HOUSE BILL NO. 4 "An Act relating to the Alaska Gasline Development Corporation; making the Alaska Gasline Development Corporation, a subsidiary of the Alaska Housing Finance Corporation, an independent public corporation of the state; establishing and relating to the in- state natural gas pipeline fund; making certain information provided to or by the Alaska Gasline Development Corporation exempt from inspection as a public record; relating to the Joint In-State Gasline Development Team; relating to the Alaska Housing Finance Corporation; relating to judicial review of a right-of-way lease or an action or decision related to the development or construction of an oil or gas pipeline on state land; relating to the lease of a right-of-way for a gas pipeline transportation corridor, including a corridor for a natural gas pipeline that is a contract carrier; relating to the cost of natural resources, permits, and leases provided to the Alaska Gasline Development Corporation; relating to procurement by the Alaska Gasline Development Corporation; relating to the review by the Regulatory Commission of Alaska of natural gas transportation contracts; relating to the regulation by the Regulatory Commission of Alaska of an in-state natural gas pipeline project developed by the Alaska Gasline Development Corporation; relating to the regulation by the Regulatory Commission of Alaska of an in-state natural gas pipeline that provides transportation by contract carriage; relating to the Alaska Natural Gas Development Authority; relating to the procurement of certain services by the Alaska Natural Gas Development Authority; exempting property of a project developed by the Alaska Gasline Development Corporation from property taxes before the commencement of commercial operations; and providing for an effective date." 3:22:43 PM Representative Costello MOVED to ADOPT the proposed Committee Substitute for HB 4, Work Draft 28-LS0021\R, (Bullock, 3/27/13). Co-Chair Stoltze OBJECTED for discussion. JOE MICHEL, STAFF, REPRESENTATIVE BILL STOLTZE, addressed the changes in the CS. He turned to page 4, line 21. Vice-Chair Neuman asked for a copy of the changes. Mr. Michel agreed. He began on page 4, line 21 and relayed that the CS changed the governing body from 5 members to 5 public members and 2 department commissioners designated by the governor. Line 24 had been changed from "members" to "public members." Board terms had been changed from 7 years to 5 years (line 30). Additionally, board members would serve at the pleasure of the governor instead of being removed for cause. 3:25:24 PM Mr. Michel relayed that because the board had been increased to 7 members language had been increased from a vote of 3 members up to 4 members who were required to approve the sale and issuance of bonds (page 5, line 27). Language on page 6, lines 25 and 26 had been changed from "the corporation shall retain an attorney" to "the corporation shall retain legal counsel"; the change had been made to allow the corporation to hire a law firm or more than one attorney. Additionally, the term "suit" had been changed to "litigation" on line 26. He turned to page 9, line 26 where the term "shall" had been changed to "may" in the sentence: "...the corporation may finance, construct, or operate the natural gas pipeline as necessary." He pointed to the concern that the term "shall" was overly prescriptive and would not give the Alaska Gasline Development Corporation (AGDC) a choice in development decisions (e.g. to determine whether a community even wanted a pipeline). Mr. Michel moved to page 10, lines 4 and 5. The words "fees, rental rates, and other charges" had been inserted for clarity per a Department of Law (DOL) recommendation. He pointed to page 11, lines 17 and 19 and explained that the bill maintained language that Department of Natural Resources shall grant a right-of-way lease if AGDC agreed to the contract carrier covenants in AS 38.35.121 and added common carrier covenants in AS 38.35.120. He detailed that AGDC wanted the flexibility to elect or provide service as a common or contract carrier for future pipelines. The word "containing" had been inserted in the sentence: "The portions of records containing information..."(Page 12, line 5). The statute on page 12, line 6 had been changed from AS 40.25.110 to AS 45.25 to exempt the corporation from the Public Records Act (the previous language had exempted the corporation from a portion of the act). The language "if disclosed, could cause commercial or competitive harm" were inserted on page 12, line 19. The words "except for information that is confidential under another provision of state law or under a federal law or regulation" were inserted on page 12, lines 21 and 22. He noted that minor conforming changes to AS 40.25 had been removed. 3:30:23 PM Mr. Michel communicated that the language "upon request under AS 40.25" had been inserted on page 12, line 27. Representative Gara asked for clarification on the page number being discussed. Mr. Michel replied that he was addressing page 12. He reiterated that the language "upon request under AS 40.25" had been inserted on page 12, line 27. The words "another provision of state law, a federal law or regulation" were inserted following language "disclosure of the information will violate" on page 13, lines 1 and 2. The language "the corporation shall determine fund management and may contract with the Department of Revenue for fund management" was inserted on page 13, lines 6 and 7; the language provided AGDC the option for DOR or another entity to manage the funds. The language "for the cost of managing the fund" was inserted on page 13, lines 11 and 12; the addition provided that the fund management cost would come out of the fund. 3:32:14 PM Mr. Michel turned to page 15, lines 13 and 14, which placed AGDC under the Executive Budget Act related to its operating budget and the corporation's subsidiaries. He detailed that the organization's ability to bond and other similar items were not subject to the act. A section from the prior bill under Article 2 had been removed related to federal taxation of interest on bonds per a DOR recommendation. The department believed the state should not provide investors with reason to think the state may step in and repay the debt in the event that debt was declared taxable; especially in light of current federal discussions related to eliminating municipal tax exemptions. He relayed that the word "private", which had fallen in between the words "the" and "sale" had been removed. He expounded that DOL had recommended that AGDC should have the ability to retain an independent financial advisor with any bond sale. Mr. Michel moved to page 20 and explained that the bill did not include the term "moral obligation," but the moral obligation was derived by the formation of a capital reserve fund. He read new language on lines 7 through 13: The corporation may not establish a capital reserve fund as described in this section except as expressly authorized by law. The enactment of this section does not express that authorization. Upon enactment of a law expressly authorizing the establishment of a capital reserve fund described in this section and for the purpose of securing one or more issues of its obligations, the corporation may establish one or more special funds, called "capital reserve funds," and shall pay into those capital reserve funds. Mr. Michel expounded that the language provided that a capital reserve fund would not be created until AGDC asked for permission from the legislature. A drafting error had been corrected on page 21, line 27 where the word "of" was removed from the language "under of this chapter" to read "under this chapter." On page 24, line 22 the language "a comparison of the corporation's performance with the goals of the corporation," was removed following the word "auditor." 3:36:51 PM Representative Munoz asked for the change on page 24. Mr. Michel replied that language had been removed from lines 21 and 22. He noted that a copy of all the changes would be provided to committee members. Mr. Michel moved to page 38 related to the Regulatory Commission of Alaska (RCA). The language on lines 8 through 11 had previously stated that the RCA could investigate disputes related to a pipeline's open season; the language had been changed to read: ...to resolve the dispute, the commission may order an expansion of an in-state natural gas pipeline or order an open season under the terms provided for an expansion or open season in this chapter or AS 38.35.121(a)(4) and (c). Mr. Michel addressed page 39, lines 5 and 6 that read "order an expansion of an in-state natural gas pipeline or order an open season under the terms provided for an expansion or open season in this chapter." Language had been inserted on lines 7 through 17 per a DOL recommendation, which allowed the RCA to extend timelines up to 90 days with consent of all parties for one-time only for good cause and written order; the provision did not apply to a precedent agreement filed before the issuance of a certificate, consideration of an application for a contract carriage certificate or an initial recourse tariff. He moved to page 41, line 20 where the words "but not before an initial recourse tariff is approved" had been inserted. He elaborated that the language made the intent explicit that a pipeline would need an RCA approved initial recourse tariff prior to entering into a presubscription agreement with shippers. 3:39:55 PM Mr. Michel moved to page 42, line 6 where the words "do not include" had been inserted per a DOL recommendation. On lines 11 and 12 the words "and of uncommitted firm transportation capacity" had been inserted. The word "service" was inserted to read "firm transportation service agreement" on page 43, line 5. The word "approved" was inserted on page 43, lines 8 and 9 in front of the words "recourse tariff." Additionally, the word "approved" had been inserted in front of the words "precedent agreement" on line 14. Co-Chair Stoltze remarked on how the amendment process would be addressed. 3:42:39 PM Mr. Michel turned to page 44, lines 20 and 21 where the language "that the proposed service is not required by public convenience and necessity" was added. He elaborated that the language clarified that an applicant other than AGDC was fit, willing, and able and that the service was in the public convenience and necessity. Representative Gara asked Mr. Michel to repeat the change. Mr. Michel repeated the change to page 44, lines 20 and 21. He directed attention to page 46 lines 15 and 22 where the number "90" had replaced the number "30" to read "at least 90 days." The words "depreciable life" replaced the words "economic life" on page 47, line 1. Section (c) had been inserted on page 47, lines 5 through 14. Co-Chair Stoltze asked for clarification on the change to page 47, line 1. He believed the change should be from "depreciation life" to "depreciable life." Mr. Michel affirmed. Representative Gara asked if everything in Section (c) had been added on page 47. Mr. Michel responded in the affirmative. Mr. Michel pointed to page 47 line 17 where the language "or violates a provision of this chapter" had been added. On page 47, line 19 the language had been changed from a 30-day notice period to read "90-day notice period, and the period of suspension." Co-Chair Stoltze noted that the issue would be thoroughly discussed by the committee. Mr. Michel continued on page 47, lines 24 and 25 where the clarifying language "after construction or an expansion of the pipeline, and at any time that a carrier files for a revised recourse rate" had been added. Language had been inserted on page 48, lines 5 through 7 reading "except that the depreciable life may be adjusted in accordance with the time period between the approval of the recourse tariff and the approval of the revised recourse tariff." He moved to page 54, lines 13 and 19. He explained that originally the bill defined a pipeline as a line that transports natural gas; the language "or will transport natural gas" had been added. He pointed to page 54, line 21, which stated that the definition of natural gas pipeline had the meaning given under AS 31.25.390. He elaborated that previously the definition of a natural gas pipeline had been moved from AS 38.34 to AS 31.25.390 to conform to other portions of the bill. The language "including a presubscription agreement" had been added on page 54, lines 22 and 23. 3:48:56 PM Co-Chair Stoltze noted that the changes were thorough because of the important nature of the bill. He WITHDREW his OBJECTION to the CS. There being NO further OBJECTION, the workdraft was ADOPTED. He asked the bill sponsor to provide comment on any concerns related to the CS. REPRESENTATIVE MIKE HAWKER, SPONSOR, voiced agreement with most of the changes. He believed there were several areas that would have counterproductive consequences and may be detrimental to the progress of a pipeline. He asked his staff to highlight the concerns. RENA DELBRIDGE, STAFF, REPRESENTATIVE MIKE HAWKER, spoke to inadvertent consequences the CS would have for AGDC related to confidentiality language and within the RCA framework that could delay timelines and the project significantly. She stressed that a 6-month delay of the project cost an additional $100 million in inflation. She believed continued discussions on the items with DOL could lead to some resolutions with the committee. Co-Chair Stoltze believed there were a couple of policy and technical issues that would require compromise. Representative Hawker surmised that the issues primarily related to unintended consequences rather than policy differentials. He did not believe there were irreconcilable differences. 3:53:45 PM Co-Chair Stoltze pointed to the complexity of the issue. Representative Hawker communicated willingness to work with the committee. Co-Chair Stoltze relayed that representatives from the administration, the sponsor, and AGDC would be available to vocalize an agreement on the issue. Vice-Chair Neuman wondered what would happen if an open season was unsuccessful. Ms. Delbridge replied that there was no explicit provision that defined what would occur if an open season was unsuccessful. She elaborated that AGDC had no authority to move forward without a successful open season because commitments from shippers were needed to fund a project. She explained that AGDC would continue to retain assets if an open season was unsuccessful; however, a disposition of assets may not be appropriate at the time given that the corporation was designed to survive the initial pipeline and to consider other pipelines. 3:56:35 PM Representative Holmes believed the state would have rights to the assets because of its ownership of AGDC. She asked for verification that the state could choose to take the assets back at any time. Ms. Delbridge answered that she would obtain legal advice from AGDC's legal counsel and DOL related to the assets. She confirmed that the legislature would have the ability to terminate the corporation at any time. Representative Holmes believed that any funds that were not subject to a moral obligation could be reappropriated by the legislature if it chose to do so. Representative Hawker replied in the affirmative. He elaborated that the legislature always had dominion over the corporation; however, the state had an obligation to live up to any contractual agreements. He detailed if an open season was unsuccessful there would be no contracts or further obligation; however, the bill was crafted to create tools that were not limited by scope and potential benefit to the state in the building of one pipeline. He expounded that AGDC was allowed to look at projects that would provide gas to other regions of the state. 3:58:57 PM Representative Gara asked when it would be appropriate to ask questions about the bill that were unrelated to the CS. Co-Chair Stoltze responded that there would be an opportunity to discuss the bill at a later time. Representative Gara asked when the bill would be heard again. Co-Chair Stoltze replied that the bill would be heard the following day. He remarked that he was working to balance the Speaker's desire for the bill to move forward, while providing the appropriate due diligence and process in committee. Representative Hawker offered to speak with any committee members to help clarify any questions. Co-Chair Stoltze noted the importance of due diligence. Representative Gara noted that Co-Chair Austerman and Representative Edgmon were absent. He wondered when amendments should be ready. He opined that the following Monday would be easier. Co-Chair Stoltze hoped to have amendments by the following afternoon. He noted that Representative Thompson would be gone the following day as well. He believed the issue would be heard on Monday. Representative Thompson remarked that he had made arrangements to be available the following day. Representative Hawker appreciated the committee's time. HB 4 was HEARD and HELD in committee for further consideration. 4:03:57 PM AT EASE 4:12:46 PM RECONVENED