SB 143-RIGHT-OF-WAY LEASING ACT:APPLICATION COST  CHAIRMAN TORGERSON announced SB 143 to be up for consideration. MR. DARWIN PETERSON, staff to Senator Torgerson, told members: One of the legislature's priorities is commercialization of North Slope gas. Any sponsor of a pipeline project will have to obtain a right-of-way across state lands. this bill would authorize the state to be reimbursed for work performed by the State Pipeline Coordinator's Office [SPCO] in preparing to receive and process an application for a right-of-way lease. It also clarified that an applicant must reimburse the SPCO for costs incurred in processing an application whether or not the application is granted. AS 38.35.140 provides that lessee shall reimburse the state for all reasonable costs incurred in processing an application filed for a right-of-way lease. Although the SPCO has entered into an agreement with a lessee seeking renewal of a lease to reimburse the state for costs incurred before receipt of the renewal application, legislative legal services has questioned whether this is authorized under existing law and whether the state can be reimbursed for costs incurred before the receipt of an application. The SPCO anticipates that it will be asked to perform substantial work by prospective gas pipeline lessees this year in anticipation of filing applications later this year or early next year. Much of the cost of this work would clearly be reimbursable to the state if the prospective lessee actually had a pending application. It is important to insure that the state is reimbursed for the significant cost that it will incur in performing work in anticipation and furtherance of the application process. Additionally, the SPCO, in the past, has required a prospective lessee to reimburse the state for costs incurred in processing [an] application even if the application has not been granted. This bill would conform the law to existing practice between the SPCO and prospective lessees to make clear that the state must be reimbursed for the costs of processing an application whether or not the lease is ultimately granted. Prospective lessees cannot expect the state to pay for services requested by them on routes that ultimately are not selected or on applications that may ultimately be withdrawn, suspended, or otherwise not granted. SENATOR ELTON said, "I think this is a great idea." He asked Mr. Coughlin how much it cost for the pre-application process. MR. PATRICK COUGHLIN, Special Assistant to the Resources Committee, answered that this hasn't ever happened in this large of an amount before. Mr. Britt's fiscal note indicates they expect to need $4 million through the first half of the fiscal year. His best estimate is that at least 50 percent would otherwise be reimbursable. SENATOR PEARCE said she noticed on page 1, line 9, the word "reasonable" is already in statute and asked what a reasonable cost would be versus one that the state would not expect to have reimbursed. MR. COUGHLIN said he was just reading the fiscal note and that his understanding based on a conversation with Mr. Britt is that 100 percent of this current budget is based on program receipts which are based on agreements that his office negotiates with lessees to cover the cost of running that office. SENATOR PEARCE asked if these were written agreements. MR. COUGHLIN answered yes and their purpose is to detail the scope of work between the Pipeline Office and the prospective lessee or an applicant, in the case of this bill, so it is clear to the SPCO what is being asked of them and how they are going to be compensated. CHAIRMAN TORGERSON asked Mr. Britt why he estimates he can only collect 50 percent of the application fees. MR. BRITT, Pipeline Coordinator, answered: In normal circumstances, my office is entirely funded through program receipts. The difference here is procuring the amount of starting up a gas pipeline office that didn't previously exist and coordinating with our Canadian and federal counterparts. In the normal course of things, we would be working on a specific application with a specific project proponent and 100 percent of our costs would go to that project proponent….This is unprecedented. We have a number of project proponents and allocative costs between as many as nine separate potential gas pipeline project proponents for costs that are likely to be applicable. Whichever route comes in is going to prove to be challenging, I expect. I really won't know what percentage of the total costs will be reimbursable until I have completed negotiations with a suite of those project proponents. CHAIRMAN TORGERSON said he appreciated that explanation, but he knows that the fiscal note says 50 percent is all they are going to get back and that is incorrect. He stated, "If it was me, I'd have a long discussion with you in Finance [Committee] about what the other 50 percent was going to be for before I'd approve the fiscal note." MR. BRITT responded that he expects to negotiate aggressively. He thought 50 percent was a low-end estimate. CHAIRMAN TORGERSON said he didn't think they would have a project by 2003 and he wouldn't vote for a large appropriation for setting this office up. MR. BRITT responded that his challenge at this point is simply having enough resources to interact with the proponents. "They are making more requests of my office than I have people and money to support at this point. Rather than being ahead of the curve, we are actually behind, at this point." CHAIRMAN TORGERSON said he understood that, but the intent of this bill is that, "You should respond to them, but they should pay you for it. Not us go out and make trips to Canada or wherever else you're talking about going. The Canadians - you should take something off their sheet. They're way ahead of you anyway….We couldn't have that much overhead cost until we actually have a project." SENATOR TAYLOR moved to pass SB 143 from committee with the accompanying fiscal note and individual recommendations. There were no objections and it was so ordered.