Legislature(2005 - 2006)SENATE FINANCE 532
06/05/2006 07:00 AM Senate SPECIAL COMMITTEE ON NATURAL GAS DEV
| Audio | Topic |
|---|---|
| Start | |
| SB2003 || SB2004 | |
| James Barnes, Barnes & Cascio | |
| Louisiana Cutler, Preston Gates & Ellis | |
| Nick Spiliotes, Morrison & Foerster | |
| Bob Loeffler, Morrison and Foerster | |
| Joseph K. Donohue, Preston Gates & Ellis | |
| Dennis Bailey, Legislative Legal Services | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | SB2003 | ||
| = | SB2004 | ||
ALASKA STATE LEGISLATURE
SENATE SPECIAL COMMITTEE ON NATURAL GAS DEVELOPMENT
June 5, 2006
7:05 a.m.
MEMBERS PRESENT
Senator Ralph Seekins, Chair
Senator Lyda Green
Senator Gary Wilken
Senator Con Bunde
Senator Fred Dyson
Senator Bert Stedman
Senator Lyman Hoffman
Senator Donny Olson
Senator Thomas Wagoner
Senator Ben Stevens
Senator Kim Elton
Senator Albert Kookesh
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Gary Stevens
Senator Gene Therriault
Senator Charlie Huggins
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
DESK
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
06/04/06 (S) Heard & Held
06/04/06 (S) MINUTE(NGD)
06/05/06 (S) NGD AT 7:00 AM 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
DESK
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
06/04/06 (S) Heard & Held
06/04/06 (S) MINUTE(NGD)
06/05/06 (S) NGD AT 7:00 AM SENATE FINANCE 532
WITNESS REGISTER
PHILLIP GILDAN
Greenberg Traurig, LLP
Consultant to the Legislature
POSITION STATEMENT: Explained Amendment 10A to SB 2004 and
answered questions pertaining to SB 2003 and SB 2004.
DONALD SHEPLER
Greenberg Traurig, LLP
Consultant to the Legislature
POSITION STATEMENT: Explained Amendment 10A to SB 2004 and
answered questions pertaining to SB 2003 and SB 2004.
JAMES BARNES
Barnes & Cascio LLP
Consultant to the Legislature
POSITION STATEMENT: Explained Amendment 10A to SB 2004 and
answered questions pertaining to SB 2003 and SB 2004.
LOUISIANA CUTLER
Preston Gates & Ellis
Counsel to the Governor
Office of the Governor
PO Box 110001
Juneau, AK 99811-0001
POSITION STATEMENT: Testified on proposed amendments to SB 2004
and answered questions pertaining to SB 2003 and SB 2004.
NICK SPILIOTES
Morrison & Foerster
Counsel to the Governor
Office of the Governor
PO Box 110001
Juneau, AK 99811-0001
POSITION STATEMENT: Testified on proposed amendments to SB 2004
and answered questions pertaining to SB 2003 and 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 proposed amendments to SB 2004
and answered questions pertaining to SB 2003 and SB 2004.
JOSEPH K. DONOHUE
Preston Gates & Ellis
Counsel to the Governor
Office of the Governor
PO Box 110001
Juneau, AK 99811-0001
POSITION STATEMENT: Testified on proposed amendments to SB 2004
and answered questions pertaining to SB 2003 and SB 2004.
WENDY KING, Director of External Strategies
ANS Gas Development Team
ConocoPhillips Alaska, Inc.
PO Box 100360
Anchorage, AK 99510
POSITION STATEMENT: Testified on proposed amendments to SB 2004
and answered questions pertaining to SB 2003 and SB 2004.
DENNIS BAILEY, Attorney
Legislative Legal Services
Legislative Affairs Agency
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Answered legal questions on proposed
amendments to SB 2004.
ACTION NARRATIVE
CHAIR RALPH SEEKINS called the meeting of the Special Committee
on Natural Gas Development, continued from 6/04/06, to order at
7:05:44 AM. Present at the call to order were Senators Thomas
Wagoner, Lyda Green, Gary Wilken, Ben Stevens, Bert Stedman,
Fred Dyson, Con Bunde, Lyman Hoffman, Donny Olson, Kim Elton and
Chair Ralph Seekins; Senator Albert Kookesh arrived soon
thereafter. Other legislators present were Senators Gary
Stevens, Gene Therriault and Charlie Huggins.
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.
The committee took an at-ease from 7:07:04 AM to 7:11:52 AM.
SENATOR KOOKESH arrived.
SENATOR WAGONER moved to adopt Amendment 10 to SB 2004, labeled
24-GS2046\A.13, Bailey, 6/4/06, which read:
A M E N D M E N T 10
OFFERED IN THE SENATE BY WAGONER
TO: SB 2004
Page 6, line 23, following "project":
Insert "and each project entity to be created to
own and operate any part of the project"
Page 6, line 24, following "chapter.":
Insert "Each collateral agreement shall be a
condition subsequent to the proposed contract
developed under this chapter shall be subject to
review and authorization to execute by the legislature
and, on approval, may be entered into by the public
corporation as provided in (b) of this section."
Page 6, line 26, following "AS 43.82.435":
Insert ", except that, with respect to collateral
agreements submitted by the commissioner of revenue to
the legislature within the 180-day time limit, the
time limit shall be extended to five days after
authorization has been approved. Each project entity
collateral agreement to be negotiated must incorporate
the following minimum elements:
(1) if organized to do business in the
state, the project entity shall be a limited
liability company organized under AS 10.50
(Alaska Revised Limited Liability Company Act);
(2) for project entities organized
under AS 10.50, the operating agreement adopted
under AS 10.50.095, or equivalent governing
document for project entities organized under
other jurisdictions ("Operating Agreement"), must
include the limitation that the state's
obligation to fund continuing capital and
operating obligations shall be subject to annual
appropriation by the legislature, and that the
state's failure to appropriate a capital or
operating obligation may not be considered a
default of the state's obligation, but shall be
considered only to reduce the state's ownership
interest on a pro rata basis based on the amount
of the failed appropriation relative to the
amount of the capital or operating obligations
funded by the remaining project owners;
(3) the Operating Agreement must
provide that
(A) the state may not agree to a
waiver of sovereign immunity without a
reasonable monetary limit on that waiver
under the facts and circumstances;
(B) the state may not indemnify
or otherwise hold harmless any person or
entity that has been adjudged in a judicial,
administrative, or alternative dispute
resolution proceeding to be liable for
negligence or misconduct in the performance
of the person's or entity's duty or has been
adjudged guilty of a crime or had a criminal
adjudication withheld subject to
probationary terms;
(C) the state may not eliminate
claims for actual damages incurred by the
state and may not eliminate the equitable
rights to seek specific performance and
injunctive relief; and
(D) the rights and limitations
provided in this paragraph shall apply to
collateral agreements to be entered into
under this section;
(4) the Operating Agreement must
provide that, in the event of a dispute between
or among the members of the entity, a subsidiary
entity, an affiliate of a member, a member
representative, and any other person or legal
entity that has a membership or ownership
interest in an owner entity of the project, that
dispute shall be subject to the dispute
resolution terms and procedures set out in the
contract as approved by the legislature under
AS 43.82.435; for purposes of this paragraph,
"dispute" means a dispute, matter, controversy,
or claim arising out of or relating to any owner
entity of the project, any ownership interest in
the project, any agreement between or among the
members or owners of any owner entity of the
project arising out of or relating to that owner
entity of the project, or the operation,
management, or implementation of the project,
including its interpretation, construction,
performance, enforcement, privileges, rights, or
obligations; those dispute resolution terms must
incorporate equivalent presumptions and burdens
of proof as set out for civil trials in Rule 301,
Alaska Rules of Evidence, Presumptions in General
in Civil Actions and Proceedings, and Rule 302,
Alaska Rules of Evidence, as amended,
Applicability of Federal Law in Civil Actions and
Proceedings;
(5) the Operating Agreement must
provide that the managing members and member
representatives owe a duty to act in the best
interest of the entity and perform their duties
in good faith toward the goal of implementation
of the project;
(6) the Operating Agreement must
provide that the entity may not effect a material
change or amendment to the Qualified Project Plan
without the review and authorization of the
legislature;
(7) the Operating Agreement must
provide that the members of the governing body of
any subsidiary entity organized by the entity
shall be the members of the governing board of
the entity, unless otherwise authorized by the
legislature;
(8) the Operating Agreement must
provide that the state has the unilateral right
to initiate expansions of the project if the
state funds or obtains third-party funding from a
creditworthy customer for the expansion or
extension and must include terms for voluntary
expansion, including
(A) holding periodic binding or
nonbinding open seasons to assess market
demand for expansion every three to five
years;
(B) committing to satisfy all
creditworthy demands for capacity expansion
in reasonable engineering increments;
(C) committing to expansion for
creditworthy shippers in less than
reasonable engineering increments when the
shippers commit to contributions in aid of
construction sufficient to keep the project
entity whole, including authorized return;
and
(D) committing the project entity
to propose and defend the use of rolled-in
pricing for all expansions;
(9) the Operating Agreement must
provide that, in the event the entity elects to
contract with a vendor to operate the entity or
implement the project, the vendor shall be
independent of and not an affiliate of the
members of the entity;
(10) the Operating Agreement must
provide that the state member shall have the
right to participate in all meetings of the
governing board of the entity and vote on all
decisions of the entity, including decisions
affecting tax allocations between or among the
taxpaying members of the entity;
(11) the Operating Agreement must
provide that the state member shall have the
right to review all books and records of the
entity, including all contracts, and to audit the
finances of the entity at any time and from time
to time;
(12) the Operating Agreement must
provide that, on termination, liquidation, or
dissolution of the entity, the state shall have a
right of first refusal and option to acquire all
of the assets of the entity at the then fair
value of the assets;
(13) the Operating Agreement must
provide that, in the event a member seeks to
transfer or divest its ownership interest in the
entity, the state shall have a right of first
refusal and option to acquire the member's
ownership interest at the then fair value of the
interest;
(14) the Operating Agreement must
provide that, in the event that the entity seeks
to transfer or divest any or all of the project
assets, the state shall have a right of first
refusal and option to acquire the project assets
at the then fair value of the project assets;
(15) the Operating Agreement must
include a right of first refusal and option by
which the state may acquire all or any part of
the project assets at the then fair value of the
project assets in the event that the Federal
Energy Regulatory Commission, United States
Department of Energy, the United States
Department of Justice, the Federal Trade
Commission, or other applicable federal or state
agency or adjudicatory body orders one or more
qualified sponsors, the qualified sponsor group,
or an affiliate of a qualified sponsor or sponsor
group to divest any or all ownership interest in
the project;
(16) the Operating Agreement must
provide that the project entity shall use project
financing supported by federal guarantee
instruments as defined in the Alaska Natural Gas
Pipeline Act to the maximum extent available from
the United States Treasury and must limit the
equity portion of project capitalization to not
more than 20 percent of total capital;
(17) for the purposes of the
provisions required by this subsection, the
Operating Agreement must define "fair value" as
the value as agreed to by the affected members or
as determined under the dispute resolution
process if agreement cannot be reached; "fair
value" shall be determined based on original cost
less depreciation, comparable sales, or income
approach valuation methodologies"
SENATOR WAGONER objected for discussion purposes.
CHAIR SEEKINS moved to divide the issue.
SENATOR WAGONER indicated members were provided a marked-up
copy, with segments identified 10A through 10Q.
7:12:40 AM
CHAIR SEEKINS announced Amendment 10A would be lines 1-14 of the
amendment.
SENATOR WAGONER informed members Phil Gildan was on
teleconference to handle part of the amendments, while Don
Shepler was present to address the balance. He asked them and
Jim Barnes to provide personal background.
^Phillip Gildan, Greenberg Traurig
PHILLIP GILDAN, Greenberg Traurig, LLP, Consultant to the
Legislature, explained that he primarily represents governments
in proprietary business relationships, dealing mainly with
public utilities, but also with other proprietary businesses. A
significant amount of his law practice involves representing
governments in public-private partnerships, and he sometimes
represents the private sector in dealing with a public entity on
utility types of projects. He provided examples, saying
although they weren't of the same size and scope as the proposed
Alaskan project, he has dealt with the same issues on numerous
occasions.
^Donald Shepler, Greenberg Traurig
DONALD SHEPLER, Greenberg Traurig, LLP, Consultant to the
Legislature, mentioned having represented the Legislative Budget
and Audit Committee in Federal Energy Regulatory Commission
(FERC) proceedings in 2005 that resulted in the FERC order, and
said he has been asked to provide advice with respect to the
terms of the contract.
^James Barnes, Barnes & Cascio
JAMES BARNES, Barnes & Cascio LLP, Consultant to the
Legislature, characterized his company as an oil-and-gas law
firm that mostly represents companies in the international
arena, including a variety of transactions that range from
upstream to midstream, and occasionally into the downstream
area.
SENATOR WAGONER offered Amendment 10A to SB 2004. Containing
lines 1-14 of Amendment 10, it would read:
A M E N D M E N T 10A
OFFERED IN THE SENATE BY WAGONER
TO: SB 2004
Page 6, line 23, following "project":
Insert "and each project entity to be created to
own and operate any part of the project"
Page 6, line 24, following "chapter.":
Insert "Each collateral agreement shall be a
condition subsequent to the proposed contract
developed under this chapter shall be subject to
review and authorization to execute by the legislature
and, on approval, may be entered into by the public
corporation as provided in (b) of this section."
Page 6, line 26, following "AS 43.82.435":
Insert ", except that, with respect to collateral
agreements submitted by the commissioner of revenue to
the legislature within the 180-day time limit, the
time limit shall be extended to five days after
authorization has been approved. Each project entity
collateral agreement to be negotiated must incorporate
the following minimum elements:
SENATOR GREEN inquired whether lines 15 onward pertain to the
colon at the end of line 14.
SENATOR WAGONER observed that the way the drafter constructed it
was different from the memorandum; it appears every suggestion
in the memo was included. He suggested paragraphs (1) through
(17) should become separate amendments, and opined that the
colon wouldn't necessarily apply there.
SENATOR GREEN pointed out that there wouldn't be any reference,
then, to the line numbers where the language should be inserted.
SENATOR STEDMAN proposed that Amendment 10A only go to line 9.
Thus it would read:
A M E N D M E N T 10A (Revised)
OFFERED IN THE SENATE BY WAGONER
TO: SB 2004
Page 6, line 23, following "project":
Insert "and each project entity to be created to
own and operate any part of the project"
Page 6, line 24, following "chapter.":
Insert "Each collateral agreement shall be a
condition subsequent to the proposed contract
developed under this chapter shall be subject to
review and authorization to execute by the legislature
and, on approval, may be entered into by the public
corporation as provided in (b) of this section."
SENATOR WAGONER said he wouldn't object to that.
CHAIR SEEKINS noted it technically would go through line 8, and
announced the motion was being revised to reflect the change.
7:19:45 AM
MR. GILDAN explained it is simply a mechanism to add clarity,
especially with respect to adding the phrase "and each project
entity to be created to own and operate any part of the
project". The first insert clarifies that the collateral
agreements include those kinds of entities; from reviewing this
amendment and from listening to the administration's discussions
of the project, Mr. Gildan said, he understands the intent of
this section is to authorize those kinds of agreements. Thus it
clarifies that the authority exists to do that with respect to
the project entities.
He informed members that the second insert was suggested because
as he reviewed the gas contract and legislation, there didn't
appear to be a mechanism for the legislature to review and
understand - or have approval rights for - the collateral
agreements, the primary one being the mainline-entity limited
liability company (LLC) that, from the presentations, he
surmised would be proposed. Therefore, he'd started this
section to give that provision and the right for the legislature
to see that document in conjunction with its review of the main
fiscal contract.
MR. SHEPLER added that with respect to the LLC agreements or
entities to be formed to carry out the contract's missions, the
terms of those underlying documents are critical to the
project's success; they'll define what rights the state has to
vote on which issues, for example, and run the gamut. He said
it is impossible to overstate the significance of these LLC
agreements, at least at the mainline-entity level.
He noted, as Mr. Gildan had pointed out, that the legislature's
having a contract without the interrelated LLC agreements is a
potentially problematic disconnect to be aware of.
Notwithstanding what goes into the contract, the terms of the
LLC agreements may not come back to the legislature; thus there
may be a practical necessity to ensure that either they come
back to the legislature for approval or that certain parameters
are established to control the critical conditions relating to
the operation of those companies.
7:23:49 AM
SENATOR BEN STEVENS asked whether Mr. Gildan's understanding is
that SB 2003 is "the entity that would be the partner or be the
state participant" in creating any LLCs.
MR. GILDAN indicated that entity will be created to act as the
owner entity of the state's position in the mainline entity.
SENATOR BEN STEVENS asked: Why amend the Alaska Stranded Gas
Development Act ("Stranded Gas Act") with this provision, which
is part of SB 2003? He opined that anything relating to the
operation of the LLC should be in SB 2003, not SB 2004. He
noted SB 2003 establishes the public entity, Alaska Natural Gas
Pipeline Corporation, "PipeCo," that will be partnering in the
main line; SB 2004, which amends the Stranded Gas Act,
establishes the framework under which a contract can be
negotiated, but doesn't create the contract itself.
He offered his understanding that the Stranded Gas Act gave
authority for the contract to include provisions and collateral
agreements for the creation of PipeCo. He suggested the effort
is to preempt the creation of PipeCo by saying the LLCs all have
to be approved by the legislature, each individually, in the
overall Stranded Gas Act. Mentioning concerns brought up with
respect to Amendment 10A to SB 2004, in particular, he surmised
that if the legislature agrees to PipeCo, it agrees to allow
that entity to enter into collateral agreements. The ability to
negotiate a collateral agreement within the contract is
authorized by the Stranded Gas Act, he added.
7:25:40 AM
MR. SHEPLER responded by saying SB 2004, Section 11, Collateral
agreements, subsection (e), on page 7, provides for the
authority of the state to form LLCs and limited liability
partnerships or another recognized form of business association
to carry out the purposes of the contract. In SB 2003, PipeCo
is the entity to be created as the state's party to those
agreements. Although the party is identified in SB 2003,
amendment of SB 2004 sets the "terms of the entity" with which
that party is going to become a partner.
MR. GILDAN added that (b) of Section 11 in SB 2004 specifically
recognizes a collateral agreement negotiated by the commissioner
on behalf of a public corporation established to acquire an
ownership interest in the project to be developed. He explained
that he'd read (b) to say the commissioner is going to negotiate
these documents on behalf of the corporation created in SB 2003.
SENATOR BEN STEVENS disagreed, interpreting as follows: The
Stranded Gas Act gives the commissioner power to negotiate the
contract, which will contain the limited liability entities and
the state's participation. He said SB 2003 has 24 suggested
powers and duties of the corporation; if the legislature is
going to discuss limiting those or how the collateral entities
will operate, this amendment should be discussed under Section
41.42.210, as proposed in SB 2003, which contains powers and
duties of the corporation. He opined that if it fails here, it
would be within the bounds to offer it as an amendment to
SB 2003 as well.
MR. SHEPLER said he believes confusion arises because SB 2003
creates the state entity that will be a member of another
legally recognized LLC; Senator Wagoner's amendments set the
rules under which that superior LLC must function. To set the
terms under which the state's entity must function wouldn't have
the same result, however, because the state's entity presumably
will be a 20 percent owner of the superior LLC. So the reason
for putting the provisions into the amendments to the Stranded
Gas Act - which give the commissioner the authority to enter
into these LLC and other collateral agreements - is to assure
that those LLCs have rules befitting the state's best interest.
He surmised much of this could be resolved if the LLC agreements
were brought to the legislature, at least for the main LLC
agreements. That would ensure full protection to the state as a
minority-interest owner.
SENATOR BEN STEVENS read from page 7, lines 7-9, of SB 2004,
subsection (c), which stated:
(c) A collateral agreement executed by the
members of the board of a public corporation under (b)
of this section is binding only on the public
corporation and does not make the state a party to the
collateral agreement.
He said it is the public corporation that is a party to the
collateral agreement, and SB 2003 provides authority to create
the public corporation. He remarked that it seems the effort is
to try to overstretch the legislature's authority. This is
Stranded Gas Act language, proposed as to how the public
corporation shall operate. Noting one issue is the risk from
the state's involvement, he said it was demonstrated, under the
presentation of SB 2003, that the state isn't at risk or exposed
under establishment of the public corporation; rather, the
corporation itself is exposed.
MR. BARNES responded that the contract itself - Article 7, which
deals with state ownership - contemplates several project
entities that will own the hardware: one for the gas treatment
plant (GTP); one for the upstream and so on; one for the
main line; and different ones for Canada and the Lower 48. The
state will be a minority-interest holder. Typically, investors
want to know the full aspects of their involvement: how they
will vote, how they will govern, how the capital contributions
and expenditures will be handled and so forth. Thus it's not
unusual that if the state is being invited to be a participant
and owner - to operate at the level of an investor or another
party - it would want the full spectrum of such information.
He noted the aforementioned only deals with ownership of a pipe.
The pipeline will require gas; thus another entity - Alaska
GasCo or whatever it is called - also will have ship-or-pay
commitments. This actually may be a larger long-term liability
than ownership of the pipe itself, Mr. Barnes pointed out, and
the state likely will want to know about those obligations.
Therefore, part of the state's initial decision on whether to
invest will typically include knowing how it will be governed,
how funds will be raised and what liabilities will exist.
SENATOR BEN STEVENS again expressed concern, saying not only
should it be an amendment to SB 2003, but also the legislature
has created public corporations - such as the Alaska Permanent
Fund Corporation or the Alaska Housing Finance Corporation
(AHFC) - for which it doesn't ratify every action. He
questioned whether those would be so successful if that were
required. He said the questions are: whether a corporation
will be created under SB 2003 and the expertise will be sought
that is required to be a manager of that corporation; and, for
the Stranded Gas Act, whether the public corporation that the
state creates shall be a member of all the entities which will
manage and operate the various components of this project.
7:38:52 AM
SENATOR WAGONER remarked, "We aren't talking about every action
that these corporations we would create take; we're talking
about each corporation."
SENATOR BEN STEVENS responded by indicating that further in the
amendment, provisions say the execution of the operating
agreement must include legislative approval.
SENATOR ELTON said it seems the amendment isn't asking for the
legislature to review every action taken by the mainline entity;
rather, it says the legislature will approve the mainline-entity
structure within which PipeCo operates, which seems rational.
He characterized it as ensuring the contract negotiated by the
commissioner that creates the mainline entity will give the
scope of authority within which PipeCo can operate for the best
interest of the state.
SENATOR STEDMAN said looking at how it is structured and the
introduction to it, clearly some of the amendments are
restrictive and some could cripple the end result of getting a
gas pipeline. He noted a document sent to the state June 2
contained these as illustrative amendments, put forth by the
consultants present today. He suggested it was timely to
discuss where they should be included and how much preemptive
authority the state, as a minority interest, should try to have
over the entire entity.
SENATOR WILKEN requested examples of collateral agreements,
discussed on line 5 of Amendment 10A and defined on page 7,
line 14, of SB 2004.
CHAIR SEEKINS indicated these are collateral agreements between
entities that would own or operate. He said the authority to be
given to the commissioner is to negotiate collateral agreements
that are required to implement the state's acquisition of an
ownership interest in the project; the commissioner would have
180 days after the effective date of the law authorizing
execution of the contract, to his understanding.
MR. BARNES explained that the gas line consists of a pipe and
gas. The project entities that will own the pipe and gas are
separate entities: the entity that owns the upstream gas
transmission lines, the entity that owns the GTP, the entity
that owns the main line, the entity that owns the Alaska-to-
Alberta segment and so forth. In addition, the gas will be
owned by the marketing affiliates of the various shippers. How
the state will market its gas isn't known yet, but it would
likely be a project entity - Alaska GasCo, for instance - that
wouldn't be involved in any other project entity. On the other
hand, the state would own perhaps a 20 percent share of the
hardware-owning project entities.
CHAIR SEEKINS requested examples of other LLCs or business
associations where these types of operating agreements exist.
MR. BARNES affirmed he'd seen them for other types of projects.
CHAIR SEEKINS asked whether those agreements put minority-
interest owners at a great disadvantage in the operation of the
entity.
MR. BARNES answered that various mechanisms are used to regulate
affairs among the parties. In general, though, a minority owner
can be reduced to just being a check-writing party unless there
is some sort of supermajority provision or other consideration
for the interests of that minority-interest holder. These sorts
of LLC and operating agreements generally tend to take a long
time to negotiate because of balancing the interests of the non-
operators and the operator. Thus they tend to be complex,
multi-tiered agreements.
CHAIR SEEKINS asked whether there will be a majority owner for
the contemplated project.
MR. BARNES answered it can't be determined yet without knowing
the percentages of ownership. A typical provision might say a
decision will carry if a certain number of parties agree to it;
that's called a pass-mark decision, somewhat more than a simple
majority, although it might be a simple majority. In further
response, he surmised alignment among parties would vary
dramatically from issue to issue. Fairly certain is that profit
drives a for-profit company, whereas the state has additional
drivers: jobs, gas, education and so forth. Thus the
motivations of the producers and the state likely will differ.
CHAIR SEEKINS suggested if the state becomes an owner of the
gas, the primary motive will be to produce income for Alaskans;
the state will want to hold the producers' feet to the fire in
this regard. He related his experience that the three producers
aren't a cohesive group, but are competitors; he opined that
part of the problem in negotiating the terms of the LLC stems
from difficulties among them in agreeing to some conditions.
Thus Chair Seekins said he perhaps doesn't have a great concern
that the three will team up and "squeeze" the state.
7:50:55 AM
SENATOR BUNDE pointed out that the state will have no way to
hold the producers' feet to the fire; they are totally insulated
from the legislature, and the state isn't protected there.
Returning to Senator Ben Stevens' concern, he asked whether
there would be a legal problem if this amendment were adopted
for SB 2004 instead of another bill. He also asked whether it
sums it up to say, if the amendment passes, that the legislature
would have the right to approve the basic structure of an LLC,
and would be in a position to "trust but verify."
MR. SHEPLER voiced concern that the three consultants don't know
what the terms of these LLC agreements will be. Established
will be a contract that contemplates the creations of these
entities, and the state may be fully protected, with 50 percent
voting strength, for instance, or may not be able to vote on
some issues at all. Emphasizing that there is an important
piece missing and that the terms of this joint ownership should
be known, he said it is a policy call as to whether the
legislature wants to take it on trust, trust but verify or do
something in between.
7:54:20 AM
SENATOR BUNDE requested a legal opinion from Tam Cook, director
of Legislative Legal and Research Services, as to whether there
would be a problem from putting this amendment into SB 2004,
rather than another bill.
SENATOR ELTON highlighted the importance of this, noting Chair
Seekins had provided an example where the state's interest
aligns with the other partners. If there is a desire to
commercialize gas found by explorers that aren't part of the
mainline entity, however, expansion could be a big issue for the
state, for example, since the private partners might not want to
allow that expansion.
7:55:14 AM
SENATOR STEDMAN told Mr. Shepler that while he believed his
writings had been clear, these amendments stand out as a little
odd if taken literally. He asked whether the portion of
Amendment 10 not included in Amendment 10A was illustrative
only, to get a feel for the state's exposure and how to interact
with the administrative branch, or is intended as a literal
amendment, to be inserted in its entirety. He remarked that
Amendment 10A seems more broad, allowing legislative final
approval, whereas the others control the structure.
MR. SHEPLER replied that these were suggestions posited by
himself and Mr. Gildan as to what steps the legislature might
take, given the significance that the terms of these LLC
agreements aren't to be presented to the legislature.
MR. GILDAN added that the memo was intended to provide
illustrative amendments; he hadn't understood that the committee
could discuss amendments that weren't presented formally. There
are two kinds of options: 1) express guidance on structural
issues of concern relating to the enumerated items or
2) generally give more freedom for the negotiations, but have it
brought back for legislative approval.
SENATOR STEDMAN interpreted that to mean the amendment is broken
into two major sections: 1) Amendment 10A, the broader policy
call to give the legislature authority to sign off on the
structure put together by the administration, and 2) the "coming
attractions," which will dictate structure including capital
structure.
8:00:33 AM
SENATOR WILKEN noted there will be five major LLCs: the
upstream LLC; the GTP LLC; the gas treatment/gas processing LLC;
the marketing LLC, which has been called Alaska GasCo; and the
transportation piece, PipeCo. The collateral agreements that
are the subject of this amendment and Section 11 are the
agreements among those five. He asked whether that is what
collateral agreements are.
MR. BARNES answered he believes they are the internal-governance
agreements for each of those entities, as well as the agreements
among them. As for other collateral agreements, he said
potentially there is a series of agreements among the parent
companies coordinating how they'll proceed with the regulatory
process. In addition, Alaska GasCo will have its own set of
documents dealing with financing and its operations.
SENATOR WILKEN asked: Once the collateral agreements are in
place among these five, would a change be a major event, rather
than a quarterly or annual happening?
MR. BARNES affirmed that.
MR. SHEPLER explained that these relate to corporate charters
for the corporation that will own the mainline entity, the GTP,
the upstream facilities and so forth. These documents won't be
amended frequently, and will control how the organizations work.
MR. GILDAN added that generally those kinds of agreements can't
be amended without unanimous consent of all parties.
SENATOR BEN STEVENS requested testimony from the administration
on these proposed amendments. He also interpreted Amendment 10A
such that directors of the public corporation wouldn't need to
be sought because the legislature, in a sense, would be the
directors. He said he doesn't believe this is what the
legislature should be doing, and doesn't believe that is the
intent demonstrated by the legislature in the past with the
establishment of public corporations.
He mentioned creation of the five LLCs; the state's
participation through the public corporation, PipeCo; the
overall approval of the contract, understanding the state will
be approximately a 20 percent participant in each entity, with
the same partners in each, at least in the initial creation; and
the LLC agreement with respect to PipeCo, which will be seen
before acting on it. Senator Ben Stevens said that, to him,
that's the authorization and the understanding that the
legislature has: PipeCo - not the state - will be the member of
these entities. By the approval of the creation of PipeCo, and
the approval of the project contract, the legislature gives the
authority.
He emphasized this is a policy call as to whether the state
shall participate as an equity owner; if so, these are the
levels the state will be involved in, at 20 percent across the
board. Stating opposition to the amendment, Senator Ben Stevens
again requested testimony from the administration.
CHAIR SEEKINS called upon Ms. Cutler.
8:07:01 AM
^Louisiana Cutler, Preston Gates & Ellis
LOUISIANA CUTLER, Preston Gates & Ellis, Counsel to the
Governor, noted she is a partner in the law firm, and asked that
Joseph Donohue come to the witness table as well.
CHAIR SEEKINS informed listeners that Mr. Loeffler and
Mr. Spiliotes were on teleconference.
MS. CUTLER first provided background. Because Steven Porter of
the Department of Revenue (DOR) wasn't available, she said the
lawyers would speak for the administration with respect to
PipeCo and LLC issues, in addition to providing straight legal
advice.
She explained that she and Mr. Donohue drafted a lot of this
legislation; both have represented the state for a long time and
are familiar with state law issues, particularly as they apply
to governments. Morrison & Foerster has also been the state's
counsel for many years. Mr. Loeffler has been around for all of
the gas line negotiations and for the Trans-Alaska Pipeline
System (TAPS) and so forth, and has expertise at FERC.
Mr. Spiliotes has been primary counsel to the state in
developing the LLC agreement with the partners; he has years of
experience dealing with mega-projects and is a corporate lawyer.
She turned to the amendment. First, Ms. Cutler stated
opposition to an amendment that provides for legislative
approval, for many of the reasons articulated by committee
members who'd indicated opposition, from what she'd heard.
There is a potential separation-of-powers problem; furthermore,
this isn't the same as legislative approval of the fiscal
contract. When the Stranded Gas Act was enacted, Ms. Cutler
recalled, there was discussion of whether it was acceptable to
have legislative approval of the fiscal contract; the final
advice from the attorney general was that it would be
appropriate as a matter of comity or - given that the
constitution has sections dealing with contracting away the
taxation power - it might be necessary anyway.
She told members it is crucial to the state that the pipeline
corporation have the ability to act independently. Comparing it
to the earlier Alaska Permanent Fund Corporation example,
Ms. Cutler acknowledged this is the biggest project the state
has ever gone into, and there may be policy reasons for the
legislature to decide differently than it would with respect to
the permanent fund.
She reported having had good discussions with Mr. Gildan with
respect to his suggestions for SB 2003; she surmised talking
with people involved in the negotiations and drafting the
legislation perhaps gave him a different point of view.
Ms. Cutler proposed that committee members approach the
suggestions relating to SB 2004 in the same way. They're all
excellent suggestions from a public policy standpoint, she said,
but noted another side of that also could work from a public
policy standpoint.
She also reported that the testifiers on teleconference, in
particular, have been intimately involved in both the LLC
negotiations and the fiscal contract negotiations. Mr. Cutler
indicated that, in part, the LLC agreement isn't before
legislators yet because there have been fierce negotiations
among all four parties. Acknowledging the frustration of not
having the LLC agreement to view, she highlighted the effort to
inform legislators of what it contains and how the negotiations
are going. She turned the discussion over to Mr. Spiliotes.
CHAIR SEEKINS brought attention to Senator Wilken's question of
what these look like, how many LLCs there are and so forth.
8:15:14 AM
^Nick Spiliotes, Morrison & Foerster
NICK SPILIOTES, Morrison & Foerster, Counsel to the Governor,
informed members that he is a partner in his firm's Washington,
D.C., office, with over 20 years' experience in domestic and
international project development and finance projects; he also
chairs the firm's business department, about 500 transactional
lawyers. He first began working on this project, on the LLC
side, in September 2004 and has been involved in negotiations
for about two years.
He agreed there are probably five major pieces of this project:
1) the mainline LLC, the document being negotiated with the
producers, which will ultimately serve as a template for the
other pieces; 2) the GTP LLC; 3) feeder line LLCs; 4) the
Canadian piece, expected to be an unincorporated joint venture,
since Canadian law doesn't have the same sort of LLCs; and
5) perhaps, at some point, a non-gas liquids plant entity - it
isn't clear yet whether this will happen or whether the state
will participate.
He noted legislation discussed earlier will establish the public
corporation currently contemplated; its subsidiaries will own
the state's interest in these other project entities. That's
the basic structure. Each sponsor group company will have its
own pipeline affiliate that will own an interest in the various
project entities as well, Mr. Spiliotes said.
He explained that the LLC being worked on now will create the
rights and obligations, including voting terms and the capital-
contribution structure. Built in will be a number of
protections for the state; these will be replicated in other
agreements, although tailored for the specific agreements.
Mr. Spiliotes gave examples.
8:18:28 AM
^Bob Loeffler, Morrison and Foerster
BOB LOEFFLER, Morrison & Foerster, Counsel to the Governor,
informed the committee that he has been a partner in his law
firm since 1979 and has represented the state on various matters
since about 1974. He related his understanding that the
administration has committed to allow the legislature to review
the LLC agreement once it is completed. The mainline agreement
will come first and be the model for the others. Although he
agreed with Ms. Cutler that there is a separate point about
approval, he opined there will be a higher degree of comfort
after legislators see the actual document.
He said a number of issues addressed in this set of amendments
are being addressed in the negotiations, which are hopefully
near completion with respect to the LLC. For example, there is
considerable discussion of how, and on what terms, the federal
loan guarantee should be utilized for the capital structure.
8:20:52 AM
MR. LOEFFLER offered his reading that the amendments divide into
two large subjects: 1) the general requirement for review and
approval of the agreement that PipeCo would enter into; and 2) a
set of amendments - from good motives, because people haven't
seen the LLC documents - that limit what can be negotiated in
the LLC agreements between PipeCo and the other three companies.
He highlighted keeping those two separate purposes in mind.
He raised a third point, seen in the LLC negotiations and fiscal
contract negotiations: The companies have different commercial
perspectives and ways of pursuing those. While there isn't a
monolith - three companies against the state - there should be
clear voting provisions, including what calls for unanimous
consent or for a supermajority. Mr. Loeffler highlighted the
intent to bring that product to the legislature for review but
not approval as such, as noted by Ms. Cutler.
8:23:49 AM
SENATOR BUNDE suggested that if the LLC discussions will address
these amendments, perhaps this bill is being addressed
prematurely. Noting the legislature is granted the ability to
approve the basic contract and PipeCo, he questioned why it is
such a big leap to review and approve the LLCs as far as a
balance-of-power issue.
MS. CUTLER gave the view that approval of the fiscal contract is
different from approval of any contracts that "AK Pipe" might
enter into. AK Pipe would be provided the authority, in the
other bill, to enter into LLC and other agreements. She
indicated that is the interplay between Section 43.82.437 of the
Stranded Gas Act conforming amendments - currently before the
committee in terms of this amendment - and AK Pipe. That
section provides for approval of the so-called collateral
agreements - these LLC agreements and other agreements - in the
event the legislature approves the fiscal contract and the basic
structure before those agreements are completed, and also in the
event AK Pipe has not itself been set up.
She said the legislature has an important role in establishing
AK Pipe and deciding what kinds of powers it will have, and
also, in the event AK Pipe is not set up yet, providing the
authority to enter into these collateral agreements, either by
the two commissioners under subsection (a) or by the partial
quorum in subsection (b). Thus the legislature has a role in
telling AK Pipe whether it can even do this, and hopefully will
get enough information to make that decision. Also, as
Mr. Loeffler had indicated, hopefully there will be an LLC
agreement for legislative review.
She specified, "It is not our desire to hold up the process by
waiting for that LLC agreement to be completed." Ms. Cutler
acknowledged Senator Bunde's point of view, but related the
administration's view that if the legislature approves AK Pipe
and the authority to enter into the collateral agreements, then
actual approval of those agreements isn't within the
legislature's purview.
8:28:09 AM
^Joseph K. Donohue, Preston Gates & Ellis
JOSEPH K. DONOHUE, Preston Gates & Ellis, Counsel to the
Governor, clarified the original intent of this collateral
agreement section: subsection (a) was initially intended to
authorize coordinating agreements between the state government
and entities that aren't direct parties to the fiscal contract
and yet are related parties. At one time, the administration
thought that once the fiscal contract was entered into, there'd
be a parallel agreement with the parent companies and affiliates
that would become members of the LLC; it might be appropriate to
coordinate the planning of the implementation of the fiscal
contract. The second type of contemplated agreement was the LLC
agreements, currently being negotiated and eventually to be
entered into on behalf of the public corporation.
He said there is a sequencing problem, however, since the public
corporation isn't yet set up to do these negotiations. The
administration intends to have the master LLC agreement
available for legislative review at the time when the
legislature is requested to authorize the contract, so
legislators will see the template for future LLC agreements.
Ultimately, this is a temporary, transitional authority that
will be granted to the commissioner, and future LLC agreements
would be negotiated directly by the board, not by the
commissioner of DOR.
SENATOR BUNDE announced he was tempted to table this until there
is future information.
SENATOR BEN STEVENS agreed, but said Mr. Donohue had addressed
the point he was going to bring up about SB 2004, Section 11,
that the authority of the commissioner lapses after 180 days and
thus subsection (a) is a transitional provision: if the
legislature does approve the policy call to become an equity
participant, the commissioner has authority to continue
negotiations of creation of the subsidiary LLCs until such time
as the board of the public corporation is established.
MR. DONOHUE concurred, saying at the time the AK Pipe
legislation is enacted, the two commissioner members of the
board would be able to immediately begin to act on its behalf;
that is how the LLC agreements would be entered into. There
would be a modified-quorum requirement applicable to AK Pipe so
that it would be immediately able to execute the LLC agreement.
8:31:51 AM
SENATOR BEN STEVENS discussed timelines, indicating that if it
is 180 days after the effective date of AS 43.82.435, he
believes the governor must sign within 60 days and the project
must begin 90 days after that.
CHAIR SEEKINS offered that 60 days after execution, it becomes
effective. However, this provision begins with the approval by
the legislature - the effective date of the bill.
SENATOR BEN STEVENS said the ability for the commissioner to
negotiate the agreements ends after that period of time.
CHAIR SEEKINS agreed, saying the commissioner has 180 days after
the effective date of the law authorizing the contract. There
is a 60-day period after the authorization to accomplish
execution by the parties, and then, to his understanding, the
contract become effective 60 days after execution.
SENATOR BEN STEVENS concurred, but said a contract provision
says that within 90 days they must begin the application
process; he noted Wendy King of ConocoPhillips was affirming
that. He said if the time continuums were laid atop one
another, the actual time during which the commissioners have the
authority to do the authorization is very short; more than
likely, it wouldn't occur in that time period. He also pointed
out that actual operation of these entities wouldn't even begin
until the time of sanction.
He agreed with Senator Bunde's suggestion to table this,
surmising it would be until such time as the structure is seen
for the operating agreement. Senator Ben Stevens opined that it
is unrealistic for legislators to expect a final product on the
operations of an entity that may not even come into existence
five years from now, let alone commence operations commercially
eight to ten years from now. Thus it is unrealistic to want to
see the operating agreements for all five new LLCs - one of
which might not even exist for the natural gas liquids (NGL)
plant - and to stipulate what each must provide, as stated in
the second portion of Amendment 10. However, he suggested it is
justifiable for the legislature to ask to see the template under
which state ownership will be represented.
8:35:11 AM
SENATOR BUNDE clarified he was thinking of tabling the whole
bill. He noted there had been considerable discussion about
this superior group of experts that needs to be gathered to run
PipeCo because it is critical to the state. He said he takes
some solace and hope from Senator Ben Stevens' remark that the
clock might run out on the two commissioners who will develop
the template without the assistance of these experts for the
LLCs. Pointing out that he wasn't expressing lack of confidence
in the commissioners, Senator Bunde voiced concern if these
experts cannot be used to develop the underpinnings of the
project - the template - as well as concern about timing.
CHAIR SEEKINS said it appears Mr. Spiliotes, Mr. Loeffler and
others from the law firms are experts who are assisting these
commissioners in trying to develop the LLC at this time.
MS. CUTLER affirmed that.
CHAIR SEEKINS noted there is a $36 billion corporation that
operates with a board of trustees, without this micromanagement.
He said he also gets concerned when a four-paragraph bill
becomes 400 pages of regulations promulgated by the
commissioners. He said he shares the concern, but wonders at
what level it should be put.
SENATOR BUNDE responded that he isn't interested in that level
of micromanaging. If the Alaska Permanent Fund Corporation
decided to set up an LLC, however, he surmised the legislature
would want something beyond just the ability to review it. He
said the template should be back before the legislature, for
review and approval, just like the contract and PipeCo will be.
CHAIR SEEKINS said he didn't necessarily disagree with respect
to the template.
MS. CUTLER offered her understanding that the Alaska Permanent
Fund Corporation, as part of its investments, holds membership
interests in certain LLCs, though obviously not of the same
magnitude. With respect to the team negotiating the series of
LLC agreements, she specified that in addition to Morrison &
Foerster and Preston Gates & Ellis, the state has retained the
services of a Canadian law firm; in particular, Mr. Loren
Carson (ph) has been involved in the LLC negotiations. The
state also has financial advisors, a consortium of UBS and
others, that have been involved. Furthermore, Steve Porter, DOR
deputy commissioner, has been intimately involved along with
several others from DOR and other state agencies, as needed.
Thus there has been a tremendous effort put into negotiating
that agreement.
8:40:34 AM
SENATOR BUNDE remarked he is thankful for such expert advice,
but some experts disagree. Regarding the product, he emphasized
the desire to review it and then vote on whether to accept it.
SENATOR WAGONER read from what would be the second item in
Amendment 10:
(1) if organized to do business in the state,
the project entity shall be a limited liability
company organized under AS 10.50 (Alaska Revised
Limited Liability Company Act)
He suggested it would be an Alaskan LLC, and yet it is now being
constructed using Delaware law. He said there are problems, and
he probably wouldn't mind tabling it because he doesn't see any
scheduling of the coordination and necessary dates, for example.
8:42:09 AM
CHAIR SEEKINS invited Ms. King to testify.
WENDY KING, Director of External Strategies, ANS Gas Development
Team, ConocoPhillips Alaska, Inc., offered points on the
amendment. She noted there'd been discussion about the
collateral agreements for the mainline LLC, the GTP, the
Canadian portion and so on; Article 7 of the proposed fiscal
contract puts the state's ownership interest in those entities
at 20 percent. However, there are other entities for which
information isn't known. These include the gas transmission
lines, which she clarified aren't "upstream lines," as she'd
heard, but are midstream portions of the business, to get gas
into the main line for interstate commerce. She cited the
National Petroleum Reserve-Alaska (NPR-A) transmission line as
an example that would go from the GTP to support exploration and
bring new exploration volumes from the west.
She discussed how the state-ownership share of 20 percent was
arrived at. Highlighting a principle seen in commercial
alignment relating to the proposed fiscal contract, Ms. King
explained that there is a value in having commercial alignment
between the gas volumes and the ownership share.
ConocoPhillips' equity share in NPR-A is 50+ percent; the
ownership in that transmission-line LLC could be very different
from the GTP or mainline LLC. The answers to those questions
aren't known yet, and there even could be different member
companies in that LLC because, she said, "the assets that that
transmission line might be supporting might be different
working-interest owners." Thus trying to stipulate a set of
rules that applies for every LLC is premature at this stage.
She cited another example: There isn't a clear understanding
yet of the Alberta-to-Lower-48 project, which could include "new
build," expansions or just utilizing existing capacity; there
may or may not be an entity formed for that. It is premature to
stipulate that all the entity collateral agreements that might
be needed to fulfill this fiscal contract should be known at
this point in time, Ms. King told members.
She indicated PipeCo, created in SB 2003, becomes the party that
represents the State of Alaska in those commercial interests.
It needs to function like a business. Ms. King said state
ownership - taking gas in kind, making a firm shipping
commitment and having an ownership position in the contract - is
a critical component to the entire fiscal contract. The
challenge for ConocoPhillips is that if the legislature isn't
satisfied with the materials provided by the producers to
support that ownership interest, the vote will be "no" for the
contract; that is the process outlined in the Stranded Gas Act,
having the legislature agree or not agree to support the terms.
8:46:30 AM
SENATOR OLSON asked whether Ms. King favored setting aside this
amendment.
MS. KING affirmed that.
SENATOR OLSON asked whether she would support setting aside
SB 2004.
MS. KING said it was a distinctly different question and she
needed to think it through.
SENATOR BEN STEVENS discussed differences between setting aside
Amendment 10 and SB 2004. The amendment specifically brings up
items on the collateral agreements and questions that have
arisen because the legislature hasn't seen the mainline LLC
template. By contrast, he said, setting aside SB 2004 is
declining to take any action on the fiscal contract. It amends
the Stranded Gas Act, and it is a three-step process to get to a
vote on a stranded-gas contract; the first step is final
approval of an oil-tax-regime change, which would be
incorporated into the fiscal contract via the authorization of
SB 2004 or the enabling legislation.
He therefore suggested that not acting on SB 2004 precludes
being able to conclude whether to accept ratification of a
contract and to anticipate legislation developed under Section
43.82.435, which would give the governor authorization to
execute. Senator Ben Stevens said he wasn't prepared to do
that, but wanted to stay and work on it. He indicated there had
been agreement to wait to act on SB 2003 until there is a more
final document and better understanding of how the LLC will
operate and what the state's participation will be.
CHAIR SEEKINS said if SB 2004 is dropped, the Stranded Gas Act
won't have been amended, and the framework under which the
contract would come to the legislature for presentation and
approval would be the existing framework of that Act. He agreed
with the need to look at the other amendments to the Act, to see
whether that's how they want the final contract to look.
SENATOR ELTON suggested another way of looking at it: If
SB 2004 is set aside, at the time the contract is before the
legislature there will be the contract, SB 2004 and - to his
understanding from previous testimony - the LLC. He said
nothing precludes the legislature from dealing with those three
topics in another session.
CHAIR SEEKINS reiterated his concerns and emphasized making the
legislature's intent clear now so that after the public comment
period is over, the state and the producers - when they go back
to renegotiate the terms of the contract - know the boundaries.
He questioned the wisdom of creating rules that may be changed
after the renegotiation.
SENATOR ELTON suggested that's the process gone through to get
the contract. He said he didn't see a problem with it,
especially when the contract would come back before the
legislature as an up-or-down vote. Noting one thing he likes
about the amendment is that it gives legislative guidance to the
administration as there are discussions about the LLC, he asked,
"If we're not willing to give that legislative guidance now, in
the form of this and other amendments, then why not wait and
have all three elements before us at the same time?"
CHAIR SEEKINS proposed that an up-or-down vote on something
unknown is "asking them to take a shot in the dark and see if
they can guess what we're going to do."
SENATOR ELTON reiterated that this is what is happening with the
contract, as well as the Stranded Gas Act amendments presented
by the administration.
8:53:32 AM
SENATOR OLSON asked: If we don't wait until after the public
comment period, why have one?
CHAIR SEEKINS offered his understanding of the Stranded Gas Act:
The public comment period is to comment on the terms of the
proposed contract; at the end of that period, the commissioner
has 30 days to recraft and renegotiate the contract, based on
comments received during that period; then final findings of
financial interest and the contract, along with a law
authorizing the administration to execute the contract, are
presented to the legislature for approval.
He agreed it is a bit clumsy, but said he also intends to
provide an opportunity for public input, to him as a legislator,
so that when he provides his final comments to the commissioner
the concerns will be incorporated. At the same time, Chair
Seekins suggested, it is valuable for the body to make certain
amendments to the law now, since that would be the law within
which the contract would fit. It may or may not include
comments on collateral agreements; that is the discussion being
held now. However, not amending the Stranded Gas Act at all is
asking the commissioner to bring forth a contract that fits
within the purposes of the existing Act; he questioned the logic
of that process.
He called upon legislative drafter Dennis Bailey to address
Senator Bunde's earlier question.
8:56:35 AM
SENATOR BUNDE noted that Senator Ben Stevens had suggested
Amendment 10 fits within SB 2003, not SB 2004. He asked whether
there is a legal problem if it is addressed in SB 2004.
^Dennis Bailey, Legislative Legal Services
DENNIS BAILEY, Attorney, Legislative Legal Services, Legislative
Affairs Agency, gave an initial impression that these kinds of
terms could be included in either bill. The amendments to the
Stranded Gas Act appear to be an attempt by the legislature to
give guidance they may not have otherwise with respect to the
contract, and Mr. Bailey said he wasn't sure it made a whole lot
of difference whether these kinds of terms, relating to the
organization, are in SB 2003 or SB 2004.
SENATOR BUNDE asked whether it would fit under the title.
MR. BAILEY said he hadn't reviewed that specifically, especially
with regard to SB 2003.
SENATOR GREEN asked whether it should be included in both.
MR. BAILEY answered that SB 2004 was his bill, and thus he was
more knowledgeable about it. However, he didn't see why it
needed to be in both, since one or the other would establish the
law. Mr. Bailey said he would look at the titles for both to
see whether there was a problem; he pointed out that the title
for SB 2004 was quite broad.
SENATOR GREEN explained she'd asked because a June 2 memo from
Greenberg Traurig on SB 2003 had recommended "such collateral
agreements shall be subject to review and authorization by the
legislature or by LB&A when the legislature's not in session."
She said she was just curious.
8:59:53 AM
SENATOR BUNDE called the question on Amendment 10A.
CHAIR SEEKINS allowed further questioning of Mr. Bailey.
SENATOR GREEN asked Mr. Bailey, as drafter of Amendment 10,
whether he had other concerns about the format or content.
MR. BAILEY replied that the content was part of Mr. Shepler's
June 2 memo. As to whether he had concerns from a drafting
perspective, Mr. Bailey said he believes it reflects the
concepts that were recommended for including the policy calls
suggested, using this as a mechanism to focus the administration
on making these changes in the contract.
SENATOR BEN STEVENS reiterated concern that this is premature.
He said he believed there had been a good discussion, talking
about components of entities yet to be formed and components of
an entity template, whether called AK Pipe or PipeCo, that will
be the underpinning document of participation in the equity role
of the state.
9:02:20 AM
SENATOR BEN STEVENS moved to table Amendment 10.
A roll call vote of 5 yeas and 7 nays proved the motion to table
Amendment 10 failed, with Senators Ben Stevens, Stedman,
Hoffman, Green and Seekins voting yea and Senators Bunde, Olson,
Dyson, Wilken, Elton, Kookesh and Wagoner voting nay.
CHAIR SEEKINS asked Mr. Bailey whether he saw any constitutional
problems or separation-of-powers issues with any of the
amendments contained in Amendment 10.
MR. BAILEY replied that he couldn't make that broad a statement
and would have to review it with that in mind. He pointed out
that drafts are reviewed for constitutional issues, which are
relayed to the drafters.
SENATOR GREEN expressed disappointment that a drafter whose name
was on the draft couldn't say whether there were constitutional
issues or whether it was in proper form or followed the
instructions of the requestor. She said she wanted more
assurance that it didn't have constitutional or separation-of-
powers issues.
MR. BAILEY requested a moment to refresh his recollection.
SENATOR BUNDE suggested the review be limited to Amendment 10A.
CHAIR SEEKINS concurred.
9:05:24 AM
SENATOR STEDMAN indicated he wanted to know any legal concerns
Mr. Bailey might have about using this illustrative amendment
that had been presented.
MR. BAILEY, focusing on Amendment 10A, noted it had been brought
to the attention of the requestor - which he didn't think was
new information to the committee - on the broader perspective of
whether the legislature has the power to review administrative
contracts without interfering with the administrative powers.
The existing Stranded Gas Act suggests that the governor
transmits the contract to the legislature, which would authorize
it; whether it would become an issue as to whether the
legislature has that power is certainly a separation-of-powers
question. Mr. Bailey remarked, "I don't think that there's
really an answer to that question, given the context." He added
that there are practical aspects of debating that issue in
court, given the magnitude of the project.
CHAIR SEEKINS reported this topic was discussed at length in the
Senate Judiciary Standing Committee, which he chairs; he said it
is the same underlying concern as to whether it is a violation
of separation-of-powers to require legislative approval of the
fiscal contract, to his understanding.
MR. BAILEY agreed that is the issue.
CHAIR SEEKINS noted it was anticipated that it probably wouldn't
be challenged by the administration in this case, but there is
an underlying discussion of whether the legislature has
authority to require its approval for the execution of a
contract. He said it's an open question with respect to
requiring approval of an LLC or collateral agreement that would
be spawned from the fiscal contract.
MR. BAILEY suggested the second issue is a subset of the first:
if the legislature is going to approve the entire contract, then
approving the collateral agreements seems to be incorporated.
9:09:03 AM
CHAIR SEEKINS asked whether there was objection to Amendment 10A
(revised) to SB 2004.
SENATOR BEN STEVENS objected.
A roll call vote of 7 yeas and 5 nays proved Amendment 10A
passed, with Senators Bunde, Kookesh, Olson, Dyson, Wilken,
Elton and Wagoner voting yea and Senators Ben Stevens, Stedman,
Hoffman, Green and Seekins voting nay.
CHAIR SEEKINS explained that he'd voted "no" because he believed
Amendment 10A belonged in SB 2003. He held over SB 2003 and
SB 2004. (Also see the 9:26 a.m. minutes for this date.)
CHAIR SEEKINS adjourned the Senate Special Committee on Natural
Gas Development meeting at 9:10:13 AM.
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