempting to act  in a                                                               
lawmaking capacity, if it could  be characterized as such.  While                                                               
saying  he could  understand why  the legislature  would like  to                                                               
have   that  oversight   role  for   the  grant-making   process,                                                               
Mr. Baldwin opined that it is a rather severe legal problem.                                                                    
5:05:56 PM                                                                                                                    
SENATOR WILKEN welcomed what Senator  Dyson was trying to do with                                                               
the  added  scrutiny,  but  recognized  the  separation-of-powers                                                               
problem.  He  asked Mr. Baldwin:  If this  grant process goes off                                                               
track and the  legislature gets the report in the  first 10 days,                                                               
couldn't  the legislature  affect the  grant process  through the                                                               
budgeting process each year?                                                                                                    
MR.  BALDWIN  answered  that  as   it's  set  up,  the  money  is                                                               
appropriated into the  fund - as almost all grant  programs are -                                                               
in advance of  the fiscal year.  The  legislature has exceedingly                                                               
broad powers,  the "power  of the purse,"  to deal  with agencies                                                               
that  aren't  administering funds  in  the  appropriate way;  the                                                               
powers of oversight and audit  are potent legislative powers that                                                               
the agencies are mindful of and responsive to.                                                                                  
He surmised, however,  that the suggestion was the  ability to go                                                               
in and amend those grants after  they are made.  Mr. Baldwin said                                                               
it  depends on  how those  grants are  being administered  by the                                                               
agencies.  Altering the grant  through the capital-budget process                                                               
might be possible  if the money isn't  fully expended; otherwise,                                                               
options   are  somewhat   limited.     Generally,  though,   this                                                               
department  doesn't  just disburse  the  whole  amount, but  will                                                               
disburse  a percentage  and then  pay on  invoices, on  a rolling                                                               
basis.   Thus the  money wouldn't  be all out  the door,  and the                                                               
legislature could exercise its power  of appropriation in the way                                                               
Senator Wilken had suggested.   Mr. Baldwin characterized it as a                                                               
blunt instrument, but one that's available.                                                                                     
5:08:30 PM                                                                                                                    
SENATOR DYSON withdrew Amendment 8 to SB 2004.                                                                                  
5:09:00 PM                                                                                                                    
SENATOR HOFFMAN  moved to adopt  Amendment 9 to SB  2004, labeled                                                               
24-GS2046\A.7, Bailey, 6/4/06, which read:                                                                                      
                      A M E N D M E N T  9                                                                                  
     OFFERED IN THE SENATE                                                                                                      
          TO:  SB 2004                                                                                                          
     Page 3, line 26:                                                                                                           
          Delete "a new subsection"                                                                                             
          Insert "new subsections"                                                                                              
     Page 4, following line 2:                                                                                                  
          Insert a new subsection to read:                                                                                      
               "(c)  The commissioner shall include in any                                                                      
          contract   developed   under  this   chapter   gas                                                                    
          pipeline "rolled in"  expansion pricing to provide                                                                    
          for  expansion  of  the pipeline  that  encourages                                                                    
          further gas exploration."                                                                                             
CHAIR SEEKINS objected for discussion purposes.                                                                                 
SENATOR  HOFFMAN requested  that  a related  two-page handout  be                                                               
distributed.    He  then  indicated Amendment  9  would  add  the                                                               
following requirement under  Section 3 of the  bill, which amends                                                               
the "Contract development" section of  the Stranded Gas Act:  the                                                               
commissioner  shall include  a "rolled-in"  expansion to  provide                                                               
for  expansion  of the  pipeline,  which  encourages further  gas                                                               
exploration.   He  offered his  understanding that  this language                                                               
doesn't presently exist in the Stranded Gas Act.                                                                                
He referred to  the page of his handout labeled  "Quotes from the                                                               
FERC (The  Federal Energy  Regulatory Commission)  Briefing Paper                                                               
Nov.  9 2004."   Calling  it the  most telling  from that  sheet,                                                               
Senator Hoffman read from the last paragraph, which stated:                                                                     
     Under incremental  pricing there will  almost certainly                                                                    
     be  no competition  after the  less expensive  capacity                                                                    
     goes  into service.   Expansion,  priced incrementally,                                                                    
     will  virtually preclude  new  exploration programs  by                                                                    
     companies  other   than  the  preexisting   holders  of                                                                    
     pipeline capacity.                                                                                                         
He  noted   the  other  page  explains   the  difference  between                                                               
incremental pricing and rolled-in pricing.                                                                                      
5:11:16 PM                                                                                                                    
SENATOR  BUNDE said  this is  focused  on "independents"  finding                                                               
more gas.  He asked whether  it would also apply to consumers, or                                                               
whether a  provision already does  that.  For example,  would the                                                               
people  of  Fairbanks be  subject  to  rolled-in pricing  if  the                                                               
people  of Valdez  wanted a  spur  line, and  thus the  Fairbanks                                                               
residents would help pay for it?                                                                                                
SENATOR HOFFMAN  said he didn't  believe that would be  the case,                                                               
but deferred to an expert to answer.                                                                                            
SENATOR WILKEN suggested the answer  was provided yesterday, when                                                               
it was said  that all gas sales have to  be commercial gas sales,                                                               
which would indicate they're sold at market value.                                                                              
CHAIR SEEKINS  noted the discussion  often arises with  regard to                                                               
the North Pole refinery.                                                                                                        
SENATOR GREEN  recalled discussion  at Centennial Hall  that spur                                                               
lines and  offshoot lines would  be a totally  different network,                                                               
under  the Regulatory  Commission  of Alaska  (RCA), whereas  the                                                               
others are under FERC.                                                                                                          
CHAIR  SEEKINS  asked whether  anyone  could  comment on  whether                                                               
rolled-in pricing would have a positive or negative effect.                                                                     
5:13:17 PM                                                                                                                    
SENATOR BUNDE  said he'd like to  state for the record  that this                                                               
would apply only to producers, not to consumers.                                                                                
CHAIR SEEKINS said that was  his understanding, but asked whether                                                               
it was correct.                                                                                                                 
SENATOR  STEDMAN related  his understanding  that this  amendment                                                               
precludes  FERC from  allowing  an incremental-pricing  scenario,                                                               
and that  "all expansions  would then go  into the  rolled-in, so                                                               
... we'd  be controlling FERC's  action."  He also  asked whether                                                               
FERC normally tries  to do rolled-in pricing  to keep competition                                                               
in the marketplace.                                                                                                             
SENATOR HOFFMAN said he didn't know.                                                                                            
SENATOR  BEN STEVENS  opined that  the tariffs  and authority  to                                                               
demand  the rolled-in  or incremental  pricing lie  not with  the                                                               
state's  commissioner,  but  with   FERC;  it  is  an  interstate                                                               
commerce  project,  and  the  state  doesn't  have  jurisdiction.                                                               
While respecting the Senator Hoffman's  attempt, he suggested the                                                               
need to find out the answer.                                                                                                    
SENATOR WAGONER  pointed out  that Mr.  Shepler, a  FERC attorney                                                               
with 30  years' experience, was in  town.  Noting he  himself had                                                               
an  amendment, Senator  Wagoner expressed  hope that  Mr. Shepler                                                               
would be available for that as well.                                                                                            
The committee took an at-ease from 5:16:08 PM to 5:26:31 PM.                                                                
^Donald Shepler, Greenberg Traurig                                                                                              
DONALD  SHEPLER,  Greenberg  Traurig,   LLP,  Consultant  to  the                                                               
Legislature, introduced himself.                                                                                                
SENATOR  STEDMAN explained  that the  question goes  to rolled-in                                                               
pricing  versus incremental  pricing  and the  relative roles  of                                                               
FERC  and  the  state.   Specifically,  can  FERC's  decision  be                                                               
preempted  legislatively by  requiring  that  FERC use  rolled-in                                                               
pricing instead of  incremental pricing?  And when  FERC looks at                                                               
situations similar  to what  Alaska is  facing, does  it normally                                                               
include  either rolled-in  pricing  or incremental  pricing as  a                                                               
preferred alternative?                                                                                                          
MR.  SHEPLER answered  that, first,  the state  probably couldn't                                                               
dictate to FERC  how to require pipeline expansion  to be priced.                                                               
However, FERC has  said, in its order following  the 2004 federal                                                               
legislation, that it would establish  a rebuttable presumption in                                                               
favor of any expansion of the  Alaskan pipeline being priced on a                                                               
rolled-in basis,  which is a  departure from the policy  FERC has                                                               
applied in  pipeline cases in  the Lower 48.   Up until  the mid-                                                               
1990s,  to his  recollection,  FERC's policy  was  that it  would                                                               
approve rolled-in  pricing for an  expansion if it caused  a rate                                                               
increase of less than 5 percent to existing shippers.                                                                           
He surmised members  were familiar with the  concept of rolled-in                                                               
pricing.    Mr.  Shepler  said  in  the  mid-1990s  or  so,  FERC                                                               
reassessed  its policy  if  circumstances  included one  pipeline                                                               
company competing  against another  to serve a  particular market                                                               
or  to expand  a pipeline  to  attach to  new market  areas.   To                                                               
promote a level  playing field, current FERC policy  for Lower 48                                                               
pipelines is that  any pipeline expansion which will  result in a                                                               
rate  increase to  an existing  shipper has  to be  priced on  an                                                               
incremental basis.                                                                                                              
He  noted, however,  that in  Order 2005  FERC made  a 180-degree                                                               
change:  in  the context of the unique  circumstances, FERC ruled                                                               
that  the presumption  going forward  for an  Alaskan pipeline  -                                                               
regardless  of   whether  there  was  an   increase  to  existing                                                               
shippers' rates - would still be  in favor of rolling in the cost                                                               
of  an  expansion,  on  the  theory  that,  at  some  point,  the                                                               
expansions  would  get  incrementally   so  expensive  that  they                                                               
wouldn't be economic  and thus wouldn't take place.   Mr. Shepler                                                               
said  the increase  that an  existing shipper  would bear  in the                                                               
context of rolled-in  pricing would be some  unknown rate impact,                                                               
but certainly the increase to  the existing shipper would be much                                                               
less than  if the  new shipper  had to  pay an  incremental rate,                                                               
which may be two times what  the existing shipper was paying.  In                                                               
response  to Senator  Ben Stevens,  Mr. Shepler  noted he'd  just                                                               
been given a copy of Amendment 9.                                                                                               
5:33:02 PM                                                                                                                    
SENATOR  BEN STEVENS  referred  to  line 7  of  Amendment 9,  the                                                               
beginning of proposed  subsection (c).  He asked  whether the DOR                                                               
commissioner has the  power to mandate rolled-in  pricing in this                                                               
MR.  SHEPLER  answered  he  thinks  so,  if  it's  put  into  the                                                               
SENATOR  BEN  STEVENS  countered with  his  understanding,  under                                                               
rolled-in pricing, that the rates are determined by FERC.                                                                       
MR. SHEPLER agreed, but said  they're determined based on filings                                                               
and  applications made  by  the pipeline  company,  which has  to                                                               
propose a  rate either under rolled-in  or incremental treatment;                                                               
FERC then  disposes of  it.  He  said as he  read what  he'd just                                                               
been handed, the contract for  the gas pipeline would require the                                                               
pipeline company to  file for rolled-in treatment;  as to whether                                                               
FERC would approve it, however, he agreed it wasn't certain.                                                                    
SENATOR  BEN  STEVENS said  that  wasn't  how  he  read it.    He                                                               
suggested the need  to perhaps modify the amendment  so it states                                                               
what  Mr.  Shepler  said,  that  the intention  is  to  say  "the                                                               
contract  shall include  rolled-in  pricing  in applications  for                                                               
rate-setting methodology at FERC."                                                                                              
CHAIR SEEKINS interpreted  the foregoing to be  that the contract                                                               
requires the parties  to agree to apply for  rolled-in pricing on                                                               
SENATOR  BEN STEVENS  concurred.   He  offered his  understanding                                                               
that  FERC  has the  authority  to  tell  the participants  in  a                                                               
ratemaking  case  what  they  believe  should  happen  when  they                                                               
adjudicate the  tariffs, whether or  not there is  an application                                                               
for rolled-in pricing or for incremental pricing.                                                                               
MR. SHEPLER agreed.   At the same time, however  - as he believed                                                               
Mr.  Loeffler had  explained  previously -  in  the gas  pipeline                                                               
context the applicant  goes to FERC and makes  an application for                                                               
a   certificate,  including   the  tariff   and  all   supporting                                                               
materials;  FERC  makes  a  decision and  issues  an  order,  and                                                               
requires some sort of rate  treatment; and then the applicant can                                                               
accept or reject that certificate.   Thus while FERC would make a                                                               
ruling regardless  of what the  applicant proposed,  the pipeline                                                               
company could accept or reject it.                                                                                              
SENATOR BEN STEVENS  asked:  If the  legislature mandates rolled-                                                               
in pricing must  be in the contract, and if  FERC then determines                                                               
otherwise, is the  contract in violation and thus  there would be                                                               
no contract?  He  said he doesn't want to set  up a trapdoor that                                                               
jettisons the contract based on a decision by FERC.                                                                             
MR. SHEPLER replied he didn't have  an answer.  Returning to what                                                               
Chair Seekins had said, Mr.  Shepler opined that if the amendment                                                               
were to  have the  effect of obligating  the pipeline  company to                                                               
file for  and support rolled-in  pricing, that would  probably be                                                               
as far as  the State of Alaska  could go; the ball  would then be                                                               
in the  commission's court to  adjudicate that filing  and either                                                               
accept the rolled-in pricing or not.                                                                                            
5:38:19 PM                                                                                                                    
SENATOR BUNDE asked  whether FERC would tend to  accept or reject                                                               
certain portions of a contract or the whole contract.                                                                           
MR. SHEPLER replied  the contract itself wouldn't go  to FERC, to                                                               
his  understanding; rather,  it  would be  an  application for  a                                                               
certificate, containing  the company's proposal.   Frequently, or                                                               
almost  universally in  pipeline certificate  cases, FERC  grants                                                               
approval contingent on  attached conditions.  At  that point, the                                                               
company can decide whether to accept those conditions.                                                                          
CHAIR  SEEKINS surmised  the contract  would have  a severability                                                               
clause so the whole contract wouldn't be voided.                                                                                
5:40:08 PM                                                                                                                    
SENATOR  STEDMAN recalled  that FERC  had looked  at the  cost of                                                               
this  proposed pipeline  and challenged  that  the smaller  firms                                                               
could come in and use a  portion at some future date; incremental                                                               
pricing  would  put  them  at   a  disadvantage  because  of  the                                                               
magnitude  of this  project, whereas  rolled-in pricing  would be                                                               
preferable from their perspective.                                                                                              
MR.  SHEPLER  said  he  believed  that  was  right;  it  was  the                                                               
rationale,  at  least, presented  to  FERC  as to  why  rolled-in                                                               
pricing  was  a  necessary  condition for  this  pipeline  to  be                                                               
expanded  at some  point.    Although there  may  be  one or  two                                                               
expansions  where rolled-in  pricing wouldn't  matter to  the new                                                               
shippers,  at some  point they'd  face paying  for the  expensive                                                               
looping  expansions,  which  would  be  cost-prohibitive  because                                                               
they'd be  paying far  more than the  existing shippers.   Either                                                               
everyone, including  the existing shippers,  would have to  pay a                                                               
dime  more or  else the  incremental shipper  may have  to pay  a                                                               
dollar more;  that's the problem  FERC, with its  presumption, is                                                               
trying to avoid.                                                                                                                
SENATOR STEDMAN posed  a situation in which  smaller players want                                                               
to  expand the  pipeline and  FERC wants  rolled-in pricing  as a                                                               
policy, but  the four pipeline  owners want  incremental pricing.                                                               
He  asked whether  those  four  could be  forced  by  FERC to  do                                                               
rolled-in pricing.                                                                                                              
MR. SHEPLER  answered they  always have the  power to  reject the                                                               
certificate.  If  they filed for and tried  to pursue incremental                                                               
pricing, and if  FERC approved the application  except for saying                                                               
they must do  rolled-in pricing, then the pipeline  company - the                                                               
producers and the state - would  have to decide whether to accept                                                               
that  certificate; if  they  chose not  to,  then that  expansion                                                               
couldn't be built.                                                                                                              
5:43:24 PM                                                                                                                    
SENATOR  HOFFMAN spoke  for  Amendment  9.   He  pointed out  the                                                               
dilemma  because  included are  provisions  for  credits for  oil                                                               
companies to  explore.  There  is a desire  to extend use  of the                                                               
gas  pipeline for  30-50 years,  but if  the explorers  can't get                                                               
into the line,  then the life of the contract  won't be stretched                                                               
out.  He again read from his handout on FERC, which stated:                                                                     
     Under incremental  pricing there will  almost certainly                                                                    
     be  no competition  after the  less expensive  capacity                                                                    
     goes  into service.   Expansion,  priced incrementally,                                                                    
     will  virtually preclude  new  exploration programs  by                                                                    
     companies  other   than  the  preexisting   holders  of                                                                    
     pipeline capacity.                                                                                                         
He remarked that  this is the crux of the  problem, and asked why                                                               
that door  should be left open.   Instead, he said,  it seems the                                                               
rolled-in  basis  should be  required  in  order to  fulfill  the                                                               
original intention:  to stretch  this out and have new explorers.                                                               
To  accomplish  that, he  suggested,  this  amendment must  pass.                                                               
Otherwise, it defeats the purpose  of offering all the credits in                                                               
the first place.                                                                                                                
5:45:07 PM                                                                                                                    
SENATOR  BUNDE suggested  the  amendment could  be  passed as  an                                                               
expression  of interest  or will.   He  said, however,  that he'd                                                               
understood  Mr. Shepler to  say  the decision  would  be made  by                                                               
FERC.  Thus he questioned whether it would accomplish much.                                                                     
MR.  SHEPLER  first  offered   the  following  clarification  for                                                               
Senator Hoffman:                                                                                                                
     The pipeline  applicant has to  file a proposal.   They                                                                    
     have  to  propose ...  and  pursue  and defend  a  rate                                                                    
     structure  as part  of  their certificate  application.                                                                    
     So if  the contract  obligates the pipeline  company to                                                                    
     file on  a particular  basis, in this  case, rolled-in,                                                                    
     then the  pipeline company would  have to file  on that                                                                    
     basis. ...  In the absence  of such a  requirement, the                                                                    
     pipeline company  would presumably  be free to  file on                                                                    
     whatever  basis  it thought  made  sense  at the  time,                                                                    
     which  might  or  might  not be  rolled-in.    But  the                                                                    
     pipeline  company  has  the  obligation  in  the  first                                                                    
     instance to make a proposal.                                                                                               
He then opined,  in response to Senator Bunde,  that putting into                                                               
the contract  what the pipeline  company has  to file at  FERC is                                                               
significant,  because   the  pipeline  company  has   the  burden                                                               
initially to propose something.                                                                                                 
SENATOR BUNDE replied  that even if the company  didn't request a                                                               
rolled-in basis, however,  FERC could ask for it,  if it believed                                                               
it was  in everyone's best  interest - regardless of  whether the                                                               
pipeline company had applied for it.                                                                                            
MR. SHEPLER agreed,  but noted the pipeline  company would decide                                                               
then whether to accept the certificate with that condition.                                                                     
5:48:11 PM                                                                                                                    
SENATOR ELTON spoke in support of  Amendment 9.  He recalled that                                                               
Mr.  Shepler's memo  said rolled-in  pricing is  crucial for  two                                                               
reasons:  it  provides for expansion, and it is  the best way for                                                               
the state  to commercialize  its resource.   He  further recalled                                                               
Mr.  Shepler  had noted  that  after  FERC  decided to  have  the                                                               
presumption  be  rolled-in pricing  for  expansion,  some of  the                                                               
private  partners in  the proposed  contract argued  against that                                                               
presumption, and continue to argue against it.                                                                                  
He said he is comfortable  inserting this in the contract because                                                               
rolled-in pricing,  which aids  in expansion  and commercializing                                                               
the resource,  should be something  the state gets in  return for                                                               
the tax and royalty concessions  in the contract in other places.                                                               
It makes sense that the state  would want this option to have the                                                               
request  for expansion  include  rolled-in  pricing; perhaps,  he                                                               
suggested, the only way to get  it is through the contract, since                                                               
the state will be a minority partner in the mainline entity.                                                                    
SENATOR DYSON said  he appreciated those remarks.   He noted that                                                               
the  independents,  which  he  surmised will  be  the  future  of                                                               
exploration in Alaska, feel strongly about rolled-in pricing.                                                                   
^Bob Loeffler, Morrison and Foerster                                                                                            
BOB  LOEFFLER,  Morrison &  Foerster,  Counsel  to the  Governor,                                                               
began  by voicing  general agreement  with  what Mr. Shepler  had                                                               
said.  First,  he emphasized, the applicants  can request rolled-                                                               
in pricing, but  a future FERC will do whatever  it decides is in                                                               
the public  interest; without a  federal statute, FERC  cannot be                                                               
forced  to  deliver rolled-in  pricing,  even  if it  is  perhaps                                                               
possible to  force an application  for it.   Second, there  is no                                                               
guarantee  the  capacity  will  be  given  to  the  independents,                                                               
whether rolled-in  or incremental pricing  is used.   Capacity is                                                               
put out  for an open  season.  If a  major producer bids  for the                                                               
capacity, it  could receive it.   So while rolled-in  pricing can                                                               
be requested, the results cannot be promised.                                                                                   
He said, third,  the pipeline can be expanded easily  from 4.3 to                                                               
about  5.9  billion  cubic  feet  (Bcf)  a  day;  this  is  cheap                                                               
expansion  of  almost 50  percent.    Rolled-in pricing  actually                                                               
doesn't  help there;  it is  a disadvantage  to the  independents                                                               
because  the  cheap  capacity  is rolled  in  with  the  original                                                               
capacity.   Only when  there is  more than  a roughly  50 percent                                                               
increase  in the  project  that looping  happens,  which is  more                                                               
expensive.  Mr. Loeffler told  members he has talked to engineers                                                               
about it.   It starts out  more expensive, but depending  on "how                                                               
far out  you go" may end  up less expensive.   Noting the picture                                                               
is more  complicated than  people think,  Mr. Loeffler  said FERC                                                               
has done all  it could, and has established  rolled-in pricing as                                                               
a rebuttable presumption for the future.                                                                                        
He opined  Amendment 9  would create a  major hurdle  for getting                                                               
the contract through, from what  he'd seen of the negotiations on                                                               
expansion.    Furthermore,  it   wouldn't  provide  the  absolute                                                               
assurance hoped for.                                                                                                            
5:56:07 PM                                                                                                                    
^Wendy King and Pete Frost, ConocoPhillips                                                                                      
MS.   KING   of   ConocoPhillips   noted  Pete   Frost   was   on                                                               
teleconference.  Saying  she has an engineering  degree but isn't                                                               
a pipeline  engineer, Ms. King  began by emphasizing that  a one-                                                               
size-fits-all treatment can't be  prescribed for expansions.  The                                                               
large expansion being  discussed is about 1 Bcf a  day, but there                                                               
are  other  types of  expansions  including  line looping.    She                                                               
pointed  out that  this  is  the largest  pipeline  she has  been                                                               
exposed to,  and thus  line looping seems  a significant  feat in                                                               
its  own right,  considering  how  much gas  would  be needed  to                                                               
justify it; however,  she couldn't predict how much  gas would be                                                               
She  highlighted  that first  it  is  critical  to get  a  fiscal                                                               
contract and a pipeline project.   Then multiple mechanisms exist                                                               
for  any  explorer in  Alaska  wanting  to deliver  new  volumes.                                                               
These include:   1) voluntary expansion, because  any shipper can                                                               
approach  the pipeline  and request  an expansion,  and pipelines                                                               
are motivated to expand if a party  is willing to pay to ship; 2)                                                               
the  unprecedented  federal  provisions  passed by  FERC  in  the                                                               
mandated-expansion  provisions; and  3) in  the contract,  a term                                                               
Ms. King  suggested   the  legislature   will  want   to  assess,                                                               
Article 8.7,   to  her   belief,  the   state-initiated-expansion                                                               
provision  that  provides  another  mechanism for  the  state  to                                                               
represent an explorer with respect to expansion.                                                                                
She  emphasized  that  ConocoPhillips, the  largest  explorer  in                                                               
Alaska, has a unique perspective.   The company continually tries                                                               
to explore  and find additional  gas each  year to put  into this                                                               
pipeline.  Ms. King said  ConocoPhillips is comfortable that FERC                                                               
will play  a role  in adjudicating the  rates and  mechanisms for                                                               
expansion  on  this pipeline.    That  is  FERC's role,  and  her                                                               
company believes FERC is the  appropriate adjudicator, given that                                                               
this is  an interstate-commerce pipeline.   Stating opposition to                                                               
this  amendment  for   a  number  of  those   reasons,  Ms.  King                                                               
reiterated  that   there  are   provisions  and   mechanisms  for                                                               
explorers to pursue and gain access to this pipeline.                                                                           
PETE FROST, Director of  Regulator Affairs, ConocoPhillips, added                                                               
that  voluntary  expansions  of   pipelines  are  the  result  of                                                               
negotiations.  The pipeline and  potential shippers come together                                                               
long before an  open season is conducted.   They have discussions                                                               
about  the shippers'  needs and  the ability  of the  pipeline to                                                               
provide  that   service,  and  the  parties   come  together  and                                                               
voluntarily propose an expansion to  FERC.  A predetermination of                                                               
any  aspect of  that negotiation,  particularly the  rate design,                                                               
can  create   unintended  consequences.     For   instance,  some                                                               
expansions are uneconomic; the negotiating  parties could have an                                                               
expansion imposed  upon them that  isn't in the best  interest of                                                               
either the pipeline or the shippers.                                                                                            
He  cautioned, therefore,  about imposing  conditions on  what is                                                               
normally a voluntary  process.  Mr. Frost also noted  there is an                                                               
unprecedented opportunity here that  isn't available to any other                                                               
party  under FERC  jurisdiction in  the Lower  48:   if voluntary                                                               
expansion and  negotiation by the parties  isn't successful, then                                                               
the  parties have  the ability,  under federal  law, to  approach                                                               
FERC and require the pipeline to expand.                                                                                        
6:02:36 PM                                                                                                                    
SENATOR  OLSON  said  he'd  been working  under  the  premise  of                                                               
encouraging more exploration.   He asked why  they would preclude                                                               
one of the avenues with  respect to rolled-in expansion, which is                                                               
the essence of the amendment.                                                                                                   
MS. KING  offered her  reading of  the amendment,  that rolled-in                                                               
treatment would  be required for  any expansion of  the pipeline.                                                               
"That is something  that we do not have control  over," she said,                                                               
noting FERC would control the rates for the pipeline.                                                                           
SENATOR   OLSON  replied   that  the   alternative  he   sees  is                                                               
incremental pricing,  which would  make it cost-prohibitive.   He                                                               
asked whether that is true.                                                                                                     
MS. KING returned to her  point that each expansion is different.                                                               
She explained  that she  has seen  "multiple runs  of expansions"                                                               
where incremental pricing would  create different combinations of                                                               
either increased  rates or lower rates  for incremental shippers.                                                               
There are  multiple factors -  not just  the rate, but  also what                                                               
happens  to the  fuel associated  with an  incremental expansion.                                                               
In  addition, she  has seen  rolled-in rates  increase the  total                                                               
rate for  all shippers,  but also where  they might  decrease the                                                               
rate for all.  It depends on what the actual expansion is.                                                                      
She  gave   her  understanding:    The   pipeline  would  propose                                                               
treatment  for a  specific expansion  proposed  by an  "expansion                                                               
shipper," and  then FERC would  look at  that in relation  to the                                                               
particular rules  it has already  outlined in Order 2005,  with a                                                               
rebuttable presumption  of rolled-in  rates.  Thus  she suggested                                                               
protections already  exist within Order  2005 to let  FERC decide                                                               
the appropriate  rate for each  particular expansion as  it comes                                                               
forward over the next 50 years.                                                                                                 
6:06:30 PM                                                                                                                    
MR. SHEPLER  agreed that  FERC decides,  but emphasized  that the                                                               
pipeline company  first must make  a proposal to FERC;  then FERC                                                               
would  decide;  and,  subsequently, the  pipeline  company  would                                                               
decide  whether to  accept that  decision.   He also  agreed that                                                               
expansions  come in  different  sizes.   At  some point,  though,                                                               
incremental   pricing   will  put   new   shippers   at  a   huge                                                               
disadvantage.   Rolled-in pricing  has the  effect of  creating a                                                               
level playing field, he added.                                                                                                  
SENATOR OLSON  asked whether  Mr. Shepler's  view of  Amendment 9                                                               
was positive or negative.                                                                                                       
MR. SHEPLER said positive.                                                                                                      
The committee took an at-ease from 6:08:32 PM to 6:16:04 PM.                                                                
CHAIR SEEKINS noted members had all received a chart.                                                                           
SENATOR BEN STEVENS  recalled that this chart  arrived during the                                                               
week  of May  10 in  a packet  from Mr. Loeffler.   He  opined it                                                               
illustrates  what  Mr.  Loeffler   had  labeled  "cheap  capacity                                                               
expansion"  and  that the  rolled-in  tariff  is more  expensive.                                                               
Mentioning  "the difference  between  4.5 and  5.9,"  he said  he                                                               
believed he'd heard the original line  in the contract is at 4.3,                                                               
not 4.5.  He asked Ms. King whether that's correct.                                                                             
CHAIR  SEEKINS  noted Mr.  Loeffler  used  4.3 in  his  testimony                                                               
MS. KING  explained there are slightly  different numbers because                                                               
sometimes  people talk  about what  goes into  the gas  treatment                                                               
plant (GTP)  versus what comes  out of it; there  are assumptions                                                               
too.  "In  our actual Stranded Gas Act application,  we just used                                                               
approximately  4 Bcf,"  she  added.    "But  that's  usually  the                                                               
distinction between 4.5 and 4.3."                                                                                               
SENATOR BEN STEVENS  thanked Ms. King for the  clarification.  He                                                               
made  the  point that  the  difference  between  5.9 and  4.3  is                                                               
37 percent.   He indicated he'd distributed  the information from                                                               
Mr. Loeffler as  a reminder of what federal law  mandates, and to                                                               
outline what  was mentioned in the  state-initiated expansion, as                                                               
well as to highlight what is in Article 8.7.                                                                                    
6:19:03 PM                                                                                                                    
SENATOR  WILKEN  recalled  the   aforementioned  chart  from  the                                                               
Centennial  Hall  presentations.   He  expressed  concern that  a                                                               
4.5 Bcf  system could  be put  into  place today,  followed by  a                                                               
37 percent increase  in capacity, "cheap incremental."   However,                                                               
at 5.9 Bcf there would be a  major leap for anyone trying to gain                                                               
access to the pipeline.                                                                                                         
He pointed out  today a big impediment on the  North Slope is the                                                               
inability to  get into the  Trans-Alaska Pipeline  System (TAPS);                                                               
of  the   three  oil  producers,   one  is   actively  exploring,                                                               
discovering  and   producing,  but  one  is   doing  nothing  but                                                               
harvesting.   With respect to  a gas line, Senator  Wilken voiced                                                               
concern  that the  cheap expansion  would  be done  by the  three                                                               
producers, and that 10-15 years after  first gas there would be a                                                               
similar situation:  three producers  of gas, but no incentive for                                                               
companies such  as Anadarko to  explore for gas because  it would                                                               
be too  expensive.  Therefore,  Senator Wilken spoke in  favor of                                                               
at least sending  to FERC an expression of  support for rolled-in                                                               
rates along with applications for expansion.                                                                                    
SENATOR HOFFMAN  withdrew Amendment  9, given the  testimony that                                                               
it would  pose a major hurdle  in building the gas  pipeline.  He                                                               
indicated he'd  requested that  Legislative Legal  Services draft                                                               
two similar  amendments, one saying  "shall" and the  other being                                                               
6:22:19 PM                                                                                                                    
SENATOR HOFFMAN moved  to adopt Amendment 12 to  SB 2004, labeled                                                               
24-GS2046\A.14, Bailey, 6/4/06, which read:                                                                                     
                     A M E N D M E N T  12                                                                                  
     OFFERED IN THE SENATE                                                                                                      
          TO:  SB 2004                                                                                                          
     Page 1, line 12, following "state":                                                                                    
          Insert ", including gas pipeline pricing that                                                                     
     encourages further gas exploration"                                                                                    
He explained that Amendment 12  has permissive language on "roll-                                                               
ins" and goes in the purposes section of the bill.                                                                              
SENATOR  WILKEN referred  to his  notes  from 5/21/06  indicating                                                               
Mr. Shepler  had  said there  was  one  item  pending in  a  FERC                                                               
decision, on expansion due to a  new discovery.  He asked whether                                                               
that relates to this.                                                                                                           
MR.  SHEPLER said  he  didn't  recall it.    There  is a  pending                                                               
producer  appeal of  a requirement  FERC set  forth in  its order                                                               
with respect to evaluating the  initial pipeline sizing.  If they                                                               
found  it hadn't  been sized  optimally to  facilitate expansion,                                                               
they reserved the right to order a design change.                                                                               
CHAIR  SEEKINS asked  if  Amendment 12  is  talking about  tariff                                                               
SENATOR HOFFMAN reiterated  that he'd asked the  drafters for two                                                               
amendments:   one that required  rolled-in pricing, and  one that                                                               
had it as a preference.                                                                                                         
6:24:35 PM                                                                                                                    
CHAIR SEEKINS asked  whether there was any  objection to adopting                                                               
Amendment 12 to  SB 2004.   There being  no objection, it  was so                                                               
The committee took an at-ease from 6:25:19 PM to 6:29:33 PM.                                                                
CHAIR  SEEKINS  informed  members  another  amendment  was  being                                                               
broken into individual segments for  tomorrow, and there would be                                                               
further amendments  as well.   He announced  he would  recess the                                                               
meeting until  7 a.m. and  the regularly scheduled  meeting would                                                               
occur at 9 a.m.                                                                                                                 
SENATOR WILKEN  pointed out  Mr. Harper and  Mr. Shepler  were in                                                               
town for a few  days.  He asked, since 12 of  the 20 Senators are                                                               
members,  whether this  committee could  be used  as a  forum for                                                               
CHAIR SEEKINS requested  that members speak with  him about this.                                                               
He held SB 2003 and SB 2004 over.                                                                                               
CHAIR SEEKINS  recessed the Senate  Special Committee  on Natural                                                               
Gas Development meeting at 6:31:16 PM.                                                                                        

Document Name Date/Time Subjects