HOUSE FINANCE COMMITTEE March 23, 2000 1:55 P.M. TAPE HFC 00 - 80, Side 1. TAPE HFC 00 - 80, Side 2. TAPE HFC 00 - 81, Side 1. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:55 P.M. PRESENT Co-Chair Therriault Representative Foster Co-Chair Mulder Representative Grussendorf Representative G. Davis Representative Moses Representative Bunde Representative Phillips Representative J. Davies Representative Williams Representative G. Davis Representative Austerman was not present for the meeting. ALSO PRESENT Representative Eric Croft; Representative Ramona Barnes; Anne Carpeneti, Assistant Attorney General, Criminal Division, Department of Law; Carol Carroll, Director, Division of Administrative Services, Department of Natural Resources; John Shively, Commissioner, Department of Natural Resources; Charles Boddy, Vice President, Ucibelli Coal Mine; Lorali Meier, Staff, Representative Beverly Masek; Jim Eason, Representative of ANS LNG Sponsor Group, Anchorage. TESTIFIED VIA TELECONFERENCE Roger Marks, Department of Revenue, Anchorage; Nan Thompson, Alaska Regulatory Commission, Anchorage; Jim Stratton, Director, Division of Parks and Outdoor Recreation, Department of Natural Resources; Jerry McCutcheon, Anchorage; Ken Boyd, Director, Division of Oil and Gas, Department of Natural Resources; Nan Thompson, Anchorage. SUMMARY HB 265 An Act extending the termination date of the Alaska regional economic assistance program; and providing for an effective date. HB 265 was POSTPONED for hearing at a latter date. HB 290 An Act relating to stranded gas pipeline carriers and to the intrastate regulation by the Regulatory Commission of Alaska of pipelines and pipeline facilities of stranded gas pipeline carriers. HB 290 was HEARD and HELD in Committee for further consideration. HB 344 An Act authorizing a land exchange between the Department of Natural Resources and Alaska Hard Rock, Inc.; and providing for an effective date. CS HB 344 (FIN) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Natural Resources. HB 350 An Act repealing the statutory bars to the State of Alaska's prosecution of a criminal act that resulted in a conviction or acquittal by the United States, another state, or territory. HB 350 was HEARD and HELD in Committee for further consideration. HB 361 An Act relating to charges for state services; requiring that fees levied by resource agencies for designated regulatory services be based on the actual and reasonable direct cost of providing the services, except in the case of certain negotiated or fixed fees; relating to negotiated or fixed fees of resource agencies; relating to invoices for designated regulatory services; establishing a petition process regarding fees charged by resource agencies for regulatory services; and providing for an effective date. CS HB 361 (FIN) was reported out of Committee on March 22, 2000. The fiscal notes were passed from Committee on March 23, 2000 with new notes by the Department of Natural Resources, the Department of Law, the Office of the Governor, and three notes by the Department of Environmental Conservation. HJR 2 Proposing amendments to the Constitution of the State of Alaska relating to a biennial state budget, to the appropriation limit, and to appropriations from the budget reserve fund. CS HJR 2 (JUD ) was reported out of Committee with individual recommendations and with a fiscal note by the Office of the Lt. Governor dated 1/26/00. HOUSE BILL NO. 361 An Act relating to charges for state services; requiring that fees levied by resource agencies for designated regulatory services be based on the actual and reasonable direct cost of providing the services, except in the case of certain negotiated or fixed fees; relating to negotiated or fixed fees of resource agencies; relating to invoices for designated regulatory services; establishing a petition process regarding fees charged by resource agencies for regulatory services; and providing for an effective date. Co-Chair Therriault spoke to the new fiscal notes contained in the bill packet. He stated that the fiscal notes amounted to more than justified and that there would continue to be work done with the agencies. Co-Chair Mulder MOVED to adopt the fiscal notes to accompany the CS HB 361 (FIN). There being NO OBJECTION, it was so order. CS HB 361 (FIN) moved from Committee on March 22, 2000; it accompanied with the new fiscal notes by the (5) the Office of the Governor, (3) Department of Environmental Conservation and (1) by the Department of Law, and a zero note by Department of Natural Resources. HOUSE BILL NO. 350 An Act repealing the statutory bars to the State of Alaska's prosecution of a criminal act that resulted in a conviction or acquittal by the United States, another state, or territory. ANNE CARPENETI, ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, DEPARTMENT OF LAW, explained that the bill would allow the State of Alaska to prosecute and punish an offender for a crime that has been prosecuted by the federal government or by another state. She noted that since early Statehood, the State of Alaska has had statutory prohibitions on the prosecuting and punishing a person, including a corporation, for an act that another jurisdiction has already prosecuted. The policy is not based on constitutional law; the State and federal constitutional prohibitions against being placed twice in jeopardy for the same act do not prohibit separate jurisdictions from separately prosecuting, and punishing the same act under different bodies of law. Ms. Carpeneti added that recent events have suggested a reconsideration of the policy. The federal prosecution of a cruise ship company for illegally discharging water polluted with oil and hazardous waste into our waters demonstrate that the harm suffered by the State should have been addressed in a separate prosecution. HB 350 will allow Alaska to prosecute an offender if a similar situation should arise. She noted that two cases have arisen in the last two years. The first was with the Royal Caribbean Cruise Line. The federal government prosecuted it under environmental criminal laws with a fine of $1800 dollars. In that case, Alaska did have substantial interest in litigating rights as a State and was unable to do so. The second example is the Raging Bond case. Ms. Carpeneti noted that woman defrauded people out of millions of dollars and was criminally prosecuted by the federal government for the scheme itself. Later the State prosecuted her for securities violations. The State is appealing that case. HB 350 would repeal the statutes that prohibit the State from prosecuting cases such as these. Co-Chair Mulder asked if the State has the ability to prosecute under civil law. Ms. Carpeneti acknowledged that they did. She noted that there is a civil settlement. In response to suggestions by Co-Chair Mulder, Ms. Carpeneti disagreed noting that the civil resolution of a case is very different from a criminal resolution. A civil resolution is done mainly to pay back the losses rather than to punish people who violate our criminal laws in the State. The settlement was for $3.5 million dollars which is not nearly the amount that could have been pursued in a criminal fine. She added that the State could pursue fines in many other categories with the Royal Caribbean Line through the proposed legislation. Co-Chair Mulder referenced the fiscal note from the Public Defenders Agency. He asked why Alaska has had a long- standing bar against excessive prosecution. Ms. Carpeneti replied that it is unknown why that statute was adopted at statehood. It is assumed that Alaska's statutes were borrowed from other western states. Prosecution in those states is on county by county basis, whereas, Alaska has a statewide prosecution system. It is more important to clarify that one county can not prosecute a criminal act. The purpose of the bill is to address where Alaska's interest has not been vindicated. Co-Chair Mulder suggested that removing the bar would not provide assurance that the proposed change would not allow for a multitude of prosecuting at both the federal and State level. Ms. Carpeneti pointed out that there is a Letter of Intent forwarded from the House Judiciary Committee, which clarifies that concern. Co-Chair Mulder argued that he did not see a compelling reason why a case would need to be prosecuted at both the State and federal level. Ms. Carpeneti replied that in some cases, there isn't a "compelling" reason and the State should not prosecute. The State works with the federal government on drug cases all the time. There is never a particular reason in those cases. In certain situations as the two listed above, there is an interest which the State should have been able to pursue. Co-Chair Mulder disagreed. He questions the reason for sticking the State law on those victims for expanded latitude. Ms. Carpeneti replied that civil penalties are part of the cost of "doing business" for most corporations. Criminal penalties are more serious and are a punishment for behavior that is a crime. The ability to prosecute somebody criminally is an important legal ability. Co-Chair Mulder asked if it was such a compelling interest to pursue the Royal Caribbean Cruise Line, why did the State not work with the federal government. Ms. Carpeneti stated that we could have done that, but that does not mean that they would not have prosecuted on their own. Representative J. Davies asked if there was a general bar limitation on double jeopardy between the State and the federal government. He noted that the legislation would provide the State the same latitude which the federal government currently has. Ms. Carpeneti noted that the double jeopardy provision does prohibit the same governmental authority from prosecuting the same act again. It would prohibit the municipality from prosecuting the same act as they derive their source of power from the same State power latitude that is available to the federal government. The federal government does not have a provision like that proposed in HB 350; however, the feds do have guideline provisions. Vice Chair Bunde asked if there was a retroactive portion to the legislation. Ms. Carpeneti stated there was not. Representative Bunde asked if there was an interconnection with the finding impacts on activities outside Alaska. Ms. Carpeneti explained that there was a $18 million dollar criminal fine that would remain separate. Representative Bunde asked if the legislation would be considered a "money maker" for the State. Ms. Carpeneti replied that would be going too far; she noted that the State has interest in "justice" which moves beyond "money". Representative J. Davies referenced the Judiciary Letter of Intent. He recommended incorporating the intent language into statute. Ms. Carpeneti advised that inclusion of that language in statute would make the Department responsible for litigating that issue in every case. She recommended language which would specify that the federal government require the Attorney General or that designee approval, subsequent prosecutions which the Legislature could consider. Co-Chair Therriault asked about the federal perimeters regarding whether lawful action is covered. Ms. Carpeneti replied that is an attorney general policy currently in federal law. Co-Chair Therriault commented that there had been criticism that the Department of Law was remiss in addressing the two above-mentioned cases. He questioned why the State had not undertaken the case first, and then the State could have prosecuted and the federal government could have made their decision after. He questioned the "motivator" for the legislation. Ms. Carpeneti offered to provide more information to the Committee regarding that concern. Representative J. Davies questioned if the underlining premise was correct in that, if the State "gets into the case first", then the statutes would not take affect. Ms. Carpeneti commented that the statutes state that the State can not prosecute if a person has been convicted or acquitted of charges. Representative J. Davies asked the time cut off. Ms. Carpeneti replied that she did not know. Co-Chair Mulder pointed out that these cases had compelling State interest. He asked why the State had not prosecuted these cases first before the federal government. Ms. Carpeneti reiterated that she would provide that information. Representative Grussendorf added that the idea of having criminal laws regarding these concerns, indicates to those parties guilty that they can not do something for fear that they will be criminally charged. He maintained that the civil charge is only the cost of "doing business". Representative Grussendorf emphasized that it would be in the State's best interest to impose the criminal repercussions. HB 350 was HELD in Committee for further consideration. HOUSE BILL NO. 344 An Act authorizing a land exchange between the Department of Natural Resources and Alaska Hard Rock, Inc.; and providing for an effective date. Co-Chair Mulder MOVED to adopt the work draft, HB 344, 1- GH2071\D, Kurtz, 3/22/00, as the version of the bill before the Committee. There being NO OBJECTION, it was adopted. CAROL CARROLL, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF NATURAL RESOURCES, noted that Mr. Stratton, Director, Division of Parks with the Department was on line and she requested that he present the bill to the Committee. JOHN SHIVELY, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES, explained that the bill would provide legislative approval of a land exchange agreement between the Department of Natural Resources and Alaska Hard Rock, Inc. The purpose of the land exchange would be for the State to acquire private land located within and adjacent to Independence Mine State Historical Park near Hatcher Pass. The land to be acquired would be developed to enhance the interpretive and recreational uses of the park. The land the State is exchanging is also located in the Hatcher pass area and is presently under permit to Alaska Hard Rock, Inc. They are interested in receiving title to the land. Commissioner Shively continued, State law requires legislative approval of land exchanges involving lands of unequal appraised value. In the proposed exchange, the State will receive land appraised at $87 thousand dollars while conveying land appraised at $66,500 thousand dollars. Alaska Hard Rock, Inc. is agreeable to this unequal exchange; they would be receiving a federal tax credit for the difference. He pointed out that by adding the land to the Independence Mine State Historical Park, particularly the underground mine tunnel, would add to the tourism potential of the park. JIM STRATTON, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, DIVISION OF PARKS AND OUTDOOR RECREATION, DEPARTMENT OF NATURAL RESOURCES, added that the Division and Alaska Hard Rock, Inc., had worked cooperatively together to determine an appraisal. He commented that the land they are receiving is service land where they currently have mining structures, storage buildings and other facilities, which they are using for underground operations. CHARLIE BODDY, VICE PRESIDENT OF GOVERNMENTAL RELATIONS, UCIBELLI COAL MINE, noted that after working with the Alaska Railroad over the past few years, it was obvious that they would need legislative approval to extend the lease which they had prior to approval of the transfer act of the Railroad with the federal government. The time of the 55- year lease was decreasing in which it became necessary to secure a 30-year mortgage. All the lending institutions wanted an additional 10 years past the term of the loan. The Alaska Railroad does have the statutory authority to issue a lease for longer than 35 years, however, the caveat is that they would then have the right to terminate that lease at any point if that land is needed by the Alaska Railroad. Mr. Boddy noted that if the lease were not extended, a 20-year mortgage would be too expensive. He reminded members that it is just less than a township with about 500 plus acres developed which started in 1977. The town of Healy and Ucibelli has relocated out into the subdivision. Mr. Boddy stressed that they would like to preserve that community. Representative J. Davies asked if consideration had been given to swapping some land with the Alaska Railroad. Mr. Boddy responded that the Denali Borough has not finished all their municipal selections to date. Co-Chair Therriault noted that the town of Ucibelli and Healy use to be on the tracks. The town was developed so that they could move the operations. He noted that transferring to the federal government language has caused a problem for a new loan. Mr. Boddy pointed out that the master lease was taken from the Railroad. Ucibelli was looking for options to move employees off the mine site and the federal government wanted to help with the safety administration. He reiterated that it is important to have the ability to secure each mine site. Mr. Boddy advised that at that time, there was a shortage of additional space for people to relocate. The other businesses, which were operating in that area, were able to plot the subdivision. The master lease allows to get only the recovering costs incurred for the cost of development of the subdivision. Co-Chair Mulder noted that Ucibelli was leasing land from the Railroad and were exchange leasing the land to these people that have homes there. He asked what the families pay for lease costs for that land. Mr. Boddy replied that in 1977, there was an original rental fee in the amount of $1.2 thousand dollars per acre development fee. Those funds were used for the road and recovering a trunk line from the Valley. The rental for years thereafter was $28.87 per acre per year. That cost was spread over the entire subdivision as if every acre was leased. In 1990 to present, there is a $2 thousand dollar development fee for a lot and the rental amount has increased to $100 dollars per acre per year. Co-Chair Mulder interjected that these people have received "a good deal" on the land. He questioned the long-term intention. Mr. Boddy responded that Ucibelli was in a position to do the development in 1977. However, he pointed out they run a coal mine and "being a landlord" is a function that Ucibelli would like to get rid of. Co-Chair Therriault advised that the Alaska Railroad is interested in facilitating the swap. Mr. Boddy agreed, noting that the legislation presupposes that they will be taking that area back. The Denali Park is the one currently being utilized. Co-Chair Mulder questioned if it was the desire of the Railroad to dispose of the property. Mr. Boddy did not know. (TAPE CHANGE, HFC 00 - 80, Side 2). Co-Chair Mulder pointed out that the Railroad could take advantage of all the improvements made to the land. Representative J. Davies pointed out that the way in which the legislation is structured, the Railroad would not be able to terminate the lease. It would always be a lease and not an ownership situation. Representative J. Davies agreed that a private land arrangement would be the most beneficial to everyone. Ms. Carroll advised that the fiscal note would not change with the committee substitute. Co-Chair Mulder MOVED to report CS HB 344 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CS HB 344 (FIN) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Natural Resources. HOUSE BILL NO. 290 An Act relating to stranded gas pipeline carriers and to the intrastate regulation by the Regulatory Commission of Alaska of pipelines and pipeline facilities of stranded gas pipeline carriers. LORALI MEIER, STAFF, REPRESENTATIVE BEVERLY MASEK, stated that before a North Slope natural gas pipeline project can proceed, certain amendments to existing State statutes would be required. These changes are intended to: ? 1) Apply to all potential North Slope natural gas pipeline projects, ? 2) Clarify respective State and federal jurisdictions in regulating such projects, ? 3) Be complementary to a non-discriminatory federal process which will apply to any export volumes of North Slope natural gas, ? 4) Provide for local (in State) gas transportation and sales; and ? 5) Provide needed exemption from public utility designation for a North Slope natural gas pipeline project. Ms. Meier noted that HB 290 would amend the Pipeline Act (AS 42.06) to define a North Slope natural gas pipeline and would clarify that the Regulatory Commission of Alaska's (RCA) authority in regulating a North Slope natural gas pipeline, extends only to the intrastate transportation of gas through such a system, so as to define a fair, predictable and timely process to identify and dedicate sufficient initial capacity in a North Slope natural gas pipeline. Also it would establish the criteria for needed pipeline system expansions over the life of a North Slope natural gas pipeline system to accommodate increased demand for in State gas supplies. Ms. Meier pointed out that HB 290 would amend the Public Utilities Act (AS 42.05) to clarify that North Slope natural gas pipeline systems are exempt from the requirement of operating as a public utility. The bill would also amend the right-of-way Leasing Act (AS 38.35) to limit the requirement of common carriage for North Slope natural gas pipeline systems to the transportation of intrastate gas volumes. Ms. Meier stated that HB 290 would define the types of intrastate transportation services that would be available in a North Slope natural gas pipeline system. The legislation will provide that the North Slope natural gas pipeline carrier may charge separate rates for those services. Additionally, they would charge a reservation fee for reserving capacity in a North Slope natural gas pipeline system. Ms. Meier concluded that collectively, these changes are intended to provide greater certainty and predictability in the regulation of North Slope natural gas pipeline systems. The increased certainty would enhance the ability of gas export project sponsors to market Alaska's North Slope natural gas reserves, to compete more effectively with alternative export projects and to attract the large investments required to construct and operate the pipeline and related facilities. In response to Co-Chair Mulder, Ms. Meier explained that the proposed legislation was the "second phase" of the Stranded Gas Act. She added that the Stranded Gas Act established a regulatory framework for a natural gas pipeline system. It applies to any project as well but is not project specific. Representative J. Davies asked the significance of why the pipeline would not be operated as a private carrier but instead it would be operated as a common carrier. Ms. Meier replied that any project sponsor would not want to distribute natural gas to a residential area. They would want to leave that up to the Fairbanks Natural Gas Industry. The local distribution companies will act as public utilities. JIM EASON, REPRESENTATIVE, ANS LNG SPONSOR GROUP, ANCHORAGE, spoke to the group's membership. He reiterated that the intent of the bill is straightforward and was written to provide clarity of federal and State regulations for a pipeline. Additionally, it is intended that the regulatory commission would regulate the intrastate portion, the part in the State available for use. The Department of Energy would regulate the export portion. Mr. Eason clarified that the legislation provides for a system to establish how much gas would need to be moved to insure that such a project would be creating a system large enough to be able to compete in projected demand for instate use. Mr. Eason emphasized that the most important purpose of the legislation is to provide certainty to the market and to insure that the volume of gas needed to contract will be available for a long period of time. He added that it is important to insure that the need to guarantee the gas in State is accommodated, which could be accomplished through the oversight of the regulatory commission. KEN BOYD, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, DIVISON OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES, offered to answer questions of the Committee. He noted that the bill is outside the Division of Oil and Gas and involves the RCA and the State Pipeline Coordinators Office. Representative J. Davies asked about the volume limit. Mr. Eason responded that the regulatory commission would approve the construction of a line larger than any previously constructed before the commission. He believed that the cost could be assessed fairly. The intent of the language would insure that the pipeline sponsor would not be required to build a line. Representative J. Davies questioned the language "substantiated by written commitments and contract" previously mentioned. He asked if that would include more than the sponsor group. Ms. Eason did not believe that it would specifically include the sponsor and its contracts, as it would be for export purposes. The intent is that the regulatory commission could monitor the in state use. It is important that there a system be in place, which could expand the capacity as in State demand grows. It is critical to have some idea of the expected demand in the State. ROGER MARKS, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT OF REVENUE, ANCHORAGE, noted that he had been coordinating review of the bill for the Administration. The Administration endorses the bill except for one problem on the tariff structure. He noted that Nan Thompson was on line to address that concern. JERRY MCCUTCHEON, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE, stated that there is no such thing as stranded gas as associated with an oil reservoir. He noted that there were only two that he knew about which could qualify for stranded gas. He did not believe that the proposal would be beneficial to the residents of the State. He emphasized that the gas line would cost half of the actual recoverable oil. NAN THOMPSON, (TESTIFIED VIA TELECONFERENCE), REGULATORY COMMISSION OF ALASKA, ANCHORAGE, stated that the interest of the Regulatory Commission would be to protect the interest of potential instate users. She noted that from her perspective, the bill is "almost" there, with only one more issue remaining. That issue is the tariffing methodology. The issue has been raised but has not been discussed thoroughly enough for everyone to understand the implications of it. She asked to assist in that endeavor. Ms. Thompson noted that Co-Chair Therriault had asked for a list of items that would be excluded from a utility pipeline tariff. There are Alaska Public Utility Commission (APUC) decisions excluding the following types of expenses from utility rates, but no comparable decision excluding them from pipeline rates: ? Public relations costs ? Lobbying expenses ? Charitable contributions ? Association dues ? Extraordinary management compensation ? Research and development costs ? Acquisition adjustments ? Pensions and employee benefits Ms. Thompson noted that only imagination and conscience limit the types of expenses, which a pipeline owner could ask be included in the tariff. The sponsor group correctly noted that RCA would have the authority to exclude these expenses when they are presented for review. However, RCA could not exclude them with the assurance that the pipeline owner would not appeal. An appeal could mean time delays and uncertainty in the business environment and additional legal expenses for RCA and carriers. The carriers would be entitled to argue that those legal expenses should be included in their rates. Ms. Thompson noted that the difference between the utility and pipeline tariff methodology, and how it affects RCA's decision-making process, is well-ar1iculated in a 1992 pipeline decision which states that: "The methodology the Commission uses to determine the value of the property of public utilities is set by statute, A.S. 42.05.441 (b) reads as follows: `In determining the value for rate-making purposes of public utility property used and useful in rendering service to the public, the commission shall be guided by the acquisition cost, or, if lower, the original cost of the property to the person first devoting it to public service, less accrued depreciation. plus materials and supplies and a reasonable allowance for cash working capital when required.' There is no similar provision under AS 42.06. Thus, the Commission is free to determine the appropriate way to value pipeline property for the purposes of ratemaking." Ms. Thompson noted that the Alaska Public Utilities Commission (APUC) went on, in that forty-page opinion, to discuss the options and arguments of the parties and make a decision. RCA can determine what is just and reasonable, but the lack of case law in this area to guide the RCA and the pipeline owners creates room for arguments. She noted that arguments mean delay and litigation expenses and a less predictable environment for instate shippers. The RCA would generally follow its utility tariff decisions, except where the Federal Energy Regulatory Commission (FERC), the federal agency with pipeline jurisdiction, has a different rule. Thus, a prospective in-state shipper would have to reference federal case law to predict the likely outcome of a pipeline tariff case. Ms. Thompson advised that the APUC has set rates for only two oil pipelines in this State. The Kenai Pipeline case cited above was one, and Cook Inlet Pipeline was the other. Both cases were extensively litigated. The APUC has set tariffs for all other oil pipelines based on settlements between the affected parties. Ms. Thompson concluded that APUC has set rates for only one gas pipeline under the pipeline statute. The affected parties agreed to those rates as part of a comprehensive settlement package that has no predetermined value. All other gas pipeline tariffs have been set using a utility tariff methodology. Co-Chair Therriault asked for clarification of what was involved in the various tariff methodologies. Ms. Thompson stated that in the utility statute #381, lists all the exclusions and the exceptions to it. She indicated that the other differences have been derived from decision-making laws. She admitted that this is difficult to articulate and offered to provide it in writing to the members. Ms. Thompson pointed out that if there were a clear rule, it would be easier to predict the outcome. She offered to provide a comprehensive list. Co-Chair Therriault noted that the interest is that the tariff gets applied against the value of the resource or passed on to the users. Ms. Thompson commented that ultimately the impact of this would be, that if the utilities have to pay less, those lower costs would be passed on to their consumers. Mr. Eason responded to comments made by the previous speakers. He observed that the focus of testimony had been the issue of lobbying and regulatory costs. Mr. Eason believed, based on prior conversations, that case law exists dealing with their handling of utility tariff issues. He added that concerns of costs were directed where the regulatory commissioner was dealing with "settled" tariffs. Mr. Eason stated that the rate making involved has been a different process than he would have envisioned. Mr. Eason noted that other pipeline disputes have been resolved through settlement to determine what would and would not be allowed as a tariff. Mr. Eason advised that Ang Lng had accurately reflected their understanding of the Commissioner's authority. He did not foresee the likelihood of disputes coming at that point. The decisions of permitting and certificating, and the terms would be addressed by the Commission. Mr. Eason added that Ang Lng, consequently, does not see the same urgency to establish the ratemaking methodology at this time. Mr. Eason stated that they are opposed to enclosing a utility rate making methodology. He noted that under either statute, the chairman has broad authority to allow or disallow changes. He emphasized that the proposed legislation does not allow anything to happen which the regulatory commissioner can not portray. HB 290 would foreclose any discussion of rates on return and methodology. Mr. Eason commented that the Commissioner pointed out that there are existing pipelines in the State that are regulated under the utilities act. He noted that all of those pipelines requested that inclusion. None of them were required to do that. He reiterated that any project developed to move North Slope natural gas, would be the only pipeline required to file tariffs under the proposed system. Co-Chair Therriault asked Ms. Thompson to respond to the "just and reasonable" reference which would preclude many unjustified expenses. Ms. Thompson agreed with Mr. Eason that all of the current pipelines using the utility tariff making methodology have requested that treatment. She thought that Mr. Eason was suggesting the opposite of her argument which is that the pipeline owners do stand to have less of a recovery. Under either tariffing methodology, the commission is responsible for guaranteeing that the rates are just and reasonable. They would get a fair rate of return under either methodology. It is more likely, because of the uncertainty in the legal field that they stand a chance to make even a little more under a pipeline methodology. She agreed that was something that RCA could control and that the public would have the opportunity to comment. Ms. Thompson noted that her concern was with the potential in state users who are trying to decide even before they see the tariff, if they want to participate in the project. The way that the bill is written, when the pipeline is being designed, the utilities would have to make a decision on how much gas they would want to use in the next several years to insure an adequate capacity to accommodate that. Ms. Thompson stated that it would be easier to make that business decision if there were some certainty in what the shipping rates were going to be. Ms. Thompson continued, the in-state shipper will have a better idea of what they are going to pay in order to make a better business decision regarding whether or not they will want to participate. Ms. Thompson noted that Mr. Eason's initial comments were regarding the settlement. Most of the pipeline tariffs in the State have been settled between the parties. She believed that a settlement would not be likely to occur in the case proposed by Mr. Eason. The concern is that when there are a number of potential users, that group would be too big to make it likely to reach a settlement. The impact is that there is not much case law or precedence in this State regarding what is an acceptable settlement. She stated that it would be easier to make the decision if the shipping rates were known. Representative G. Davis asked if the proposed amendment would address Ms. Thompson's concern. Ms. Thompson replied that the change required to change a utility methodology so to promote the in-state use of gas should be left to the in- State users. Mr. Eason advised that Chairman Thompson is fully committed to the public's interest. He believed that her view was that the public interest is advanced by the utility rate making methodology. (TAPE CHANGE HFC OO - 81, SIDE 1) Mr. Eason noted that they both believe that the majority of the pipeline tariffs settlements are established by settlement. The concern voiced by Ms. Thompson is that there will not be a settlement. Mr. Eason, however, disagreed. He advised that a small group is undertaking this task and that they would want to "sit down and settle". He observed that Mr. Eason spoke to promoting the use of in- State gas. He noted that there have been lengthy discussions with in-State users of gas. In the process of designing the language to determine the threshold, those users suggested that fears expressed by Ms. Thompson were premature and inappropriate. Co-Chair Therriault stated that he wants the gas-line to be developed and that he wants the best price possible for his constituents without jeopardizing the pipeline. He noted that he sympathized with what the price to the consumer would be. Mr. Eason emphasized that the difficulty is that no one knows the answers. Millions of dollars are being spent with uncertainty of whether a market exists and whether or not the cost can be cut significantly to maintain the safety and integrity of the pipeline. Within that mix lays are all the concerns regarding the future prices of gas and he recognized that everyone has valid concerns. Mr. Eason noted that the issue is that they can not define the sensitivities on the fiscal side. Those discussions will happen in public settings when the facts and numbers are on the table. He asked if it made sense to have a pipeline act and a utilities act if enough methodology is not available to use it. The Legislature decided to have both and to have provisions for either party to present their arguments. Mr. Eason reiterated that this would be the first time that a project would be required to file a rate- making methodology. He acknowledged that it would be a large policy step; the final implications are not yet known. This project would be regulated under the pipeline act and tariffed under the other. The situation will be and will establish a one-time deal. Co-Chair Therriault stated that what is allowed under "just and reasonable" would provide more certainty for the in- State user and for Ang Lng. Ms. Eason disagreed. He stated that the commission has the authority to specify what would be disallowed, and could include items that have already been established under existing case law. He noted that Ms. Thompson's concern is that there is and has been litigation over whether or not they have the authority to exclude certain items after they have already been settled. Mr. Eason believed that was a very different scenario than what this case presents. Ms. Thompson countered that the statute states that both the utility and the pipeline tariffing statutes that the Commission will approve just and reasonable rates. The utility has a couple of specific exclusions. There is case law, which defines what is reasonable and just, and the treatment in certain kinds of expenses which are allowable. Ms. Thompson stated that when a party has an economic interest, there is not clear precedent case law, then the lawyers will have a difficult time proceeding with that case. It could end up in an appeal which would then have to go to the Superior Court. She noted that she was troubled that in those situations, the prospective in-State users would not know what they would be required to pay. Co-Chair Therriault requested that Ms. Thompson provide a list of those items which are not allowed, under the utility method. He advised that HB 290 would be HELD in Committee. He advised that there was an amendment, 1-LS1269\K.4, Chenoweth, 3/24/00, in member's packets that addressed the use of the resource. [Copy on File]. Mr. Eason stated that he had concern with the title change recommended by the amendment. Mr. Boyd added that he shared Mr. Eason's concern with the title change in the amendment. He believed that the amendment would place local need above the projected revenue need of the State as a whole. HB 290 was HELD in Committee for further consideration. HOUSE JOINT RESOLUTION NO. 2 Proposing amendments to the Constitution of the State of Alaska relating to a biennial state budget, to the appropriation limit, and to appropriations from the budget reserve fund. There was discussion amongst Committee members regarding the fiscal note. Representative Phillips clarified that with $2.5 million dollar savings the second year, $1.6 million dollars would be Legislature and rest would be agency. Representative J. Davies voiced concern that there is not a clear idea of how the legislation would be implemented. He asked if the resolution would allow the Legislature to deal with formula driven programs each year. He recommended that a working group be established to address concerns. Representative Grussendorf thought that implementation of the proposed legislation in the State of Alaska would be more difficult. He commented that currently, what occurs is an annual audit within each department. The proposed changes would be shifting the authority elsewhere, placing more dependency on the Executive Branch. He recommended that consideration of the resolution could be considered if the revenue flow became stabilized. Representative G. Davis asked what the effective date would be. Representative Phillips replied that it would become effective 2001. Representative Williams MOVED to report CS HJR 2 (JUD) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CS HJR 2 (JUD) was reported out of Committee with individual recommendations and with a fiscal note by the Office of the Lt. Governor dated 1/26/00. ADJOURNMENT The meeting adjourned at 4:00 P.M. H.F.C. 19 3/23/00