1:41:18 PM CS FOR SENATE BILL NO. 104(JUD) "An Act relating to the Alaska Gasline Inducement Act; establishing the Alaska Gasline Inducement Act matching contribution fund; providing for an Alaska Gasline Inducement Act coordinator; making conforming amendments; and providing for an effective date." This was the eighteenth hearing for this bill in the Senate Finance Committee. 1:42:10 PM WILLIAM MOGEL, Saul Ewing LLP, utilized a presentation titled, "FERC's Regulation of Interstate Natural Gas Pipelines" [copy on file]. He relayed his instruction to address how the Federal Energy Regulatory Commission (FERC) process governs interstate natural gas pipelines. 1:43:21 PM Mr. Mogel "recognized the credibility of saying I'm here from Washington [D.C.]; I've come to help you." He emphasized that the regulation of interstate natural gas pipelines could be "slightly unfamiliar" to several members of the Committee in many respects because it was "significantly different" than the regulation of oil pipelines by the FERC. Most distinctly in that the primary objective of the federal Natural Gas Act of 1938 was to protect consumers. The "Oil Pipeline Act" did not include such statutory obligation. 1:43:36 PM Page 2 THE FERC'S REGULATORY REGIME, WHICH IS DESIGNED TO PROTECT CONSUMERS, PROHIBITS AN INTERSTATE NATURAL GAS PIPELINE FROM ACTING IN AN ANTI-COMPETITIVE, DISCRIMINATORY OR PREFERENTIAL MANNER TO ANY SHIPPER. Mr. Mogel overviewed this statement, clarifying that all shippers, whether or not affiliated with the natural gas pipeline, were subject to this prohibition. Mr. Mogel indicated his presentation would "follow the various mechanisms" the FERC employed through statute and regulation to ensure open access and non-preferential treatment. Page 3 QUALIFICATIONS · 30 years as a FERC practitioner. · Author/Editor of 17 books on energy law. · Writings cited as authority by the US Supreme Court. · Adjunct lecturer at law school on energy law. · Regulatory practice includes energy projects in foreign countries. Mr. Mogel explained his ability to write books amidst his other activities was accomplished "one page at a time." 1:44:44 PM Page 4 CERTIFICATES OF PUBLIC CONVENIENCE AND NECESSITY · Unlike oil pipelines, before a natural gas pipeline can commence construction and operation it must first obtain a certificate after making a showing of public benefit. · FERC can condition the certificate on numerous matters, including when construction must be completed. · A pipeline cannot expand, terminate or "abandon" service without prior approval of FERC. Mr. Mogel reviewed this information and qualified that it was not intended to be all inclusive. In considering a project for certification, FERC examined "a multitude of issues", which were "set forth in extensive detail" in regulation and "a body of case law." A determination of whether the pipeline would have a public benefit included several factors including environmental. Mr. Mogel defined "condition" as a requirement or requirements that were not "intended by the applicant". A condition that required the project to be completed by a date certain stressed that an applicant could not receive a certificate and "sit on it for a duration of many years and then decide to commence." 1:46:42 PM Mr. Mogel informed that an applicant requested a certificate and "all the provisions the applicant thinks is appropriate in terms of rates, terms and service location, design, etc." Upon consideration of the application the FERC had "three choices", which he described as follows. They can grant the certificate as sought by the applicant. They can grant the certificate and then condition the certificate, i.e. imposing conditions upon the applicant. If that occurs the applicant is not required to accept the certificate and can challenge the FERC administratively and then in the Court of Appeals. The last alternative, of course, of FERC is they can deny the certificate in its entirety. 1:47:03 PM Mr. Mogel spoke to the prohibition on a certificate holder to expand or "abandon" service without prior FERC approval. Mr. Mogel summarized "the very pervasive, extensive regulatory oversight of interstate gas pipelines prior to construction and during operations." 1:47:38 PM Page 5 RATES AND TERMS AND CONDITIONS OF SERVICE · FERC must approve all rates, rate changes and terms and conditions in a natural gas pipeline's tariff. · FERC has authority to investigate existing rates of a natural gas pipeline. · Rates that are not "just and reasonable" may be rejected and refunds can be ordered. Mr. Mogel noted that the FERC also had this oversight. 1:48:08 PM Mr. Mogel reported that under the provisions of the Natural Gas Act, "if a rate goes into effect it goes into effect subject to refund if FERC hasn't acted on the rate and then the FERC can order refunds." In addition to "waiting for the applicant to make rate proposals", he stated that the FERC could investigate current rates on either its initiative, "on motion of certain parties". The refund authority existed in these instances as well. 1:48:42 PM Page 6 INTERSTATE NATURAL GAS PIPELINES ARE REQUIRED TO BE "OPEN ACCESS" · Capacity must be allocated on a non-discriminatory basis to affiliated and non-affiliated shippers. · Rates charged and terms and conditions for capacity must be just and reasonable and may not discriminate or grant a preference to shippers similarly situated. · Capacity release programs must be non-discriminatory and transparent. Mr. Mogel reported on a "major step to restructure or deregulate the natural gas industry" that occurred in 1985. This was during the time that the interstate gas pipeline companies "shifted their business model from being merchants, meaning they bought gas at the wellhead, they transported the gas and then resold the gas at a bundled form to consumers without separating out the cost of transportation or the cost of commodity." The interstate gas pipeline companies transitioned from merchants to common carriers. As a result of the change in the business operations, the FERC "had to apply a regulatory tool to ensure that these pipelines essentially operate with all the guarantees of a common carrier." Mr. Mogel characterized the "hallmark" of a common carrier as "the pipeline - no matter who the owner is and who it's affiliated with, has to open up the capacity on a not fair, non- discriminatory basis and if there're equal claims for capacity it has to make allocations that are equitable and that cannot give a preference for an affiliated company or for any company and it cannot discriminate against a company whether that company is affiliated or not." All activities the FERC undertakes in these matters must be transparent involving "electronic bulletin boards" in which all parties could follow all capacity transactions. 1:50:34 PM Mr. Mogel qualified that natural gas pipelines, similar to a railroad or bus system, was "essentially a common carrier" that must allow for competitive use. The FERC assures this for the pipelines through capacity regulation and oversight. 1:50:49 PM Page 7 INTERSTATE PIPELINES ARE REQUIRED TO ADHERE TO COMPREHENSIVE STANDARDS OF CONDUCT · No preference in sharing of information, setting rates, and terms and conditions between the pipeline and its affiliated marketing company. Mr. Mogel remarked that in addition to the obligation to be a common carrier, FERC imposed standards of conduct on natural gas pipeline companies. The standards were "very detailed rules affecting transactions between the pipeline and its affiliated marketing company" and "required that there be no preferences to an affiliate, that there be no information sharing to an affiliate or discrimination based upon knowledge of information." In the event information was provided to an affiliate of the pipeline company by the pipeline company, the same information must also be "provided to the world". 1:51:35 PM Mr. Mogel explained the intent of the standards of conduct was "directed to many pipelines that are integrated companies with marketing affiliates." Mr. Mogel exampled that FERC prohibited "such things as idle chatter around the water cooler" in which an employee of the pipeline company said "hey, did you hear someone's going to move some gas on this pipeline" was heard by an employee of the marketing company and subsequent action was taken by the marketing company on that information. This was "somewhat of an extreme example" of the "relatively new tool of FERC" to impose the standards of conduct to ensure that the pipelines were operated in a fair non-discriminatory open and transparent manner that did not provide preferences for its own companies. Mr. Mogel stressed that this ability was "extremely important" with regard to the regulatory oversight of the FERC. 1:52:34 PM Page 8 FERC HAS BEEN GRANTED ADDITIONAL PUNITIVE AUTHORITY BY THE EPAct of 2005 · To punish violations of its statutes and regulations by: o Fines of up to $1 million per violation per day. o Disgorgement of unjust profits. o Referrals to the Justice Department for criminal prosecution. Mr. Mogel pointed out that the federal Energy Policy Act passed two years prior granted the FERC significant authority to punish violations. The ability to levy the substantial fines had "gotten everyone's attention". Authority to disgorge unjust profits was in addition to FERC's authority to impose refunds. Mr. Mogel contended the punitive authority provided "serious regulatory tools to ensure adherence to regulations and the statutory obligations that interstate gas pipelines have." 1:53:51 PM Mr. Mogel reported that "in the relatively short time" since the passage of the Energy Policy Act, FERC had imposed fines in amounts ranging from $1 million to $10 million. He stressed that the FERC was "not afraid to use this authority" as it was an "attempt" to regulate interstate gas pipelines and to ensure the pipelines met the obligation of compliance with statute. 1:54:24 PM Page 9 The FERC's regulatory regime for interstate natural gas pipelines is significantly different from oil pipelines and changes since 1985 insure that pipeline's will not act unlawfully or discriminate against shippers. Mr. Mogel reiterated that the Natural Gas Act and the FERC's regulatory regime was a "consumer protection statute". He further commented as follows. The regulatory oversight that FERC has had since 1938 and how it has metamorphosed in more recent years to reflect the change in the operations of interstate gas pipelines is a significant protection against shippers who really in this way are a proxy for consumers. Again I think in this case there should be some comfort that Washington [D.C.] really can help in the oversight of these very large enterprises. Hopefully this will be helpful in thinking about some of the issues that have come up under AGIA [Alaska Gasline Inducement Act]. 1:55:25 PM Co-Chair Stedman requested a review of the differences between the regulation of oil pipelines and the regulation of natural gas pipelines. Mr. Mogel informed that oil pipelines had been regulated since 1912 under the Hepburn Act. The regulatory oversight was initially granted to the Interstate Commerce Commission and transferred to the FERC in 1977 and 1978. The intent of that statute was "not the protection of consumers because the nature of that business was not a consumer business." Rather "it was largely pipelines that were operated by producers of oil and crude and some other products like ammonia and moved to terminals and refineries, which they also owned." Therefore, "the impedance to intensely regulate those or look at consumer concerns was vastly diminished because the nature of that business is very different from the business of interstate natural gas pipelines, which [was] ultimately serving consumers." As an example, "you don't have to get a certificate for an oil pipeline." Mr. Mogel summarized that FERC regulated oil pipelines "in a very different way" because oil pipelines entailed "a very different kind of business." Initial oil pipelines were intended "just to be vehicles so producers of the crude [oil] could move it closer to the market, have it refined and then distributed." 1:57:20 PM Co-Chair Stedman mentioned the non-preferential and non- discriminatory requirements relating to access to natural gas pipelines. He recalled other testimony before the Committee that inferred that an entity which owned a natural gas pipeline could control "to a fairly high degree" the parties that had access to the pipeline. 1:57:47 PM Mr. Mogel relayed his understanding that an owner of a regulated interstate natural gas pipeline must comply with "the broad umbrella of rules" discussed in this presentation. Those rules precluded discrimination against any shipper including a non- affiliated shipper. Capacity could become available through several scenarios, one of which was through an open season. The FERC established rules governing open seasons to ensure that all parties intending to "bid and sign contracts" had an opportunity to commit to an open season. In the event bids exceeded the capacity of the line, the operator of the pipeline was required to allocate based on a ratio of the capacity available to the bids for capacity. Once a pipeline was operating, the operator must electronically post the available capacity to notify all interested parties of the option to bid on the capacity. Through its enforcement division, the FERC monitored these activities. 1:59:17 PM Senator Elton, referencing Page 6 and the bullet point pertaining to "just and reasonable" rates, terms and conditions, assumed the provision applied to a pipeline owner. He asked if, as part of an agreement in which the State paid $500 million toward a natural gas pipeline and in return took "an equity position in the pipeline", whether the State would be precluded from offering any inducements to parties that participated in the first open season. 2:00:25 PM Mr. Mogel affirmed that the provision applied to the pipeline owner. However, the State in the described scenario would not be considered the operator of the pipeline and therefore inducements offered by the State would not affect the operation of the pipeline. 2:00:58 PM Senator Elton surmised that "operator" was defined elsewhere in the regulations and statutes governing natural gas pipelines as the entity "making the day to day decisions" and that the definition was "not expansive enough to include those who have an equity stake that hire the operator." 2:01:21 PM Mr. Mogel clarified that "natural gas company" and not "operator" was the term utilized in the Natural Gas Act. Regardless, many of the companies that operated natural gas pipelines had "thousands of shareholders" and presumably, those shareholders did not have direct operation authority. The licensee, or FERC certificate holder, was typically the natural gas company and was obligated to comply with the requirements. 2:01:53 PM Senator Thomas utilized for comparison purposes the Trans Alaskan Pipeline System (TAPS) in which Alyeska was the operator and several oil companies owned the pipeline. He asked if in this situation, Alyeska would be the entity subject to the regulations. 2:02:13 PM Mr. Mogel responded that because the TAPS was an oil pipeline it was subject to a different federal statute. 2:02:30 PM Senator Thomas clarified he utilized the TAPS as an example and asked if it were a natural gas pipeline operated by a company such as Alyeska that was "based on three or four" of the major lease holders at Prudhoe Bay whether Alyeska would be the sole entity over which the FERC had authority. 2:03:09 PM Mr. Mogel affirmed the scenario was correct if Alyeska was the FERC certificate holder. However, FERC oversight had broader authority in that it governed the terms and conditions of the company's operations. 2:03:22 PM Senator Thomas asked if the Alaska natural gas pipeline traversed to states through Canada, whether FERC would oversee operations occurring in the U.S. states but not operations occurring outside the country. 2:03:46 PM Mr. Mogel affirmed that the FERC had no authority in Canada. 2:03:52 PM Senator Olson asked the number of times natural gas pipeline operators had been prosecuted or had penalties levied against them. 2:04:28 PM Mr. Mogel replied that the FERC and its predecessor, the Federal Power Commission, had always had the ability to levy fines and refer offenses to the U.S. Department of Justice for criminal prosecution if it determined that behavior was anti-competitive or violated the terms of the certificate. He was uncertain of the frequency such actions had been taken in years prior to 2005. Since August 2005, with the expanded authority granted to FERC, the agency had imposed fines in six instances. The amount of the first levy was $10 million against NRG Energy. Other fines had been in lesser amounts with $1 million being the lowest. The FERC always had the ability investigate matters and issue refunds. An enforcement office exists within the agency to ensure compliance. 2:05:51 PM Senator Huggins asked the preponderance of rolled in rates, and ultimately "subsidizing subsequent shippers", experienced by FERC and whether any precedence was established regarding this matter. 2:06:17 PM Mr. Mogel responded that rolled in rates was "not a new subject for companies appearing before FERC." Recent policy has generally been supportive of rolled in rates as compared to incremental rates. He explained, "What they really look at and whether or not they would approve a rolled in rate, 'is there a benefit to the system in its entirety." FERC had often concluded "that is appropriate, it encourages more through put; there are benefits in that regard." FERC had determined that rolled in rates were not deemed to be a subsidy because they provided benefits to the customers "already on the system". Mr. Mogel gave an example of an incremental rate approved by the FERC as a large interstate gas pipeline and a fertilizer plant. Fertilizer plants were large consumers of natural gas. In this example, the fertilizer plant intended to locate 25 miles off of the main pipeline and sought a spur pipeline to connect the two. In this instance FERC would likely conclude that the rate applied should be an incremental rate because it would not benefit the system as a whole or benefit other consumers. 2:07:47 PM Senator Huggins concluded that the FERC was a federal agency and that the State should recognize that the FERC "generally operates off precedence" imposed "clearly defined rules" and "by and large" FERC determinations were predictable. Therefore, "FERC is not an agency that we as a State should be concerned about because they're gonna do what they're gonna do and they have a history of that." 2:08:49 PM Mr. Mogel disagreed. The State should be concerned about the FERC because the agency was "here to help in the administration of how these pipelines operate." FERC was bound by statute and by precedence and would operate within those perimeters. The FERC was "a very professional agency", which was "independent" with five of the commissioners appointed by the President of the United States and representing both major political parties. The agency also had a "strong staff and a strong history". The State should be "concerned in a positive way" because the agency would be able to assist in addressing some of the concerns raised. 2:10:07 PM Co-Chair Hoffman recalled consideration given the previous legislative session to rolled-in rates versus incremental rates. Page 5 of Mr. Mogel's presentation indicated that this should not be a concern to the State because the FERC would make rate decisions based on the best interest of consumers and shippers. 2:10:52 PM Mr. Mogel stated that the establishment of rates was under the jurisdiction of the FERC. The State could express its preference of rate structure to the FERC for consideration. 2:11:47 PM Senator Dyson asked of any detriment if the State proclaimed its preference for rolled in rates through this enabling legislation. 2:12:13 PM Mr. Mogel answered that such action would result in no detriment. The State should express its preference because the FERC had a large constituency including municipal and state governments, applicants, interveners and shippers, which also express preferences. The FERC was obligated to consider all parties' requests. Therefore, "there would be value to at least express what the State of Alaska thought was appropriate for a gas pipeline of this incredible magnitude." 2:12:54 PM Co-Chair Stedman announced that the presentation was concluded. 2:13:10 PM Mr. Mogel, citing his considerable experience, predicted that the Alaska natural gas pipeline would "probably be the largest … energy infrastructure project in North America." AT EASE 2:13:24 PM / 2:15:30 PM 2:15:43 PM Co-Chair Stedman directed attention to a document dated 4/20/07 that consisted of the text and annotated changes to CS SB 104 (JUD) [copy on file]. Page numbers were reflected and generally coincided with the page numbers on the original committee substitute, however, line numbers were not shown. 2:16:58 PM PAT GALVIN, Commissioner, Department of Revenue, announced that a proposed committee substitute was being drafted primarily in response to testimony heard in legislative committees as well as to incorporate suggestions made by the Division of Legal and Research Services. The aforementioned document reflected the changes that would be incorporated into the committee substitute. 2:18:09 PM MARCIA DAVIS, Deputy Commissioner, Department of Revenue, detailed the changes proposed for the committee substitute in the document. The first change would "correct" the title of the bill by inserting, "providing inducements for the construction of a natural gas pipeline and shippers that commit to use that pipeline;". 2:18:36 PM Chapter 90. Alaska Gasline Inducement Act Article 1. Inducement to Construction of a Natural Gas Pipeline in this State. Section 43.90.010. Purpose. (page 1) Ms. Davis characterized as "editorial changes", the proposed amendments to the language of paragraph (3) of Section 43.900.010. These changes had also been incorporated into the companion bill under consideration in the House of Representatives, HB 177, and were recommended by the Division of Legal and Research Services. The amended language reads as follows. (3) maximizes benefits to the people of the state from the development of oil and gas resources in the state; and 2:18:52 PM Ms. Davis stated that the proposed changes to paragraph (4) on page 2 would provide clarification and would read as follows. (4) encourages oil and gas leases and other persons to commit to ship natural gas from the North Slope to a gas pipeline system for transportation to markets in this state or elsewhere. 2:19:07 PM Article 2. Alaska Gasline Inducement Act License Section 43.90.100. Gas Project (page 2) Ms. Davis informed that corrections to subsection (b) of Section 43.90.100., had been made in the House of Representatives companion legislation and were also recommended by the Division of Legal and Research Services. The amended language reads as follows. (b) Nothing in this chapter precludes a person from pursuing a gas pipeline independently from this chapter. 2:19:19 PM Section 43.90.110. Natural gas pipeline project construction inducement. (pages 2 and 3) Ms. Davis noted changes made to subparagraph (a)(1) of Section 43.90.110., of HB 177 were also recommended for the Senate version before the Committee. 2:20:15 PM Ms. Davis directed attention to the inserted language reading, "or satisfying any other requirement of an agency with jurisdiction over", to subsection (a)(1)(C) on page 3. This change was intended to recognize the numerous "permitting agencies that get engaged and involved in the permitting of a project". Inclusion of this language was requested by TransCanada but would also benefit other producers or license applicants. The amended language of Section 43.90.110(a) on pages 2 and 3 would read as follows. (1) subject to appropriation, state matching contributions in a total amount not to exceed $500,000,000, paid to the licensee during the five-year period immediately following the date the license is awarded; the payment period may be extended by the commissioners under an amendment or modification of the project plan under AS 43.90.210; a payment under this paragraph shall be made according to the following: (A) on or before the close of the first binding open season, the state shall match the licensee's qualified expenditures at the level specified in the license; however, the state's matching contribution may not exceed 50 percent of the qualified expenditures incurred before the close of the first binding open season; (B) after the close of the first binding open season, the state shall match the licensee's qualified expenditures at the level specified in the license; however, the state's matching contribution may not exceed 80 percent of the qualified expenditures incurred after the close of the first binding open season; (C) a qualified expenditure is a cost that is incurred after the license is issued under this chapter by the licensee or the licensee's designated affiliate, and is directly and reasonably related to obtaining a certificate or amended certificate of public convenience and necessity from the Federal Energy Commission or the Regulatory Commission of Alaska, as appropriate, or satisfying any other requirement of an agency with jurisdiction over the project; in this subparagraph, "qualified expenditures" does not include overhead costs, litigation costs, the cost of an asset, or work product acquired or developed by the licensee before the licensee is issued, civil or criminal penalties or fines; and 2:20:55 PM Ms. Davis stated that the insertion of a subsection (b) to Section 43.90.110 on page 3 would provide clarification to "emphasize the regulatory requirements; the need for regulations to flush out the qualified expenditures". The new subsection was added to HB 177 and reads as follows. (b) The commissioner of revenue in consultation with the commissioner of natural resources shall adopt regulations for determining whether an expenditure is a qualified expenditure for the purposes of (a) of this section. 2:21:13 PM Section 43.90.120. Request for applications for the license. (page 3) Ms. Davis characterized the language changes to subsection (b) of Section 43.90.120., as "minor edits carried over by" the Division of Legal and Research Services and would read as follows. (b) The commissioners may use independent contractors to assist them in developing the request for applications and in evaluating applications received under this chapter. 2:21:24 PM Section 43.90.130. Application requirements. (pages 3 through 10) Ms. Davis relayed testimony of producers over the current language of "detailed complete" of Section 43.90.130(2). Concern had been expressed that this verbiage required "a certain level of detail under FERC terminology", which would be "impossible given the preliminary stage of submitting an application. An effort was made with the following proposed changes to assure that this was not the intent. (2) provide a thorough description of a proposed natural gas pipeline project for transporting natural gas from the North Slope of this state to market, and which may include multiple design proposals, including different design proposals for pipe diameter, wall thickness and transportation capacity, and which shall include … Ms. Davis acknowledged that the usage of "thorough" rather than "complete" could be debated, but that the intent was to eliminate "detailed". 2:22:07 PM Ms. Davis explained that the proposed amendments to the subsections of Section 43.90.130(2) would address concerns expressed by producers that an application could be denied because "they were suggesting a specific proposal of a certain pipe size, and that in fact they may end up with a different pipe size based on other criteria." The amended language would "create the opportunity to provide multiple scenarios within a proposal so that that way they can cover different potential fact patterns. These changes had been incorporated into the companion legislation under consideration in the House of Representatives. 2:22:43 PM Ms. Davis then detailed the proposed changes to the subparagraphs of paragraph (2). Statutory reference to the "over the top pipeline route" would be inserted to AS 49.90.130(2)(A) and the provision would read as follows. (A) the route proposed for the natural gas pipeline which may not be the route described in AS 39.35.170(b); Co-Chair Stedman identified the over the top pipeline route as north of Latitude 68. Ms. Davis affirmed. 2:23:20 PM Ms. Davis informed that "clean up" changes had been made to subparagraphs (B) (C) and (D) in the House of Representatives; specifically, the addition to (C) of "including a description of all pipeline access and tariff terms the applicant plans to offer". This "callout of tariff and access terms had been embedded in" the language of subparagraph (D), which related to the Canadian and marine sections of the pipeline but should be applied to all applications. The amended language would require all applications to provide a description of their pipeline access and tariff terms. The references could subsequently be eliminated from subparagraph (D). 2:24:12 PM Ms. Davis also pointed out that the deletion of "demonstrating" following "analysis" in subparagraph (C) was recommended after the voicing of concerns by producers that it represented a "threshold of how much proof and how much certainty needed to be had in hand at the time of making the application as opposed to later." The Department did not intend to impose "such a high standard that it would be difficult to file an application." 2:24:47 PM Ms. Davis noted conforming changes to the amendment of paragraph (2) with the replacement of "detailed complete" with "thorough" would be made to paragraph (2)(D)(i). 2:25:03 PM Ms. Davis spoke to "grammar and style changes" proposed by the Division of Legal and Research Services for paragraph (2)(D)(ii). 2:25:15 PM Ms. Davis directed attention to the reference to "amended certificate" inserted to the language of (ii). This addition was recommended because TransCanada, a likely AGIA applicant, held an existing certificate and if granted the license would apply for an amendment to that certificate. The amended language of Section 43.90.130(2)(B), (C) and (D) on pages 4 and 5 would read as follows. (B) the location of receipt and delivery points and the size and design capacity of the proposed natural gas pipeline at the proposed receipt and delivery points, except that this information is not required for in-state delivery points unless the application proposes specific in-state delivery points; (C) an analysis of the project's economic and technical viability, including a description of all pipeline access and tariff terms the applicant plans to offer; (D) an economically and technically viable work plan, timeline, and associated budget for developing and performing the proposed project, including field work, environmental studies, design, and engineering, implanting practices for controlling carbon emissions from natural gas systems as established by the United States Environmental Protection Agency, and complying with all applicable state, federal, and international regulatory requirements that affect the proposed project; the applicant shall address the following: (i) if the proposed project involves a pipeline into or through Canada, a thorough description of the applicant's plan to obtain necessary rights-of-way and authorizations in Canada, a description of the transportation services to be provided and a description of rate making methodologies the applicant will proposed to the regulatory agencies, and an estimate of rates and charges for all services; (ii) if the proposed project involves marine transportation of liquefied natural gas, a description of the marine transportation services to be provided and a description of proposed rate-making methodologies; an estimate of rates and charges for all services by third parties; a detailed description of all proposed access and tariff terms for liquefaction services or, if third parties would perform liquefaction services, identification of the third parties and the terms applicable to the liquefaction services; a complete description of the marine segment of the project, including the proposed ownership, control, and cost of liquefied natural gas tankers, the management of shipping services, liquefied natural gas export, destination, re- gasification facilities, and pipeline facilities needed for transport to market destinations, and the entity or entities that would be required to obtain necessary export permits and licenses or a certificate or amended certificate of public convenience and necessity from the Federal Energy Regulatory Commission for the transportation of liquefied natural gas in interstate commerce if United States markets are proposed; and all rights-of-way or authorizations required from a foreign country; 2:25:49 PM Ms. Davis next addressed the requested insertion of language to Section 43.90.130(3)(B) to accommodate the existing FERC certificate held by TransCanada and to exempt that company from repeating the pre-filing procedures. The amended subparagraph would read as follows. (B) apply for Federal Energy Regulatory Commission approval to use the pre-filing procedures set out in 18 C.F.R. 157.21 by a date certain, and use those procedures before filing an application for a certificate or amended certificate of public convenience and necessity, except where the producers are not required as a result of section 5 of the President's Decision issued pursuant to the Alaska Natural Gas Transportation Act of 1976; and 2:26:55 PM Ms. Davis stated that the "editing change" proposed to Section 43.90.130(7)(E) on page 7 was recommended by the Division of Legal and Research Services and would read as follows. (E) will not enter into a negotiated rate agreement that would preclude the applicant from collecting from any shipper, including a shipper with a negotiated rate agreement, the rolled-in rates that are required to be proposed and supported by the applicant under (B) of this paragraph or the partial rolled-in rates that are required to be proposed and supported by the applicant under (C) of this paragraph. 2:27:07 PM Ms. Davis informed that the changes shown to AS 43.90.130(8) and (10) through (12) on page 8 reflected Division of Legal and Research Services edits integrated into the House Resources committee substitute for HB 177. The amended language reads as follows. (8) state how the applicant proposes to deal with a North Slope gas treatment plan, regardless of whether that plant is part of the applicant's proposal, and, to the extent that the plant will be owned entirely or in part by the applicant, commit to seek certificate authority from the Federal Energy Regulatory Commission if the proposed project is engaged in interstate commerce, or from the Regulatory Commission of Alaska if the project is not engaged in interstate commerce; for a North Slope gas treatment plant that will be owned entirely or in part by the applicant, for rate-making purposes, commit to value previously used assets that are part of the gas treatment plant at net book value; describe the gas treatment plant, including its design, engineering, construction, ownership, and plan of operation; the identity of any third party that will participate in the ownership or operation of the gas treatment plant; and the means by which the applicant will work to minimize the effect of the costs of the facility on the tariff; (9) … (10) commit to propose and support rates for the proposed project and for any North Slope gas treatment plant that the applicant may own, in whole or in part, that are based on a capital structure for rate-making that consists of not less than 70 percent debt; (11) describe the means for preventing and managing overruns in costs of the proposed project, and the measures for minimizing the effects on tariffs from any overruns; (12) commit to provide a minimum of five delivery points of natural gas in this state; 2:27:18 PM Ms. Davis addressed language changes proposed to paragraph (16) on page 9. The committee substitute passed by the Senate Judiciary committee, contained a provision to require an applicant to waive its right to appeal either the issuance of a license or the determination that no application merits award of the license. This provision had initially been determined adequate to "cover all of the things that could come about as a result of receipt and consideration of application. Upon further review "absolute clarity around the issue of rejection of an application" was determined necessary. The proposed amendment would stipulate that by participation as an applicant, a party would waive its legal right to object to the legal process of consideration of its application, including the issuance or non- issuance of a license. Ms. Davis qualified that "constitutional claims would lay where they lay, but this takes out the procedural and substantive type claims." The proposed language reads as follows. (16) waive the right to appeal the rejection of an application is incomplete, the issuance of a license to another applicant or the determination under AS 43.90.180(b) that no application merits the issuance of a license; 2:28:31 PM Ms. Davis stated that deletion of "the affiliates of the applicant, all partners, members of a joint venture," following "description of the applicant" from paragraph (19) was intended for "clean up" because "all entities" was sufficient. (19)provide a detailed description of the applicant and all entities participating with the applicant in the application and the project proposed by the applicant, and persons the applicant intends to involve in the construction and operation of the proposed project; the description must include the nature of the affiliation for each person, the commitments by the person to the applicant, and other information relevant to the commissioners' evaluation of the readiness and ability of the applicant to complete the project presented in the application; 2:28:54 PM Ms. Davis continued that amendments to paragraph (20) on page 10 were recommended as a result of testimony from producers stressing the need for a reference in the evaluation criteria of an applicant's prior history and current abilities. The intent was to not require extensive detail, as additional information would be discovered during the application process. This would allow "side by side" comparison of all applications. The paragraph as amended would read as follows. (20) demonstrate the readiness, and financial and technical ability to perform the activities specified in the application, including the applicant's history in safety, health and environmental compliance and in following a detailed work plan, timeline, and operation within an associated budget. 2:30:22 PM Section 43.90.140. Initial application review; additional information requests; complete applications. (page 10) Ms. Davis relayed contentions by legislators that the process must be "unassailable" in its fairness. Commissioners should therefore not review any applications received prior to the deadline to prevent allegations that information from these applications were "filtered back to" other applicants that had not yet submitted applications. To accomplish this, the following language was recommended for subsection (a). (a) Upon expiration of the deadline for the filing of applications under AS 43.90.130, the commissioners shall open all applications and review each application to determine whether it is consistent with the terms of the request for applications and meets the requirements of AS 43.90.130. The commissioners shall reject as incomplete an application that does not meet the requirements of AS 43.90.130. 2:31:10 PM Ms. Davis also spoke to applications deemed incomplete because they failed to meet the requirements of Section 43.90.130 as well as satisfied the material terms of the request for applications (RFA). Concern had been expressed by producers that "somehow if they're disfavored by the Administration … there would be a technicality or some basis upon which their application would be kicked out." Because the RFA would be a specific request for information, a situation should not occur in which an applicant "missed some of the details" and the application denied on that basis. Proposed amended language to ensure this reads as follows. (b) To evaluate whether an application should be rejected under (a) of this section, the commissioners may request additional information relating to the application. (c) If, within the time specified by the commissioners, the applicant fails to provide the additional information requested under (b) of this section, or submits additional information that is not responsive, the application shall be rejected. (d) For an application not rejected under this section, the commissioners shall make a determination that the application, including any requested additional information is complete. 2:32:43 PM Ms. Davis stated that subsection (e) should be amended to address concerns of legislators and producers that once the application process was complete, confidential information must be made immediately available to the legislature. The amended language reads as follows. (e) Except as provided under AS 43.90.150, and after determining which applications are complete, the commissioners shall make all applications available to the legislature. 2:33:36 PM Section 43.90.150. Proprietary information and trade secrets. (page 10) Ms. Davis recommended amendments to this section based on concerns raised by producers that a winning applicant under the current language would be required to "basically open themselves up to complete scrutiny including their proprietary and trade secret information." Criticism was received that this would place an applicant in "a bad position" if it had propriety information about certain technologies. Recognizing that the best possible and most thorough applications should be received, the following language was proposed. (a) At the request of the applicant, information submitted under this chapter that the applicant identifies and demonstrates is proprietary or is a trade secret is confidential and not subject to public disclosure under AS 43.25, unless the applicant is granted a license under this chapter. After a license is awarded, all information submitted by the licensee retained under this chapter and not determined by the commissioners to be proprietary or a trade secret, shall be made public. (b) if the commissioners determine that the information submitted by the applicant is not proprietary or is not a trade secret, the commissioners shall notify the applicant and return the information at the request of the applicant. 2:34:25 PM Senator Dyson recalled other concerns that the applications of unsuccessful applicants would be made public and the financial status, relationships and other information could provide an advantage to its competitors in other situations. 2:35:14 PM Ms. Davis affirmed that the original version of this section included a subsection (c) that provided that an applicant that challenged the process and the issuance of the license must release its application for public availability. With the removal of the right of appeal provisions, this subsection was deleted from the proposed amended committee substitute. The amended language would provide that "all the information that the commissioners agree with the applicant that is proprietary, commercially sensitive or trade secret, will remain protected both for the unsuccessful applicants as well as the successful applicants." This would "recognize the commercial realities" that entities would have "sensitive information". However, the legislators, their agents, and contractors would have the ability to review the confidential information from the moment the applications were deemed complete. This would allow for a "body" in addition to the commissioners to review the applications and "confirming that all is right". Senator Dyson was assured by this language change. 2:36:39 PM Section 43.90.160. Notice, review, and comment. (page 11) Ms. Davis characterized this section as a reaffirmation that except as provided under the previous section pertaining to proprietary information and trade secrets, all applications would be made public regardless of whether they were deemed incomplete. In addition to legislative access to incomplete applications the public would also have access. The changes proposed to this section were in response to concerns raised by producers. 2:37:21 PM Ms. Davis stated that the provision of subsection (c) 160 would "open" the process for legislative participation and review of all application material. This process must be "completely fair and above reproach". This section would establish a time period after the application deadline in which the commissioners would unseal and review all applications and request additional information on any applications deemed incomplete. During this time period, the applications would remain confidential. Once the commissioners had concluded their efforts to secure the additional information, they would make final determinations on which applications were complete and which would be rejected as incomplete. At this point, the legislature's right to view the applications would commence and legislators would sign a confidentiality agreement to access to the confidential information. The legislative process should not begin before the previous steps had been completed to avoid a challenge that information contained in applications was released to other applicants, which could render the process unfair. 2:39:10 PM Ms. Davis pointed out the proposed language change to subsection (c) to clarify that the legislature could retain agents and contractors to perform evaluations of the applications. 2:39:34 PM Section 43.90.170. Application evaluations and ranking. (page 11) Ms. Davis highlighted a proposed change to subsection (b) to delete "six" as an allowable discount rate and insert "five". Five percent would be the preference of the Administration as that is the amount "actually used". The amended language would read as follows. (b) When evaluating the net present value of anticipated cash flow to the state from the applicant's project proposal, the commissioners shall use an undiscounted value and, at a minimum, discount rates of two, five and eight percent, and consider… 2:40:05 PM Ms. Davis recommended the addition of a subparagraph to subsection (b), stressing the need to "explicitly reference" that the amount of the matching contribution would be considered part of the net present value. This change was adopted in the House of Representatives version of AGIA. The inserted language would read as follows. (5) the amount of the matching contribution by the state under AS 43.90.110(a)(1)(A) and (B) proposed by the applicant under AS 43.90.130)9); and Ms. Davis also pointed out that subsection (d), which provided the definition of "net present value" as "the discounted value of a future stream of cash flow", should be deleted from this section. 2:40:26 PM Section 43.90.180. Notice to the legislature of intent to issue license; denial of license. (page 13) Ms. Davis stated that technical changes to this section had been adopted into a committee substitute for HB 177 at the recommendation of the Division of Legal and Research Services. The amended language of subsection (a) replaced "would" with "will". The amended language of subsection (a)(1) deleted "in accordance with" and inserted "on the effective date of the legislative approval under". The full text as amended, reads as follows. (a) If, after consideration of public comments received under AS 43.90.160(a) and evaluation of complete applications under AS 43.90.170, the commissioners determined that an application proposes a project that will sufficiently maximize the benefits to the people of this state and merits issuance of a license under this chapter, the commissioners shall (1) issue a determination, with written findings addressing the basis for the determination; the determination becomes a final agency action on the effective date of the legislative approval under AS 43.90.190(b); 2:40:40 PM Section 43.90.200. Certification by regulatory authority and project sanction. (Page 13) Ms. Davis explained this section would establish the legal requirements for the licensee to proceed with the project once it obtained a FERC certificate. Language changes to this section were recommended following testimony of producers regarding their rights to negotiate with FERC. This section, as amended, would read as follows. (a) A licensee that is awarded a certificate or amended certificate of public convenience and necessity from a regulatory agency with jurisdiction over the project, shall accept the certificate or amended certificate when the order granting the certificate is no longer subject to judicial review or earlier at the licensee's discretion. (b) If the licensee does not have credit support sufficient to finance construction of the project through ownership of rights to produce and market gas resources, firm transportation commitments, or government financing, the licensee shall sanction the project within one year after the effective date of the certificate or amended certificate of public convenience and necessity issued by the regulatory agency with jurisdiction over the project. (c) If the licensee does not have credit support sufficient to finance construction of the project through ownership of rights to produce and market gas resources, firm transportation commitments, or government financing, the licensee shall sanction the project by the later of (1) two years after the effective date of the certificate or amended certificate of public convenience and necessity issued by the regulatory agency with jurisdiction over the project; or (2) five years after the conclusion of the first open season of the project. (d) If the licensee fails to sanction the project as required under this section, the licensee shall, upon request by the state (1) seek approval from the Federal Energy Regulatory Commission or the Regulatory Commission of Alaska, as applicable, to abandon and transfer the certificate or amended certificate to the state or the state's designee; and (2) assign to the state or the state's designee all engineering designs, contracts, permits, and other data related to the project that are acquired by the licensee during the term of the licensee before the date of the abandonment or transfer. (e) The transfer and assignments under (d) of this section as a result of failure to comply with (a) or (b) of this section is at no cost to the state or the state's designee. A transfer under (c) of this section is at the licensee's net cost. (f) In this section, "effective date of the certificate or amended certificate" means the date the order granting the certificate is no longer subject to judicial review or earlier at the licensee's discretion. 2:41:47 PM Senator Elton noted that the amount of time allowed for judicial appeal would be increased under the proposed language of subsections (a) and (b). 2:42:00 PM Ms. Davis responded that "it could be … but it might not". She relayed a concern of producers to acknowledge the negotiation process between the applicant and the FERC that occurs as the certificate was "being finalized prior to being issued". The length of time involved partly depended upon the "power of the two negotiating parties". The applicant's power was the right to seek appeal of a decision it deems inappropriate or unfair. FERC held the rights and powers "because they're ultimately the law of the land except as otherwise ordered by a court of appeal." Under the original provision of this section that limited negotiations to administrative appeals in which FERC issued the final judgment, the applicant would have no negotiating leverage. Therefore, the applicant could extend negotiations for a longer period "knowing that that was the end of the road". Resolution could occur in a shorter period of time if the FERC understood that the applicant had the right of appeal to a court of appeals. She predicted, however, that the time period involved would likely be greater under the proposed provisions. 2:43:21 PM Mr. Galvin disclosed that the Department of Revenue had "struggled" with the issue of the potential extension of the time period. Two factors influenced the decision to allow for judicial appeal. At the stage that such an appeal would be considered, the applicant would likely have invested "hundreds of millions of dollars" into the project and would have a financial "imperative" that would "drive them" to reach consensus with the FERC and to proceed with the project. Therefore, subjecting the applicant to "the license termination hanging over their head" would be a lesser incentive than the financial investment. Mr. Galvin continued with the second factor influencing the decision to eliminate the restriction against judicial appeal of the FERC ruling. In the event a licensee determined that a condition that FERC imposed on the certificate, he argued "what value would there be at that point to the State in saying 'well we're going to move ahead and we're going to take over' if we end up basically going then counter to the party that got us there and would that really be something that's going to drive us closer to getting a gasline going." Mr. Galvin surmised that these factors were interrelated and the Department recognized that the State would likely not exercise its ability to revoke the AGIA license. Given the extent of the concern expressed by the producers, it was determined that the amendment to this section to allow for judicial appeal would be appropriate. 2:45:16 PM Ms. Davis reminded that the current language of subsection (c) would have allowed the applicant five years from the date of issuance of the FERC certificate to obtain sufficient credit support. However, legislators had expressed concern that the length of time was too long and that events could occur during that time period to make the wait "unreasonable from the perspective of the State". Upon further review, the Department developed the proposed solution. 2:46:16 PM Mr. Galvin spoke to the matter as follows. What we recognize is a couple different things associated with this. One is that when had originally envisioned the five years after certification, we were kind of looking at the time frame as the primary time if they didn't have primarily firm transportation commitments that there would be an effort - a serious effort being made to try to secure those through various means that would be available to them both here or in D.C. or through getting transportation commitments from the market. Those efforts we felt we needed to ensure that our licensee would have enough time to pursue all those. What we recognize after the testimony and further discussions with potential participants is that effort will likely start immediately upon the initial open season complet[ion] if the transportation commitments are not obtained at that particular time. So making the five year period tied to the end of that initial open season secured what we felt was the necessary time to ensure that that effort could reach its full opportunity to succeed. Secondly, when you get to the point where you're getting your certificate and you still don't have the credit support, if you've already taken the time to begin to build up to try to obtain that credit support, you've already probably used two or three years, maybe even four to make that effort. And then you get the certificate and bring that down to two years still secured enough time in our view that they will have exhausted their opportunity to do so and we will feel that we've given them enough time to be able to succeed. And ultimately, as I've testified before, we want to provide a structure that the parties that we're trying to attract to this process recognize that they are given the opportunity to succeed. And in the analysis of when the effort [is] going to kick in - when they're going to feel pressed in terms of this deadline approaching - we feel that making this sort of two-pronged opportunity two years from the certificate, recognizing also that we have potential outside deadlines, we've got two years on the federal loan guarantee, that if they've obtained their Canadian certificate prior to their FERC certificate, may expire at this two years as well. So there's some symmetry there as well that will I think drive each aspect of this project towards this common date that seems to reflect both our desire to have a timeframe that's as short as possible so that we're not tied into something beyond its expectation of success, but also that provides our potential participants the recognition that they will have an opportunity to succeed regardless of the contingencies that take place in the meantime. 2:49:43 PM Co-Chair Hoffman indicated that he had expressed concern over the five-year deadline. The proposed language reflected "that we've come a long way in providing for what you've said". However, Co-Chair Hoffman noted the absence of a provision to revoke the AGIA license if the licensee failed to meet the requirements. 2:50:11 PM Mr. Galvin directed attention to Section 43.90.230. License violations; damages., on page 16, which would allow the commissioners to terminate the license under certain circumstances. 2:51:06 PM Senator Huggins identified "another trigger mechanism" as the provision requiring sufficient credit support within five years of the conclusion of the first open season. The time "scale" was different but "gets you to about the same end". 2:51:34 PM Mr. Galvin affirmed the inclusion of two deadlines the applicant must meet and that "the applicant would know that they had five years from the end of the initial open season to try to reach a successful conclusion of getting the credit support [and] also the two years from the certificate." Additionally, "the fact that whichever [was] later means that both of those time periods are secure for applicant whichever sequence they come in because we don't know where they're going to fit in depending upon the proposals." 2:52:11 PM Ms. Davis spoke to the "correction" to Section 43.90.200(f) to ensure that whether or not the licensee had credit support, a specific timeframe would be in effect upon the date that the FERC certificate was no longer subject to judicial review. 2:52:47 PM Section 43.90.210. Amendment or modification to the project plan. (page 15) Ms. Davis deemed this section as "important" and noted significant changes made during its consideration by the legislature. Additional changes were recommended to provide for a project amendment necessitated by requirements of a regulatory agency with jurisdiction over the project. Existing language provided for orders issued by the AOGCC; however, it was discovered that the AOGCC only had jurisdiction over the "gas off take" and did not have jurisdiction over the project. The language changes were requested by the producers to ensure that the project could be amended and that the licensee could respond to regulatory agency requirements. 2:53:52 PM Ms. Davis also noted an amendment to this section to limit the modification process. The intent was to avoid "hamstringing ourselves". The existing language stipulated that a change to the project could not diminish the net present value of the project and "technically that could be five dollars; that could be $100." Clarification must be made to establish a "threshold of materiality" with the insertion of "substantially" and the deletion of "net present". 2:54:35 PM Section 43.90.220. Records, reports, conditions, and audit requirements. (page 16) Ms. Davis informed that this provision would allow the State access to the licensee's records to monitor that the incentive payments were properly expended and that the project plan was being adhered to and deadlines met. The following edits were proposed to subsection (d) ensure that the State would obtain the information necessary. (d) After a license has been issued and until commencement of commercial operations, the licensee shall allow the commissioners to (1) have a representative present at all meetings of the licensee's governing body or bodies and equity holders that relate to the project; (2) receive all relevant notices when and as issued and information sent to the governing body and equity holders; (3) enjoy the same access to information about the licensee as the governing body members and equity owners receive; and (4) receive relevant reports or information from the licensee that the commissioners reasonably request. Ms. Davis highlighted the insertion of an additional subsection to clarify that proprietary or privileged information would not be made public. Otherwise, the ability of the licensee "to have meaningful meetings in its organizational structure" would be defeated. The inserted subsection would read as follows. (e) All propriety or privileged information or trade secrets received by the state under this subsection shall not be subject to public disclosure under AS 40.25. 2:55:39 PM Section 43.90.230. License violations; damages. (page 16) Ms. Davis pointed out that this section contained a list of actions or conduct of a licensee that would constitute a violation of the AGIA licensee and would authorize the State to "activate its various remedies listed". The language of subparagraph (a)(1) should be modified to clarify that the request and receipt of funding from the State for nonqualified expenditures would be considered a violation. Additionally, subparagraph (a)(2) should be "qualified as a result of producer testimony" to address the concern that a licensee should not be held in violation because it was required to make a change to the project by a regulatory body. The proposed language reads as follows. (a) A licensee is in violation of the license if the commissioners determine that the licensee has (1) requested and received money from the state under this chapter for an expenditure that is not a qualified expenditure under AS 43.90.110; (2) except as required to conform with a requirement of a regulatory agency with jurisdiction over the project, substantially departed from the specifications set out in the application without state approval of a project plan amendment or modification under AS 43.90.210; 2:56:41 PM Senator Elton, referencing the proposed insertion of "substantially" to the language of Section 43.90.210., surmised that the same concern would arise with regard to the provision of Section 43.90.220(a)(1). An invoice listing a "series of expenditures" could be provided that included an item of an insignificant amount that was not authorized. He asked the latitude the State and the commissioners would have in this instance. 2:57:28 PM Mr. Galvin responded that the remainder of the violation discovery process would allow for "notice and an opportunity to cure" any oversights. A clerical or technical error would be resolved before potential termination of the license would be considered. 2:58:27 PM Ms. Davis continued recommending the addition of a subparagraph, which would address Co-Chair Hoffman's concerns about enforcement, to read as follows. (4)failed to accept a certificate as required by AS 43.90.200(a) or failed to sanction the project as required by AS 43.90.200(b); or 2:58:48 PM Ms. Davis stated that the Division of Legal and Research Services suggested the following "technical corrections" to subsection (d). (d) If the commissioners and the licensee are unable to resolve the violation within the time specified in (b) of this section, the commissioners shall provide the licensee with notice that the violation has not been cured and provide the opportunity for the licensee to be heard. If, after notice and hearing, the commissioners determine that the violation has not been cured, the commissioners shall issue a written decision that is a final administrative action for purposed of appeal to the superior court in the state. 2:59:09 PM Section 43.90.240. Abandonment of project. (page 18) Ms. Davis spoke to proposed changes to subsection(c)(1) as a result of testimony of producers expressing concerns that under the current language "there would be absolutely no way they could qualify for proving that a project was uneconomic." If a producer held the AGIA license, it would be unable to demonstrate an inability to finance the project because of the relative size of the producer's operations. The insertion of "external" was therefore recommended to allow the producer to "not take into consideration their own financial capabilities as large organizations" The amended subsection reads as follows. (1) project does not have credit support sufficient to finance construction of the project through firm transportation commitments, government assistance, or other external sources of financing; and 2:59:54 PM Ms. Davis mentioned that several technical corrections were suggested for this section. Ms. Davis pointed out the recommended insertion of "upon the state's request" to the language of subsection (e). This would allow "the right of the State to receive an assignment of the license along with all the data and materials is subject to the State's request" in the even of abandonment of the project. The Department could "envision" a circumstance in which the State would not want to incur the cost to acquire the material if the State had contended the project was uneconomic and therefore would not have "a hope of being economic, we wouldn't want to through good money after bad. 3:01:09 PM Section 43.90.260. Expedited review and action by state agencies. (page 19) Ms. Davis informed that the proposed changes to the language of this section were technical corrections. Article 3. Resource Inducement Section 43.90.300. Qualification for resource inducement. (page 21) Section 43.90.310. Royalty inducement. (page 20) Ms. Davis stated that the proposed changes to the language of these sections were recommended by the Division of Legal and Research Services with the exception of the insertion of language to Section 43.90.310(a)(2)(C). The term "gas processing" did not exist in the same context elsewhere in this legislation and therefore would be specifically defined in this subsection as follows. (C) reasonable and actual costs for gas processing; for purposes of this subsection, "gas processing" means post-production treatment of gas to be extract natural gas liquids; and 3:01:42 PM Senator Dyson asked if this change would address the concern raised by Mr. Dickenson in earlier testimony. 3:01:53 PM Ms. Davis assured that this plus other proposed changes would address the concern. 3:02:03 PM Co-Chair Stedman made the following statement. The issue is is there a potential for whoever builds the gasline in particular who builds the gas treatment plant to access the 20 percent credits. And we want to make sure that that door is closed tight; that they cannot access the 20 percent credits. 3:02:36 PM Ms. Davis informed that insertion of language to the provision of subsection (b)(2) was intended to ensure that sufficient detail from the legislature would be provided to the commissioner of the Department of Natural Resources to "direct how the contract, the lease, would be amended to reflect the right that was set up in subsection (a)(3)." That subsection "was the mandate from the legislature that the commissioner of [the Department of] Natural Resources not only make a change to ensure that the transportation costs were handled fairly, but also the time period in which a switching could take place." Both concerns would be addressed in the language change to subsection (b), which would entitle the licensee qualified to receive inducements from the State to the following. (2) to enter into a contract with the state that amends the existing lease terms by providing a mechanism that ensures that when the state exercises its right to switch between taking its royalty in value or in kind for gas committed for firm transportation in the first binding open season of the project, the lessee or other person shall not bear disproportionate transportation costs with respect to the state's royalty gas; and modifying the required period of notice that the state must provide before exercising the state's right to switch between taking its royalty in value or in kind for gas committed for firm transportation in the first binding open season of the project; 3:03:45 PM Section 43.90.320. Gas production tax exemption. (page 23) Ms. Davis reminded that Mr. Dickenson had recommended that a definition of "gas production tax" be provided. The following amendment to the language of subsection (b) would accomplish this and read as follows. (b) The exemption under this section may be applied within 10 years immediately following commencement of commercial operations, and only applied to production taxes that are levied on North Slope gas shipped through firm transportation capacity the person acquired during the first binding open season or shipped in the firm transportation capacity described in a voucher received by the gas producer under AS 43.90.330. 3:04:15 PM Section 43.90.330. Inducement vouchers. (page 23) Ms. Davis acknowledged that the current version failed to reflect the "parallel structure" in which the royalty owner receiving an inducement voucher would be obligated to commit to the rolled in rate treatment and to not protest the treatment "put forth" by the pipeline company. An additional subsection, reading as followed, would provide for this. (d) The person that receives a voucher under this section, and a gas producer that receives resource inducements under a voucher, shall agree that the person or gas producer, and their respective affiliates, successors, assigns or agents will not protest or appeal a filing by the licensee to roll in mainline expansion costs up to the level that the licensee is required to propose and support under AS 43.90.130(7). The agreement required under this subsection may not preclude the person or gas producer or their respective affiliates, successors, assigns or agents, from protesting a filing to roll in mainline expansion costs that the licensee is not required to propose and support under AS 43.90.130(7). 3:04:52 PM Article 4. Miscellaneous Provisions. Section 43.90.400. Alaska Gasline Inducement Act matching contribution fund; disbursements; audits. (page 24) Ms. Davis stated that the Division of Legal and Research Services recommended the insertion of language to subsection (a) to clarify that no additional appropriation of disbursements would be required and that the fund would not be dedicated. This change had been adopted in a committee substitute for HB 177 and reads as follows. (a) There is established in the general fund an Alaska Gasline Inducement Act matching contribution fund. The fund consists of money appropriated to it by the legislature for disbursement to pay the state's matching contributions under AS 43.90.110. Money appropriated to the fund may be spent for the purposes of the fund without further appropriation. Appropriations to the fund do not lapse under AS 37.25.010, but remain in the fund for future disbursements. Nothing in this subsection creates a dedicated fund. Section 43.90.410. Regulations. (page 25) Ms. Davis relayed Division of Legal and Research Services and the Department of Law recommendations for the language of this section to read as follows. The commissioners may jointly adopt or amend regulations for the purpose of implementing the provisions of this chapter. The commissioner of revenue and the commissioner of natural resources may adopt or amend regulations adopted under authority outside of this chapter as necessary to implement the provisions of this chapter. Section 43.90.420. Statute of limitations. (page 25) Ms. Davis noted the following language would establish clarification that only constitutionality challenges would be subject to this provision. A person may not bring a judicial action challenging the constitutionality of this chapter, of the constitutionality of a license issued under this chapter unless the action is commended in a court of the state of competent jurisdiction within 90 days after the date that a license is issued. Section 43.90.430. Interest (page 25) Ms. Davis characterized the following proposed language as a "clean up" suggested by the Division of Legal and Research Services to reflect the language of HB 177 and to specify the statutory reference to AS 43.05.22 rather than a quotation of the existing language of that statute. When a payment due to the state under this chapter becomes delinquent, the payment bears interest at the rate applicable to a delinquent tax under AS 43.05.225. Section 43.90.440. Licensed project assurances. (page 25) Ms. Davis reminded of a question raised during a previous Committee meeting that in the event the State extended preferential treatment to a different project and subsequently made payment to the AGIA licensee of three times the amount of expenses for the AGIA project, whether the licensee would additionally have claims for damages from a breach of contract or other grounds. To demonstrate that the payment would reflect the "sum total" of the State's obligation in the event the State provided support to a competing project, the following sentence was recommended for inclusion in subsection (a), which provided for the payment. The payment under this subsection is in full satisfaction of all claims the licensee may bring in contract, tort or other law, related to the events that gave rise to the payment. 3:07:35 PM Ms. Davis also spoke of clarification needed to the provision of subsection (b) relating to the potential benefit to a competing pipeline project provided by the large project coordinator position that currently existed within the Department of Natural Resources to assist developers of large projects. "Permitting support" was not "tax or royalty" and therefore not subject to compensation to the AGIA licensee if provided to a competing project. To establish this, a new subparagraph to subsection (b) was proposed to read as follows. (3) the review, processing and facilitation of permits, rights of ways and authorizations by state agencies in connection with a competing natural gas pipeline project shall not create any obligation on the part of the state under this section. 3:08:38 PM Senator Dyson voiced concern about a pipeline facilitator position assisting a competing pipeline project. Ms. Davis replied that the pipeline coordinator position that would be added through this legislation would be "exclusive" in assisting the AGIA licensed project. However, existing statute granted the Department of Natural Resources the right to appoint a coordinator for a large project to facilitate and coordinate with other agencies. The individual coordinators would not be the same person. Mr. Galvin furthered that no provision of this bill would prevent the legislature from creating a coordinator position to assist a competing project with the permitting process. 3:10:14 PM Article 5. General Provisions. Section 43.90.900. Definitions. (page 27 and 28) Ms. Davis told of the following recommended addition of a definition of "amended certificate" to exclude "simply a certificate that's been subsequently amended after the passage of AGIA" to avoid "a situation where deadlines start to get extended because of amendments to certificates that got issued after the effective date of the Act." (3) "amended certificate" means a certificate of public convenience and necessity issued by the Federal Energy Regulatory Commission under authority of the Alaska Natural Gas Transportation Act of 1976 that is amended to comply with the terms of the license; Ms. Davis also noted proposed definitions of "applicant" and "gas treatment plant" to read as follows. (4) "applicant" means a person, or group of persons that files an application under this chapter; … (9) "gas treatment plan" means a facility downstream of the point of production that contains gas and removes non-hydrocarbon substances from the gas for the purpose of rendering the gas acceptable for tender and acceptance into a gas pipeline system; 3:11:00 PM Ms. Davis continued pointing out proposed definitions for "net present value", "open season", "point of production", "proprietary" and "trade secret", explaining the technical reasons for their necessity in this section. The inserted language would read as follows. (17) "open season" means the process that complies with 18 C.F.R. Part 157, Subpart B (Open Seasons for Alaska Natural Gas Transportation Projects); (18) "point of production" has meaning set forth in AS 43.55.900(20); … (20) "proprietary" means that the information is treated by the applicant as confidential and the public disclosure of that information would adversely affect the competitive position of the applicant or materially diminish the commercial value of the information to the applicant; … (23) "trade secret" has the meaning set forth in AS 45.50.940(3); 3:12:04 PM Ms. Davis stated that the insertion of a subparagraph to AS 40.25.120(a), pertaining to exemptions to access to public records and amended by Section 4 of the bill on page 32, would "amplify the provision for what are accepted as public records". The subparagraph would reference AS 43.90.150, which pertained to application review and determination of constitutionality, as well as AS 43.90.220(d), which pertained to documents obtained in the course of participation in the licensee's business operation meetings, and reads as follows. (12) records that are (A) proprietary, privileged or a trade secret in accordance with AS 43.90.150 or AS 43.90.220(d); (B) applications that are received under AS 43.90 until notice is published under AS 43.90.160. 3:12:54 PM Ms. Davis noted the recommended addition of a new Section 8 to the bill on page 33 to ensure that the Department of Natural Resources would have authority to adopt and amend regulations pertaining to Title 38, which otherwise related to "the tax code". The language would read as follows. Section 8. AS 38.05.020(b) is amended by adding a new paragraph to read: (10) exercise the powers and do the acts necessary to carry out the provisions and objectives of AS 43.90 that relate to this chapter; 3:13:17 PM Co-Chair Stedman ordered the bill HELD in Committee. AT EASE 3:13:43 PM / 4:11:11 PM