Legislature(2003 - 2004)
04/02/2003 03:35 PM Senate RES
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ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
April 2, 2003
3:35 p.m.
MEMBERS PRESENT
Senator Scott Ogan, Chair
Senator Thomas Wagoner, Vice Chair
Senator Ralph Seekins
Senator Ben Stevens
Senator Kim Elton
Senator Georgianna Lincoln
MEMBERS ABSENT
Senator Fred Dyson
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 16(FIN) am
"An Act amending, for purposes of the Alaska Stranded Gas
Development Act, the standards applicable to determining whether
a proposed new investment constitutes a qualified project, the
standards used to determine whether a person or group qualifies
as a project sponsor or project sponsor group, and the deadline
for applications relating to the development of contracts for
payments in lieu of taxes and for royalty adjustments that may
be submitted for consideration, and modifying the conditions
bearing on the use of independent contractors to evaluate
applications or to develop contract terms; providing statements
of intent for the Act relating to use of project labor
agreements and to reopening of contracts; and providing for an
effective date."
MOVED SCS CSHB 16(RES) OUT OF COMMITTEE
SENATE JOINT RESOLUTION NO. 12
Supporting the halibut by-catch utilization project of the
Alaska Food Coalition.
MOVED CSSJR 12(RES) OUT OF COMMITTEE
PREVIOUS ACTION
HB 16 - See Resources minutes dated 3/31/03.
SJR 12 - No previous action to record.
WITNESS REGISTER
Representative Hugh Fate
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 16
Mr. Dave McDowell
Director of External Affairs
BP Alaska Gas
POSITION STATEMENT: Supports SCS CSHB 16(RES)
Mr. Robbie Schilhab
Alaska Gas Development Manager
Exxon-Mobil
POSITION STATEMENT: Supports SCS CSHB 16(RES)
Mr. Kevin Banks
Division of Oil and Gas
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801-1724
POSITION STATEMENT: Answered questions about SCS CSHB 16(RES)
Mr. Mark Myers
Director, Division of Oil and Gas
Department of Natural Resources
550 W 7th Ave.
Anchorage, AK 99501
POSITION STATEMENT: Supports SCS CSHB 16(RES)
Senator Gary Stevens
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of SJR 12
Mr. Trevor Jones
1944 E. Rezanof
Kodiak, AK 99615
POSITION STATEMENT: Supports CSSJR 12(RES)
Ms. Susannah Morgan
Food Bank of Alaska
2121 Spar Ave.
Anchorage, AK 99501
POSITION STATEMENT: Supports CSSJR 12(RES)
Sister Noreen
3424 E 15th Ave.
Anchorage, AK 99508
POSITION STATEMENT: Supports CSSJR 12(RES)
Ms. Sara Jackson
3710 E 20th
Anchorage, AK 99503
POSITION STATEMENT: Supports CSSJR 12(RES)
ACTION NARRATIVE
TAPE 03-22, SIDE A
Number 0001
CHAIR SCOTT OGAN called the Senate Resources Standing Committee
meeting to order at 3:35 p.m. Senators Wagoner, Seekins, Elton,
Stevens and Ogan were present. Senator Dyson was absent on state
business.
HB 16-STRANDED GAS DEVELOPMENT ACT AMENDMENTS
CHAIR OGAN informed members that a proposed committee substitute
had been prepared. He noted a new Sec. 43.82.100(1)(A), which
reads: "the transportation of North Slope natural gas by natural
gas pipeline to one or more markets, together with any
associated processor treatment;" on page 2.
He told members that he and the bill sponsor had a lengthy
discussion about paragraph (C), which relates to any other
technology. The issue is the commercialization of North Slope
gas through a transmission line down to the Lower 48 or
tidewater, which this bill allows. The concern was that playing
with that language could compromise the possibility of using LNG
for the petrochemical industry in the state. He and the sponsor
agreed to [the new] language because if this [act] is expanded
to other projects, the legislature will be in the loop.
REPRESENTATIVE FATE acknowledged that he and Chair Ogan worked
on the change in the committee substitute and the only change is
the addition of the North Slope. That addition should not, in
the opinion of legal counsel Jack Chenoweth, prevent other gas
from flowing through the pipe if that gas were available. He
said this is the same bill that he presented to the committee
before, with that one exception. He believes this bill is still
a "clean" bill. He urged the committee to support the measure.
CHAIR OGAN announced the committee would take public testimony
and that Senator Lincoln was present.
MR. DAVE MCDOWELL, Director of External Affairs for BP's Alaska
Gas Business, gave the following testimony.
As you know, significant time and effort and money has
been dedicated to develop a viable gas pipeline
project and to commercialize Alaska's enormous gas
resource. Through 2002 and continuing on into this
year, BP has undertaken further technology and design
optimization work in an effort to reduce the cost of
this $20 billion project. However, technical work
alone won't be sufficient to make an Alaska gas
pipeline a reality.
Before a project can proceed to the next expensive
stage, three key government actions are needed: a
clear and predictable regulatory process with the
Canadian government and First Nations; a clear and
predictable state fiscal framework for gas in Alaska;
and third, the passage of important U.S. federal
legislation. While success is needed on all three
fronts, the one thing Alaska itself can do to advance
an Alaska gas pipeline is to work with industry to
develop a fiscal framework that provides confidence
that the rules of the game are clear and certain.
Achieving a mutually agreed framework will also send a
powerful signal to Washington, D.C. that Alaska is
ready to see a project advance.
That's why we believe reauthorizing the stranded gas
act by HB 16 is a good idea. HB 16 can provide a
framework that supports negotiation toward a clear and
predictable fiscal regime in the State of Alaska and,
as such, it will help to support forward progress on
North Slope gas commercialization. And, of course,
under any circumstance, agreements worked with the
state require legislative review and approval.
We do believe it's important that the bill retain its
focus and simplicity as it moves through the
legislative process. Otherwise there's a potential
risk that the bill becomes burdened with extraneous
provisions.
In closing, I'd like to say we're encouraged by the
priority and attention this bill has received so far.
We hope that it continues and we stand ready to work
productively with the state toward a clear and certain
fiscal regime that will support North Slope gas
commercialization. Thanks for the opportunity, Mr.
Chairman. We'd be happy to take questions if there are
any.
CHAIR OGAN told Mr. McDowell that this bill is a high priority
and is being expedited through the legislative process. The
legislature has been told that a negotiating team will be ready
to go at an early date. The bill crosses party lines. The
legislature hopes the producers negotiate in good faith and do
everything possible to get North Slope gas commercialized. He
thanked Mr. McDowell for his testimony.
MR. MCDOWELL thanked the Chair and committee members for making
this legislation a priority.
SENATOR ELTON moved to adopt the proposed committee substitute
(Version W) for HB 16(FIN) am.
There being no objection, CHAIR OGAN announced that Version W
was adopted.
MR. ROBBIE SCHILHAB, the Alaska Gas Development Manager for
Exxon Mobil Production Company, told members:
Alaska North Slope gas is an important asset for Exxon
Mobil with a gross known resource of 35 trillion cubic
feet (TCF). Exxon Mobil owns over one-third of the gas
and is the largest gas interest owner on the North
Slope. We've been diligently working for over 30 years
to commercialize this gas since discovery in 1968,
spending more than $150 million on this effort.
Exxon Mobil appreciates the interest of the Alaska
Legislature in considering legislation that can help
progress commercialization of North Slope gas. Exxon
Mobil supports legislation that reauthorizes the
stranded gas act with provisions to allow its use for
all potential technologies. The act allows project
sponsors in the state to establish a fiscal contract
that defines how Alaska revenues will be determined in
a manner that would be simple to apply and would
minimize the possibility of costly disputes and
litigation.
While a pipeline project is the most promising option
to date, it is not currently commercially viable. Even
though that is the case today, we believe it is
important to put the framework in place now.
Regardless of the option or options that are
ultimately chosen to commercialize the gas, achieving
fiscal certainty will be an important step in
progressing the project. The risks resulting from such
a large investment with a long payout period make it
imperative that the sponsors have the opportunity to
work with the state to establish a stable and
appropriate fiscal system. Exxon Mobil recommends that
the legislature avoid placing any additional
requirements or hurdles in this legislation. As we
said earlier, let's keep it clean. Any project to
commercialize North Slope gas will be a marginal
project economically due to the distance from markets.
Therefore, any mandates or additional requirements
should be avoided as they could increase costs and
hamper or delay a project becoming commercially
viable.
Exxon Mobil supports the passage of HB 16 as a
positive step in the commercialization of North Slope
gas. We're also simultaneously pursuing the passage of
U.S. federal enabling legislation that will provide
the regulatory framework for securing the necessary
federal permits. Again, thank you Mr. Chairman for
allowing me to comment on this bill today. I'd be
happy to answer any questions you might have.
SENATOR SEEKINS noted that Mr. Schilhab said the North Slope gas
delivery system is not economically viable now and asked what
will make a project commercially viable.
MR. SCHILHAB said several factors could make a project
economically viable. The sponsors and owners of the gas continue
to work toward those ends, primarily in the area of reducing
capital costs. They are looking at construction techniques and
new materials to find breakthroughs to reduce the overall
capital costs. He said they have also talked about reducing the
rent, which comes in many forms. That could be done in the area
of the government framework: getting the permit process in place
and getting certainty in the fiscal terms they would operate
under to help reduce the risk.
SENATOR SEEKINS asked what the risk factor is.
MR. SCHILHAB said there are numerous risks, both political and
fiscal, to this project as it is a large undertaking. If the
project is built based on the royalty and taxation scheme in
place today, any changes down the road would create a big risk
because the investor will not know what the cash flow or tax
bill will be. In addition to the fiscal risk, building a high-
pressure pipeline over the required distance brings risks that
involve construction techniques and materials.
SENATOR SEEKINS said he has not been able to get a handle on
what challenges must be overcome to make this project
commercially viable and is been unable to make an independent
evaluation without knowing the risks.
CHAIR OGAN told members that last year the Joint Natural Gas
Pipeline Committee spent about $500,000 on consultants and held
hours and hours of hearings on this issue but that committee
never produced a final work product. The committee never got any
definitive numbers from the producers because that information
was proprietary. He said he has no doubt, from looking at the
bigger picture of the price of gas and expense of the project,
that the legislature has to be mindful that some incentives are
necessary from the federal government in the form of a floor
price, otherwise the well head value could be negative. He then
commented that one of the state's concerns is access by other
producers who might not be primary owners of this pipeline. The
state has issued leases on the North Slope for the first time to
develop gas. The producers have invested a considerable amount
of money and they are not entirely certain they will have access
to the pipeline to sell that gas.
MR. SCHILHAB said the committee should feel some comfort from
the fact that the pipeline would be regulated by the Federal
Energy Regulatory Commission (FERC). Once this pipeline project
goes forward, the owners of the pipeline would file applications
with FERC and go through the open season process. During the
open season period, any company that wants to ship gas on that
pipeline can nominate its gas. That procedure is overseen by
FERC and is non-discriminatory. Those companies would enter into
contracts with the pipeline owner.
CHAIR OGAN questioned whether FERC directly regulates open
seasons or whether open seasons are based on an understanding
and agreement between the producers and the people who have gas.
MR. SCHILHAB said in the normal run of things, FERC would not
regulate the open season. However, the enabling legislation that
is part of the federal energy bill contains a provision saying
that FERC would script the way the open season process would
work for this particular project.
CHAIR OGAN said that is assuming the federal legislation passes
and the provision remains in the bill.
MR. SCHILHAB agreed but said if that provision does not remain
in the bill, FERC will still have oversight in that it would
have to issue the permit of necessity and public convenience. If
FERC felt discrimination was involved during an open season, it
could step forward and use its power over issuing permits.
CHAIR OGAN said that is not the impression he got from the FERC
Chairman who he met with last week. He said it is his
understanding that is a contractual relationship between the
owners of the pipeline and the producers. He said it's an issue
the legislature will continue to monitor. The legislature is
interested in encouraging gas development as something other
than a byproduct of oil exploration.
SENATOR ELTON clarified that he meant to say CSHB 16(RES) rather
than CSHB 16(FIN)am in his earlier motion to adopt the proposed
committee substitute. He noted that Chair Ogan correctly
identified CSHB 16(RES) as Version W.
CHAIR OGAN said with no objection, the correction was noted. He
then said he wanted to establish, for the record, that the
committee has received a legal opinion from Jack Chenoweth,
legal counsel, who stated:
In my judgment, as long as the project principally
involves movement of the North Slope natural gas to
market, the pipeline contemplated could be used also
to transport gas from other sources.
He asked Mr. Banks if he concurs with the opinion.
MR. KEVIN BANKS, Division of Oil and Gas, Department of Natural
Resources (DNR), said the division's principal concern is that
North Slope gas certainly would include gas produced from the
foothills. He stated:
I think your concurrence with that opinion - it seems
to me that if most of the gas flowing in this pipeline
is coming from the North Slope, that production from
other sources along the route could be also included
and that HB 16 would allow us to negotiate those kinds
of terms if need be.
CHAIR OGAN indicated that he and the bill sponsor hope the
language that allows other gas to be put into the pipeline might
spur interest in gas development along the pipeline route, or
from the Cook Inlet area if there was a big find there or
anywhere else. He asked Mr. Banks if he concurs.
MR. BANKS said he believes that would be the best alternative
for the state and agrees that is the way to treat the expression
"principally involved."
CHAIR OGAN thanked Mr. Banks. He then asked who would be on the
negotiating team.
MR. MARK MYERS, Director of the Division of Oil and Gas, DNR,
said he shares the committee's curiosity. He then said he
concurs with the comments made earlier. He believes adding the
North Slope phrase is fine and believes HB 16 is still a great
bill.
SENATOR SEEKINS said one of his campaign promises was to do
whatever he could to get the God-given natural resources in
Alaska to market to put new money into the economy, and he does
not care where the resources come from. He said if a project in
Ketchikan qualified, he would want to provide these incentives
to get those resources to market as soon as possible. Therefore,
while he does not object to the bill, he does not care what area
of the state the natural gas comes from. He believes this kind
of an incentive should be applied across the entire state to get
any project going.
CHAIR OGAN said he believes it is important that the legislative
branch retain its policy-making authority on a case-by-case
basis because this bill has far reaching implications. It allows
the commissioner of the Department of Revenue to preempt local
law and local taxation. The municipalities have signed off on
this particular issue for this project. He fears if the
legislation is too broad, the commissioner will have that
authority for any project anywhere. He believes the legislature
should make sure the affected communities have the opportunity
to publicly weigh in and that the legislature needs to make a
conscious decision to delegate the authority to the executive
branch.
SENATOR SEEKINS said he understands that and would plan to make
a conscious effort to take a look at any project that surfaces
between now and the sunset date [2005]. He believes in opening
the door to consideration of projects anywhere in the state.
CHAIR OGAN said the door could be easily opened by simply
extending the sunset date but he wants to make sure these
projects are done with the local governments' concurrence.
SENATOR LINCOLN said she reads the legislation to open the door
wide. She cited Mr. Chenoweth's memo, which reads, "A proposed
project is not expected to serve exclusively as the means to
move North Slope stranded gas and should have some latitude so
as to the sources of natural gases that may eventually be
transported." She said it opens it up beyond the North Slope but
identifies the North Slope as the primary area.
SENATOR SEEKINS replied, "If the door's open, call it open." He
repeated he is not criticizing the legislation, he is just
clarifying his philosophy.
CHAIR OGAN thought it was fair to say that a company that found
gas in the Mat-Su or Kenai would not be able to connect to the
gas line under this bill. That is a separate issue that he would
be happy to consider with the concurrence of the affected
communities because it affects their taxing powers.
SENATOR WAGONER moved SCS CSHB16(RES) from committee with
individual recommendations and its attached fiscal notes.
CHAIR OGAN announced that with no objection, the motion carried.
He then announced a five minute at-ease.
SJR 12-SUPPORTING HALIBUT BYCATCH PROJECT
SENATOR GARY STEVENS, sponsor of SJR 12, explained to members
that he introduced this resolution at the request of the Alaska
Food Coalition. SJR 12 is a plan to support the Coalition's
request to the National Marine Fisheries Service (NMFS) to use
halibut by-catch for the Coalition's food bank. This plan is
remarkable in that fishermen and processors stepped forward and
offered to provide community service for no personal benefit. He
explained that trawl fishermen are currently prohibited from
keeping halibut caught accidentally in the course of catching
pollock. The fishermen are required, by federal law, to dump the
halibut by-catch back into the sea. Certain processors have
indicated a willingness to process that halibut by-catch at no
charge and provide it for charitable uses.
SENATOR GARY STEVENS told members the Alaska Food Coalition has
the funds available to freeze, store and transport this halibut
to many parts of Alaska. If SJR 12 passes, the resolution will
be sent to the NMFS and the North Pacific Fisheries Management
Council (NPFMC). The Coalition has applied to those agencies for
a prohibited species donation permit to use halibut by-catch. He
pointed out that vessels must have an official observer on board
to participate in this program.
SENATOR GARY STEVENS told members he has a proposed amendment
that was requested by the industry. SJR 12 contains the word
"wasted." The industry would prefer not to use that word because
it implies that fishermen are wasting the fish when they are
required by law to dump it back into the sea. The amendment
replaces the word "wasted" with "at sea discarded".
SENATOR ELTON asked how many halibut survive.
SENATOR GARY STEVENS said he believes most are dead by the time
they are brought aboard.
SENATOR ELTON questioned whether the first resolve clause of SJR
12 should specify halibut by-catch that has expired to clarify
that any live halibut are tossed back into the sea.
SENATOR BEN STEVENS told members that fishermen are not allowed
to keep halibut by-catch without the prohibited species donation
permit so a small longliner vessel without an observer would
have to discard by-catch at sea.
SENATOR ELTON said he assumes the point of the first resolve
clause is that live halibut must be thrown back and not kept
just because it could be donated to the food bank.
SENATOR BEN STEVENS said he believes the operators will have to
use discretion and that most operators would throw the by-catch
overboard if there is any chance of survival.
CHAIR OGAN asked if they are required to.
SENATOR BEN STEVENS said they are required to throw the by-catch
back regardless of whether it is dead or alive unless they have
the permit.
SENATOR ELTON said he would like to see the first resolve clause
clarify that live halibut cannot be kept to donate to the food
bank program.
SENATOR BEN STEVENS pointed out that the word "dead" is used in
line 6. He said he understands Senator Elton's point, but it is
illegal to keep any halibut without a permit.
CHAIR OGAN asked if a fisherman with a permit is required to
throw back live halibut.
SENATOR BEN STEVENS said the prohibited species donation program
is only related to dead fish.
SENATOR GARY STEVENS said it is not the intent of SJR 12 to keep
live halibut.
SENATOR SEEKINS suggested inserting the word "dead" before
"halibut" on page 1, line 16.
SENATOR BEN STEVENS suggested adding Senator Seekins' suggested
language change to Amendment 1 when it is offered.
SENATOR SEEKINS moved to adopt Amendment 1, which reads as
follows.
A M E N D M E N T 1
OFFERED IN SENATE RESOURCES BY SENATOR SEEKINS
TO: SJR 12, DRAFT VERSION A
1. On page 1, line 6, after "halibut" delete "wastefully"
2. On page 1, line 10, replace "wasted" with "at sea
discarded"
3. On page 1, line 16, after "otherwise", replace "a
wasted" with "an unutilized"
4. Renumber accordingly.
SENATOR LINCOLN objected and asked if Senator Seekins' suggested
language was included in Amendment 1.
CHAIR OGAN said it was not.
SENATOR LINCOLN withdrew her objection.
SENATOR BEN STEVENS moved to amend Amendment 1 by adding:
On page 1, line 16, insert "dead" between "the" and
"halibut".
SENATOR GARY STEVENS suggested the words "recently deceased" but
concurred with the amended amendment.
SENATOR LINCOLN objected because she planned to offer an
amendment as well and was not sure whether to offer it as
another amendment to Amendment 1.
CHAIR OGAN asked Senator Lincoln if her amendment had any affect
on Amendment 1.
SENATOR LINCOLN said it did not.
CHAIR OGAN asked her to offer it separately.
SENATOR LINCOLN removed her objection.
CHAIR OGAN announced the motion to adopt the amendment to
Amendment 1 carried.
SENATOR LINCOLN noted that Senator Gary Stevens' sponsor
statement says that SJR 12 will only apply to halibut by-catch
on vessels with observers but she does not see that limitation
anywhere in the resolution. She asked if that is a requirement
of the prohibited species donation permit.
SENATOR GARY STEVENS explained that a food bank from Seattle
currently has a prohibited species donation permit for Bering
Sea halibut. No other agencies have such a permit. That permit
is only for vessels with observers. He believes that NMFS will
ensure when it offers a permit that the by-catch must come from
vessels with observers.
SENATOR LINCOLN said she would not be offering an amendment in
that case.
SENATOR BEN STEVENS pointed out that the answer to both of the
committee's questions about the process can be found on page 3
of a document entitled, "Prohibited Species Donation Program
Proposal and Application of the Alaska Food Coalition" in
members' packets.
TAPE 03-21, SIDE B
CHAIR OGAN asked how the fish will be distributed.
SENATOR GARY STEVENS said the Kodiak Food Bank is located at the
Kodiak Baptist Mission. When people come in, the food bank
provides them with halibut filets. The food bank will also ship
the halibut to other communities that want them. He said the
Alaska Food Coalition is a statewide system. He believes the
fish will be processed in Kodiak because that is where the
processors who offered to do so are located. However, if the
program can be moved to more communities, it would be even more
accessible.
CHAIR OGAN clarified that the committee adopted the amendment to
Amendment 1 but not Amendment 1. He asked if there was objection
to adopting Amendment 1 as amended. There being none, CHAIR OGAN
announced that was adopted too.
SENATOR SEEKINS told members he spoke with the Fairbanks Food
Bank earlier, which supports this resolution. The Fairbanks Food
Bank will be one of the distribution points through the Alaska
Food Coalition.
CHAIR OGAN stated on a recent visit he was very impressed with
the kindness of the people and with the processors in Kodiak.
He then took public testimony.
MR. TREVOR JONES, representing the Alaska Food Coalition,
affirmed that the Coalition's proposal requires that halibut
come from vessels with observers only. He said the amendment
will not hurt the resolution at all, however "by-catch" by
definition is dead fish. He offered to answer questions.
MS. SUSANNAH MORGAN, Executive Director of the Food Bank of
Alaska and an officer in the Alaska Food Coalition, told members
that the Coalition has a 15,000-foot warehouse that meets all
health and safety codes in Anchorage. The fish would be
transported from Kodiak to Anchorage and distributed from there.
SISTER NOREEN, St. Frances House, a food pantry in Anchorage,
stated support for SJR 12 and thanked members for their
consideration of the measure. She said many of the people served
by the St. Frances House will benefit from this proposal.
MS. SARA JACKSON, program manager for St. Frances House,
expressed her appreciation to Senator Gary Stevens and all of
the people who are supporting SJR 12. She said her organization
is seeing more hungry people and fewer resources so this
resolution will be very helpful.
SENATOR WAGONER suggested asking NMFS to permit this program for
two years so that legislation will not be required again next
year.
SENATOR GARY STEVENS said the resolution only states support for
the permit approval and that the rest of the application process
is out of the legislature's hands.
There being no further public testimony, SENATOR WAGONER moved
CSSJR 12(RES) from committee.
SENATOR ELTON objected to say that he is in awe of the people
who are behind this program. He then removed his objection and
the motion carried.
There being no further business to come before the committee,
CHAIR OGAN adjourned the meeting at 4:37 p.m.
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