HB 312-ADVISORY VOTE ON IN-STATE GAS PIPELINE  1:05:48 PM CO-CHAIR NEUMAN announced that the first order of business is HOUSE BILL NO. 312, "An Act authorizing an advisory vote on use of Alaska permanent fund earnings for an in-state natural gas pipeline; and providing for an effective date." 1:06:35 PM REPRESENTATIVE MIKE CHENAULT, Alaska State Legislature, sponsor of HB 312, said the various options for an in-state natural gas pipeline need to be looked at and HB 312 would give legislators the opportunity to hear the voices of Alaskans when it comes to the energy needs of the state. The bill would provide that the following question appear on the ballot [of the next statewide primary or general election]: After paying annual dividends to residents and inflation-proofing the Alaska permanent fund, should permanent fund investment earnings be appropriated to help pay the costs of constructing an in-state natural gas pipeline? 1:08:11 PM REPRESENTATIVE CHENAULT noted that the issue of routes is kept out of the question because this is about Alaska and not any specific region. He said [the sponsors] are interested in having conversations with Alaskans on what is seen as the biggest problem and how to address it. This bill would not pay for an in-state gasline, but it would be one of many options that are out there. With the energy crisis that is looming for Alaska in the forthcoming years, HB 312 would provide Alaskans an opportunity to say whether they think the State of Alaska should be involved in the in-state energy needs of the state. 1:10:07 PM CO-CHAIR NEUMAN said he has heard loud and clear from many people that they want an in-state gasline and he thinks it is a good idea to ask Alaskans what they want to do. While this would be advisory, legislators work for the people and it would be a directive. Given there are laws regarding use of the permanent fund, HB 312 would be part of the process in following those rules. It has always been a concern that politicians would spend the Alaska Permanent Fund [earnings] on pet projects and other things. Because it asks for authorization to use permanent fund [earnings], HB 312 is part of a process that asks Alaskans what they want done with their money. REPRESENTATIVE CHENAULT replied that legislators cannot spend the corpus of the Alaska Permanent Fund, and he thinks that most Alaskans know that. However, the legislature could at any time spend all of the fund's earnings, but the legislature has not "cracked that egg" because it would be political suicide. This bill is asking whether Alaskans are interested in forwarding an in-state gasline if money is available after dividends and inflation-proofing. Excess earnings are put back into the fund to determine what the next [dividend] will be, so this would have a minimal effect, although he does not know the number. 1:12:33 PM REPRESENTATIVE P. WILSON, in reference to the chart of earnings in the committee's packet, noted that since the permanent fund has been in effect, the earnings have dropped eight times from one year to the next. This represents money that was just lost when it could have been used to the benefit of the state, and this is something that needs to be thought about. REPRESENTATIVE CHENAULT responded that every person wishes he or she was smart enough to get in on the lull and out on the high, but there has been a good return to the permanent fund overall since it was enacted, despite the ups and downs of the market. 1:15:12 PM REPRESENTATIVE SEATON, in regard to the ballot question itself, surmised that the earnings could be used for any number of options, such as a loan that is repaid, investment in an equity share, or a subsidy for construction where no repayment is received so that the tariff could be lowered. REPRESENTATIVE CHENAULT answered he thinks all options should be on the table, but these discussions cannot occur without knowing how Alaskans think about it and is why this question is being put forward. It is probably more about the future needs; Alaskans are looking for a long-term energy supply that grows Alaska, not something that just gets the state by year to year. 1:17:18 PM CO-CHAIR JOHNSON inquired how much money has been put into the Alaska Permanent Fund as opposed to how much has been paid out in dividends. LAURA ACHEE, Director of Communications, Alaska Permanent Fund Corporation, responded that $14 billion has been put into the permanent fund over its 30 years of existence; these funds have come from the mineral royalties required by the constitution and additional appropriations from the general fund. In that same time period, about $17.5 billion has been paid out in dividends. Today, the fund is worth just under $34 billion. Thus, more has been paid out than taken in and there is still $34 billion. This is an amazing conversion of a non-renewable natural resource into a renewable financial resource, and it shows what a success the fund has been. CO-CHAIR JOHNSON said his point is that Alaska has a healthy fund and he would like to hear what the people have to say about putting more of it to use in the state. MS. ACHEE, at the request of Representative P. Wilson, reiterated that $14 billion has been put into the fund and $17.5 billion has been paid out. 1:20:54 PM CO-CHAIR NEUMAN opened public testimony. MERRICK PEIRCE noted that he serves on the board of the Alaska Gasline Port Authority, but that he is offering his own point of view in opposing HB 312. He said the voters of Alaska have already weighed in on what they would like to do with the gasline. In the 2002 election, voters overwhelmingly voted to build the all-Alaska gasline from the North Slope to Valdez. If the legislature had funded the law passed by the voters - the same voters who had the wisdom to create the permanent fund - the state would now have a gasline providing affordable energy for Alaska and a new source of state revenue, as well as bigger dividends. Instead, today there are certain legislators who have expressed contempt for the voters' wishes suddenly pretending that they care what the voters think. MR. PEIRCE maintained that a "bullet line" does not provide affordable energy because it does not have an economy of scale and would therefore have high tariffs and a high cost of gas for Alaskans. A "bullet line" would not provide new revenue for the state, and it would undermine the voter's preferred option by attempting to siphon gas away from that project. 1:22:33 PM MR. PIERCE related that last week Tony Palmer and Paul Pike [of the Alaska Pipeline Project] stated that, best case, the line into Canada would not be delivering gas until 2020. It was also heard that the high cost of the line into Canada has raised the tariffs to Alberta to around $3.50 [per million British thermal units (MMBtu)]. "We" can project that tariffs may be as high as $6.00 to get gas to Chicago. Meanwhile, the massive amount of shale gas in the Lower 48 has caused the Lower 48 gas industry to proclaim that there is a 100-year gas supply in the Lower 48. At year-end 2009, "ConocoPhillips" applied to the Federal Energy Regulatory Commission (FERC) to export this excess gas from what was to have been a liquefied natural gas (LNG) import facility in Texas. In Kitimat, British Columbia, another LNG import terminal is now preparing to export LNG. Additionally, "ExxonMobil" just invested $31 billion in XTO Energy Inc., a shale gas company that has over 11 trillion cubic feet in proven reserves and another 50-60 trillion in estimated reserves. This answers the question of where U.S. consumers will be getting their gas - it will be from shale deposits and not a gasline from Alaska with high risk and high tariff. 1:24:13 PM MR. PEIRCE pointed out that in about five years the Trans-Alaska Pipeline System (TAPS) throughput is projected to be 500,000 barrels per day or less, and the consequences for Alaska are dire. Only been the high price of oil that resulted from the Iraqi oil production going offline in 2003 as the U.S. invaded that country has sheltered Alaska. Iraq oil production is now going back online from the second largest reserves in the world and that could result in significant declines in world oil prices, which would have significant impacts on Alaska revenue as TAPS throughput continues to decline. MR. PEIRCE said Alaska must get to work on the only viable gas project and that is the all-Alaska gasline to Valdez. Alaska needs the affordable energy, particularly the Interior, and Alaska must have a new source of revenue. Alaska cannot wait 10 years. He disagreed that a "bullet line" would expand Alaska's options and said it actually reduces the options. 1:25:43 PM CO-CHAIR NEUMAN commented that HB 312 only asks the people whether they would like to be involved. He agreed there is a lot of gas in the Lower 48, and that TAPS is going down, the cost of government is going up, and everything that can be done must be done to create an in-state gas pipeline. 1:26:27 PM REPRESENTATIVE KAWASAKI referenced an amendment that may be proposed that would put this question to the voters during the next primary election. He asked what happens if the voters pass the proposition and what happens if they deny it. REPRESENTATIVE CHENAULT responded that no one has a crystal ball as to what would happen for either a yes or no vote. It would allow legislators to have the option to look at the excess earnings of the Alaska Permanent Fund for funding a project. The bill does not stipulate either a "bullet line" or the "all- Alaska line;" it only talks about a gasline in Alaska. If the people say no, then legislators would know that under this scenario the people do not want to invest that particular fund. 1:28:16 PM REPRESENTATIVE KAWASAKI noted that the sponsor earlier said the legislature can already use the permanent fund's earnings. Therefore, he inquired, is this off the table if the people vote no, and this legislature will never approach that issue again. REPRESENTATIVE CHENAULT said he cannot say whether the legislature would approach the issue again. However, if the vote is no, he would suggest there are very few legislators who would have the ambition to utilize that fund over the objection of the citizens of Alaska. REPRESENTATIVE KAWASAKI said he would like to lodge his complaint against HB 312. 1:29:36 PM REPRESENTATIVE GUTTENBERG stated that while he likes where the sponsor is going as far as providing more options, his concern is that it would be an advisory vote in a primary election and primaries can have low voter turnout. Additionally, given there are so many [pipeline] options, he thinks this nebulous part of the question will lead to lots of misinformation within the public and people will be arguing about what legislators' motives are and whether the purpose is to get more money to TransCanada or a "bullet line." This dialogue will get lost in all the rhetoric and will make the issue harder because there is no focus to it. Thus, there will be an answer to a question that is not specific enough in asking something. He said he thinks legislators should be involved with the people of the state and that there is an inherent interest in the state participating in, and building, some structure that provides long-term, reliable, and affordable energy - even at a subsidized rate for the people - because building out the state's economy is probably one of the most important things legislators can do. REPRESENTATIVE CHENAULT agreed that discussion is out there. However, if the question is not asked, the answer will never be known. Numerous people in his district are saying in-state gas is needed and it is needed now. This bill would allow legislators to ask the question, see what the response is, and decide whether that is a viable option that can be utilized; but, if it is an option that Alaskans do not want legislators to use, then legislators will need to look at other ways to finance a project if the state gets to that point in time. If the state runs out of energy by not trying to push something forward, "it is shame on every one of us." 1:33:28 PM REPRESENTATIVE TUCK said he is trying to imagine what the voters are going to want to know. One thing they might want to know is whether it would be a percentage of the earnings, all of the earnings, or up to the legislature to decide, should the advisory vote pass. REPRESENTATIVE CHENAULT explained that it is not all of the earnings, it is the excess earnings. To answer the advisory question, citizens need to understand that it would be after a permanent fund dividend is paid, after the fund is inflation- proofed, and if there are any excess earnings. If the people approve the proposition, it would have to be looked at on a year-to-year basis to determine whether there are excess earnings and whether there is a project to use them on. REPRESENTATIVE TUCK clarified that he was referring to the excess earnings, and reiterated his question. REPRESENTATIVE CHENAULT said how much would be utilized is an issue that would be looked at in the future and would be based upon other funding sources and the type and size of the project. 1:36:16 PM REPRESENTATIVE TUCK, in regard to Alaskans having a need for gas right now, inquired whether Representative Chenault sees that need as gas for export for the revenue or as the provision of low-cost natural gas to Alaskans. REPRESENTATIVE CHENAULT responded that he does not know what opportunities lay ahead and gas export may be one of those opportunities. However, if an in-state gasline is not built there will be no opportunities. 1:38:05 PM REPRESENTATIVE GUTTENBERG commented that past experience shows the public will not limit its dialog to just what the question says. Once the ballot proposition leaves the legislature and gets to the public, there will be no restrictions on what the dialog is. He said he will support the bill, but fears there will be a loss of focus because it is not specific enough. CO-CHAIR NEUMAN said he hopes the public talks about it. CO-CHAIR JOHNSON stated he does not think dialog is a bad thing. The vote will give legislators guidance regardless of the outcome. He said he supports getting more information from his constituents and is not afraid of the answer to the question, one way or the other, because it would give him direction. Because this is one of the biggest decisions legislators will be making, he would like some guidance from constituents. 1:41:13 PM REPRESENTATIVE SEATON noted that a dividend was nearly not paid out in 2003, and since then the legislature has not appropriated any of the money from the earnings back into the fund's corpus as was previously done. He is concerned this could become an issue of reducing the earnings such that dividends could not be paid the following year, which could result in a no vote on the ballot proposition. He asked whether a no vote would be interpreted as Alaskans not wanting to invest in a pipeline or as Alaskans not wanting to use permanent fund earnings to invest in a pipeline. REPRESENTATIVE CHENAULT answered that his interpretation of a no vote would be that the people do not oppose investing in a pipeline, but rather they oppose investing those particular funds in a pipeline. He added that if constituents have other ideas, legislators will hear them during the process. 1:43:49 PM REPRESENTATIVE TUCK related that he is not against the idea of having the people decide whether they want to invest in an in- state gasline; he is only looking for answers to the questions that have come to him. He asked what the public should expect as the rate of return from this investment - potential revenues to the state from the selling of gas or gas for Alaskans. REPRESENTATIVE CHENAULT responded there are many options, such as using the money to take an equity position or using it as an investment that subsidizes the tariffs to lower them for that particular project. He agreed that people will have these questions and have already had them, and he has told them that it is unknown what position would be taken in a pipeline if one is built - it just gives the option to have that conversation. 1:45:44 PM CO-CHAIR NEUMAN moved the committee adopt Amendment 1 as follows: Page 1, line 6: Delete "or general" REPRESENTATIVE GUTTENBERG objected for purposes of discussion. He asked whether the question would still be on the primary ballot even if the bill is not passed until the last day of this session. CO-CHAIR NEUMAN said he supports Amendment 1 exactly for the reason of the discussions occurring here today. There are lots of questions and no time to waste, so the sooner the answer to this ballot question is known, the better. 1:47:42 PM REPRESENTATIVE SEATON inquired whether Amendment 1 is supported by the sponsor. REPRESENTATIVE CHENAULT replied he has no problem with the amendment because the [August 2010] primary election will have a number of issues on the ballot, which might bring more people out to vote in the primary. 1:48:28 PM REPRESENTATIVE GUTTENBERG said he opposes Amendment 1 and if it fails he will offer an amendment that goes the other way. He maintained that, historically, contentious issues have not increased the primary turnout in Alaska, especially at the end of August. A lot more people participate in a general election and he would support that over a primary election. Additionally, there will be a new legislature and everybody and everything will be in play. The timeline will not change as far as the proposition's impact on the full legislature. Therefore, it is much more appropriate that this question be on a general election than a primary. 1:49:26 PM REPRESENTATIVE TUCK asked if the decision on whether it is the primary or general election was a decision the sponsor had expected this committee to make or a decision to be made in another way. REPRESENTATIVE CHENAULT answered he thinks that is part of the legislative process and the legislature will make the determination as to which election dates it supports. 1:50:24 PM REPRESENTATIVE GUTTENBERG maintained his objection to the amendment. A roll call vote was taken. Representatives Olson, Seaton, P. Wilson, Neuman, and Johnson voted in favor of Amendment 1. Representatives Guttenberg, Kawasaki, and Tuck voted against it. Therefore, Amendment 1 passed by a vote of 5-3. CO-CHAIR NEUMAN closed public testimony and opened committee discussion. 1:52:25 PM REPRESENTATIVE KAWASAKI outlined the reasons why he will object to reporting HB 312 from committee. He said no new options are actually placed on the table as far as using permanent fund earnings and the bill could result in the opposite. It will not take long for some folks to start the rally cry that the bill raids the Alaska Permanent Fund, which means there may be negative and untrue attacks on this particular legislation. Bringing the proposition up on the primary ballot sets a bad precedent for future elections. Additionally, it is easy to vote yes or no, but knowing the substance behind the bill is what is important and hard to do. Representative Kawasaki said he does not like advisory votes in general because they can be used as a way for the legislature to shirk its responsibility of leading. He feared that if the answer in the primary election is that the public does not want to use permanent fund earnings, this legislature will have bound the hands of future legislators, which he does not think is a good thing. Fewer people vote in the primary, he continued, and even fewer will take the time to learn what this advisory vote will or will not do. Given that few people vote in the primary, this is advice that is unacceptable to him. Legislators conduct polls and have regular contact with their constituents to learn what people are thinking, and this advisory vote gains nothing but the potential for a lot of dissent. 1:57:10 PM CO-CHAIR JOHNSON stated he is in regular contact with his constituents, but this is a statewide issue. There are legislators whose constituents may not receive any direct benefit from this and he would like to know how those people feel. When spending other people's money, he wants to know what everyone in the state thinks. REPRESENTATIVE OLSON understood Representative Kawasaki to be saying that his no vote on HB 312 is to represent all the people who will not be voting in the primary. REPRESENTATIVE KAWASAKI responded that he does not track what Representative Olson is saying. 1:59:37 PM REPRESENTATIVE GUTTENBERG reiterated that a vote in the primary means the sampling will not be as large as it would be in a general election, and a large sampling is what is wanted in a polling. The nebulous aspect of the question will mean to him that people are voting yes or no for a variety of reasons. Every legislator knows that the Alaska Permanent Fund is the third rail and a legislator does not get near it unless he or she is specific and knows exactly what he or she wants to do. People will not read past permanent fund, they will not read investment earnings, some will understand the difference and some will not, legislators' motives will not be understood, and consequently some people will challenge what legislators are doing. However, his biggest concern is that the answer to the ballot proposition will be interpreted differently by each legislator. The ballot question is not focused enough and confusion on a ballot initiative results in a no vote. The state is not close enough to a clear description of what it wants to do; for example, TransCanada is not before the legislature with a specific project nor is an in-state sponsor. This question does not get legislators to an answer that is politically useable or even useable for political cover. 2:02:42 PM CO-CHAIR NEUMAN urged that members talk to bill sponsors prior to committee hearings to better get their questions answered. REPRESENTATIVE TUCK pointed out that some questions do not occur to him until he hears someone else speak. He said he is not opposed to the idea of using the permanent fund [earnings] and having a ballot vote in this regard. His earlier questions about the intent were to lay it out tighter so it does not get convoluted. He is concerned it could become a big public messaging battle, and the battle can be reduced by answering these questions up front. His support for keeping the general election in the body of the bill is because it would provide a better representation of those turning out to vote and thus a better idea of the people's overall intent. A survey he sent to his constituents is now coming back and many Alaskans are confused on the gasline issue. Therefore, he thinks people may have some insecurities about making a decision to make an investment. People are expecting their elected representatives to know, and while he is not claiming he knows everything, he is trying his hardest to learn the issues and as he does he is communicating back to his constituents so that as he learns, they learn. He is bringing all of this forward so the bill can be improved, if needed, before it goes on to the advisory vote. 2:05:44 PM CO-CHAIR NEUMAN agreed that legislators' work is cut out for them to get out and talk to people. REPRESENTATIVE TUCK added that the sponsor's statement says it is perceived that Alaska is taking a shotgun approach to a gasline, and this is adding to the confusion for constituents. 2:06:11 PM REPRESENTATIVE SEATON noted he is pleased it is being said on the record that if the proposition fails it does not mean people do not want to invest in a pipeline, but rather they do not specifically want to use this mechanism. If people in other parts of the state do not agree to this, it does not mean they do not care about the economics of Southcentral Alaska because that is not the question on the ballot. The question on the ballot is whether to use the earnings of the Alaska Permanent Fund, which is a different question. He fears there will be a lot of confusion in messages. An advisory vote does not bother him, but he is concerned that mistaken use of the term permanent fund dividend [rather than permanent fund earnings] will add to the confusion and get a different result. As this goes forward, it will be imperative for legislators to be clear with constituents about exactly what is on the ballot. 2:08:17 PM CO-CHAIR JOHNSON moved to report HB 312, as amended, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 312(RES) was reported from the House Resources Standing Committee.