Legislature(1999 - 2000)

01/26/2000 02:12 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                   JOINT MEETING                                                                                                
         HOUSE RESOURCES STANDING COMMITTEE                                                                                     
        SENATE RESOURCES STANDING COMMITTEE                                                                                     
                  January 26, 2000                                                                                              
                     2:12 p.m.                                                                                                  
                                                                                                                                
                                                                                                                                
HOUSE MEMBERS PRESENT                                                                                                           
                                                                                                                                
Representative Bill Hudson, Co-Chair                                                                                            
Representative Beverly Masek, Co-Chair                                                                                          
Representative John Cowdery, Vice Chair                                                                                         
Representative John Harris                                                                                                      
Representative Jim Whitaker                                                                                                     
Representative Reggie Joule                                                                                                     
                                                                                                                                
HOUSE MEMBERS ABSENT                                                                                                            
                                                                                                                                
Representative Ramona Barnes                                                                                                    
Representative Carl Morgan                                                                                                      
Representative Mary Kapsner                                                                                                     
                                                                                                                                
OTHER HOUSE MEMBERS PRESENT                                                                                                     
                                                                                                                                
Representative Dyson                                                                                                            
Representative Ogan                                                                                                             
Representative Williams                                                                                                         
                                                                                                                                
SENATE MEMBERS PRESENT                                                                                                          
                                                                                                                                
Senator Rick Halford, Chairman                                                                                                  
Senator Robin Taylor, Vice Chairman                                                                                             
Senator Pete Kelly                                                                                                              
Senator Lyda Green                                                                                                              
Senator Georgianna Lincoln                                                                                                      
Senator Jerry Mackie                                                                                                            
                                                                                                                                
SENATE MEMBERS ABSENT                                                                                                           
                                                                                                                                
Senator Sean Parnell                                                                                                            
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
BRIEFING:  FINAL JUDGMENT ON KATIE JOHN CASE                                                                                    
                                                                                                                                
PRESENTATION BY ALASKA GASLINE PORT AUTHORITY                                                                                   
                                                                                                                                
PREVIOUS ACTION                                                                                                                 
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                                
                                                                                                                                
JOANNE GRACE, Assistant Attorney General                                                                                        
Natural Resources Section                                                                                                       
Civil Division Anchorage                                                                                                        
Department of Law                                                                                                               
1031 West Fourth Avenue, Suite 200                                                                                              
Anchorage, Alaska  99501                                                                                                        
POSITION STATEMENT:  Reported and answered questions on the Katie                                                               
John case.                                                                                                                      
                                                                                                                                
KATHRYN SWIDERSKI, Assistant Attorney General                                                                                   
Natural Resources Section                                                                                                       
Civil Division Anchorage                                                                                                        
Department of Law                                                                                                               
1031 West Fourth Avenue, Suite 200                                                                                              
Anchorage, Alaska  99501                                                                                                        
POSITION STATEMENT:  Reported and answered questions on the Katie                                                               
John case.                                                                                                                      
                                                                                                                                
HANK HOVE, Chairman                                                                                                             
Alaska Gasline Port Authority                                                                                                   
P.O. Box 71267                                                                                                                  
Fairbanks, AK 99707                                                                                                             
POSITION STATEMENT:  Presented on the Alaska LNG (liquid natural                                                                
gas) Project.                                                                                                                   
                                                                                                                                
BRENT SHERFEY, Project Manager                                                                                                  
Petroleum and Chemical North America                                                                                            
Bechtel Corporation                                                                                                             
3000 Post Oak Blvd.                                                                                                             
Houston, Texas 77056                                                                                                            
POSITION STATEMENT: Testified on behalf of the Bechtel Corporation.                                                             
                                                                                                                                
ACTION NARRATIVE                                                                                                                
                                                                                                                                
TAPE 00-3, SIDE A                                                                                                               
Number 0001                                                                                                                     
                                                                                                                                
CHAIRMAN HALFORD called the joint meeting of the House/Senate                                                                   
Resources Standing Committees to order at 2:12 p.m.  Members                                                                    
present at the call to order were Representatives Hudson, Masek,                                                                
Harris, Joule, and Senators Halford, Taylor, Kelly, Green and                                                                   
Lincoln.  Representatives Whitaker and Cowdery and Senator Mackie                                                               
arrived as the meeting was in progress.                                                                                         
                                                                                                                                
BRIEFING:  FINAL JUDGMENT ON KATIE JOHN CASE                                                                                    
                                                                                                                                
JOANNE GRACE, Assistant Attorney General, Natural Resources                                                                     
Section, Civil Division Anchorage, Department of Law, came forward                                                              
to present a report on the status of the Katie John case.  This                                                                 
morning the state filed a notice of appeal in the Katie John case                                                               
to appeal final judgment of the district court that was entered on                                                              
January 7, 2000.  The state has appealed the Katie John case before                                                             
and the Ninth Circuit court of appeals issued a decision adverse to                                                             
the state.  The purpose of taking appeal from the final judgment at                                                             
this point is to try again to convince the U.S. Supreme Court to                                                                
review the Ninth Circuit decision finding that the authority of the                                                             
Federal Subsistence Board extends to navigable waters in Alaska in                                                              
which the United States has the federal reserved water rights.  The                                                             
reason they have this chance to take this appeal, at this point,                                                                
five years after the Ninth Circuit issued its decision, is that the                                                             
original Ninth Circuit decision was an interlocutory appeal.  That                                                              
means it was an appeal of an order by the district court that was                                                               
not a final disposition of the case.  It was an intermediate appeal                                                             
of a controlling point of law but not of a final judgment.                                                                      
Normally, a party in a case must wait until a federal District                                                                  
Court is completely finished with the case and has entered final                                                                
judgment before they have an opportunity to appeal.  In some very                                                               
rare cases, where there is a very important point of law that the                                                               
District Court has decided, a party can petition the District Court                                                             
and then petition the Ninth Circuit to consider the issue                                                                       
immediately.  That is what the state did in this case.  In the                                                                  
Katie John case the Federal District Court in 1994 ruled that the                                                               
public lands to which the subsistence priority applied extended to                                                              
all navigable waters in the State of Alaska by virtue of                                                                        
navigational services.  At the same time the district court ruling                                                              
did not depend on a second argument by the plaintiff in that case                                                               
that the extent of public lands should be determined by the                                                                     
existence of a reserved water right in navigable waters.  At that                                                               
point, the state asked for a interlocutory appeal to the Ninth                                                                  
Circuit and the plaintiffs did as well.  So the Ninth Circuit then                                                              
decided that public lands consisted of navigable waters in which                                                                
the United States has reserved water rights.  At that point the                                                                 
state petitioned the U.S. Supreme Court to review that decision.                                                                
One of the major points in opposition that the United States made                                                               
at that point was that the Supreme Court should not consider this                                                               
issue on an interlocutory appeal.  The Supreme Court should wait                                                                
until the district court had completely decided the case and issued                                                             
a final judgment because considering it would be premature at that                                                              
point.  The United States told the Supreme Court that they should                                                               
wait and see what the federal regulations looked like and they                                                                  
should wait to see if the state amended its constitution before it                                                              
decides the issue.  The case went back to the district court in                                                                 
1995.  The federal agencies began the process of identifying the                                                                
waters in Alaska where the right existed and the district court                                                                 
case was stayed until those regulations became final in October.                                                                
Now these regulations have become final, the district court has                                                                 
issued a final judgment and the state has the opportunity to appeal                                                             
that.  They do have to go through the Ninth Circuit again to try to                                                             
get the Supreme Court to review the case.  They don't expect the                                                                
Ninth Circuit to reconsider its decision, but jurisdictionally,                                                                 
they have to appeal to the Ninth Circuit and then from that                                                                     
decision, petition the Supreme Court and try to convince them to                                                                
take up the issue.                                                                                                              
                                                                                                                                
Number 108                                                                                                                      
                                                                                                                                
CHAIRMAN HALFORD noted that this question strictly deals with the                                                               
water side so it does not challenge the subsistence federal law on                                                              
federal lands.                                                                                                                  
                                                                                                                                
MS. GRACE agreed and said the only issue on appeal would be whether                                                             
the public land to which the right applies in the corresponding                                                                 
authority of the Federal Subsistence Board to regulate includes                                                                 
navigable waters in which the United States holds a reserved water                                                              
right.  That would be the one issue that the state would be                                                                     
appealing.  It is possible that the plaintiffs would cross appeal                                                               
and argue that public lands by virtue navigational servitude, which                                                             
was an alternative theory.  That was the theory that the district                                                               
court originally accepted.  That public lands would include all the                                                             
navigable waters in Alaska.  That may happen.                                                                                   
                                                                                                                                
Number 127                                                                                                                      
                                                                                                                                
SENATOR TAYLOR asked if the federal agencies have withdrawn the                                                                 
regulations that were imposed in January regarding subsistence                                                                  
fishing in marine waters.                                                                                                       
                                                                                                                                
KATHRYN SWIDERSKI, Assistant Attorney General, Natural Resources                                                                
Section, Civil Division Anchorage, Department of Law, answered that                                                             
the federal agencies have not withdrawn any of the regulations that                                                             
were published last January and became effective October 1, 1999.                                                               
Those regulations specifically exclude federal subsistence                                                                      
jurisdiction in the marine waters of the Tongass and Chugach                                                                    
National Forests.  There are some smaller areas of marine waters                                                                
that appear to fall within their assertions of federal jurisdiction                                                             
and those have not been revised.                                                                                                
                                                                                                                                
SENATOR TAYLOR noted there are several definitions here and it is                                                               
tough to keep track of them.  They did specify that these                                                                       
regulations would not be in effect in marine waters of the Tongass                                                              
and the Chugach.  What about the rest of the marine waters.                                                                     
Those are two withdrawals that they made that might have some                                                                   
implied claim of a reserved water right.  There is no withdrawal on                                                             
the rest of Alaska's coast.                                                                                                     
                                                                                                                                
MS. SWIDERSKI answered that is correct.  The regulations apply to                                                               
all waters, navigable and non-navigable, that fall within the                                                                   
boundaries of identified federal units.  In the regulation there is                                                             
a listing of 33 federal units and then a list of about seven wild                                                               
and scenic river components, so roughly forty federal areas would                                                               
also include inland waters that are adjacent to the boundaries of                                                               
those units.  Marine waters would only be included to the extent                                                                
they fall within the declared boundaries of those units.                                                                        
Significant marine waters would fall similarly in the Tongass and                                                               
Chugach boundaries but those were specifically excluded from the                                                                
scope of the regulations.                                                                                                       
                                                                                                                                
SENATOR TAYLOR wanted to be clear that those have been specifically                                                             
excluded, the only ones that are included are those 40 areas                                                                    
mentioned that were federal units or wild and scenic rivers.                                                                    
                                                                                                                                
MS. SWIDERSKI answered correct.                                                                                                 
                                                                                                                                
SENATOR TAYLOR asked how does that compare with the Supreme Court                                                               
decision in the "Volcanic" case.                                                                                                
                                                                                                                                
MS. GRACE said the recent assertion of authority over waters in                                                                 
which there is a reserved water right is not based on title to the                                                              
submerged land.  The definition of public lands in Title VIII to                                                                
which the subsistence priority and the authority of the Federal                                                                 
Subsistence Board applies is public lands are lands, waters and                                                                 
interest therein titled to which is in the United States.  The                                                                  
Ninth Circuit decision in this case says that the reserved water                                                                
rights in particular navigable waters in these federal areas                                                                    
(indisc.--coughing) an interest to which the United States has                                                                  
title in those waters and that thereby renders those waters as                                                                  
public lands.  It is unrelated to the ownership of the submerged                                                                
lands.  The United States isn't claiming any title or authority                                                                 
based on title to a submerged land.  It is based on an interest                                                                 
that they have in a reserved water right in the water that the                                                                  
Ninth Circuit has held--therefore rendered the public lands under                                                               
this particular definition in ANILCA [Alaska National Interest                                                                  
Lands Conservation Act].                                                                                                        
                                                                                                                                
SENATOR TAYLOR asked if there are any navigable waters in Alaska                                                                
today where the federal government has title to those waters.                                                                   
                                                                                                                                
MS. GRACE explained that the United States doesn't claim title to                                                               
the water.  There are certainly areas where they claim title to                                                                 
submerged lands those are pre-statehood withdrawal areas.  They                                                                 
claim title to interest in the water being a right to in-stream                                                                 
flows.                                                                                                                          
                                                                                                                                
SENATOR TAYLOR asked if this was based on the navigable servitude                                                               
question or on the implied reservation of waters on a withdrawal.                                                               
                                                                                                                                
MS. GRACE replied, "The current Ninth Circuit decision is based on                                                              
the existence of reserved water right not on the navigational                                                                   
servitude.  The reserved water right is a doctrine that says when                                                               
the United States reserves federal lands for a particular purpose,                                                              
such as a park or wildlife refuge, by implication it also reserves                                                              
water necessary to fulfill the purposes of the reservation.  For                                                                
example, if the United States takes federal land and creates a                                                                  
national park or wildlife refuge as of the date they are creating                                                               
it, it is implicitly reserving ... say if one of the primary                                                                    
purposes of a park or national wildlife refuge was to protect fish                                                              
habitat, then by implication it would also be reserving sufficient                                                              
in-stream flows in the rivers within the park or wildlife refuge to                                                             
preserve fish habitat."                                                                                                         
                                                                                                                                
SENATOR TAYLOR asked if they are also reserving this in all the                                                                 
post-statehood withdrawals as well as the pre-statehood                                                                         
withdrawals.  Are they exerting this based on the federal reserved                                                              
water rights that pre-date statehood or all.                                                                                    
                                                                                                                                
MS. GRACE answered all of them.  It is not an issue that is related                                                             
to title to the submerged land.  Whenever the reservation occurs,                                                               
the water rights are created.  Generally in the context of reserved                                                             
water rights, it is significant when the right is created because                                                               
it determines the right of the United States to that water vis-a-                                                               
vis other water claims.  But in the context of Title VIII of ANILCA                                                             
it doesn't make any difference when the right occurs because it is                                                              
just the mere existence of the right that creates...the water right                                                             
that creates the determination that those rivers are public land                                                                
and that thereby creates the subsistence priority and the authority                                                             
of the Federal Subsistence Board to take over state management of                                                               
those fisheries.                                                                                                                
                                                                                                                                
SENATOR TAYLOR commented "That's the double shuffle of rhetoric by                                                              
which they say they're not taking back what they gave us at                                                                     
statehood."  He thanked her for that clarification and "was shocked                                                             
to hear they are even making that claim in areas where withdrawal                                                               
occurred after statehood but I understand the subtle distinction                                                                
you are trying to make.  You're indicating what their position is;                                                              
that's not our state's position is it?"                                                                                         
                                                                                                                                
MS. GRACE said that their position is that Congress had no intent                                                               
in creating that definition of public lands to include navigable                                                                
waters because there was a reserved water right.                                                                                
                                                                                                                                
SENATOR TAYLOR indicated that he is aware of litigation that                                                                    
occurred in Colorado where attempts were made by the federal                                                                    
government to utilize a reserved water right designation to control                                                             
in-stream flow and other uses of waters there.  Colorado had the                                                                
same choice to roll over and surrender everything like Alaska is                                                                
being told and let the federal government control the waters, but                                                               
they chose to fight and each individual stream was litigated to                                                                 
find out the purpose of the withdrawal to find out if water had                                                                 
anything to do with it.  As a consequence the federal government                                                                
ended up with about six rivers out of 600 rivers and Colorado won                                                               
the rest of them.                                                                                                               
                                                                                                                                
Number 261                                                                                                                      
                                                                                                                                
MS. GRACE explained that the doctrine states that when the                                                                      
reservation is created the federal government, by implication,                                                                  
reserves sufficient water to fulfill the primary purpose of the                                                                 
reservation.                                                                                                                    
                                                                                                                                
Number 265                                                                                                                      
                                                                                                                                
SENATOR TAYLOR pointed out that in Colorado the federal government                                                              
would frequently come in and list five or six purposes for which                                                                
they have withdrawn the waters.  Under the court decision the                                                                   
federal government was only allowed to maintain their reservation                                                               
for the primary purpose, not the secondary or tertiary.  He                                                                     
wondered if there is anything that indicates that when the federal                                                              
government created the Tongass National Forest that they reserved                                                               
the water rights and had a specific purpose for which they reserved                                                             
those water rights.                                                                                                             
                                                                                                                                
MS. GRACE indicated that the doctrine has been applied, generally,                                                              
in case law, as of the date the reservation was created.  She is                                                                
quite sure that when the Tongass National Forest was created                                                                    
primary purposes of the reservation would not have been furthered                                                               
by reserving water rights, but it is possible that the federal                                                                  
government will argue that they can change the primary purpose of                                                               
a reservation after it is created and at that point implicitly                                                                  
reserve water rights.  She added that even though in 1907 the                                                                   
primary purpose of the national forest did not include reserving                                                                
water rights, if the U.S. Congress changed the primary purpose of                                                               
the national forest to require water at that point they would argue                                                             
the right is created.                                                                                                           
                                                                                                                                
SENATOR TAYLOR explained that in Colorado the federal government                                                                
was not allowed to invent new reasons for having reserved land and                                                              
thus, by implication, water rights.  They were held accountable for                                                             
what they reserved it for at the time and what the primary purpose                                                              
was at the time.                                                                                                                
                                                                                                                                
MS. GRACE agreed and replied that the they were not allowed to                                                                  
create new purposes after the fact.  She explained that she was                                                                 
referring to an act of Congress that changed the purposes of                                                                    
national forests, for example, to include recreational use.                                                                     
                                                                                                                                
SENATOR TAYLOR said that in 1907 it was multiple use.                                                                           
                                                                                                                                
MS. GRACE made her point that they may have a stronger basis for                                                                
arguing that further rights were created when Congress changed the                                                              
purposes outside the context of litigation.  She referred to Title                                                              
VIII of ANILCA and said that it is not so much a question of when                                                               
the water right was created as it is a question of the mere                                                                     
existence of a water right.                                                                                                     
                                                                                                                                
Number 312                                                                                                                      
                                                                                                                                
SENATOR TAYLOR indicated that this is going to have huge                                                                        
implications not only in Alaska, but in every western state where                                                               
there are large blocks of federal land and water flowing through                                                                
them.  He wanted to know if Sandra Day O'Connor was completely out                                                              
of her mind when she wrote the decision in Dinkum Sands, which was                                                              
only three years ago, that said that Alaska not only controls the                                                               
submerged lands, but also the water above them and the fish that                                                                
swim therein.                                                                                                                   
                                                                                                                                
MS. GRACE responded that the question of reserved water rights in                                                               
Alaska has never been a big issue, because there are not a lot of                                                               
competing interests claiming water rights.  It was not a doctrine                                                               
that really had any application in Alaska until the Katie John                                                                  
case.  She indicated that it is their hope to convince the Supreme                                                              
Court to review the Ninth Circuit decision, which will eliminate                                                                
the problem about where, exactly, the right exists.  If the                                                                     
definition of public lands is not based on the existence of                                                                     
federally reserved water rights, in essence, the issue goes away.                                                               
                                                                                                                                
Number 338                                                                                                                      
                                                                                                                                
SENATOR TAYLOR wondered if procedurally they are back into the                                                                  
Ninth Circuit on the appeal of the Katie John case.                                                                             
                                                                                                                                
MS. GRACE indicated that they have to go through the Ninth Circuit,                                                             
because the Supreme Court cannot be petitioned for a review.                                                                    
                                                                                                                                
SENATOR TAYLOR explained that the Peratrovich case, which deals                                                                 
directly with the reserved water rights claims in the Tongass                                                                   
National Forest, has now been stayed by the filing of the Glacier                                                               
Bay lawsuit.  He wondered why it would not be a waste of judicial                                                               
time to go through the Ninth Circuit again and go through that                                                                  
briefing just to petition again on the very same subset of issues                                                               
that is encompassed in the Peratrovich case.                                                                                    
                                                                                                                                
MS. GRACE indicated that the main issue the plaintiffs seem to be                                                               
pushing in the Peratrovich case is the question of title to the                                                                 
submerged land.  They did raise other claims based on navigational                                                              
servitude and possibly water rights, but they are not pursuing that                                                             
at this time because of the Katie John case.  They are pursuing the                                                             
claim that the federal government has title to the submerged land                                                               
underlying the waters within the Tongass National Forest, and;                                                                  
therefore, those are all public lands under ANILCA.  The Supreme                                                                
Court review of the Ninth Circuit petition of the Katie John case                                                               
might have some impact on claims in the Peratrovich case, but those                                                             
aren't claims that the plaintiffs are really pursuing at this time.                                                             
                                                                                                                                
Number 364                                                                                                                      
                                                                                                                                
CO-CHAIR HUDSON wondered when they would be filing.                                                                             
                                                                                                                                
MS. GRACE indicated that they filed that morning and there is a                                                                 
copy of the notice of appeal.                                                                                                   
                                                                                                                                
CO-CHAIR HUDSON wondered when the next substantive action will take                                                             
place.                                                                                                                          
                                                                                                                                
MS. GRACE stated that she expected a briefing to be scheduled with                                                              
the Ninth Circuit within six to eight weeks.  The briefing will                                                                 
take three months, but the real issue is how quickly the Ninth                                                                  
Circuit will decide on the case; some cases have been pending                                                                   
before the Ninth Circuit for years.  She believes that the case                                                                 
will go quickly; expecting it to take less than a year.  At that                                                                
point the party has 90 days to petition the Supreme Court and the                                                               
United States has about 30 days to respond; how quickly the Supreme                                                             
Court would decide whether to take the case depends on whether the                                                              
Ninth Circuit petition is filed during the Supreme Court session,                                                               
which goes from October to June.  She concluded that it would take                                                              
between one and two years to find out whether or not the Supreme                                                                
Court would take the case.                                                                                                      
                                                                                                                                
CO-CHAIR HUDSON wondered what the relationship is between the two                                                               
filings: the Katie John case and the Glacier Bay case.                                                                          
                                                                                                                                
MS. GRACE explained that the issue in the Katie John case is                                                                    
whether public lands under ANILCA include waters that are subject                                                               
to a federal reserved water right.  At this point they don't                                                                    
believe that the federal agencies are claiming to have a reserved                                                               
water right in marine waters, because it has been uniquely a fresh                                                              
water issue.  The Glacier Bay case seeks to quiet title of the                                                                  
lands underlying the marine waters, so the Glacier Bay case should                                                              
not have any impact on the Katie John decision and vice versa.                                                                  
                                                                                                                                
Number 403                                                                                                                      
                                                                                                                                
REPRESENTATIVE DYSON wondered if there are any cases where reserved                                                             
water rights have been assumed to extend beyond the reserved lands,                                                             
for example, the tributaries of a river that flow through a federal                                                             
area.                                                                                                                           
                                                                                                                                
MS. SWIDERSKI responded that she is not aware of any cases where                                                                
they have extended the water rights upstream or downstream from a                                                               
particular federal area; however, with the reserved water right                                                                 
would come the right to enjoin other users, presumably upstream                                                                 
users, who are interfering with the water right as it flows through                                                             
the federal area.                                                                                                               
                                                                                                                                
Number 417                                                                                                                      
                                                                                                                                
SENATOR LINCOLN wondered whether or not the Katie John case would                                                               
be an issue, currently, if the subsistence issue had been resolved                                                              
during the special session.                                                                                                     
                                                                                                                                
MS. GRACE indicated that if there had been a constitutional                                                                     
amendment during the special session the subsistence priority would                                                             
apply everywhere and there would not be a concern with the federal                                                              
government usurping state authority to regulate navigable waters;                                                               
the state would have authority to regulate everywhere.                                                                          
                                                                                                                                
SENATOR LINCOLN wondered what the impact of the judgement on the                                                                
Katie John case will be on Alaska's resources, specifically, the                                                                
fisheries.                                                                                                                      
                                                                                                                                
MS. GRACE said that it would have no impact, because as it stands                                                               
the Federal Subsistence Board has authority to regulate fisheries                                                               
in the waters that the agencies have identified.                                                                                
                                                                                                                                
SENATOR LINCOLN asked what the basis was for the "administration"                                                               
to decide to go forward with the appeal.                                                                                        
                                                                                                                                
Number 436                                                                                                                      
                                                                                                                                
MS. GRACE explained that the Governor believes that the subsistence                                                             
priority should apply everywhere in the state.  The problem with                                                                
the definition of public lands in Title VIII of ANILCA is that                                                                  
there are two sides of that coin; on one side public land defines                                                               
where the subsistence priority applies, which is something that the                                                             
Governor wants to maximize, on the other side public land                                                                       
determines the area where the federal government can usurp the                                                                  
state authority to regulate fishing.  Maximizing the public lands                                                               
as it pertains to the right minimizes the area that the state has                                                               
authority to regulate.  It is her understanding that the                                                                        
"administration" supports the subsistence right everywhere and                                                                  
believes that it is something that must be accomplished through a                                                               
constitutional amendment.  This appeal is really about the fact                                                                 
that the Katie John decision took away the state's authority to                                                                 
regulate its own resources.  One of the main arguments in the Katie                                                             
John case is that there is a court doctrine called the "clear                                                                   
statement doctrine," that says that courts will not infer a                                                                     
congressional intent to usurp a traditional state police power                                                                  
unless Congress makes that intent manifestly apparent.  The reason                                                              
for that doctrine is to insure that federal legislation is not                                                                  
interpreted in such a way to alter the delicate balance of power                                                                
between the federal and state government unless Congress has                                                                    
thoroughly considered and fully intended that to be the result.                                                                 
She pointed out that the argument in this case is that Congress did                                                             
not make clear in ANILCA an intent to take away the state's                                                                     
authority to regulate navigable waters in which there is a federal                                                              
reserved water right.  She indicated that although the Governor                                                                 
does support a subsistence right everywhere and continues to fight                                                              
for that he also believes that he has to defend the state's                                                                     
authority to regulate its resources where Congress really didn't                                                                
make clear any intent to usurp that authority.                                                                                  
                                                                                                                                
Number 468                                                                                                                      
                                                                                                                                
SENATOR LINCOLN wondered if they anticipate requesting additional                                                               
funds to appeal the case.                                                                                                       
                                                                                                                                
MS. GRACE indicated that she is not authorized to talk about it.                                                                
She said that it is a matter for the Department of Law.                                                                         
                                                                                                                                
SENATOR LINCOLN wondered how aggressively they are going to proceed                                                             
with the appeal process.                                                                                                        
                                                                                                                                
MS. GRACE said that they have discussed hiring outside counsel with                                                             
the specialized knowledge in Supreme Court practice; it is really                                                               
a specialized area and although the Department of Law has many fine                                                             
attorneys there have not been enough Supreme Court cases for the                                                                
attorneys to develop that kind of expertise.                                                                                    
                                                                                                                                
Number 478                                                                                                                      
                                                                                                                                
SENATOR KELLY clarified that the Governor does not believe in                                                                   
subsistence rights everywhere as Ms. Grace stated three times in                                                                
her testimony.  He does not believe in subsistence for the people                                                               
in his district; he believes in subsistence apartheid.                                                                          
                                                                                                                                
SENATOR TAYLOR pointed out that he was fascinated by Ms. Grace's                                                                
response to Senator Lincoln's question about the constitutional                                                                 
amendment and it was very carefully worded, because the answer was                                                              
absolutely correct but only gave half the story.  He stated, "In                                                                
answer to her question when she said, 'If we'd of passed a                                                                      
constitutional amendment would subsistence not now be in all our                                                                
waters,' and you said, 'well, yes it would,' and that we would then                                                             
regulate them.  The other half of the shoe that you didn't mention                                                              
was that that regulation is required under the federal law, as we                                                               
know we've all written letters to the Secretary of the Interior how                                                             
many different times on how many different modifications, that                                                                  
federal law has to be mirrored within our state laws.  And that the                                                             
ultimate resolver of all disputes on subsistence, after we've                                                                   
adopted it, is going to be in federal court.  Not the state court;                                                              
a federal judge sitting some place even in Anchorage or San                                                                     
Francisco or the Ninth Circuit court of appeals will decide whether                                                             
or not a commercial fishery opens or closes, whether or not sport                                                               
fishing is allowed or closed, all personal use permits according to                                                             
the regulations you and I were talking about earlier, personal use                                                              
permits that all of Alaskans are used to and understand if you come                                                             
from a community too large those will not be allowed.  If in fact                                                               
they have to close any fisheries to protect subsistence.  It's a                                                                
nice half-answer, but it fails to mention what the ramifications                                                                
are of us adopting a law, so I'd have to question it a little                                                                   
different way.  Had we adopted the amendment, which ever one over                                                               
the last ten years you want to take, assuming one I guess in                                                                    
compliance with what the Secretary [of the Interior] would accept,                                                              
because he is the ultimate arbitrator of every decision we make                                                                 
around here whether it's good or bad; assuming we had done that                                                                 
what basis would you have at this point in time to even be                                                                      
appealing or stay as you have in the Peratrovich case.  In fact you                                                             
would have given up that -- all of those legal arguments on the                                                                 
reserved water right question that you claim this Governor wants to                                                             
defend us on, you'd of given up all those things by adopting or                                                                 
conceding to the fact that the federal government does in fact have                                                             
this reserved right, which I think most of us here at the table                                                                 
would dispute that they have such a right.  Can you answer that?"                                                               
                                                                                                                                
Number 508                                                                                                                      
                                                                                                                                
MS. GRACE stated that if they had passed a constitutional amendment                                                             
then Alaska would have management of the fisheries and there would                                                              
be a subsistence priority for the rural residence of Alaska that                                                                
would apply statewide.  There would be no need to litigate reserved                                                             
water rights or title to submerged land in order to determine the                                                               
scope of the right, because the scope of the right would be                                                                     
statewide.                                                                                                                      
                                                                                                                                
SENATOR TAYLOR responded, "To finish your sentence -- statewide and                                                             
dictated to us by the federal government on its interpretation of                                                               
what its federal law means when applied in the field."                                                                          
                                                                                                                                
MS. GRACE indicated that it is correct that the federal courts                                                                  
would be able to review state management statewide.                                                                             
                                                                                                                                
SENATOR TAYLOR pointed out that at any time if they did not find                                                                
the state in compliance with their interpretation of the federal                                                                
law they would assert the very same jurisdiction they are claiming                                                              
to assert today, because the reserved water rights question would                                                               
have been forfeited.                                                                                                            
                                                                                                                                
MS. GRACE said that the reserved water rights question would just                                                               
have no relevance, not necessarily forfeited in a legal sense.                                                                  
                                                                                                                                
SENATOR TAYLOR stated that Alaska's right to manage its fisheries                                                               
in the navigable waters, which has been assumed throughout in the                                                               
Submerged Lands Act and the Alaska Statehood Act, would go down the                                                             
drain, because Alaska would have embraced a federal concept that                                                                
the federal government has the authority and the state would not                                                                
now be contesting it and fighting to keep it under state control.                                                               
                                                                                                                                
MS. GRACE explained that the state management would be subject to                                                               
judicial review in isolated cases, but she doesn't think it is fair                                                             
to say that the state would be giving up its right to manage its                                                                
water ways; the state would have that right in a way that they                                                                  
don't have it when the Federal Subsistence Board is managing                                                                    
subsistence.                                                                                                                    
                                                                                                                                
SENATOR TAYLOR wondered why the reserved water rights issue is not                                                              
being contested in any of the cases; why is the "administration"                                                                
dodging the issue.  He mentioned the issue in Glacier Bay.                                                                      
                                                                                                                                
Number 538                                                                                                                      
                                                                                                                                
MS. GRACE responded that the federal authority that the National                                                                
Park Service is claiming to have on fisheries in Glacier Bay                                                                    
National Park is not based on a reserved water right; Title VIII                                                                
does not apply in Glacier Bay National Park.  The federal authority                                                             
is based on the fact that they claim title to the submerged land;                                                               
that the submerged land is park land that the National Park Service                                                             
has authority over.  The state's claim is that they are not                                                                     
National Park Service lands, but state lands and that is why the                                                                
reserved water rights issue has not been raised and it is being                                                                 
limited to a title issue.                                                                                                       
                                                                                                                                
SENATOR TAYLOR said, "So, we could win Glacier Bay on your brief                                                                
and the federal government would still regulate on the fisheries,                                                               
because they would say that no subsistence is allowed there ...                                                                 
You're arguing only the limited technical aspects of who owns the                                                               
submerged land."                                                                                                                
                                                                                                                                
MS. GRACE explained that the fact that there is no Title VIII                                                                   
subsistence right in Glacier Bay National Park really has nothing                                                               
to do with the title to the land.  It is not really an issue                                                                    
between the state and federal government it is something that is in                                                             
federal law.                                                                                                                    
                                                                                                                                
SENATOR TAYLOR indicated that if it doesn't have anything to do                                                                 
with it then why in the world is the federal government paying some                                                             
$300,000 to the fisherman so they won't crab fish there anymore.                                                                
                                                                                                                                
MS. GRACE clarified what Senator Taylor was asking that if they                                                                 
were to establish that those are state waters rather than park                                                                  
service lands then the exception to Title VIII for Glacier Bay                                                                  
National Park would not apply to those waters.                                                                                  
                                                                                                                                
SENATOR TAYLOR responded, "Right."                                                                                              
                                                                                                                                
MS. GRACE stated, "There would be a subsistence right in those                                                                  
waters."                                                                                                                        
                                                                                                                                
SENATOR TAYLOR pointed out that they haven't extended it to marine                                                              
waters yet.  If the state sells a crab fishing license that says                                                                
that the fishermen are allowed to fish for crab in Southeast                                                                    
Alaska, then that fishing license would still have some validity in                                                             
those waters if the state fought for their right to issue that                                                                  
license in those waters.                                                                                                        
                                                                                                                                
MS. GRACE reiterated that the National Park Service is asserting                                                                
their authority on the basis that they consider the submerged land                                                              
their claim.                                                                                                                    
                                                                                                                                
Number 571                                                                                                                      
                                                                                                                                
SENATOR TAYLOR said that he understands their claim.  He wondered                                                               
why they are not fighting on behalf of those fishermen and users of                                                             
that water.  He asked why the state has failed to request a stay                                                                
pending the outcome in the Katie John case.                                                                                     
                                                                                                                                
MS. GRACE replied that it is probably not too late to do it, but it                                                             
is extremely unlikely that they would receive such a stay.  She                                                                 
indicated that it is not something they have really thought about,                                                              
so they will now.                                                                                                               
                                                                                                                                
CO-CHAIR MASEK agreed with Senator Taylor that if there was a                                                                   
constitutional amendment --                                                                                                     
                                                                                                                                
TAPE 00-3, SIDE B                                                                                                               
                                                                                                                                
CO-CHAIR MASEK continued that in ANILCA, unless there are changes                                                               
that go along with the constitutional amendment the state will not                                                              
get its management back.  She wondered if the judgement were                                                                    
overturned by the Ninth Circuit court of appeals or the U.S.                                                                    
Supreme Court would the state retain its existing management                                                                    
authority in navigable waters.                                                                                                  
                                                                                                                                
MS. GRACE explained that the Federal Subsistence Board, since                                                                   
October 1, 1999 has taken over fisheries management for subsistence                                                             
purposes in navigable waters.  She indicated that the state would                                                               
not maintain its current status, but would regain its former status                                                             
as being the regulator of fisheries in almost all waters of Alaska.                                                             
Before the Katie John case the Federal Subsistence Board had                                                                    
authority to regulate fisheries in non-navigable waters on public                                                               
land, which is fairly insignificant compared to the authority they                                                              
have now.                                                                                                                       
                                                                                                                                
Number 577                                                                                                                      
                                                                                                                                
SENATOR MACKIE indicated that he understood some of Senator                                                                     
Taylor's line of questions and some he didn't.  He suggested to                                                                 
Senator Taylor that some of the questioning was going toward policy                                                             
decisions and some of the policy decisions are not for Ms. Grace                                                                
and Ms. Swiderski to make.                                                                                                      
                                                                                                                                
SENATOR KELLY agreed with Senator Mackie, but also can't help but                                                               
notice the absence of the Attorney General when it comes to                                                                     
discussing an incredibly important case.                                                                                        
                                                                                                                                
CO-CHAIR HUDSON said that he feels encouraged that the                                                                          
"administration" is filing on the Glacier Bay case and if they win                                                              
that one they win something substantive.  He indicated that if the                                                              
state can make a clear understanding of what the federal                                                                        
governments responsibilities and authorities are and what the                                                                   
states are then they will be miles ahead of where they are at the                                                               
present time.                                                                                                                   
                                                                                                                                
Number 542                                                                                                                      
                                                                                                                                
SENATOR TAYLOR said that he appreciates Ms. Grace and Ms. Swiderski                                                             
coming before the committee, but he is disappointed in the fact                                                                 
that cases that appear to be some of the narrowest most constrained                                                             
arguments and issues are not yet being addressed.  He pointed out                                                               
that the overriding question is what is the federal governments                                                                 
authority in Alaskan waters and what was conveyed to the state at                                                               
statehood.  The argument that they are giving has been constrained                                                              
by the "administration" in the way that they've approached it.                                                                  
When he hears statements like "we could win Glacier Bay" and still                                                              
have no resolution of the issue of reserved water rights that is                                                                
frightening.  He indicated that possibly it is to the benefit for                                                               
political purposes for some individuals to keep that issue from                                                                 
being determined.  He believes that when it is determined the state                                                             
wins.  He voiced his frustration about the fact that they are not                                                               
being allowed to defend the state as vigorously as the constitution                                                             
calls upon the Attorney General's office to defend it; it is that                                                               
lack of defense that has caused them to sit on the issue for ten                                                                
years.  He encouraged them in every way to do what they can to                                                                  
insure that the state is protected and that the matters go forward.                                                             
He wondered if the Attorney General's office would appreciate the                                                               
support of the legislature in the form of an amicus brief on the                                                                
Katie John case and Glacier Bay case.                                                                                           
                                                                                                                                
MS. GRACE responded that it is a question for the Attorney General.                                                             
She added that the decision to appeal the final judgement on the                                                                
Katie John case is very much a decision to defend the state's                                                                   
authority to regulate its resources in navigable waters, which has                                                              
been the position of the Governor since he came into office and the                                                             
appeal is a demonstration of that.                                                                                              
                                                                                                                                
Number 474                                                                                                                      
                                                                                                                                
CO-CHAIR MASEK wondered if the case challenges subsistence priority                                                             
on public lands.                                                                                                                
                                                                                                                                
MS. GRACE explained that the subsistence priority applies to public                                                             
lands and that is the way that the scope of the right was                                                                       
determined; a rural resident has a right to a priority in hunting                                                               
and fishing on public lands.  This case does challenge the current                                                              
definition of public lands not because the "administration" would                                                               
like to challenge the subsistence priority in that area, but                                                                    
because the authority of the federal government to take over                                                                    
fisheries management also applies to public lands.                                                                              
                                                                                                                                
CO-CHAIR MASEK wondered what would happen on the Yukon River if the                                                             
state lost the appeal on the Katie John case and the final                                                                      
judgement went through.                                                                                                         
                                                                                                                                
MS. SWIDERSKI replied that if the state did not prevail on the                                                                  
Katie John appeal than the status quo would remain in place and the                                                             
federal agencies, which have asserted authority over segments of                                                                
the Yukon River, would continue to manage for subsistence purposes                                                              
in those segments.                                                                                                              
                                                                                                                                
Number 448                                                                                                                      
                                                                                                                                
CO-CHAIR HUDSON wondered if the courts determination on the Katie                                                               
John case would have to take into consideration the agreement                                                                   
between Canada and the United States, specifically on the river                                                                 
system.                                                                                                                         
                                                                                                                                
MS. SWIDERSKI indicated that those obligations are overriding, so                                                               
the United States commitment to the treaties would stand and the                                                                
federal agencies would regulate within the context of meeting the                                                               
treaty obligation.                                                                                                              
                                                                                                                                
SENATOR HALFORD said that they would be looking forward to seeing                                                               
the initial briefs.  He called an at-ease at 3:15 p.m. and called                                                               
the meeting back to order at 3:35 p.m.                                                                                          
                                                                                                                                
Number 419                                                                                                                      
                                                                                                                                
HANK HOVE, Chairman, Alaska Gasline Port Authority, stated,                                                                     
                                                                                                                                
     In October of 1999 the voters of the Fairbanks Northstar                                                                   
     Borough and the North Slope Borough and the city of                                                                        
     Valdez formed a port authority for the purpose of the                                                                      
     construction and operation of a gas pipeline, which would                                                                  
     finally, after over 20 years, commercialize that vast                                                                      
     natural resource, which we as residents of the state of                                                                    
     Alaska possess on the North Slope.  We have a nine member                                                                  
     board of directors ... composed of three individuals from                                                                  
     each community.  In the Northslope Borough we have Mayor                                                                   
     George Ahmaogak, Richard Glenn and Thomas Napageak and                                                                     
     from the city of Valdez Mayor Dave Cobb, will be joining                                                                   
     us here just momentarily when he completes another                                                                         
     meeting, Dave Dengel and John Kelsey and from Fairbanks                                                                    
     myself, former Attorney General Charlie Cole and Barbara                                                                   
     Schuhmann.  We have we think made considerable progress                                                                    
     since October and we have now formed a development team,                                                                   
     which consists fundamentally of the port authority itself                                                                  
     and we have secured as an EPC role player in the form of                                                                   
     Bechtel, which is a world renowned construction and                                                                        
     engineering firm.  We have with us a Yukon Pacific                                                                         
     Corporation [YPC], which has worked for 18 years and has                                                                   
     expended considerable sums of money to obtain the permits                                                                  
     necessary to build an LNG [Liquid Natural Gas] facility                                                                    
     and a pipeline.  We have also secured the services of                                                                      
     Taylor Dejongh and Merrill Lynch and also general counsel                                                                  
     from the lower 48 with great expertise in areas of the                                                                     
     this nature, O'Melveny and Myers, and our general counsel                                                                  
     from the state of Alaska is Walker, Walker, Wendlandt and                                                                  
     Osowski ... .                                                                                                              
                                                                                                                                
                                                                                                                                
     The overview of the project is, of course, the treatment                                                                   
     and transport of natural gas via pipeline from Prudhoe                                                                     
     Bay to Valdez.  This pipeline, as permitted by Yukon                                                                       
     Pacific [Corporation], fundamentally parallels the                                                                         
     existing TAPS [Trans-Alaska Pipeline System] line and at                                                                   
     Valdez we would convert the natural gas to liquid natural                                                                  
     gas and ship it to the Far East markets, which all the                                                                     
     markets plan for the sale of Alaska natural gas.  At                                                                       
     Prudhoe Bay we would build a conditioning plant, that                                                                      
     plant is for the purpose of removing water and carbon                                                                      
     dioxide from the gas as it comes up out of the field and                                                                   
     then transporting it to tide water in a pipeline with a                                                                    
     diameter of up to 48 inches and which would have future                                                                    
     capacity for transporting up to four billion cubic feet                                                                    
     of gas per day should the markets demand.  At Valdez we                                                                    
     would construct the liquid natural gas plant that chills                                                                   
     the gas to a liquid and prepares it for shipment.  The                                                                     
     chilling of the gas essentially, I'm sure many of you                                                                      
     already know this, essentially reduces the volume of the                                                                   
     gas down to one-sixteenth of its former level when it was                                                                  
     a vapor or a gas.  The technical environmental challenges                                                                  
     to building a pipeline in Alaska are considerable as we                                                                    
     all know.  As residents of this state we know that it                                                                      
     braces us with challenges of some of the harshes cold                                                                      
     weather environments in the United States, if not in the                                                                   
     world, and that the pipeline of the sort that is proposed                                                                  
     here by the port authority would be passing through areas                                                                  
     of continuous and discontinuous permafrost.  The pipeline                                                                  
     would have pressures of greater than 2,000 pounds per                                                                      
     square inch and the gas would be chilled to a temperature                                                                  
     lower than 32 degrees Fahrenheit and the preservation of                                                                   
     the sensitive habitat of wildlife and migratory herds and                                                                  
     birds and streams and rivers continued native fisheries                                                                    
     is extremely important and was given particular attention                                                                  
     in the permitting process as YPC went through that                                                                         
     process in obtaining the permits.  The challenge also                                                                      
     before us is that of minimizing impact on the ongoing                                                                      
     operation of the TAPS pipeline due to construction and                                                                     
     operation of the new gasline would require considerable                                                                    
     coordination between our contractor and Alyeska, who is                                                                    
     the present operator of TAPS and we also need to arrange                                                                   
     for the minimization of impact to existing Purdoe Bay                                                                      
     operations due to construction and later through the                                                                       
     operation of the new gas conditioning facility.  So,                                                                       
     those are some of the challenges that face us in that                                                                      
     area.                                                                                                                      
                                                                                                                                
     In implementation challenges we find that there have been                                                                  
     a number of studies, and I'm sure members of this                                                                          
     committee are very well aware of all of them, over the                                                                     
     past 20 years to define a project, to design a project                                                                     
     and to market and fund a project.  None of them have                                                                       
     indicated, under the typical private enterprise kind of                                                                    
     approach to this particular problem, none of them have                                                                     
     demonstrated that they have associated with any of the                                                                     
     plans sufficient margins to be able to attract financing                                                                   
     from one thing or for being able to deliver gas to its                                                                     
     market at a price that would find a buyer.  The project                                                                    
     viability and the schedule driven by energy supply and                                                                     
     market conditions is a factor that challenges us.  Our                                                                     
     project viability has increased because of the nature of                                                                   
     the public/private kind of enterprise with which we are                                                                    
     proposing.  Where we bring certain advantages in terms of                                                                  
     financing and in terms of tax structure on net revenues                                                                    
     that markedly change the economics of a gas pipeline,                                                                      
     where it might formally have been at the margins or less                                                                   
     or lower, this project plans and [is] operated through a                                                                   
     port authority kind of scheme, in fact, changes the                                                                        
     economics of an Alaska gas pipeline in a very positive                                                                     
     direction.  The final bullet there on this page [The                                                                       
     Implementation Challenges] kind of says it all in terms                                                                    
     of what I've already said in terms of in the past the                                                                      
     minimal financial benefits for a pure private sector                                                                       
     solution just did not work out in terms of                                                                                 
     commercializing Alaska's gas and created a need for this                                                                   
     kind of innovative public/private solution.                                                                                
                                                                                                                                
     So, why is our project different.  Well, there are                                                                         
     substantial fiscal advantages using an Alaska gasline                                                                      
     port authority method.  There is the matter of not having                                                                  
     exposed the net profits to federal income tax, which is                                                                    
     the most dramatic example of the advantage offered by a                                                                    
     port authority kind of approach to this problem.  Also,                                                                    
     to a lesser extent in terms of importance, is the                                                                          
     availability to some extent to tax exempt financing for                                                                    
     such a project, which would not typically be available to                                                                  
     a strictly private sector kind of approach.  Also, as                                                                      
     Alaskans and as a port authority formed only for one                                                                       
     purpose we, therefore, only have one focus and that focus                                                                  
     is on the commercialization of Alaska's gas.  ... We have                                                                  
     one project that is driving us and we only will ever do                                                                    
     one project and that is an Alaska gas pipeline.                                                                            
                                                                                                                                
     Regulatory efficiency is also an advantage because of our                                                                  
     association and their association with us of the Yukon                                                                     
     Pacific Corporation, which presently has many of the                                                                       
     permits required to, not only construct, but to operate                                                                    
     this pipeline.  And the cost-effective technology of the                                                                   
     conversion to LNG that we think is an efficient method of                                                                  
     conversion that we planned.  And the project economies,                                                                    
     that we think that we can bring to this project, further                                                                   
     enhance the possibilities and probabilities, in fact, we                                                                   
     think of achieving success and the schedule and speed of                                                                   
     development.  Most other proposals that have to do with                                                                    
     the commercialization of Alaska gas and the construction                                                                   
     of the pipeline say that there is a market out there in                                                                    
     2010.  That we think is also true, there is a market out                                                                   
     there in 2010, but there is also a market window open in                                                                   
     roughly the year 2005.  So, our proposal envisions                                                                         
     bringing Alaska's gas to market five years sooner than                                                                     
     anyone else claims that it is possible to do and we think                                                                  
     only we could actually meet that timetable.  Presently,                                                                    
     any other proposal would need to be permitted from the                                                                     
     start, from the first permit to the last permit.  That is                                                                  
     a long and expensive process; it would take a great deal                                                                   
     of time and if engaged in would cause you to miss the                                                                      
     2005 time frame, which is the earliest that Alaska gas                                                                     
     can find a market.  We are the only ones that can meet                                                                     
     that timetable.                                                                                                            
                                                                                                                                
     The benefits to Alaskans are many.  We will finally, for                                                                   
     the first time, be able to provide for gas to many of                                                                      
     Alaska's communities who presently do not enjoy access to                                                                  
     this low-cost and lower-polluting fuel.  Only Anchorage,                                                                   
     the Mat-Su Borough and Kenai Peninsula presently in the                                                                    
     state of Alaska enjoy access to this fuel.  If this                                                                        
     pipeline is constructed Alaska's second largest borough,                                                                   
     Fairbanks, would now have access to it; Valdez would, and                                                                  
     all other corridor communities up and down the pipeline                                                                    
     as well would have access to this efficient and lower-                                                                     
cost fuel supply.  And we would expect that these new energy                                                                    
supplies would also stimulate business development throughout the                                                               
state, which can also have a very beneficial side effect on our                                                                 
economy at a time when we're wondering what we're really going to                                                               
do about our economy.  Also it provides for, when sized properly,                                                               
a potential spur line to the Cook Inlet to provide for an expanded                                                              
gas supply for consumers there and also possibly to provide for                                                                 
fuel for gas-intensive industrial applications.  And, finally, and                                                              
for us most importantly for us as Alaskans, the insurance of long                                                               
term gas availability.                                                                                                          
                                                                                                                                
     Also to the benefit of Alaskans; during the course of                                                                      
     constructions of the pipeline it is the estimate of                                                                        
     Bechtel that over 10,000 construction jobs would be                                                                        
     created.  This would not quite reach the magnitude of the                                                                  
     construction of TAPS, but none the less there would be a                                                                   
     very, very significant boost to the Alaskan economy for                                                                    
     the period of the construction of the line and would                                                                       
     have, also, direct contribution to the Alaska economy of                                                                   
     $2 to $3 billion in local purchases of goods and services                                                                  
     in support of the construction of the pipeline.  After                                                                     
     construction would be completed, permanent jobs in the                                                                     
     form of 400 in-plant and pipeline operations jobs would                                                                    
     be in the economy of Alaska over the long term, for the                                                                    
     life of the project in fact, which would be several                                                                        
     decades.  And, of course, then there's the indirect                                                                        
     service and support employment that would result in the                                                                    
     increased activity surrounding operations of the                                                                           
     pipeline.  This would have a $100 million per year impact                                                                  
     on the Alaskan economy and would improve, by the way, not                                                                  
     something that we are directly responsible for, but as a                                                                   
     member of the United States of America citizenry I think                                                                   
     it's important for us to consider these smaller matters                                                                    
     as well, would improve a very serious balance of payments                                                                  
     problems to make up for all the Toyotas and Nissans and                                                                    
     Hondas that we have bought over the years and no doubt                                                                     
     will continue to purchase.  And selling natural gas back                                                                   
     to Japan would be an excellent way to at least partially                                                                   
     eliminate that as a problem for the United States.  And                                                                    
     it would very significantly contribute to the state                                                                        
     revenue, directly to the state of Alaska, and to its                                                                       
     citizens.                                                                                                                  
                                                                                                                                
     Gas is the cleanest burning fuel that is commercially                                                                      
     available and we have, in Fairbanks, as some of you may                                                                    
     know, a very serious air quality problem and there is an                                                                   
     air quality problem in Anchorage, as well, for that                                                                        
     matter and they presently consume gas, but we in                                                                           
     Fairbanks and in other places in the state will benefit                                                                    
     greatly in terms of the improvement in air quality as a                                                                    
     result of burning this clean fuel, as opposed to coal,                                                                     
     and as opposed to oil and to wood.  And this pipeline                                                                      
     would be an exemplary environmental project, adhering to                                                                   
     the new regulations regarding air quality and it would                                                                     
     make it a model for future Alaska projects.  And it would                                                                  
     be designed for the utmost safety both during the                                                                          
     construction phases and the operational phases.                                                                            
                                                                                                                                
     And there are even benefits to the gas producers who are                                                                   
     presently engaged in the production of crude oil on the                                                                    
     North Slope.  First, there is no capital required of them                                                                  
     to construct this gas line and that is a matter of some                                                                    
     advantage that they would then have capital available to                                                                   
     do other projects of other sorts, maybe not, elsewhere in                                                                  
     the world.  We'll provide the capital for the                                                                              
     construction of this pipeline.  It would also provide for                                                                  
     significant revenues as a result of the purchase of gas                                                                    
     from the producers on the North Slope and over the long                                                                    
     term would increase field life and oil recovery rate on                                                                    
     the North Slope.                                                                                                           
                                                                                                                                
     What we are doing presently, at this moment, and in the                                                                    
     near term, is that we are making gas market initiatives                                                                    
     both including direct contacts with LNG off-takers in the                                                                  
     Far East.  We plan a trip to the Far East sometime                                                                         
     probably in March, possibly even in February, for the                                                                      
     purpose of meeting with possible buyers in China, Taiwan,                                                                  
     Korea and Japan.  Also, we will, sometime in the next few                                                                  
     months, will receive the response to our ruling request                                                                    
     from the IRS [Internal Revenue Service] concerning the                                                                     
     port authorities exemption from federal income tax.  We                                                                    
     are very confident about the outcome of this particular                                                                    
     ruling, but it is -- and we asked for it, really, only in                                                                  
     order provide a degree of comfort to the investors in the                                                                  
     pipeline who without it might find it somewhat less                                                                        
     attractive as an investment vehicle ... .                                                                                  
                                                                                                                                
Number 178                                                                                                                      
                                                                                                                                
BRENT SHERFEY, Project Manager, Petroleum and Chemical North                                                                    
America, Bechtel Corporation, indicated that first is the review of                                                             
the existing regulatory and environmental permitting and approval                                                               
processes that this project will entail.  There have been many                                                                  
studies done in the past, but this is probably one of the most                                                                  
highly visible projects from an environmental viewpoint and will                                                                
set a precedence in the future.  They are also conducting the                                                                   
initial design basis for the gas plant on the North Slope for the                                                               
pipeline itself, which involves engineering and hydraulic studies.                                                              
He pointed out that the study is one of the largest procurement                                                                 
programs; procurement of some of the largest pipe in the world,                                                                 
which also entails delivery of 800 miles of pipe and the                                                                        
construction of the facilities.  The logistics program is enormous                                                              
and a study in itself.  They are also concentrating on maximizing                                                               
the Alaskan content of the procurement activities; finding                                                                      
suppliers and sources of material in Alaska to make sure that it is                                                             
an Alaskan project.  He explained that the construction plan and                                                                
schedule is a process of sequencing the construction process and                                                                
putting it into a schedule where the 2005 completion is still                                                                   
targeted.  He indicated that there are such issues as working                                                                   
during the winter months and windows of opportunity to ship                                                                     
materials into Prudhoe Bay.  Also, the issue of construction camps                                                              
along the pipeline; locating and pre-building them in an adequate                                                               
enough time to accommodate the various crews.  He informed the                                                                  
committee that as a part of the permitting process is the                                                                       
environmental monitoring and inspection process during construction                                                             
and during operations.  The assurance that all the construction                                                                 
activities adhere to the regulatory requirements imposed by the                                                                 
agencies in good sound business practices; this will be a major                                                                 
part of their construction activity.  He said that there will be a                                                              
study of the Alaska labor market assuring that there are skilled                                                                
Alaskans available for construction of the project.  The operating                                                              
maintenance plan is an overall program for identifying the                                                                      
operational components and maintenance components of the                                                                        
facilities.  He indicated that with regards to the economic                                                                     
analysis they are running various scenarios.  The preliminary                                                                   
financial plan is taking a look at optimizing the various sources                                                               
of financing available and also taking a look at the various risks.                                                             
                                                                                                                                
SENATOR KELLY asked Mr. Hove how the rest of the state benefits                                                                 
from this project.                                                                                                              
                                                                                                                                
Number 037                                                                                                                      
                                                                                                                                
MR. HOVE responded that any activity that they may be involved in                                                               
that produces revenue should probably be shared with Alaska,                                                                    
because all citizens in the state have an interest in the North                                                                 
Slope and what is there.  He indicated that they proposed sharing                                                               
more than half with the State of Alaska directly to its general                                                                 
fund for appropriation by the legislature for whatever purpose.                                                                 
They also considered the application of about half that amount for                                                              
distribution directly to every resident of the State of Alaska and                                                              
a small fraction, about ten percent, directly to the residents in                                                               
the communities that form the port authority originally in October                                                              
of 1999.  After putting aside reserves for ensuring ongoing and                                                                 
efficient operations and all costs have been met and paid then all                                                              
the net amount left over will be distributed directly back to the                                                               
State of Alaska in one form or another.                                                                                         
                                                                                                                                
                                                                                                                                
TAPE 00-4, SIDE A                                                                                                               
                                                                                                                                
SENATOR LINCOLN said she hoped the lack of attendance is not viewed                                                             
as a lack of interest in the project.  She knows there is a lot of                                                              
interest due to the questions posed.  She declared a conflict of                                                                
interest because Valdez is part of her district.  She has questions                                                             
regarding alternative routes and the impact of a merger on the port                                                             
authority.                                                                                                                      
                                                                                                                                
Number 039                                                                                                                      
                                                                                                                                
MR. HOVE stated he appreciates the questions being asked.  He noted                                                             
the lack of attendance is not interpreted negatively.  He said only                                                             
one route is being proposed.  This is the route that is presently                                                               
permitted.  The route goes from Prudhoe Bay through Fairbanks                                                                   
paralleling TAPS to Valdez.  He indicated there are other                                                                       
organizations with different routing ideas, but the Alaska Gasline                                                              
Port Authority has not analyzed any of those.  He thinks a time                                                                 
window of 2005 needs to be made for sales to the market.  Taking                                                                
the time now to permit a new route would use up so much time and                                                                
resources and cause failure to meet that marketing window.  It is                                                               
his opinion that an alternative stream of revenue is needed in the                                                              
state and is needed as soon as possible.                                                                                        
                                                                                                                                
MR. HOVE referred to the BP Amoco merger with ARCO.  He indicated                                                               
the difficulties encountered have not enhanced the opportunities to                                                             
engage in substantive discussion with the producers regarding the                                                               
sale of natural gas to the port authority.  He believes the merger                                                              
has had a negative effect on "their being able to remove their                                                                  
focus, particularly on the part...of BP from the merger to a supply                                                             
of gas."                                                                                                                        
                                                                                                                                
CO-CHAIR HUDSON said there was a recent presentation on the                                                                     
proposal for the gas-to-liquids which would require a portion of                                                                
the gas to be converted to liquids then move down the pipeline                                                                  
through the batch process.  He does not believe there is any                                                                    
negative effect on the project proposed by the Alaska Gasline Port                                                              
Authority.  He asked if this is Mr. Hove's understanding.                                                                       
                                                                                                                                
Number 101                                                                                                                      
                                                                                                                                
MR. HOVE thinks there is room for both projects.  He does not feel                                                              
there is an impact in any way on their project by the existence of                                                              
the gas-to-liquid demonstration project or outright commercial                                                                  
production of gas-to-liquids.  He said it does not concern them so                                                              
long as there is an adequate supply of gas available to make the                                                                
project economical.                                                                                                             
                                                                                                                                
REPRESENTATIVE HARRIS referred to Mr. Hove's earlier discussion of                                                              
the IRS ruling.  He wondered what would happen if the ruling is not                                                             
positive to the economics of the project.                                                                                       
                                                                                                                                
MR. HOVE said it would not be positive.  He commented it would                                                                  
essentially return them to a completely private sector type of                                                                  
economic model which would not allow them to offer any significant                                                              
advantage as a port authority.  He explained the port authority has                                                             
never received a negative opinion on this from any counsel they                                                                 
have sought.  He stated,                                                                                                        
                                                                                                                                
     It was more or less a Pro Forma thing and, as I indicated                                                                  
     before, we...are going through it fundamentally...to                                                                       
     assure the financial markets that we have done what we                                                                     
     need to do to ensure that their investment is more secure                                                                  
     than it might otherwise be should we not seek the ruling                                                                   
     and later learn that the income was not tax                                                                                
     exempt...We're very, very confident that it will come                                                                      
     through.                                                                                                                   
                                                                                                                                
SENATOR KELLY asked if the IRS determination would be strictly up                                                               
or down, or something in-between.                                                                                               
                                                                                                                                
MR. HOVE replied it is his understanding that it is an up or down                                                               
situation.                                                                                                                      
                                                                                                                                
Number 150                                                                                                                      
                                                                                                                                
CO-CHAIR MASEK inquired how far along the Alaska Gasline Port                                                                   
Authority is with their permits and if those permits are in place.                                                              
                                                                                                                                
MR. HOVE explained that everyone engaged in this process is                                                                     
essentially a team player.  The port authority developed the                                                                    
concept and provides the legal authority for proceeding.  He noted                                                              
that Williams Company, should they be successful in concluding an                                                               
agreement, will provide great expertise in the construction and                                                                 
operation of gas pipelines.  He further commented, "Bechtel brings                                                              
what we all know Bechtel brings ... they're probably the world's                                                                
largest engineering firm,  and a terribly successful firm, too."                                                                
With respect to permits, he said YPC, another team member, is the                                                               
owner of the permits, not the port authority.  All these major                                                                  
players have been brought together for one purpose:  to                                                                         
commercialize Alaska's gas, which has been stranded on the North                                                                
Slope for over 20 years.  He stressed that everyone wins here, if                                                               
everyone one plays well.                                                                                                        
                                                                                                                                
Number 190                                                                                                                      
                                                                                                                                
CO-CHAIR MASEK, on the issue of construction jobs, would like to                                                                
see a plan on getting people to work on the pipeline.  She also                                                                 
wanted to know which agencies will be used to get Alaskans to work                                                              
on the construction of the project.                                                                                             
                                                                                                                                
MR. HOVE said local unions need to be engaged to develop training                                                               
programs that will enable members to work on this pipeline or even                                                              
other pipelines.  He thinks this needs to be done across the state                                                              
whether it is a union or a non-union situation.  He mentioned that                                                              
YPC, in the course of securing permits, engaged in some project                                                                 
labor agreements with union locals across a quarter of the                                                                      
pipeline.  There exist today agreements which relate to those                                                                   
permits and address the issue of preparing Alaskan workers to work                                                              
on this project.  He is vitally interested in the local hire.                                                                   
                                                                                                                                
CO-CHAIR MASEK asked Mr. Hove to provide later on, as the project                                                               
progresses, an outline of the plan to hire local Alaskans.                                                                      
                                                                                                                                
MR. HOVE expressed it would be a privilege to do so.                                                                            
                                                                                                                                
REPRESENTATIVE WHITAKER asked Mr. Hove to put the permitting                                                                    
advantage in a time frame.                                                                                                      
                                                                                                                                
MR. HOVE estimated a new permitting process would consume three                                                                 
unnecessary years of work.                                                                                                      
                                                                                                                                
REPRESENTATIVE WHITAKER wondered if it would assume a successful                                                                
culmination to that extra three years of effort.                                                                                
                                                                                                                                
MR. HOVE replied that would be the assumption.  He asked if there                                                               
was a satisfactory outcome.                                                                                                     
                                                                                                                                
REPRESENTATIVE WHITAKER responded yes.  He asked if that assumption                                                             
is not a given.                                                                                                                 
                                                                                                                                
MR. HOVE said that is true.                                                                                                     
                                                                                                                                
REPRESENTATIVE WHITAKER indicated he would like to run through some                                                             
key components to taking a commodity, such as gas, to the market                                                                
place.  He requested Mr. Hove provide an estimation of his                                                                      
confidence level with regard to those key components.  The first                                                                
component he asked Mr. Hove to address is the market.                                                                           
                                                                                                                                
Number 244                                                                                                                      
                                                                                                                                
MR. HOVE said it is the belief that the market for Alaska gas                                                                   
exists in the Far East.  He explained the market exists because the                                                             
economy is recovering and growing in the Far East and will once                                                                 
again become a vital and growing consumer of Alaska gas.  In                                                                    
addition, there is a considerable effort being undertaken for the                                                               
privatization of electric power plants.  Electric power plants                                                                  
presently consume either coal or oil.  According to the current                                                                 
plan, these power plants would be converted to burn natural gas.                                                                
It is believed this natural gas should come from Alaska in the form                                                             
of LNG.  He said these are the two principal causes for a market to                                                             
be created in the Far East.                                                                                                     
                                                                                                                                
REPRESENTATIVE WHITAKER wondered what Mr. Hove's level of                                                                       
confidence is with respect to penetrating that market.                                                                          
                                                                                                                                
MR. HOVE stated there is an assumption, based on previous                                                                       
discussions with potential buyers in the Far East, that the market                                                              
does and will exist over there.  He explained,  "Though, what we                                                                
are going to do is engage in discussions with those markets                                                                     
ourselves,...to judge for ourselves, probably this next month or                                                                
the month after, first of all, the extent of interest, and,                                                                     
secondly, the level of consumption, and perhaps even to engage in                                                               
some very preliminary discussions about terms."  He noted                                                                       
Representative Whitaker's question would be easier to answer in a                                                               
matter of weeks.  He indicated the port authority would not have                                                                
progressed to the extent they have by simply betting on a market or                                                             
expecting one to appear.                                                                                                        
                                                                                                                                
Number 0277                                                                                                                     
                                                                                                                                
REPRESENTATIVE WHITAKER asked what Mr. Hove's level of confidence                                                               
is regarding financial feasibility.                                                                                             
                                                                                                                                
MR. HOVE wondered if he meant financial feasibility by the                                                                      
investor.                                                                                                                       
                                                                                                                                
REPRESENTATIVE WHITAKER said that is correct.                                                                                   
                                                                                                                                
MR. HOVE stated,                                                                                                                
                                                                                                                                
     Well, actually, we often, when we get bogged down                                                                          
     internally discussing issues that relate to your                                                                           
     question, we often have to come back to the fundamental                                                                    
     realization that the...investors in this project are                                                                       
     going to be making the final determination as to whether                                                                   
     it's viable or not viable.  They will not invest in a                                                                      
     market...they don't think is a viable investment...So,                                                                     
     we're counting, first of all, on bringing to them the                                                                      
     absolute best data that we can, the most accurate and                                                                      
     refined data that we can, in order to assure the                                                                           
     financial investment community that what we are proposing                                                                  
     is in fact real and is worthy of their attention, and,                                                                     
     finally, worthy of their investment.                                                                                       
                                                                                                                                
Number 296                                                                                                                      
                                                                                                                                
REPRESENTATIVE WHITAKER asked what the obstacle is that would keep                                                              
the project from moving ahead.  He wondered what component of                                                                   
success is lacking at this point.                                                                                               
                                                                                                                                
MR. HOVE replied the single biggest obstacle is the lack of access                                                              
to the supply of gas from the North Slope.                                                                                      
                                                                                                                                
REPRESENTATIVE WHITAKER inquired if there have been discussions                                                                 
with the North Slope producers.                                                                                                 
                                                                                                                                
MR. HOVE said yes.                                                                                                              
                                                                                                                                
REPRESENTATIVE WHITAKER asked if there have been discussions with                                                               
ARCO.                                                                                                                           
                                                                                                                                
MR. HOVE said no.                                                                                                               
                                                                                                                                
REPRESENTATIVE WHITAKER wondered if attempts had been made to have                                                              
initial discussions with them.                                                                                                  
                                                                                                                                
MR. HOVE said, "Yes, indeed, we did."                                                                                           
                                                                                                                                
REPRESENTATIVE WHITAKER asked what their answer was.                                                                            
                                                                                                                                
MR. HOVE responded, "They could not talk about sale of gas until                                                                
the merger was concluded."                                                                                                      
                                                                                                                                
REPRESENTATIVE WHITAKER wondered if there have been discussions                                                                 
with EXXON.                                                                                                                     
                                                                                                                                
MR. HOVE replied yes.                                                                                                           
                                                                                                                                
REPRESENTATIVE WHITAKER asked how EXXON responded.                                                                              
                                                                                                                                
MR. HOVE indicated EXXON's response was not positive in terms of                                                                
being able to secure a supply of gas.  He said there had been two                                                               
meetings with EXXON.  EXXON responded to their terms sheet which                                                                
had been submitted to them in revised form twice.  He explained                                                                 
that EXXON does not have much hope for the port authority achieving                                                             
a supply of gas from them.                                                                                                      
                                                                                                                                
Number 317                                                                                                                      
                                                                                                                                
REPRESENTATIVE WHITAKER asked if there have been discussions with                                                               
BP.                                                                                                                             
                                                                                                                                
MR. HOVE said yes.                                                                                                              
                                                                                                                                
REPRESENTATIVE WHITAKER wondered what BP's response was.                                                                        
                                                                                                                                
MR. HOVE commented that BP feels their terms sheet is wholly                                                                    
unsatisfactory and had other concerns with the proposal.                                                                        
                                                                                                                                
REPRESENTATIVE WHITAKER asked if there is an ongoing dialogue with                                                              
BP at this time.                                                                                                                
                                                                                                                                
MR. HOVE stated there are no scheduled meetings with any of the                                                                 
producers at this time.                                                                                                         
                                                                                                                                
REPRESENTATIVE WHITAKER asked if there have been discussions with                                                               
the State of Alaska regarding its royalty gas.                                                                                  
                                                                                                                                
MR. HOVE said there was considerable discussion going on with                                                                   
Commissioner Shively and Commissioner Condon during the course of                                                               
the development of the charter agreement.  He believes it was                                                                   
ultimately assumed by both commissioners that "the amount of gas we                                                             
required, being (indisc.) of that which the charter agreement                                                                   
called for, would be made up for the by royalty gas owned by the                                                                
State of Alaska."  He pointed out this would be a wholly                                                                        
unsatisfactory situation because it presumes the continuation of                                                                
the consumption of gas in those relative ratios.  The problem with                                                              
this is the royalty gas would run out years before running out of                                                               
(indisc.) gas from the producers.  He does not think the financial                                                              
community would look beneficially upon the circumstance for the                                                                 
supply hanging upon such a tenuous thread.  He said the field needs                                                             
to be drawn down so the State has a one-eighth royalty interest.                                                                
He feels if this is not done sooner there will be a gas supply                                                                  
problem again.                                                                                                                  
                                                                                                                                
Number 346                                                                                                                      
                                                                                                                                
REPRESENTATIVE WHITAKER wondered if Mr. Hove had made the                                                                       
Administration aware of that.                                                                                                   
                                                                                                                                
MR. HOVE said he had.                                                                                                           
                                                                                                                                
REPRESENTATIVE WHITAKER wondered what their response was.                                                                       
                                                                                                                                
MR. HOVE replied, "It was one and a half billion cubic feet a day,                                                              
and that's it."                                                                                                                 
                                                                                                                                
REPRESENTATIVE WHITAKER asked if Mr. Hove has had discussions with                                                              
the Alaska North Slope sponsor group.                                                                                           
                                                                                                                                
MR. HOVE indicated there have been two meetings.                                                                                
                                                                                                                                
Number 355                                                                                                                      
                                                                                                                                
REPRESENTATIVE WHITAKER asked Mr. Hove how he would characterize                                                                
the meetings with everyone excluding the industry sponsor groups.                                                               
He excluded the industry sponsor groups because he feels they are                                                               
taking Mr. Hove seriously and attempting to work with him.  He                                                                  
thinks it is important that everyone understand that this is an                                                                 
opportunity to take a huge commodity resource to market, but not                                                                
all is being done to do this.                                                                                                   
                                                                                                                                
MR. HOVE said it struck him, as a participant in these discussions,                                                             
that the producers either do not realize or choose not to recognize                                                             
the effect of their decision not to produce Alaska's gas prior to                                                               
today.  He stated,                                                                                                              
                                                                                                                                
     I was struck, I guess, by the fact that they think of it                                                                   
     as theirs.  They are the owners, but they are only lease                                                                   
     holders, and we only leased it to them, originally, with                                                                   
     the intent of their doing something with it, and they                                                                      
     never have done anything with it.  And we as the State of                                                                  
     Alaska in this residence have suffered for that for many,                                                                  
     many years...that they have a mandate, actually, or a                                                                      
     duty, at the very least, to contribute to the state and                                                                    
     to the State of Alaska and its residents, but they                                                                         
     haven't, and so they've made their investments elsewhere                                                                   
     in the world and they've produced gas elsewhere in the                                                                     
     world; places in the world that charge rent for keeping                                                                    
     gas in the ground.  Only in Alaska, to the best of my                                                                      
     knowledge, do we offer to warehouse for free...a natural                                                                   
     resource for a company that has that resource under a                                                                      
     lease-hold interest.  Only in Alaska can that occur.                                                                       
     Free of charge. No penalty.  And that is why,                                                                              
     fundamentally,...we have not seen Alaska's gas come to be                                                                  
     produced or to reach a market because we do not extract                                                                    
     rent for the privilege of storing it here.                                                                                 
                                                                                                                                
Number 392                                                                                                                      
                                                                                                                                
REPRESENTATIVE HARRIS asked,  "What is the philosophy of this group                                                             
as far as the use of Yukon Pacific both with its permits and its                                                                
expertise in the market place in the Orient?"                                                                                   
                                                                                                                                
MR. HOVE responded that YPC has been engaged in all of the work                                                                 
that has gone into the creation of the permits to the extent that                                                               
they exist today.  He said it is not 100 percent permitted and                                                                  
there are still some permits that are required to be obtained.  He                                                              
indicated YPC has developed relationships with people in the                                                                    
process.  He feels these relationships will be extremely valuable                                                               
in the construction and operations phase.  He referred back to his                                                              
mention of the existence of certain labor agreements and stated he                                                              
is very pleased that YPC engaged the environmental community                                                                    
throughout the process.  It is his hope this will in someway make                                                               
the job easier.  He explained that YPC possesses considerable                                                                   
historical knowledge and technical expertise.                                                                                   
                                                                                                                                
Number 424                                                                                                                      
                                                                                                                                
REPRESENTATIVE HARRIS asked Mr. Hove to clarify how long it would                                                               
take without the permits in place.                                                                                              
                                                                                                                                
MR. HOVE replied it would be three years and cost over $100 million                                                             
for a newly permitted pipeline.                                                                                                 
                                                                                                                                
REPRESENTATIVE HARRIS asked, "If you can get the permits?"                                                                      
                                                                                                                                
MR. HOVE stated that is correct.                                                                                                
                                                                                                                                
SENATOR KELLY requested Mr. Hove explain the tax-exempt status, how                                                             
it works, and why it works for investors.                                                                                       
                                                                                                                                
MR. HOVE reemphasized that the tax-exempt part of the financing is                                                              
a very small part and somewhat complex.  He explained,                                                                          
                                                                                                                                
     To the extent that Alaska's gas would be consumed by                                                                       
     Alaskans in-state, there is an excellent chance that                                                                       
     bonds that could be pro-rated against the expenses to the                                                                  
     extent that we sell the gas.  Say it's (indisc.-coughing)                                                                  
     then maybe 7 percent of the bonds sold to finance the                                                                      
     construction of the line would enjoy tax-exempt status.                                                                    
                                                                                                                                
SENATOR KELLY wondered about the income from the project that goes                                                              
to the investors.                                                                                                               
                                                                                                                                
MR. HOVE indicated the income would be in the form of repayment of                                                              
the bonds bearing a certain interest rate.                                                                                      
                                                                                                                                
SENATOR KELLY asked what the tax implications are of those.                                                                     
                                                                                                                                
MR. HOVE responded that 93 percent of them will not enjoy tax-                                                                  
exempt status and will be paying taxes on that part of the income.                                                              
                                                                                                                                
Number 451                                                                                                                      
                                                                                                                                
REPRESENTATIVE WHITAKER thinks Senator Kelly was also asking about                                                              
the revenue stream associated with the project and the tax                                                                      
implications thereof.                                                                                                           
                                                                                                                                
MR. HOVE understood.  He clarified that the net revenues would not                                                              
be exposed to federal income taxes.  The distribution of the                                                                    
revenues to residents of Alaska becomes ordinary income and is                                                                  
subject to taxation.  If the revenues were distributed to                                                                       
municipalities or to the State, they would forever escape federal                                                               
taxation.                                                                                                                       
                                                                                                                                
Number 471                                                                                                                      
                                                                                                                                
ADJOURNMENT                                                                                                                     
                                                                                                                                
CHAIRMAN HALFORD adjourned the joint meeting of the House/Senate                                                                
Resources Committees at 4:39 p.m.                                                                                               
                                                                                                                                

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