Legislature(2003 - 2004)

02/10/2004 01:14 PM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 296-APPROP: NATURAL GAS DEVELOPMENT AUTHORITY                                                                              
[Contains brief discussion of HB 395 and HB 420]                                                                                
CHAIR KOHRING  announced that the  first order of  business would                                                               
be SPONSOR SUBSTITUTE  FOR HOUSE BILL NO. 296, "An  Act making an                                                               
appropriation to  the Alaska  Natural Gas  Development Authority;                                                               
and providing for an effective date."                                                                                           
CHAIR  KOHRING   said  the   committee  was   going  to   hear  a                                                               
continuation of HB 395 and HB  420, but the work to combine those                                                               
bills is  still ongoing.   Consequently, the [resulting]  bill is                                                               
not ready  to be brought back  to the committee and  thus will be                                                               
held over until a subsequent meeting.                                                                                           
CHAIR  KOHRING   noted  that   Representative  Rokeberg   was  in                                                               
Fairbanks for the [Conference of Alaskans].                                                                                     
Number 0129                                                                                                                     
MARK  GNADT, Staff  to Representative  Eric  Croft, Alaska  State                                                               
Legislature,  presented  SSHB  296 on  behalf  of  Representative                                                               
Croft,  sponsor.   He  noted that  Representative  Croft is  also                                                               
currently  in   Fairbanks  "keeping  a   close  eye  on   the  55                                                               
delegates."      Mr.  Gnadt   characterized   SSHB   296  as   an                                                               
appropriation  to the  Alaska Natural  Gas Development  Authority                                                               
(ANGDA).  He  said this bill had been introduced  last year.  The                                                               
reason for the  sponsor substitute is to  raise the appropriation                                                               
amount to what was asked for  by ANGDA itself, which is where the                                                               
$2.5 million figure  came from.  This bill would  help to support                                                               
ANGDA, which is the voter-created  authority created to look into                                                               
the options of  the LNG [liquefied natural gas] project.   It may                                                               
now be expanding  to help lots of other  developments of bringing                                                               
Alaska's natural gas to market, he said.                                                                                        
MR. GNADT said to date,  ANGDA has received $350,000; the minimal                                                               
amount it would take to get started.   He said [ANGDA] had done a                                                               
great job  with so far but  it had reached a  point, as mentioned                                                               
in  House Finance  Committee testimony,  that it  cannot continue                                                               
its work  without any  more appropriations.   Hopefully,  he said                                                               
this  bill will  be a  vehicle for  [ANGDA] to  get the  money it                                                               
needs to fulfill  the voter mandate to  research bringing natural                                                               
gas to market.                                                                                                                  
Number 0368                                                                                                                     
NELS ANDERSON JR., testified, he noted  that he is a former state                                                               
Representative and  a member of the  Senate.  He said  he was one                                                               
of the  sponsors of  the Alaska  natural gas  pipeline initiative                                                               
passed in  2002, and he is  really looking forward to  this money                                                               
being  appropriated so  ANGDA can  move  ahead with  the work  it                                                               
needs to  do before the June  15 deadline.  Mr.  Anderson said he                                                               
appreciates  the  sponsor  substitute  for  HB  296,  and  is  in                                                               
support.  He stated his belief  that the $2.15 million that ANGDA                                                               
has requested  is necessary,  and he  urged the  [legislature] to                                                               
pass it as quickly as possible.   Mr. Anderson said he is also in                                                               
support of  SB 241, the  companion bill  to SSHB 296,  which also                                                               
requests $2.15  million for ANGDA.   Residents of  [rural] Alaska                                                               
look at  this to answer  several questions facing them,  he said.                                                               
The cost of energy in rural  Alaska is very high.  In Dillingham,                                                               
heating oil  is $2.20 per  gallon, gasoline is $2.85  per gallon,                                                               
and  electric energy  is 20  cents-plus per  kilowatt-hour.   The                                                               
surrounding villages have much higher costs for energy needs.                                                                   
MR. ANDERSON  said it  is thought  if low  cost energy  came from                                                               
stranded  gas on  the North  Slope, it  would help  [residents of                                                               
rural Alaska]  bring down  the cost of  energy by  utilizing that                                                               
gas  to  generate  electricity  at  a lower  cost  than  what  is                                                               
currently being done  with diesel.  In addition, he  said this is                                                               
seen as an  opportunity to provide low cost energy  to revive the                                                               
salmon industry  in [rural  Alaska].   Mr. Anderson  remarked, "I                                                               
think most of you know that  we have been going from one disaster                                                               
to another, and I'm not sure if  2004 is going to be any better."                                                               
He said one rumor  is that fish are going to  be sold for between                                                               
30-35 cents per  pound.  Those are disastrous rumors  if they are                                                               
true, he remarked.                                                                                                              
MR. ANDERSON said  fishermen cannot make a living  from that kind                                                               
of a price for  salmon.  He said this relates  to low cost energy                                                               
from natural  gas in  that [the state]  could develop  a on-shore                                                               
year-round  value added  seafood processing  capability if  there                                                               
was  low cost  energy  available.   Mr.  Anderson  said low  cost                                                               
energy would  allow [fishermen] to  hold large amounts  of salmon                                                               
in  freezer  facilities,  and  also  provide  the  capability  of                                                               
producing world-class salmon products.                                                                                          
MR. ANDERSON  remarked, "We see this  also as a way  of, ... once                                                               
the gas is  online, to get gas  into the treasury to  help us ...                                                               
pay some very serious budget crunches,  because I know all of you                                                               
have schools in  your districts that are  cutting back severely."                                                               
He  said the  University of  Alaska needs  more money  to educate                                                               
[Alaska's]  people  for  development prospects  for  the  future.                                                               
Very  serious "life-held"  safety  considerations  are being  cut                                                               
back because of the lack of money  in the treasury, he said.  Mr.                                                               
Anderson remarked, "We see a  gas pipeline being built very, very                                                               
soon as  a way  of creating jobs  that we in  Bristol Bay  ... in                                                               
addition to putting  new money into the treasury that  we need to                                                               
provide money  for these  services that we  see being  cut back."                                                               
He urged the committee to expeditiously move SSHB 296 forward.                                                                  
Number 0756                                                                                                                     
HAROLD  HEINZE,  Chief  Executive  Officer,  Alaska  Natural  Gas                                                               
Development  Authority (ANGDA),  testified.   Noting that  he had                                                               
sent down  a packet of information,  he said he didn't  intend to                                                               
refer to  everything in it  in great detail.   Bringing attention                                                               
to the outline contained in the packet, he remarked:                                                                            
     In  terms   of  the  Alaska  Natural   Gas  Development                                                                    
     Authority, ... spoken  by the sponsor's representative,                                                                    
     we have been  preceding since the start  of this fiscal                                                                    
     year with  about $350,000 total  funding.  We  have, at                                                                    
     this point,  basically expended that money,  and we are                                                                    
     not  able  to take  on  any  additional work  until  we                                                                    
     receive further funding.  I  have detail for you there,                                                                    
     so that by almost of  a contract categories, if ... you                                                                    
     would,  how we  would  propose to  spend an  additional                                                                    
     $2.15 million dollars.                                                                                                     
     That  money  basically  broadly  covers  three  things.                                                                    
     One,  it provides  us with  the expert  information, so                                                                    
     that we can deal with  the business structure of ANGDA.                                                                    
     Keeping  in  mind  that our  business  contribution  to                                                                    
     moving this project forward is  to have the lowest cost                                                                    
     of service possible to take  advantage of the fact that                                                                    
     we  are a  public agency.    We enjoy  certain tax  and                                                                    
     financing advantages because of that.                                                                                      
     Secondly,  the  money  provides the  development  of  a                                                                    
     model   and  the   performance  of   what  I   call  an                                                                    
     integrative analysis [testimony  interrupted because of                                                                    
     technical problems].                                                                                                       
The committee took a brief at-ease.                                                                                             
MR. HEINZE resumed his testimony:                                                                                               
     The work  here is, again, cover  the business structure                                                                    
     of the authority in which  we are trying to achieve the                                                                    
     lowest cost of  service possible.  We  are developing a                                                                    
     model and  it will provide  a basis for  an integrative                                                                    
     analysis  of the  benefits of  the authority's  work to                                                                    
     Alaska and Alaskans.                                                                                                       
     ... Finally, there  is money included in  there for the                                                                    
     verification  of the  ... key  elements in  the design-                                                                    
     cost estimate that's scheduling of the projects.                                                                           
MR. HEINZE  explained that he'd  provided a sheet  of information                                                               
in  which  details  of  the  11 elements  were  included  as  the                                                               
requirements  in  Ballot  Measure  3   [put  forth  in  the  2002                                                               
election] for the development plan to  be developed by June 15 of                                                               
this  year.   He said  those 11  items are  listed and  that he'd                                                               
cross-referenced how the money would  be used to satisfy those 11                                                               
Number 1013                                                                                                                     
MR. HEINZE  said the  events of  the last  few weeks  have caused                                                               
those thinking  about and  working on  the gas  issue to  kind of                                                               
rethink some things.  He remarked:                                                                                              
     In  particular,   the  entry  of   MidAmerican  [Energy                                                                    
     Holdings Company]  into the issue.   Interject some new                                                                    
     opportunities  in our  mind.   We  are certainly  aware                                                                    
     that  the  state has  before  it  two applications  for                                                                    
     highway projects.   We've long taken  the position that                                                                    
     we  would  like  the  opportunity  to  both  contribute                                                                    
     towards that process and to  interact with the sponsors                                                                    
     of those projects.                                                                                                         
     ... In  particular, as we've  kind of looked  at what's                                                                    
     going on right now on  the stranded gas applications, I                                                                    
     ... wrote  out three areas  that if broadly,  I thought                                                                    
     we could  help in.   Number one is, frankly,  doing the                                                                    
     work  - just  the  actual review,  ... processing,  ...                                                                    
     understanding, and evaluation  of these applications is                                                                    
     going to take a lot of work by (indisc.) resources.                                                                        
     For instance,  we have already  started to work  on the                                                                    
     benefit analysis portion, and that  would seem to be an                                                                    
     important  component in  the state's  considerations of                                                                    
     the applications and  all the terms ...  of other deals                                                                    
     that may be made.   Secondly, because of the uniqueness                                                                    
     of our  business structure, there  may be ways  that we                                                                    
     can help improve the market  ability of the gas for the                                                                    
     ...  This  would  represent  a   way  the  state  might                                                                    
     contribute  for   moving  the  project   forward  with,                                                                    
     frankly, not having  to give up something.   Being in a                                                                    
     positive mode rather  than give up mode,  and we'd like                                                                    
     to certainly be partial to that.                                                                                           
Number 1147                                                                                                                     
MR. HEINZE continued:                                                                                                           
     I am  very excited about the  possibility that somebody                                                                    
     else  is interested  in building  a project  out there.                                                                    
     We would love  to find a way to align  our project with                                                                    
     them.   It would help,  probably, the finances  of both                                                                    
     projects,  but maybe  even more  importantly, we  would                                                                    
     like to make sure that  the benefits of North Slope gas                                                                    
     accrue to Alaska  and Alaskans, so even  with these two                                                                    
     stranded gas  applications, we see  the authority  as a                                                                    
     very positive  player, ... and  we are  working towards                                                                    
     that end.                                                                                                                  
     Again,  we see  ourselves  as working  as  part of  the                                                                    
     administration's  team.    Right now,  Mr.  Porter  and                                                                    
     myself spend a  great deal of time  working through the                                                                    
     contracts that  we're issuing and would  like to issue.                                                                    
     Making sure  that the state receives  good and valuable                                                                    
     information  that helps  in all  regards the  (indisc.)                                                                    
     gas issue.                                                                                                                 
     ...  He and  I, in  the  past, have  talked about  this                                                                    
     concept, that I think he'll  tell you more about, where                                                                    
     it  seems  wise  for  the  state to  look  at  all  the                                                                    
     elements  of North  Slope gas  in ...  one pot  ... and                                                                    
     figure out how to fund it.                                                                                                 
Number 1243                                                                                                                     
MR. HEINZE continued:                                                                                                           
     To that end,  Mr. Porter had a long  discussion with my                                                                    
     board yesterday,  and as a  result of  that discussion,                                                                    
     the board  unanimously passed  a resolution  in support                                                                    
     of  the  proposal you're  going  to  hear from  him  on                                                                    
     ... I've  written it out  there for you,  but basically                                                                    
     it  just  says the  board  of  the Alaska  Natural  Gas                                                                    
     Development Authority supports  the appropriation of $3                                                                    
     million  dollars  in the  remainder  of  FY 04  to  the                                                                    
     Department  of Revenue  for  work  related to  bringing                                                                    
     North Slope gas to market.                                                                                                 
     We certainly  see our funding  as part of that,  and we                                                                    
     believe  that  ...  we  can  contribute  to  the  total                                                                    
     interest of the state, as  well as move forward towards                                                                    
     our project.   Obviously,  there's a lot  of questions,                                                                    
     and  things  about that  I  don't  know at  this  point                                                                    
     because  it's a  dynamic process  that, in  my mind  at                                                                    
     least, we'll know over the next couple months.                                                                             
     ...  On the  very last  page of  my exhibit;  I did  go                                                                    
     through some alternative sort of  scenarios that I made                                                                    
     up, and it  just seems to me that the  level of funding                                                                    
     we were  requesting was an  appropriate level  to carry                                                                    
     out any of those scenarios,  and ... I thought that was                                                                    
     encouraging to me.                                                                                                         
Number 1329                                                                                                                     
REPRESENTATIVE HOLM remarked:                                                                                                   
     In  light  of the  fact  that  Flint  Hills is  in  the                                                                    
     process of  buying Williams  Petroleum in  Fairbanks; I                                                                    
     noticed on your  presentation to us some  time ago that                                                                    
     you  had  a  petrochemical  plant  possibility  in  the                                                                    
     Valdez area;  have you considered since  Flint Hills is                                                                    
     a  huge petrochemical  corporation in  other places  of                                                                    
     the world  that that should  not be considered  more in                                                                    
     the North Pole area rather than down towards Valdez.                                                                       
MR.  HEINZE said  the delineation  of the  petrochemical area  on                                                               
that chart  was one of convenience.   In general, he  said people                                                               
think of  the petrochemical industry  at tidewater  "that doesn't                                                               
mean in the  Alaskan case, for instance,  that that's necessarily                                                               
where  it would  have to  be."   Mr. Heinze  said in  the funding                                                               
request he included  an amount of $20,000, which  is called "down                                                               
the  stream concepts."    He said  the idea  would  be for  ANGDA                                                               
itself not  to get into  the petrochemical business, but  to look                                                               
at some of  the more unique ideas and possibilities.   Mr. Heinze                                                               
suggested that  it may  be desirable for  Alaska to  produce home                                                               
insulation material  for use  in the  state.   He said  the value                                                               
that might  add to  the economy  might be very  large, and  it is                                                               
those opportunities  he thinks  the state should  look into.   He                                                               
remarked,  " I  ... am  not biased  towards any  one location  or                                                               
whatever;   ...   I've   got   to  figure   there's   ways   that                                                               
entrepreneurial people will figure to move things around."                                                                      
Number 1475                                                                                                                     
REPRESENTATIVE  KERTTULA  told  Mr.   Heinze  that  he'd  done  a                                                               
remarkable job with very little  and she and the committee really                                                               
appreciate  it.     She  asked   if  the  full  amount   [of  the                                                               
appropriation] will  go directly  from the Department  of Revenue                                                               
(DOR) back  to ANGDA.   She  remarked, "So  that you  have enough                                                               
money to get us forward," and  said she wanted to ensure that Mr.                                                               
Heinze  has  secretarial  help   and  supplies.    Representative                                                               
Kerttula said she  thought the intent is also to  be able to give                                                               
[ANGDA] enough  money so that  it can physically go  forward, and                                                               
asked Mr.  Heinze if these  funds will  be brought right  back to                                                               
Number 1535                                                                                                                     
MR. HEINZE remarked:                                                                                                            
     It is my understanding that  what we are proposing here                                                                    
     is that  the Department  of Revenue receive  $3 million                                                                    
     dollars.  ... Certainly, our  need for funds is part of                                                                    
     the totality  that is on  the table in that  $3 million                                                                    
     dollars.   Exactly  the  when, why,  and  how, of  that                                                                    
     money  coming  back is  a  process  that would  operate                                                                    
     between the authority and, in  this case, Mr. Porter as                                                                    
     the deputy commissioner of  revenue, and frankly that's                                                                    
     what we've been doing all along anyway.                                                                                    
     ...  I guess  I  would  just suggest  to  you that  I'm                                                                    
     comfortable   in  my   ability  to   ...  justify   the                                                                    
     expenditures and  the value we would  receive for those                                                                    
     expenditures.  I'm very comfortable  in making our case                                                                    
     and ...  meeting our priorities,  our needs,  and that.                                                                    
     On  the other  hand, I  have no  problem entering  into                                                                    
     this  in a  flexible sort  of  way also,  because I  do                                                                    
     believe  that the  events of  the last  few weeks  have                                                                    
     changed the  whole spectrum of opportunities  for us on                                                                    
     North Slope gas  in ways that I would  not have thought                                                                    
     of ...  a month  or even  two months  ago, and  I would                                                                    
     like the opportunity  to maneuver a little  bit as part                                                                    
     of the  administration's team and  let ANGDA  make what                                                                    
     contributions we can,  as well as to  pursue some ideas                                                                    
     we have as to how to move the whole cause forward.                                                                         
MR. HEINZE said almost all of  this money is contractor money and                                                               
is [not meant] to hire a lot  of employees.  He explained that he                                                               
will have  to hire some  temporary employees to help  monitor and                                                               
direct the  contract to work.   He said  his intention is  to not                                                               
have to do that himself.  He  noted that he does have a executive                                                               
assistant and that position may  need to be expanded depending on                                                               
the demands that are placed on that employee at this point.                                                                     
REPRESENTATIVE  HEINZE  said she  wanted  to  ensure he  had  the                                                               
resources [necessary] to  get the information, and  that she knew                                                               
Mr. Heinze was doing a good job.                                                                                                
Number 1682                                                                                                                     
REPRESENTATIVE  HEINZE  asked  Mr.  Heinze if  his  authority  is                                                               
broadened in SSHB 296.                                                                                                          
MR. HEINZE remarked:                                                                                                            
     The  authority in  ... [SSHB  296] as  it exists  right                                                                    
     now,  simply, has  the same  mission as  it always  has                                                                    
     had.  This  just provides funding to do  a certain kind                                                                    
     of work.   Again, it's the actual things we  do to sort                                                                    
     of delve in  the detail, and until you get  down to the                                                                    
     very  details  of the  spending  plan,  it's not  clear                                                                    
     exactly what kind of things are going on here.                                                                             
     What the  money does  provide is  for the  authority to                                                                    
     understand itself  in a business-plan sense  very well.                                                                    
     What it  is weak in, and  purposely so, is in  the more                                                                    
     design and engineering side of  the project, and that's                                                                    
     okay because  work in that  area can be  pushed forward                                                                    
     into  the next  phases.   Remembering  again, that  the                                                                    
     $2.5  million dollars  is not  an end  unto itself,  it                                                                    
     just  gets you  one step  closer, and  there is  a huge                                                                    
     funding requirement  that comes up beyond  this that we                                                                    
     have to decide about.                                                                                                      
REPRESENTATIVE HEINZE asked what  assurance Mr. Heinze would have                                                               
that the money would go to ANGDA,  and in doing all this where is                                                               
the difference in ANGDA's perimeters.                                                                                           
MR. HEINZE remarked:                                                                                                            
     In this case, broadly,  what we're recommending is from                                                                    
     the  authority's point  of view  is  that our  specific                                                                    
     request for the $2.15 million  dollars be included as a                                                                    
     broader request for $3 million  dollars.  Certainly, it                                                                    
     is our intent to participate  to whatever extent we can                                                                    
     in any  of the Stranded  Gas Act  applications, working                                                                    
     with  those  sponsors,  doing whatever  we  can  do  to                                                                    
     contribute towards the state effort.                                                                                       
     So  in   that  sense,   yes,  our  scope   is  probably                                                                    
     broadened.       It   is    taking   on    some   other                                                                    
     responsibilities that  I probably hadn't  thought about                                                                    
     a  month ago  or  two months  ago.   So  there is  some                                                                    
     change  there.   As far  as our  statutory requirement,                                                                    
     there is no change in this bill.                                                                                           
Number 1873                                                                                                                     
STEVE PORTER,  Deputy Commissioner, Department of  Revenue (DOR),                                                               
explained that  as Mr.  Heinze had stated,  [DOR] did  visit with                                                               
ANGDA the previous  day and ANGDA did support  the resolution and                                                               
recommendations that  the department made  in that the  amount of                                                               
this  legislation  be  increased  to $3  million,  and  that  the                                                               
appropriation be  directed through DOR  for North Slope  gas work                                                               
in general.   That  would basically cover  both Stranded  Gas Act                                                               
negotiations  and   ANGDA's  responsibility   underneath  [Ballot                                                               
Measure 3], he said.  He remarked:                                                                                              
     One of  the things  we have  found with  the authority,                                                                    
     over time,  is as  we look at  those elements  that are                                                                    
     required  -  the 10  or  11  elements required  in  the                                                                    
     statute -  ANGDA has come to  us a number of  times and                                                                    
     asked us if we could  not provide them with extra seats                                                                    
     from  our staff  that  wouldn't  necessarily require  a                                                                    
     contract or  funding, but would  allow us to  help them                                                                    
     out ... and assist them.                                                                                                   
     We  have done  it on  occasion.   On occasion,  we have                                                                    
     actually had reports that we  were able to provide them                                                                    
     with information,  so that the information  was already                                                                    
     available and  neither one of  us had to  contract that                                                                    
     out.    There are  other  situations  now, as  we  find                                                                    
     ourselves in, is that we  may actually be doing our own                                                                    
     research  on the  Stranded Gas  Act that  parallels the                                                                    
     Alaska Natural Gas Development Authority.                                                                                  
     That  seems  appropriate  to  kind  of  look  at  those                                                                    
     resources  as a  whole and  look at  the projects  as a                                                                    
     whole and begin  to make decisions ....   The goal from                                                                    
     the state is to provide  the authority ... with all the                                                                    
     finances they need to meet  the requirements already in                                                                    
     Our  goal  as  well  though   is  to  make  sure  that,                                                                    
     especially  in  the  short term,  ...  we  provide  the                                                                    
     authority  with the  finances and  the  support from  a                                                                    
     research standpoint  to position themselves to  be able                                                                    
     to participate in whatever way  they can in the current                                                                    
     negotiations, so  at least in the  immediate focus some                                                                    
     of those feasibilities ... [that]  come forward may not                                                                    
     relate to  the overall  project development  plans, but                                                                    
     we may want  to restructure the timing of  when some of                                                                    
     those obligations are met.                                                                                                 
Number 2017                                                                                                                     
REPRESENTATIVE KERTTULA asked Mr. Porter about restructuring the                                                                
MR. PORTER remarked:                                                                                                            
     The authority moves  forward without acknowledging that                                                                    
     you have  two Stranded  Gas Act negotiations  going on.                                                                    
     The timing and the types  of research they would do ...                                                                    
     could be  quite different in meeting  their obligations                                                                    
     under  these  statutes,   ...  basically,  to  prepare,                                                                    
     develop, and  plan.  Our  recommendation to them  is to                                                                    
     recognize those  things that are going  on around them,                                                                    
     and if there  are things and research that  needs to be                                                                    
     done to support the  overall negotiations, ... that are                                                                    
     doing those first.                                                                                                         
     ...   Stranded   Gas   Act   negotiations   need   that                                                                    
     information,  as  well  as  the  authority  needs  that                                                                    
     information, so they can move forward.                                                                                     
MR. HEINZE said he had not "formed anything hard in his mind,"                                                                  
but in the course of discussion over the last week or so, it has                                                                
become clear to  him that ANGDA may miss its  deadline of June 15                                                               
by a month  or two.  What  would be gained in taking  the time to                                                               
work on  some other  aspects of  this may be  a project  that not                                                               
only  is demonstrative  and  feasible, but  actually  has a  much                                                               
higher probability  of going forward,  he explained.   Mr. Heinze                                                               
remarked, "This  is one  of those  where I  think there's  a hard                                                               
trail between  meeting the exact  deadline and  finding ourselves                                                               
in  a place  where it's  a  dead end,  and  even if  we find  the                                                               
project feasible, but  if we were not able to  build the momentum                                                               
to go forward,  it could be a  dead end."  He said  he thought it                                                               
was  worth a  couple  of  months of  maneuvering  to  see if  the                                                               
probability  of   the  project  going  forward   can  be  greatly                                                               
increased by tying it to other  things that are going on and that                                                               
need to go on in the short term.                                                                                                
REPRESENTATIVE  KERTTULA remarked,  "Well, I  hear the  wisdom in                                                               
that."  She  asked what should be done about  the fact that there                                                               
was an initiative  with a deadline, and she said  what Mr. Heinze                                                               
was  saying certainly  sounds reasonable.   She  told Mr.  Porter                                                               
that she wants the assurance that  Mr. Heinze and ANGDA are going                                                               
to get the funding they need and  deserve to do the work for DOR,                                                               
and also  meet their obligations.   She commented that  she knows                                                               
that is subject to funding.                                                                                                     
MR. PORTER remarked:                                                                                                            
     I  spent a  substantial  amount of  time  on that  very                                                                    
     issue  yesterday  with  the authority,  and  apparently                                                                    
     convinced them  that that in  fact is the  case because                                                                    
     we did  get a unanimous,  basically, vote from  them in                                                                    
     support of us.  That is  our intent ... to support them                                                                    
     fully   with  moving   them   toward  other   statutory                                                                    
     obligations while,  at the same time,  encouraging them                                                                    
     to participate  fully in ...  the project  (indisc.) we                                                                    
     have before it.                                                                                                            
REPRESENTATIVE HEINZE  asked if  it was correct  that it  was for                                                               
all stranded gas projects or permitting.                                                                                        
MR.   PORTER  said   [DOR]  currently   has   two  stranded   gas                                                               
applications before  it that the  state is negotiating,  one with                                                               
ConocoPhillips Alaska, Inc., BP,  and ExxonMobil Corporation, and                                                               
a   second  one   with   MidAmerican   Energy  Holdings   Company                                                               
("MidAmerican")   and   their   partners   Cook   Inlet   Region,                                                               
Incorporated (CIRI), and Pacific Star  Energy.  He said those two                                                               
contracts are going  to require a substantial amount  of work and                                                               
effort on behalf of  the state.  As a parallel  to that, there is                                                               
also the Alaska  Natural Gas Development Authority.   He said the                                                               
$3 million  is basically to  cover both ANGDA and  the additional                                                               
costs [the department] believes will  be incurred by the state to                                                               
negotiate those.                                                                                                                
Number 2291                                                                                                                     
REPRESENTATIVE HEINZE  said she  wanted to  ensure that  there is                                                               
enough money for both, and asked  if it would be possible to come                                                               
up short  on the funding  for the authority after  the permitting                                                               
is already done.                                                                                                                
MR. PORTER remarked:                                                                                                            
     It  might be  helpful  to understand  that beneath  the                                                                    
     Stranded  Gas Act,  we have  the  ability to  negotiate                                                                    
     with the applicants a reimbursement  agreement of up to                                                                    
     a million and a half  dollars per application.  That is                                                                    
     specific   (indisc.)   contractors   to   fulfill   our                                                                    
     responsibilities underneath those applications.                                                                            
     So it  ... is very  specific on  ... what we  can spend                                                                    
     that  million-and-a-half for,  but it  does provide  us                                                                    
     with  some  additional  funding  just  based  on  those                                                                    
     contracts.  This funding would  be that type of funding                                                                    
     that   is   outside  of   the   million   and  a   half                                                                    
     reimbursement agreement  that we might execute  in bill                                                                    
     ... There  are things that  the state might need  to do                                                                    
     on the standpoint of staffing  and resources that would                                                                    
     not  be  reimbursable  underneath that  contract.    We                                                                    
     believe that  the amount  of money  ... we  have placed                                                                    
     before the  committee is sufficient to  meet both those                                                                    
Number 2406                                                                                                                     
PAUL FUHS,  Lobbyist for Backbone 2,  noting that the group  is a                                                               
nonpartisan citizen's organization, told  members that Backbone 1                                                               
was formed  to stand up for  Alaska's interests in the  merger of                                                               
BP and  Arco, and  is now  really focused  on the  gas [pipeline]                                                               
issue.   He said  he is really  appreciative of  everything being                                                               
heard today  because it  looks like  people are  supporting this.                                                               
The administration's  on board,  Senator [Gene] Therriault  has a                                                               
companion bill  in the Senate, and  it looks like the  funding is                                                               
going  to be  there,  he said.   Mr.  Fuhs  said [the  committee]                                                               
absolutely needs this information  because the decisions that are                                                               
going  to be  made right  now on  gas [pipeline]  development are                                                               
some of the most [important] decisions  that will be made for the                                                               
future of the state "and maybe forever."                                                                                        
MR. FUHS  said he couldn't think  of any other project  since the                                                               
oil pipeline  that is going  to have this  kind of impact  on the                                                               
state,  both  on  the  private  business side  and  also  on  the                                                               
government side, in terms of fiscal  revenue for Alaska.  The gas                                                               
pipeline is  the fiscal plan for  Alaska, he said.   He indicated                                                               
that the revenues  from a gas pipeline are estimated  to be up to                                                               
$1 billion.  This is the way that  the state is going to fund the                                                               
government  through  resource  development.    There's  no  other                                                               
project or  industry that can  provide these kind of  revenues to                                                               
Alaska, he said.                                                                                                                
MR.  FUHS said  part of  the real  advantages of  the development                                                               
authority is  the income  tax exemption, which  is 30  percent of                                                               
net  revenues.   Noting that  people  have said  this project  is                                                               
uneconomic, he  said that's just not  true, and no data  has been                                                               
provided to  show that it is.   He said  there is do data  on the                                                               
Canadian pipeline,  there is  no data at  all, he  remarked, "You                                                               
are being asked to make  these decisions completely blind."  That                                                               
is why  this information is  so important  that is going  to come                                                               
out of  this money that  the state is  spending; the data  can be                                                               
used  to help  judge the  Stranded  Gas Act  applications and  so                                                               
forth, he said.                                                                                                                 
Number 2496                                                                                                                     
MR.  FUHS said  [Backbone 2]  is  in support  of this  expansion.                                                               
Addressing a previous question by  Representative Heinze, he said                                                               
Senator  [Scott] Ogan  does have  a bill  which will  broaden the                                                               
authority for them to be able  to look at whether a tax exemption                                                               
applied  to a  Canadian  highway [pipeline]  would  make it  more                                                               
economically feasible.  He said  people have said it's really not                                                               
feasible  without  federal  subsidies  and it  looks  like  those                                                               
subsidies aren't going to be forthcoming.  He remarked:                                                                         
     I think  what Harold was  trying to say is  rather than                                                                    
     look  at ...  the  stranded  gas applications,  they're                                                                    
     going to  come to  us and  say, '...  Give up  all your                                                                    
     royalties   or  give   up  your   severance  taxes   or                                                                    
     production  taxes, so  we can  have  this project,  and                                                                    
     what the  authority can say  is, 'Well, maybe  we could                                                                    
     give you a tax break and  give you the same thing where                                                                    
     Alaska doesn't  have to give  up its benefits,'  and if                                                                    
      we get the all-Alaskan project that people voted on,                                                                      
      then we're going to get a lot more benefits from the                                                                      
     ownership of that project.                                                                                                 
MR.  FUHS noted  that  he  had provided  members  with a  12-page                                                               
executive  summary  entitled  "Alaska's  Strategic  Interests  in                                                               
North  Slope Gas  Development," which  he said  may be  the first                                                               
example of an attempt to  try to comprehensively put these issues                                                               
together.  It is  a very complex issue, and it  is really hard to                                                               
stay on  top of what is  going on and what  the state's interests                                                               
are, so he  tried to do that,  he said.  Noting that  he had also                                                               
provided a poll that was recently  taken in January by Ivan Moore                                                               
Research, Mr. Fuhs  said [Ballot Measure 3] passed 2  to 1 by the                                                               
voters, and  now those numbers  have gone  up even higher  in the                                                               
latest poll that [Backbone 2] has.  He stated:                                                                                  
     They show,  for preference of Alaskans,  LNG to Valdez,                                                                    
     65.5  percent favor  that, and  the highway  route 19.3                                                                    
     percent, well, that's  almost 3 to 1,  for those people                                                                    
     who  do have  an opinion.    The other  15 percent  are                                                                    
Number 2591                                                                                                                     
MR. FUHS said [Backbone 2]  feels very strongly that Alaskans are                                                               
behind this  project.  One of  the most critical things  that can                                                               
happen  on these  stranded gas  negotiations is  to stand  up and                                                               
negotiate for the interests of the  people of Alaska.  He said he                                                               
thinks what ANGDA  needs, more than anything, is a  supply of gas                                                               
for the  project, and the  commitment that  the gas will  be made                                                               
available.   Under the economic  models being looked at,  the oil                                                               
companies would make  $720 million a year selling  the gas; doing                                                               
nothing more  than turning  a valve  on the  North Slope  for 2.2                                                               
billion cubic  feet of  gas a  day, he  said.   Mr. Fuhs  said he                                                               
thought it was a pretty  good return for no additional investment                                                               
on the part  of [the oil companies].  He  remarked, "We're really                                                               
hopeful ...  as you  consider the  Stranded Gas  Act negotiations                                                               
that you look at that gas supply."                                                                                              
MR. FUHS  suggested that, as  Mr. Heinze had said,  maybe there's                                                               
some  combination that  could allow  this project  to go  forward                                                               
now.      Addressing   a    previously   stated   question   from                                                               
Representative  Heinze,  he  said  one advantage  of  the  Alaska                                                               
project is  that it's already  permitted and can go  forward now.                                                               
"Maybe  in conjunction  with one  of the  other people  that have                                                               
applied  under the  Stranded Gas  Act," he  suggested.   Mr. Fuhs                                                               
remarked, "Later  on, when they  sort through all  the permitting                                                               
and Native land claims, and redo  the treaty with Canada, and all                                                               
the other things  that it's going to take to  consider a Canadian                                                               
pipeline, if  that comes  around, then they  can build  that too,                                                               
and that would be great."  He  said [Backbone 2] is not against a                                                               
Canadian  project,  but [instead]  is  saying  that there  is  no                                                               
reason to delay one minute  for moving ahead for the "all-Alaskan                                                               
project" that the people of Alaska voted for.                                                                                   
Number 2653                                                                                                                     
REPRESENTATIVE CRAWFORD said [the state]  had been ready to build                                                               
a  pipeline since  it got  done  with the  oil line  and that  he                                                               
thought the people  have spoken loudly.  He  remarked, "It's time                                                               
for us to get moving."   Representative Crawford said he would be                                                               
open to  any suggestions on  what can  be done by  legislators to                                                               
help move this forward as quickly as possible.                                                                                  
MR. FUHS  mentioned the group's  web site at  "backbone2.org" and                                                               
said the  web site provides  a wealth of  background information,                                                               
including:   economic  analyses,  project  descriptions, the  RCA                                                               
[Regulatory  Commission  of  Alaska]  decision  on  the  pipeline                                                               
tariffs, and the Federal Trade  Commission (FTC) ruling on the BP                                                               
merger.   He told members  that they would probably  be receiving                                                               
some [correspondence] because  the web site makes  it possible to                                                               
e-mail each legislator  by district, and he  remarked, "People of                                                               
Alaska  are going  to be  able to  communicate with  you on  this                                                               
issue, through our web site."                                                                                                   
REPRESENTATIVE HOLM  asked Mr. Fuhs  if he'd considered  the fact                                                               
that  municipalities  exact  a great  percentage  of  dispensable                                                               
income by  having the  pipelines go  through their  property, and                                                               
how it would  adversely impact them to have  the properties taken                                                               
away without  PILT [Payment  in Lieu  of Taxes]  or some  form of                                                               
MR. FUHS remarked:                                                                                                              
     If you'll look  at ... the 11 steps  that are necessary                                                                    
     in  there,  one  of  those is  to  negotiate  municipal                                                                    
     revenue sharing  with those local communities  and that                                                                    
     would be Payment  in Lieu of Taxes, that is  one of the                                                                    
     things that the  authority is charged with  doing.  And                                                                    
     I  think  ... they  also  should  look  at it  as  more                                                                    
     general revenue sharing also,  not just the communities                                                                    
     that it goes through, because  a lot of our communities                                                                    
     are  hurting.   Some  of them  ...  are going  bankrupt                                                                    
     right  now because  they don't  have municipal  revenue                                                                    
     sharing  and this  could  be  a source  of  that.   The                                                                    
     voters did vote on that, and  it is required as part of                                                                    
     the ... ANGDA process.                                                                                                     
Number 2784                                                                                                                     
REPRESENTATIVE  HOLM said  he was  curious  about the  idea of  a                                                               
public  or private  ownership or  some combination  thereof.   He                                                               
asked Mr. Fuhs  what he envisioned at this  time with MidAmerican                                                               
"entering into the equation."                                                                                                   
MR. FUHS said  in order to enjoy the income  tax exemption, ANGDA                                                               
would  have  to  own  discreet  portions of  the  pipeline.    He                                                               
     I  think  you  could  do  a  combination,  maybe,  with                                                                    
     MidAmerican that'd come down  a certain way, maybe, the                                                                    
     Delta or  something like that,  and the  authority take                                                                    
     it  the  rest  of  the   way  to  Valdez  and  own  the                                                                    
     liquefaction plant.   If you did it  in discreet pieces                                                                    
     like that,  I think  you could  still preserve  the tax                                                                    
     exemption, but  they do  have to own  it, and  it's not                                                                    
     unusual for governments that their  own resources to do                                                                    
MR.  FUHS said  almost every  government in  the world  that owns                                                               
their  resources  has  an ownership  in  the  transportation  and                                                               
production.  He noted that  Nigeria has 70 percent ownership, and                                                               
West Africa  has 50 percent ownership.   He suggested that  if an                                                               
African country  can figure out how  to do it, he  didn't see why                                                               
[Alaska] can't.                                                                                                                 
REPRESENTATIVE HEINZE remarked, "I've heard  that ... if ANGDA is                                                               
not funded, that basically, to fold  our tents and go home."  She                                                               
asked,  at  that  point,  what   would  happen  to  the  people's                                                               
MR. FUHS  said he  thought [the initiative]  would just  die, and                                                               
the decision  that the legislature  is making is whether  this is                                                               
going to go forward and if the will  of the people is going to be                                                               
respected.    He  said  the   bill  is  basically  like  a  mini-                                                               
supplemental budget bill because if  it goes through and it looks                                                               
like it's moving both sides,  it has an immediate effective date,                                                               
that  money will  be available  immediately, and  that's the  way                                                               
that it needs to be.  Mr.  Fuhs remarked, "They need to get going                                                               
on this analysis, they need the information, and so do you."                                                                    
Number 2876                                                                                                                     
REPRESENTATIVE HEINZE  asked Mr.  Heinze if, in  the case  that a                                                               
gas pipeline  is built, could a  "spur line" be built  to provide                                                               
gas to Cook Inlet.  She asked if that is in ANGDA's authority.                                                                  
MR. HEINZE stated that the  ballot measure specifically speaks to                                                               
a [gas pipeline]  running from Prudhoe Bay to Valdez,  and a spur                                                               
line running  from Glennallen into  the Cook Inlet area.   Within                                                               
that is a  lot of maneuver room because the  first 530 miles from                                                               
Prudhoe Bay  to Delta is  exactly the  same route as  the highway                                                               
route,  so there  is a  tremendous  possibilities of  combination                                                               
there, Mr.  Heinze explained.   He  said it  is not  really until                                                               
Delta  that the  two  projects kind  of split  off.   Mr.  Heinze                                                               
remarked,  "So  there  are  all  kinds  of  circumstances  I  can                                                               
visualize where  we may be  able to either  work with or  pick up                                                               
from  or get  to or  all  kinds of  different relationships  with                                                               
these various sponsors."   Within the statutory  direction of the                                                               
authority, he  said he didn't see  any problem at all  in dealing                                                               
with them.   He said  it's well within  the context of  trying to                                                               
find a feasible  project that will get the gas  to market, can be                                                               
undertaken, and  more importantly, can  be financed.   Mr. Heinze                                                               
said the part that's exciting to  him is the interaction with not                                                               
only the  existing proposal that's been  on the table for  a long                                                               
time, but with a new set of  people proposing a project.  He said                                                               
the dynamics that brings to it are very significant.                                                                            
TAPE 04-3, SIDE B                                                                                                             
[Not  entirely  on  tape,  but  taken from  the  Gavel  to  Gavel                                                               
recording  on the  Internet, was  Representative Heinze's  remark                                                               
that  there are  three Arco  past  presidents:   Kevin Meyers  of                                                               
ConocoPhillips, Ken  Thompson of Pacific Star  Energy, and Harold                                                               
REPRESENTATIVE  HEINZE,  noting  that  she  had  participated  in                                                               
hearings on  the electrical grid,  said the "projections  are six                                                               
to seven  years and we're  out of gas and  our entire grid  is in                                                               
jeopardy."   She said she  is trying to figure  out a way  to get                                                               
gas to Cook Inlet.                                                                                                              
Number 2950                                                                                                                     
MR. HEINZE  replied that he  thought the governor, in  talking to                                                               
the legislature,  highlighted the importance  of gas in  the Cook                                                               
Inlet area.  He suggested that  there is a very broad recognition                                                               
within the  administration and  within [ANGDA's]  authority about                                                               
the  fact that  there is  a  significant price  and supply  issue                                                               
related to  gas in Cook  Inlet.  He said  the belief is  that the                                                               
spur line concept included in  the ballot measure that was passed                                                               
offers  a  tremendous opportunity  for  at  least a  generation's                                                               
worth of gas  at a reasonable price "into the  area."  Mr. Heinze                                                               
remarked, "We  think that's  a tremendous  benefit of  a project,                                                               
and I  think as our benefit  analysis proceeds that will  show up                                                               
as one  of the larger  things that  we are actually  impacting by                                                               
our project."                                                                                                                   
CHAIR KOHRING  remarked, "If we don't  build a spur line,  we can                                                               
develop some coal bed methane out there."                                                                                       
Number 2896                                                                                                                     
ROBERT VALDATTA, Member, City Council,  City of Seward, mentioned                                                               
a presentation made  in January.  He said the  City of Seward has                                                               
passed a resolution  for a total all-Alaskan gas  pipeline or "if                                                               
it goes  the other way, we're  concerned that we're not  going to                                                               
get equal  opportunity that these  other two companies  are going                                                               
to get the lion  share of the money; we're not."   He said it was                                                               
stated during  the presentation  that Seward  could be  a support                                                               
facility  for  training  and  the shipping  of  materials.    Mr.                                                               
Valdatta added that  maybe Seward could be a pump  station to the                                                               
barges  that service  the  coastal villages.    He remarked,  "We                                                               
appreciate your support on this, and  we're wide open ... for all                                                               
the assistance we can get."                                                                                                     
REPRESENTATIVE HEINZE asked if Seward  was one of the cities that                                                               
voted the "no-competence in the legislature."                                                                                   
MR. VALDATTA said no.                                                                                                           
Number 2823                                                                                                                     
WILLARD DUNHAM, Member, City Council,  City of Seward, testified.                                                               
He said  as Mr.  Valdatta mentioned,  [ANGDA] gets  equal billing                                                               
with  the  other   two  projects,  and  it  seems   like  in  the                                                               
publications of that  and the stories that have  been covered, it                                                               
hasn't been that  way.  Mr. Dunham said there  was enough concern                                                               
to pass  a resolution in  support of it,  and one reason  for the                                                               
early support  of the [gas  pipeline] is  that it looked  like it                                                               
was  the only  plan that  gave any  consideration to  the coastal                                                               
cities.  Mr. Dunham remarked:                                                                                                   
      We feel this is very important, ... even though the                                                                       
      secondary of coming up with a pipeline, the highway                                                                       
     line as  a feeder line  down to Southcentral,  it still                                                                    
     did not include  in its project the idea  of service to                                                                    
     coastal  cities for  liquefied gas.   So  I would  urge                                                                    
     you,  in your  consideration, ...  fund this.   One,  I                                                                    
     think it's because the people have voted for it.                                                                           
MR. DUNHAM  said the support is  still there, and that  the point                                                               
Representative Heinze brought  up about the power  and the energy                                                               
sources for  Southcentral is very true.   He said he  has been on                                                               
one  of the  energy committees  and  has studied  the energy  and                                                               
supply  in Southcentral.   He  remarked, "We're  going to  have a                                                               
serious problem if  we don't get stabilization of  the gas, we're                                                               
going to see costs go out of  sight on us much like California is                                                               
seeing now."   He urged funding  for ANGDA, so it  would have the                                                               
opportunity to continue.                                                                                                        
CHAIR  KOHRING asked  Mr.  Valdatta to  provide  his office  with                                                               
copies of the resolutions that the City of Seward had passed.                                                                   
Number 2690                                                                                                                     
CHAIR KOHRING,  upon determining no  one else wished  to testify,                                                               
closed public testimony.                                                                                                        
CHAIR KOHRING  said with regard  to the  government's involvement                                                               
in  infrastructure   development  of   this  nature,  he   has  a                                                               
philosophical  disagreement with  this.   He said  Harold Heinze,                                                               
his staff, and  the board that was appointed by  the governor are                                                               
the consummate  professionals, and  he has a  lot of  respect for                                                               
them.   Chair  Kohring said  in his  mind it  should be  strictly                                                               
private sector.   He  noted he  has concerns  about appropriating                                                               
money to an  authority that is pursuing a project  that should be                                                               
done privately,  and he said  the committee has  disagreements on                                                               
that.    Chair  Kohring  said  he appreciates  the  work  of  the                                                               
authority,  which he  noted  has  done an  outstanding  job.   He                                                               
remarked, "If they can make it  happen, they would be the ones to                                                               
do  that."   He  noted that  the committee  did  not receive  any                                                               
testimony from the  private sector, and he said  he wondered what                                                               
the opinion was.                                                                                                                
Number 2593                                                                                                                     
REPRESENTATIVE  McGUIRE commented  that she  thought Mr.  Heinze,                                                               
the people involved  in the initiative, and Backbone  2 have done                                                               
a great job.   She said she  didn't see it as a  direct threat to                                                               
private industry,  instead she sees  it as Alaskans  caring about                                                               
getting a  gas pipeline moving and  wanting to see it  go forward                                                               
as  quickly as  possible.   Representative  McGuire said  private                                                               
industry may  not want to  move as  quickly as [the  state] does,                                                               
which is  fine, and  maybe the [private  sector] chooses  to stay                                                               
out of  this project because  it's not  economic for them  now or                                                               
maybe "they chose to jump on board."                                                                                            
REPRESENTATIVE McGUIRE  said she what she  thought was phenomenal                                                               
about  this process,  the bill,  and what  has happened  with the                                                               
initiative, is how  much Alaskans have come to  learn about this.                                                               
Representative  McGuire  said  when  she came  to  serve  in  the                                                               
legislature, one of  her first standing committees  was the House                                                               
Resources Standing  Committee, and  she was overwhelmed  with how                                                               
little she knew  about resource development in Alaska.   She said                                                               
"yet we  all know" it's  one of  the most important  things about                                                               
[Alaska],  because  "we"  are  so   fortunate  to  have  such  an                                                               
abundance  of natural  resources.   She said  she thought  it was                                                               
great because it is showing the  process of how a project is laid                                                               
out, the  types of  things that  need to  be considered,  and the                                                               
benefits that come back to Alaskans.                                                                                            
REPRESENTATIVE McGUIRE  said Representative  Heinze made  a great                                                               
point  that the  Cook Inlet  area  is running  out of  gas.   She                                                               
remarked, "People in rural areas would  say well we never had it,                                                               
so boy  are you  lucky you're  running out; we  never had  it; we                                                               
have diesel."   She said  if private  industry wants to  "come on                                                               
board" later,  Mr. Heinze  has made  it clear  and has  been very                                                               
open and receptive to that possibility.                                                                                         
REPRESENTATIVE  MCGUIRE said  when that  time comes,  [the state]                                                               
will know  a little better  about what kind  of a deal  it wants.                                                               
"That is  our role;  the shareholders for  us are  Alaskans," she                                                               
remarked.   She said  she didn't  see it as  a threat,  and noted                                                               
that [members]  have different opinions on  it.  She said  she is                                                               
proud of it and  is delighted it is going forward.   She said she                                                               
looks forward to hearing another update from Mr. Heinze.                                                                        
Number 2470                                                                                                                     
REPRESENTATIVE  KERTTULA   moved  to  report  SSHB   296  out  of                                                               
committee  with  individual  recommendations.    There  being  no                                                               
objection,  SSHB   296  was  reported  from   the  House  Special                                                               
Committee on Oil and Gas.                                                                                                       
CHAIR KOHRING stated  that because SSHB 296  is an appropriations                                                               
bill there is no accompanying fiscal note.                                                                                      

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