Legislature(2003 - 2004)

04/11/2003 03:33 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         April 11, 2003                                                                                         
                           3:33 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Scott Ogan, Chair                                                                                                       
Senator Thomas Wagoner, Vice Chair                                                                                              
Senator Fred Dyson                                                                                                              
Senator Ben Stevens                                                                                                             
Senator Kim Elton                                                                                                               
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Ralph Seekins                                                                                                           
Senator Georgianna Lincoln                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 142                                                                                                             
"An Act designating the Department of Natural Resources as lead                                                                 
agency for resource development projects; making conforming                                                                     
amendments; and providing for an effective date."                                                                               
     MOVED CSSB 142(RES) OUT OF COMMITTEE                                                                                       
                                                                                                                                
SENATE BILL NO. 50                                                                                                              
"An Act amending the manner of determining the royalty received                                                                 
by the state on gas production as it relates to the manufacture                                                                 
of certain value-added products."                                                                                               
     HEARD AND HELD                                                                                                             
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
SB 142 - See Resources minutes dated 4/9/03.                                                                                    
                                                                                                                                
SB 50 - See Resources minutes dated 3/26/03.                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Ms. Janet Burleson-Baxter                                                                                                       
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
POSITION   STATEMENT:   Answered   questions   about   permitting                                                             
procedures related to SB 142 and stated support for the concept                                                                 
of a lead agency                                                                                                                
                                                                                                                                
Ms. Mary Siroky                                                                                                                 
Department of Environmental Conservation                                                                                        
410 Willoughby                                                                                                                  
Juneau, AK 99801-1795                                                                                                           
POSITION STATEMENT:  Answered questions related to SB 142                                                                     
                                                                                                                                
Mr. Dick LeFebvre                                                                                                               
Acting Deputy Commissioner                                                                                                      
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
POSITION STATEMENT:  Answered questions about SB 142                                                                          
                                                                                                                                
Ms. Mary Jackson                                                                                                                
Staff to Senator Wagoner                                                                                                        
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:   Explained the changes made in  Version I of                                                             
SB 50                                                                                                                           
                                                                                                                                
Mr. Mark Myers                                                                                                                  
Director, Division of Oil and Gas                                                                                               
Department of Natural Resources                                                                                                 
550 W 7th Ave.                                                                                                                  
Anchorage, AK  99501-3560                                                                                                       
POSITION STATEMENT:  The Administration  has taken no position on                                                             
SB 50 but he supports Senator Wagoner's proposed amendment                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 03-27, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CHAIR SCOTT  OGAN called the Senate  Resources Standing Committee                                                             
meeting to order  at 3:33 p.m. Senators  Stevens, Wagoner, Elton,                                                               
Dyson  and Chair  Ogan  were present.  Chair  Ogan announced  the                                                               
committee would take up SB 142 first.                                                                                           
                                                                                                                                
         SB 142-DNR LEAD RESOURCE DEVELOPMENT PROJECTS                                                                      
                                                                                                                                
CHAIR OGAN  said that most  of the  questions he raised  about SB
142 at the  April 9 hearing have been answered.  At that hearing,                                                               
Senator  Lincoln   suggested  putting   a  sunset  date   in  the                                                               
legislation. He  supports that suggestion  and would like  to see                                                               
the program  reviewed by  the legislature in  the second  year of                                                               
the  next administration.  He asked  Ms.  Burleson-Baxter if  she                                                               
would like to testify.                                                                                                          
                                                                                                                                
MS.  JANET  BURLESON-BAXTER,   Department  of  Natural  Resources                                                               
(DNR), told  members that  she, Dick  Lefebvre, Bob  Loeffler and                                                               
Cam Leonard were available to answer questions.                                                                                 
                                                                                                                                
SENATOR ELTON  thanked the representatives  from DNR and  DEC for                                                               
bringing him  up to speed on  this legislation, as he  was absent                                                               
from the last hearing.  He  then said he had several questions to                                                               
ask on  behalf of Senator  Lincoln, who  was excused.   The first                                                               
question was  about the appeal  process under the new  system. He                                                               
noted  Senator  Lincoln was  concerned  that  the new  permitting                                                               
office  would  be   in  charge  of  issuing   permits  while  the                                                               
individual agencies would hear the appeals.                                                                                     
                                                                                                                                
MS. BURLESON-BAXTER  said none of  the agencies would  lose their                                                               
authority  over appeals  of their  respective permits.  An appeal                                                               
could  be brought  to the  DNR project  office but  if the  issue                                                               
surrounded an  individual permit, the adjudicatory  process would                                                               
be  dealt  with through  the  existing  appeal procedure  of  the                                                               
particular agency.                                                                                                              
                                                                                                                                
MS. MARY SIROKY, Department  of Environmental Conservation (DEC),                                                               
affirmed Ms. Burleson-Baxter's explanation.                                                                                     
                                                                                                                                
SENATOR ELTON  then asked, on  behalf of Senator Lincoln,  if the                                                               
cost of the new office would  be minimal because the cost will be                                                               
transferred  to the  permittee.  He questioned  whether the  cost                                                               
will  be difficult  to estimate  until DNR  knows how  many major                                                               
permit applications it will have.                                                                                               
                                                                                                                                
MS. BURLESON-BAXTER nodded affirmatively.                                                                                       
                                                                                                                                
CHAIR OGAN  pointed out the fiscal  notes are zero but  the funds                                                               
for  this legislation  are included  in the  Governor's operating                                                               
budget request.  He commented that  approach keeps the  number of                                                               
committee referrals  down but questioned  what will happen  if no                                                               
new  positions are  funded in  the  budget. He  said putting  the                                                               
actual  cost  of  the  positions  on the  fiscal  note  would  be                                                               
clearer.                                                                                                                        
                                                                                                                                
MR. DICK LEFEBVRE, Acting Deputy  Commissioner, DNR, said DNR has                                                               
a number of large projects  in the queue already. DNR anticipates                                                               
that  the  reimbursable services  lined  up  for this  year  will                                                               
continue into next  year. The component in  the budget recognizes                                                               
some of those funds. Whether SB  142 passes or not, DNR will need                                                               
authorization to  receive and  expend those  funds, which  is why                                                               
DNR used  the budget  as the  main vehicle  to carry  the funding                                                               
request.                                                                                                                        
                                                                                                                                
CHAIR OGAN asked  if DNR could be the lead  agency if the funding                                                               
request in the operating budget is not met.                                                                                     
                                                                                                                                
MR. LEFEBVRE said it could.                                                                                                     
                                                                                                                                
SENATOR  ELTON  commented  that   when  the  legislature  directs                                                               
departments  to   make  an  unallocated  budget   reduction,  the                                                               
legislature does not  know where that reduction  will take place.                                                               
He agreed  the bill should have  a fiscal note that  reflects the                                                               
source of the funds and how those funds will be spent.                                                                          
                                                                                                                                
SENATOR  STEVENS said  his interpretation  of  the section  being                                                               
repealed on  page 3, AS 46.35.070,  is that a state  agency still                                                               
has the  responsibility to issue  the permit but  the coordinator                                                               
is being changed, which is the reason for the zero fiscal note.                                                                 
                                                                                                                                
MR. LEFEBVRE said that is correct.                                                                                              
                                                                                                                                
SENATOR ELTON offered a conceptual  amendment to include a sunset                                                               
date that takes effect two years into the next administration.                                                                  
                                                                                                                                
SENATOR STEVENS objected  for the purpose of  discussion. He then                                                               
asked the department  to comment on the sunset  provision and how                                                               
the three-phase team  concept would be implemented  with a sunset                                                               
provision. He also  asked what program the state  would revert to                                                               
if the sunset took place, and  whether it would be the program in                                                               
existing Section 4.                                                                                                             
                                                                                                                                
CHAIR OGAN pointed  out that Section 4 is not  being used at this                                                               
time.                                                                                                                           
                                                                                                                                
SENATOR  STEVENS  asked  DNR  staff  to  comment  on  the  sunset                                                               
concept.                                                                                                                        
                                                                                                                                
MS. BURLESON-BAXTER said  DNR likes the concept of  the bill. She                                                               
pointed  out the  concept of  the  lead agency  began during  the                                                               
Hickel  Administration  and  was continued  through  the  Knowles                                                               
Administration to  this one.  She said if  a sunset  provision is                                                               
included, she  believes DNR would try  to carry on with  the team                                                               
concept as  best as it could  because it has been  successful for                                                               
DNR in the past.                                                                                                                
                                                                                                                                
SENATOR STEVENS pointed  out that DNR would have  no authority to                                                               
continue as the lead agency if a sunset took place.                                                                             
                                                                                                                                
MS.  BURLESON-BAXTER   said  DNR  would  not   have  prescriptive                                                               
statutory  authority  but it  might  engage  in a  memorandum  of                                                               
understanding.                                                                                                                  
                                                                                                                                
SENATOR  ELTON said  his  understanding is  that  a sunset  would                                                               
require the state  agencies to revert to the ad  hoc process used                                                               
now. He  said the argument for  a sunset review is  that it would                                                               
set in  motion a process to  answer some of the  questions, i.e.,                                                               
is the new office charging  the permittees an appropriate amount.                                                               
A sunset  review would  give the  legislature the  opportunity to                                                               
review the  definition of  a large  natural resource  project and                                                               
tweak or eliminate  aspects of the program  that are problematic.                                                               
A sunset  also reminds  the department that  the program  will be                                                               
reviewed, which induces good behavior.                                                                                          
                                                                                                                                
MR. LEFEBVRE told  members one benefit of  having clear statutory                                                               
authority   is  that   the  federal   agencies,  when   preparing                                                               
environmental impact  statements (EIS), would know  who they have                                                               
to  deal with.  Right now,  they  must deal  with state  agencies                                                               
individually  unless  state  agencies  agree  amongst  themselves                                                               
prior to the start of a project.                                                                                                
                                                                                                                                
SENATOR STEVENS  said in his  opinion, some of the  annual sunset                                                               
reviews    undertaken   by    the    legislature   are    routine                                                               
reauthorizations.  The  legislature  has the  authority  to  make                                                               
changes to  a program at  any time, if need  be. He said  while a                                                               
sunset review forces  the legislature to review  a program, there                                                               
is a  dividing line  between a reauthorization  and a  review and                                                               
evaluation.  He  said  DNR's annual  report  to  the  legislature                                                               
should  keep legislators  informed about  how DNR's  authority as                                                               
lead agency is being utilized.                                                                                                  
                                                                                                                                
SENATOR  WAGONER said  he planned  to support  the amendment  but                                                               
would prefer  an annual  review because  sunset reviews  are very                                                               
time consuming. He  believes this legislation is one  of the most                                                               
important before the legislature this year.                                                                                     
                                                                                                                                
SENATOR STEVENS  said he believes in  putting the onus on  DNR to                                                               
describe how this  concept is working by requiring  it to present                                                               
an annual report to the legislature.                                                                                            
                                                                                                                                
MR. LEFEBVRE  pointed out that  one of  the benefits of  the lead                                                               
agency concept is that it is  voluntary on the part of the permit                                                               
applicant. If  the applicant  is not  satisfied with  the project                                                               
process, the  legislature will know  about it well in  advance of                                                               
the next legislative session.                                                                                                   
                                                                                                                                
SENATOR DYSON said inherent in  the missions and measures process                                                               
is an  annual review  by the  Legislative Finance  committees. He                                                               
said  he  believes most  sunset  review  time lengths  should  be                                                               
doubled because  they are very  time consuming.  However, because                                                               
this is  a new concept, he  feels a sunset provision  is valid so                                                               
that  the legislature  makes sure  an annual  review takes  place                                                               
every year.                                                                                                                     
                                                                                                                                
SENATOR  ELTON  said  he  prefers the  formalized  process  of  a                                                               
[sunset] review.                                                                                                                
                                                                                                                                
CHAIR OGAN  pointed out the  next DNR commissioner could  be very                                                               
anti-development and a lot of  power has been consolidated within                                                               
that position.  He advised  that it  might be  prudent to  take a                                                               
formal look at this change in a  few years as a check and balance                                                               
measure.                                                                                                                        
                                                                                                                                
SENATOR WAGONER  said his  concern with a  sunset review  is that                                                               
the  legislature   has  the  right   to  review  this   piece  of                                                               
legislation  any time  it deems  it  necessary but  he feels  the                                                               
legislature should  watch this program change  closely because it                                                               
is new.  He expressed concern that  2008 is a long  time from now                                                               
so he proposed a sunset review in two years.                                                                                    
                                                                                                                                
SENATOR  ELTON   accepted  Senator   Wagoner's  proposal   as  an                                                               
amendment to his amendment.                                                                                                     
                                                                                                                                
SENATOR DYSON objected.                                                                                                         
                                                                                                                                
The motion  to adopt  the amendment to  the amendment,  to change                                                               
the date  of the sunset  review from  2008 to two  years, carried                                                               
with Senators Stevens,  Wagoner and Elton in  favor, and Senators                                                               
Dyson and Ogan opposed.                                                                                                         
                                                                                                                                
MS. SIROKY  told members that  from the agencies'  perspective, a                                                               
longer  time frame  for  a  sunset review  would  be better.  She                                                               
expressed  concern that  projects  take a  significant amount  of                                                               
time from start to finish so  a two-year window might not be long                                                               
enough to  see whether  the process is  working. She  suggested a                                                               
four or six year window.                                                                                                        
                                                                                                                                
CHAIR  OGAN moved  to amend  the  amendment to  require a  sunset                                                               
review in four years.                                                                                                           
                                                                                                                                
There being no objection, the motion carried.                                                                                   
                                                                                                                                
The committee  then voted  on the  amended amendment,  that being                                                               
whether to  include a  sunset provision [to  take effect  in four                                                               
years]. The motion  carried with Senators Dyson,  Elton, and Ogan                                                               
in favor, and Senators Wagoner and Stevens opposed.                                                                             
                                                                                                                                
There being  no further testimony,  SENATOR WAGONER moved  SB 142                                                               
as  amended from  committee with  individual recommendations  and                                                               
its  accompanying fiscal  notes.  There being  no objection,  the                                                               
motion carried.                                                                                                                 
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
                  SB 50-ROYALTY GAS CONTRACTS                                                                               
                                                                                                                                
CHAIR OGAN informed members that  a proposed committee substitute                                                               
had been  prepared, Version I,  which is essentially the  same as                                                               
the House Finance Committee substitute to HB 57.                                                                                
                                                                                                                                
SENATOR WAGONER moved to adopt  Version I as the working document                                                               
of the committee.                                                                                                               
                                                                                                                                
CHAIR  OGAN  objected for  the  purpose  of discussion.  He  then                                                               
informed  participants  that  he  did  not  intend  to  move  the                                                               
legislation  from   committee  today  because  Version   I  makes                                                               
substantive  changes  to  the  last   version  of  the  bill.  In                                                               
addition, an amendment has been proposed.                                                                                       
                                                                                                                                
MS. MARY  JACKSON, staff  to Senator Wagoner,  sponsor of  SB 50,                                                               
verified  that Version  I is  the companion  legislation to  CSHB
57(FIN), which  is in  the House  Rules Committee.  She explained                                                               
the differences in Version I as follows:                                                                                        
                                                                                                                                
   · On page 2, the merged utility and manufacturing language                                                                   
     was separated  into two subsections, (1)(A)  and (1)(B). New                                                               
     language was added  to line 23 that reads,   "for a contract                                                               
     entered into for a circumstance  described in (1)(A) of this                                                               
     subsection."  Section (1)(A)  is specific  to the  utilities                                                               
     and is  existing language  in statute.  Section 1(B)  is new                                                               
     and   contains  the   requirements   for  manufacturers   of                                                               
     agricultural  chemicals. She  told  members that  separating                                                               
     the  requirements of  utilities and  manufacturers into  two                                                               
     sections reads more clearly.                                                                                               
   · On page 3, line 9, the word "and" was changed to "or"; the                                                                 
     net result being that any one of the exceptions would come                                                                 
     into play, rather than all of them. That change was                                                                        
     recommended by the Administration.                                                                                         
                                                                                                                                
MS.  JACKSON  said  Chair  Ogan   previously  asked  whether  the                                                               
legislation  contains a  mechanism to  allow the  commissioner to                                                               
negotiate a contract  so that the State of Alaska  would share in                                                               
the profit as  well as the risk. She said  such a provision would                                                               
lead to  a better fiscal  note and  told members the  sponsor has                                                               
provided   a  proposed   amendment  on   that  subject   for  the                                                               
committee's consideration.                                                                                                      
                                                                                                                                
SENATOR STEVENS referred to Section 2(B)(ii)  on lines 5, 6 and 7                                                               
of page 3 and asked why  it contains the words "tangible benefits                                                               
to the state" and differs from Section (2)(A)(ii) on page 2.                                                                    
                                                                                                                                
MS.  JACKSON  explained  that  Section   (2)(A)  applies  to  the                                                               
utilities.  Section (2)(B)  is new  [and  applies to  value-added                                                               
manufacturers].   Those  words   were  added   so  that   if  the                                                               
commissioner determined  that a  royalty reduction would  lead to                                                               
certain  benefits related  to  employment  opportunities or  some                                                               
other  unknown  tangible  benefit,   the  commissioner  could  go                                                               
forward with a contract.                                                                                                        
                                                                                                                                
SENATOR STEVENS  said he thought tangible  benefits were included                                                               
in respect to the manufacturer, not just the utility.                                                                           
                                                                                                                                
MS. JACKSON said that is correct.                                                                                               
                                                                                                                                
SENATOR STEVENS  said the two  sections seem to  be contradictory                                                               
in terms of tangible benefits.                                                                                                  
                                                                                                                                
MS. JACKSON  referred Senator Stevens  to subsection (A)  on page                                                               
2,  regarding  the  utilities  contracts.  She  pointed  out  the                                                               
language that  begins on line 26  is the same as  the language on                                                               
page 3,  line 5, however  it is  specific to the  manufacturer of                                                               
agricultural chemicals.                                                                                                         
                                                                                                                                
SENATOR  STEVENS asked  if  that language  is  more aligned  with                                                               
subsection (A) than it was in the last version.                                                                                 
                                                                                                                                
MS. JACKSON  said it is  essentially the  same; it has  just been                                                               
separated into two sections.                                                                                                    
                                                                                                                                
SENATOR STEVENS  said he thought the  commissioner could consider                                                               
royalty reductions  by offsetting other tangible  benefits in the                                                               
last version. Now, Version I  says the royalty reduction receipts                                                               
would not be  balanced, which is contradictory. He  said the word                                                               
"not" should not be included.                                                                                                   
                                                                                                                                
TAPE 03-27, SIDE B                                                                                                              
                                                                                                                                
SENATOR  ELTON  clarified  that  the  list of  items  on  page  3                                                               
contains  the  reasons the  commissioner  could  deny a  contract                                                               
based on a written finding,  one being that the royalty reduction                                                               
would not  be balanced by  employment opportunities or  any other                                                               
tangible  benefit to  the state.  He asked  why this  language is                                                               
more  specific  for  the manufacturers,  as  it  further  defines                                                               
benefits as employment opportunities or other tangible benefits.                                                                
                                                                                                                                
CHAIR OGAN commented  that if the state lets a  utility lock into                                                               
a  certain  price  and  the   state  loses  some  money,  Alaskan                                                               
consumers   will   benefit   with   cheaper   electricity.   With                                                               
manufacturers,  the public  benefit is  not as  tangible. In  the                                                               
original  bill, the  manufacturers  asked to  be  treated like  a                                                               
utility. However, Agrium and its  employees might have benefitted                                                               
but at an expense to the state.                                                                                                 
                                                                                                                                
MS. JACKSON  said that is a  fair analysis. She pointed  out that                                                               
language on  page 2, line  27, of Version  I includes a  bar that                                                               
the utilities  must reach.  The language on  page 3  includes the                                                               
bar the manufacturers must meet.                                                                                                
                                                                                                                                
SENATOR ELTON  commented that  in the  case of  the manufacturer,                                                               
the  consumers who  benefit  could be  overseas  and not  Alaskan                                                               
consumers.                                                                                                                      
                                                                                                                                
SENATOR  WAGONER remarked  that  one benefit  is  jobs in  Kenai.                                                               
Right now, Agrium is operating at  75 percent capacity and may be                                                               
losing  money everyday  it operates.  If this  bill helps  Agrium                                                               
operate at  100 percent capacity,  it will maintain  and increase                                                               
jobs.  He noted  if  one of  Kenai's  petrochemical plants  shuts                                                               
down, the  chances of it ever  reopening is very low.  He pointed                                                               
out  that Agrium  is  a big  part  of the  economy  on the  Kenai                                                               
Peninsula.                                                                                                                      
                                                                                                                                
CHAIR OGAN  expressed concern that  this legislation  singles out                                                               
one type of  industry and sets a precedent  for other industries,                                                               
such  as  the LNG  plant  at  Pt.  Mackenzie  that ships  LNG  to                                                               
Fairbanks.                                                                                                                      
                                                                                                                                
MR. MARK  MYERS, Director of  the Division  of Oil and  Gas, DNR,                                                               
told  members that  in regard  to the  previous discussion  about                                                               
Sections (2)(A)  and (2)(B),  Senator Elton  was correct  when he                                                               
pointed out that  the royalty reduction is granted  unless one of                                                               
those four conditions exists, in  which case the commissioner can                                                               
deny it.                                                                                                                        
                                                                                                                                
SENATOR  STEVENS asked  if the  commissioner will  have to  prove                                                               
that the royalty  reduction would not be balanced and  not have a                                                               
positive impact on the economy.                                                                                                 
                                                                                                                                
SENATOR ELTON said  he did not understand  Mr. Myers' explanation                                                               
because if the commissioner can  deny the royalty reduction based                                                               
on the first  factor listed, the commissioner  would not consider                                                               
the  second  factor, that  the  royalty  reduction would  not  be                                                               
balanced by employment opportunities or other tangible benefits.                                                                
                                                                                                                                
MR.  MYERS  said  that  is  correct as  the  four  variables  are                                                               
independent. The commissioner  can deny the reduction  if any one                                                               
of the four variables exists.                                                                                                   
                                                                                                                                
CHAIR  OGAN  asked   Mr.  Myers  if  he   anticipates  that  this                                                               
legislation will set a precedent for other industries.                                                                          
                                                                                                                                
MR. MYERS said the petrochemical  industry could argue, as Agrium                                                               
has, that it  adds a lot of  value to the state  based on gas-to-                                                               
liquids (GTL) projects, for example.                                                                                            
                                                                                                                                
CHAIR  OGAN   asked  if,   under  the   Stranded  Gas   Act,  the                                                               
commissioner  of  revenue  was  given the  ability  to  negotiate                                                               
royalty payments for the petrochemical and GTL industries.                                                                      
                                                                                                                                
MR. MYERS  answered the commissioner  cannot change the  rate but                                                               
valuation   methodologies  can   be  negotiated.   The  producers                                                               
proposed  similar treatment  to  the  previous administration  in                                                               
terms of their gas leases.                                                                                                      
                                                                                                                                
CHAIR OGAN felt  justification could be made  that this incentive                                                               
should be given to other industries.                                                                                            
                                                                                                                                
MR. MYERS agreed  and said DNR understands  Agrium's concern that                                                               
it needs a good supply of gas to get up to 100 percent capacity.                                                                
                                                                                                                                
CHAIR OGAN  asked if more gas  is available but not  at the price                                                               
Agrium needs to be profitable.                                                                                                  
                                                                                                                                
MR. MYERS  said supply and demand  is balanced at this  time but,                                                               
at current  rates of  consumption without  additional exploration                                                               
success,  Cook Inlet  will begin  to  squeeze out  those who  are                                                               
willing to  pay less for  the gas. Typically, the  utility market                                                               
pays  a   higher  value,  followed   by  LNG,  followed   by  the                                                               
agricultural manufacturer. That  will put Agrium in  a tight spot                                                               
when  deliverability  is less.  He  noted  that  a good  deal  of                                                               
exploration is going on in Cook Inlet at this time.                                                                             
                                                                                                                                
SENATOR STEVENS  expressed concern about the  differences between                                                               
Section  (2)(A)   and  Section  (2)(B)  [the   four  factors  the                                                               
commissioner can use  to deny a reduction], and  pointed out that                                                               
Section  (2)(A)  contains the  word  "and"  while Section  (2)(B)                                                               
contains the  word "or". Therefore,  all variables must  exist in                                                               
Section  (2)(A) while  only one  variable must  exist in  Section                                                               
(2)(B) for the commissioner to deny a royalty reduction.                                                                        
                                                                                                                                
MR. MYERS  indicated the original  bill contained the  word "and"                                                               
and he  does not know  why this version  was changed to  "or". He                                                               
said Version I in its current  form sets a different standard for                                                               
agricultural manufacturers  than it  does for the  utilities. All                                                               
four  conditions  must exist  for  the  commissioner to  deny  an                                                               
application from a utility.                                                                                                     
                                                                                                                                
SENATOR STEVENS said  he believes the statement on  page 2, lines                                                               
21-22, should  be changed because  he reads  it to mean  that (A)                                                               
and (B) fall under that statement.                                                                                              
                                                                                                                                
MS. JACKSON  said the  issue is  that the  standards for  the new                                                               
manufacturer   are  more   restrictive.   For   a  utility,   the                                                               
commissioner  must   enter  into  a  contract   unless  all  four                                                               
conditions are  met. For a  manufacturer, the  commissioner shall                                                               
enter  into a  contract  unless  any one  condition  is met.  She                                                               
repeated the  provision is more restrictive  for the manufacturer                                                               
than it is for the utility.                                                                                                     
                                                                                                                                
SENATOR STEVENS  said he understands  the intent but he  does not                                                               
read  those  sections that  way  because  both  (A) and  (B)  are                                                               
subsections of Section (1)(aa)(2).                                                                                              
                                                                                                                                
SENATOR ELTON said the bill  makes it easier for the commissioner                                                               
to deny a contract with a manufacturer than with a utility.                                                                     
                                                                                                                                
MR. MYERS told committee members  the Administration has taken no                                                               
position  on  the   bill  but  said  he   supports  the  proposed                                                               
amendment.                                                                                                                      
                                                                                                                                
CHAIR  OGAN removed  his objection  to adopting  the work  draft,                                                               
therefore the motion  to adopt Version I as  the working document                                                               
before the committee carried.                                                                                                   
                                                                                                                                
SENATOR  WAGONER  moved to  adopt  Amendment  1, which  reads  as                                                               
follows:                                                                                                                        
                                                                                                                                
     Page  3, after  line  11, insert  "(C)  in granting  an                                                                  
     application  under this  section, the  commissioner may                                                                  
     use or accept an amount in  excess of the price for the                                                                  
     gas  established in  the contract  but less  than would                                                                  
     otherwise  be due  under the  lease when  it is  in the                                                                  
     best interest of the state."                                                                                             
                                                                                                                                
CHAIR  OGAN  objected for  the  purpose  of discussion.  He  told                                                               
members he intended  to adjourn the meeting  without adopting the                                                               
amendment to give members a few days to consider it.                                                                            
                                                                                                                                
CHAIR OGAN  said Amendment 1  is a profit sharing  amendment that                                                               
will allow the state to share in any upside.                                                                                    
                                                                                                                                
SENATOR  WAGONER   told  members  Amendment  1   was  written  in                                                               
consultation with Division  of Oil and Gas staff, who  said it is                                                               
necessary to allow the commissioner to negotiate profit sharing.                                                                
                                                                                                                                
SENATOR ELTON  pointed out that  Amendment 1 will cause  a change                                                               
in the fiscal note.                                                                                                             
                                                                                                                                
SENATOR  WAGONER agreed  Amendment 1  will make  the fiscal  note                                                               
much more powerful.                                                                                                             
                                                                                                                                
CHAIR OGAN  told members the  committee would  take up SB  50 and                                                               
the proposed  amendment on  Monday and  adjourned the  meeting at                                                               
4:45 p.m.                                                                                                                       
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