Legislature(2009 - 2010)BARNES 124

03/12/2010 01:00 PM RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Continued at 6:00 pm Today --
+ HB 280 NATURAL GAS TELECONFERENCED
Heard & Held
*+ HB 229 GAS EXPLORATION\DEVELOPMENT TAX CREDIT TELECONFERENCED
<Bill Held Over to 3/15/10>
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 306 STATE ENERGY POLICY TELECONFERENCED
Moved CSHB 306(RES) Out of Committee
                       HB 280-NATURAL GAS                                                                                   
                                                                                                                                
1:05:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON  announced that the  first order of  business is                                                               
HOUSE BILL NO. 280, "An Act  relating to natural gas; relating to                                                               
a gas storage facility; relating  to the Regulatory Commission of                                                               
Alaska; relating to the participation  by the attorney general in                                                               
a  matter involving  the  approval  of a  rate  or  a gas  supply                                                               
contract;  relating to  an income  tax credit  for a  gas storage                                                               
facility;  relating  to  oil  and  gas  production  tax  credits;                                                               
relating  to the  powers and  duties of  the Alaska  Oil and  Gas                                                               
Conservation Commission;  relating to production tax  credits for                                                               
certain   losses   and    expenditures,   including   exploration                                                               
expenditures; relating to  the powers and duties  of the director                                                               
of the  division of lands  and to lease  fees for the  storage of                                                               
gas  on  state  land;  and  providing  for  an  effective  date."                                                               
[Before the committee was CSHB 280(L&C).]                                                                                       
                                                                                                                                
1:06:13 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN moved to adopt  the proposed committee substitute                                                               
(CS) for HB 280, Version  26-LS1185\C, Bullock, 3/9/10, as a work                                                               
draft.   There  being  no  objection, Version  C  was before  the                                                               
committee.                                                                                                                      
                                                                                                                                
REPRESENTATIVE SEATON objected for  purposes of learning what the                                                               
changes are.                                                                                                                    
                                                                                                                                
1:07:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MIKE  HAWKER,  Alaska  State  Legislature,  joint                                                               
prime  sponsor of  HB  280, directed  attention  to the  one-page                                                               
written  explanation of  the differences  between  Version C  and                                                               
CSHB 280(L&C).   In response to Co-Chair Johnson, he  said HB 280                                                               
is intended  to help bring  back the  vitality of the  Cook Inlet                                                               
basin  and  increase   gas  production  to  meet   the  needs  of                                                               
Southcentral Alaska, Anchorage, and  the Railbelt.  He introduced                                                               
his  staff members  that worked  on  this bill  - Larry  Persily,                                                               
Janice  Levy, and  Juli Lucky  - and  noted that  consultants Dan                                                               
Dickinson and Roger Marks also assisted with the bill.                                                                          
                                                                                                                                
1:11:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER explained that HB  280 is a response to the                                                               
challenge  of keeping  the lights  and heat  on in  his community                                                               
during  the winter.    Gas  supply in  the  Cook  Inlet basin  is                                                               
depleting  and there  is a  real probability  of being  unable to                                                               
meet peak  winter demands  in a  very short period  of time.   He                                                               
said  the first  issue  is  recognizing there  is  a problem  and                                                               
solving it.   In solving the  problem, HB 280 would  also provide                                                               
consumer  cost relief.   The  bill has  statewide application  in                                                               
that it would  provide the same advantages to  the Fairbanks area                                                               
as it  would the Cook  Inlet because gas  storage will also  be a                                                               
necessity for Fairbanks, regardless of  the city's source of gas.                                                               
Storage was  unnecessary when  Cook Inlet  gas was  abundant, but                                                               
that is  no longer  the case  and storage is  now needed  to keep                                                               
enough gas on hand to meet the peak winter demand.                                                                              
                                                                                                                                
1:13:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER related  that  on February  15, 2010,  the                                                               
United Kingdom government approved  construction of a $1 billion,                                                               
50  billion  cubic  foot  natural gas  storage  facility.    That                                                               
facility is  aimed at correcting  years of government  and market                                                               
failure to build enough backup  capacity to keep pace with demand                                                               
and to fill unexpected supply disruptions.   He said HB 280 would                                                               
do the  same for  Alaska, but  rather than  a government-invested                                                               
solution, it  would be a  free-market approach to  developing the                                                               
storage that is needed to provide energy security.                                                                              
                                                                                                                                
1:14:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  noted  that  every  stakeholder  in  Cook                                                               
Inlet,  from the  municipalities to  the utilities,  has publicly                                                               
stated   that  storage   is  essential   to  the   future  energy                                                               
infrastructure.   Storage  will  add an  additional  cost to  the                                                               
supply chain of gas, resulting  in an upward pressure on consumer                                                               
prices.   An important  part of  HB 280 is  that it  would lessen                                                               
those costs to consumers.                                                                                                       
                                                                                                                                
REPRESENTATIVE HAWKER  said HB  280 would  also address  the need                                                               
for  regulatory certainty  because,  at  this moment,  regulatory                                                               
uncertainty  is  impeding the  development  and  progress on  any                                                               
storage  projects.   The Regulatory  Commission  of Alaska  (RCA)                                                               
recently   sent  a   message  to   the  legislature   asking  for                                                               
clarification  of its  regulatory responsibility  with regard  to                                                               
gas storage activities in Alaska, and HB 280 would answer that.                                                                 
                                                                                                                                
1:16:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER,  in response to Co-Chair  Johnson, began a                                                               
review of the changes  that would be made by Version  C.  He said                                                               
changes to  Section 2 are  changes around the parameters  of what                                                               
type of facility  would qualify for the incentive  tax credit for                                                               
the  development.   Version C  would tighten  this up  and "right                                                               
size" the bill  to mitigate any potential gaming.   He noted that                                                               
gas  can  be  stored  in pipelines,  called  packing;  Version  C                                                               
changes Section  2 so  that pipeline  packing is  eliminated from                                                               
being  considered storage.    Changes to  Section  8 clarify  the                                                               
boundaries and  facilities of a  gas storage facility  that would                                                               
be  subject to  regulation by  the RCA.   It  specifies that  RCA                                                               
regulation  extends  only  to  gas  storage  facilities  operated                                                               
exclusively or  primarily for  delivery of  gas to  consumers and                                                               
not to the world market.                                                                                                        
                                                                                                                                
1:18:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON understood that  Version C would not extend                                                               
RCA regulation.  He asked whether the credit would be extended.                                                                 
                                                                                                                                
REPRESENTATIVE HAWKER  responded no, the credit  was not extended                                                               
in the first version and is not extended in Version C.                                                                          
                                                                                                                                
REPRESENTATIVE SEATON  presumed it  would be  underground storage                                                               
that is covered  by Version C.  He inquired  whether tank storage                                                               
would also qualify.                                                                                                             
                                                                                                                                
REPRESENTATIVE   HAWKER   replied   that   Version   C   provides                                                               
requirements   for  both   physical   size  and   deliverability.                                                               
Realistically,  it  would  be   underground  storage  because  to                                                               
qualify  an  aboveground  tank  would  have  to  accommodate  100                                                               
million cubic  feet annual injection  or withdrawal and  be large                                                               
enough to hold 500 million cubic feet of gas.                                                                                   
                                                                                                                                
1:20:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK  asked whether  the RCA would  have authority                                                               
over new  proprietary gas storage  that is not  necessarily third                                                               
party.                                                                                                                          
                                                                                                                                
REPRESENTATIVE  HAWKER  answered  Version   C  goes  strictly  to                                                               
providing third-party  storage of gas for  delivery to consumers.                                                               
At the moment,  it is unclear as  to the extent the  RCA may wish                                                               
to  apply that  regulatory  authority beyond  the clearly  stated                                                               
responsibility in the bill.                                                                                                     
                                                                                                                                
REPRESENTATIVE HAWKER  continued his  discussion of  the changes.                                                               
In Sections  10, 17, and  19, Version C changes  the transferable                                                               
tax credit  to a refundable tax  credit.  This change  was at the                                                               
request of the  Department of Revenue to ease  the accounting and                                                               
management activities  that would  be involved in  monitoring the                                                               
credits.  He  said Section 10 relates to  "right-sizing" the bill                                                               
by cutting  in half the  maximum tax  credit available for  a gas                                                               
storage facility.                                                                                                               
                                                                                                                                
1:21:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON   inquired  whether  the   refundable  tax                                                               
credits would  be limited to  gas storage credits or  would apply                                                               
to both oil and gas credits.                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  responded that Version C  makes no changes                                                               
to the transferable or refundable  nature of any existing credits                                                               
in statute.   It would apply  only to the development  credit for                                                               
gas storage facilities that originate in HB 280.                                                                                
                                                                                                                                
REPRESENTATIVE SEATON removed his objection  to Version C.  There                                                               
being no further objection, Version C was before the committee.                                                                 
                                                                                                                                
REPRESENTATIVE  HAWKER reiterated  that Version  C addresses  the                                                               
RCA request  for clarification of its  responsibility to regulate                                                               
storage  facilities, and  it clarifies  what  would be  allowable                                                               
from   the   standpoint   of  inventory   management   within   a                                                               
contemplated storage facility.                                                                                                  
                                                                                                                                
1:23:08 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN asked  whether HB 280 relates just  to Cook Inlet                                                               
and  whether the  sponsor statement  still applies  to Version  C                                                               
given the changes that have been made.                                                                                          
                                                                                                                                
REPRESENTATIVE   HAWKER  replied   the   provisions  related   to                                                               
investment tax  credits for the  development of storage  would be                                                               
applicable statewide.   The bill  was brought forward  because of                                                               
the  immediate, impending  problem  within the  Cook Inlet  basin                                                               
that is  the result of  the production decline inside  that area.                                                               
Motivation for the  bill came while he was flying  over the Kenai                                                               
Peninsula and saw shuttered buildings  where once stood a vibrant                                                               
economic zone.   The  underlying business  conducted there  - oil                                                               
and gas  development in Cook  Inlet -  is the foundation  for the                                                               
entire energy security  of Southcentral Alaska.   This decline in                                                               
productivity in Cook Inlet is  putting the Southcentral region at                                                               
risk of  an impending  winter disaster when  there is  not enough                                                               
gas to keep the lights, heat, and electricity on.                                                                               
                                                                                                                                
REPRESENTATIVE EDGMON observed that this  is a statewide issue in                                                               
that rural Alaska  is also very much  dependent upon inexpensive,                                                               
or at least stable, fuel costs  in the Southcentral region; it is                                                               
a symbiotic relationship.  Work  is continuing to get stable fuel                                                               
to Bush Alaska as well.                                                                                                         
                                                                                                                                
1:26:54 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN  noted  that  in Prudhoe  Bay  the  natural  gas                                                               
liquids (NGLs)  are re-injected into  the well to make  it easier                                                               
to pump the  oil.  He inquired whether the  intent is to consider                                                               
that as gas storage and include that process in HB 280.                                                                         
                                                                                                                                
REPRESENTATIVE HAWKER answered no.                                                                                              
                                                                                                                                
CO-CHAIR JOHNSON understood Cook Inlet gas is a much drier gas.                                                                 
                                                                                                                                
REPRESENTATIVE  SEATON noted  that  gas is  sold  to North  Slope                                                               
entities in addition  to re-injection in the  Prudhoe Bay fields.                                                               
He asked  whether this could  be considered a gas  storage field,                                                               
given that  he believes over  100 million  cubic feet of  gas per                                                               
year is being sold.                                                                                                             
                                                                                                                                
REPRESENTATIVE  HAWKER  responded  the  practical  answer  is  no                                                               
because  those are  active wells,  not storage  wells or  storage                                                               
leases.   The  bill would  require certification  of gas  storage                                                               
facility  capacity  by  the  Alaska   Oil  and  Gas  Conservation                                                               
Commission  (AOGCC), and  it is  very clearly  not the  intent to                                                               
take an operating  well and somehow be able to  call it a storage                                                               
facility.                                                                                                                       
                                                                                                                                
1:29:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  resumed highlighting the provisions  of HB                                                               
280, Version C.  He said  the bill would provide clarification to                                                               
potential owners  and developers of storage  facilities about the                                                               
difference between  storing gas and  producing gas.  When  gas is                                                               
produced, royalty  and production  taxes must  be paid.   Storing                                                               
gas  is an  inventorying activity  and  the bill  would offer  an                                                               
investment  tax credit  for qualified  storage  facilities.   The                                                               
Department of  Revenue, the Department of  Natural Resources, and                                                               
others  participated  in  developing  the bill  to  ensure  tight                                                               
definitions  that prevent  gaming.   The bill  would provide  the                                                               
regulatory certainty that  is being asked for by  saying that RCA                                                               
regulates gas storage.                                                                                                          
                                                                                                                                
REPRESENTATIVE  HAWKER said  HB  280  would specifically  require                                                               
Last In, First  Out (LIFO) accounting of the gas  inventory - the                                                               
last gas pumped into the facility  is the first gas pumped out by                                                               
volumetric measurement.   These underground pressure  vessels are                                                               
former  gas production  facilities  and leases  that may  already                                                               
have recoverable gas  in them, but that gas would  be used as the                                                               
cushion gas or the spring to push  the injected gas back out.  It                                                               
would be considered  production if more gas is taken  out than is                                                               
put in, and taxes would then have to be paid.                                                                                   
                                                                                                                                
1:31:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER pointed out that  just the ability to store                                                               
gas is  not enough to solve  the impending problem.   More gas is                                                               
needed as  well.   Therefore, HB  280 would  encourage additional                                                               
exploration through  provisions that  make Cook  Inlet investment                                                               
more attractive  to both new producers  and existing stakeholders                                                               
in  the inlet.    Current production  is out  of  five major  gas                                                               
domes, but  now it is at  the point of where  the geology amounts                                                               
to chasing  small bubbles  of gas  in a  three-dimensional space.                                                               
The  bill  would  encourage new  exploration  by  expanding  some                                                               
access  to   existing  tax  credits   through  the   crossing  of                                                               
limitation  borders   and  minimally  enhancing  some   of  those                                                               
credits.    He  emphasized  that  in  HB  280  these  issues  are                                                               
addressed only for  the Cook Inlet; other bills  are currently in                                                               
the  legislature that  would  apply the  same  provisions to  the                                                               
entire state.  He  said he did not want to  touch the North Slope                                                               
in this  regard because it  is too sensitive  of an issue;  he is                                                               
looking  to  build  legislative alignment  and  support  for  the                                                               
immediate issues within the Cook Inlet.                                                                                         
                                                                                                                                
1:34:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER concluded by stating  that HB 280 is a very                                                               
simple bill  that would  provide gas  to keep  on the  lights and                                                               
heat during cold  winter days in Anchorage.  The  bill would also                                                               
protect  consumers by  mitigating the  inevitable cost  increases                                                               
resulting from the  development of storage facilities.   The bill                                                               
would  answer a  current unknown  by imposing  regulation on  the                                                               
emerging energy storage industry.   Further, HB 280 would provide                                                               
operating  clarity  for the  developers  of  the emerging  energy                                                               
storage industry so they clearly  know the difference between gas                                                               
storage and gas production.                                                                                                     
                                                                                                                                
1:36:01 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN  inquired whether  any work  is ongoing  to renew                                                               
the "Nikiski  export facility".   He surmised a  storage facility                                                               
would benefit this export facility.                                                                                             
                                                                                                                                
REPRESENTATIVE HAWKER  replied that  through this point  in time,                                                               
the ability  to export Cook  Inlet gas  is exactly what  has made                                                               
the Cook Inlet  gas economy and process work.   He explained that                                                               
gas wells operate  best by keeping production at  a fairly stable                                                               
level.    However,  consumer  demand is  not  stable  and  varies                                                               
radically between the colder winter  days and warmer summer days,                                                               
and on  those low  demand days  something must  be done  with the                                                               
surplus gas.  Since the  mid-1960s, the export facility has taken                                                               
that  surplus on  low demand  days  and exported  it.   Likewise,                                                               
there was  a time when  production levels  were so high  that the                                                               
surplus was  also taken by  the "Agrium  plant".  Closure  of the                                                               
Agrium plant  was the  first casualty  of Cook  Inlet's declining                                                               
gas production.  There is now  risk that the export facility will                                                               
be  lost through  not  being  re-licensed for  export.   If  that                                                               
occurred today,  it would force  underproduction of  the existing                                                               
wells  and  there  would  not  be enough  gas  produced  to  meet                                                               
consumer demand  on winter days.   He noted that time  is drawing                                                               
short to  protect the people  of Southcentral Alaska  because the                                                               
current export license expires on March 31, 2011.                                                                               
                                                                                                                                
1:40:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  observed  that  the reason  for  the  tax                                                               
credit is to  keep consumer prices low.   However, producers have                                                               
stated over the  past that the price  is so low the  value is not                                                               
there  to  engage in  exploration  and  development in  the  Cook                                                               
Inlet.   He  asked whether  trying  to keep  consumer prices  low                                                               
defeats the initiative for exploration and development.                                                                         
                                                                                                                                
REPRESENTATIVE HAWKER answered  there are two issues.   The issue                                                               
of storage  is the mission-critical  component of  ensuring there                                                               
is enough  gas available for  delivery on peak-demand days.   The                                                               
bill would require that every  penny of the investment tax credit                                                               
for storage  capacity development be  passed on to  the consumer,                                                               
and  this  provision  is  why  HB  280  is  a  bill  to  minimize                                                               
consumers'  exposure to  the necessarily  increasing  costs.   In                                                               
exchange for  this benefit to  consumers, the bill  would provide                                                               
regulatory  certainty on  how to  operate storage  that does  not                                                               
currently   exist,   as   regulatory  uncertainty   is   impeding                                                               
development of  storage.  Encouraging exploration  and production                                                               
of  the stratigraphic  gas traps  in  Cook Inlet  is an  entirely                                                               
separate  matter than  the consumer-oriented  storage facilities.                                                               
He  reiterated  that both  storage  and  exploration need  to  be                                                               
encouraged.  The State of  Alaska currently requires amortization                                                               
of exploration incentive  credits over a period of  two years; HB                                                               
280 would drop that to one  year, which would improve a company's                                                               
cash flow and  make Alaska more competitive with the  rest of the                                                               
world.                                                                                                                          
                                                                                                                                
1:44:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  inquired whether  HB  280  would allow  a                                                               
producer to use its Cook Inlet  credits to offset its North Slope                                                               
production  instead of  having to  reinvest  in Cook  Inlet.   He                                                               
noted  that  when  production  taxes   were  designed  they  were                                                               
specifically set  apart because the  Cook Inlet tax regime  is so                                                               
different at basically no tax.                                                                                                  
                                                                                                                                
REPRESENTATIVE  HAWKER,  to  provide   an  understanding  of  the                                                               
question  asked,  explained  that   when  production  taxes  were                                                               
changed on  a statewide basis  in previous  legislative sessions,                                                               
the Cook Inlet  was ring-fenced and allowed to  operate under the                                                               
rules of  the previous  economic limit  factor (ELF)  rather than                                                               
going  to the  profit-sharing taxes.   This  kept the  production                                                               
taxes  in Cook  Inlet from  going  up.   Beneficial credits  were                                                               
added for  exploration and development in  the profit-sharing tax                                                               
bills.   It was recognized that  a company operating in  both the                                                               
Cook Inlet and other parts of  the state could take an investment                                                               
credit based in  Cook Inlet, where its taxes  were lower already,                                                               
and  file a  single tax  return on  a statewide  basis that  used                                                               
those credits to  offset higher taxes in the other  regions.  For                                                               
purposes of utilizing tax credits,  the original bill said that a                                                               
company  generating a  tax credit  in the  Cook Inlet  must first                                                               
figure  out what  its taxes  would have  been in  the Cook  Inlet                                                               
without  the ring-fencing  under ELF  and then  discount its  tax                                                               
credit  by the  amount it  would have  had to  use to  offset the                                                               
differential between the production  tax under the profit-sharing                                                               
method and the lower taxes in the Cook Inlet.                                                                                   
                                                                                                                                
1:47:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER said his own  take is that production needs                                                               
to be encouraged all across the  state; however, in Cook Inlet it                                                               
is critical that  production be increased.   While he appreciates                                                               
the argument  that companies are not  paying as much tax  in Cook                                                               
Inlet and so  should not be allowed to utilize  the credits, that                                                               
is  telling people  not  to bother  with the  Cook  Inlet and  to                                                               
instead invest  where there are higher  tax credits.  He  said he                                                               
thinks that  may have had unintended  detrimental consequences in                                                               
discouraging  investment in  the Cook  Inlet.   The single  thing                                                               
most  needed   from  investment   in  the  state   is  additional                                                               
exploration and  production.  He  said he therefore thinks  it is                                                               
appropriate to  bring forward  a change and  a compromise  of the                                                               
limitation that was provided for in the earlier legislation.                                                                    
                                                                                                                                
1:49:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER, in  response to Representative Guttenberg,                                                               
explained that HB 280 contains  a tax recovery provision, meaning                                                               
that if a credit is received  for starting a gas storage facility                                                               
and then that  facility ceases operation, the  state will receive                                                               
the credit  back from the operator.   The notice provision  in HB                                                               
280  means the  operator  has the  affirmative responsibility  to                                                               
tell the state  if it ceases to comply with  that requirement and                                                               
that it  triggers recapture of  the credit the operator  has been                                                               
given.   So,  the  notice requirement  means  an operator  cannot                                                               
suddenly stop operations and hope the state does not catch it.                                                                  
                                                                                                                                
1:51:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked what  would happen if an operator                                                               
failed  to meet  the  bill's requirement  to  cycle [100  million                                                               
cubic feet  of gas  per year] for  reasons beyond  the operator's                                                               
control.                                                                                                                        
                                                                                                                                
REPRESENTATIVE HAWKER deferred to Larry Persily.                                                                                
                                                                                                                                
LARRY PERSILY,  Staff, Representative  Mike Hawker,  Alaska State                                                               
Legislature, responded that the sponsors  tried to set a limit by                                                               
requiring  that  a  facility  be   in  operation  in  return  for                                                               
receiving the incentives  and certainty provided by HB  280.  The                                                               
sponsors did not want to take  the chance that someone could take                                                               
an  old depleted  reservoir with  a well,  claim storage,  take a                                                               
credit, and  then not  do much  with it.   The 100  million cubic                                                               
feet is  an arbitrary  number and a  pretty low  threshold, given                                                               
that a  couple of existing  storage operations  proprietary right                                                               
now in  Cook Inlet  have capacity  for 1  billion or  5-6 billion                                                               
cubic feet.  He therefore  cannot conceive that someone could say                                                               
the reason  for not operating is  because of a warm  winter.  The                                                               
sponsors tried  to pick a  number that  is reasonable but  not so                                                               
high that  ceased operations would  be declared when  they really                                                               
have not.   Should an  operation cease, the state  would pro-rate                                                               
and take back the credit.                                                                                                       
                                                                                                                                
1:53:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER allowed  that Representative Guttenberg may                                                               
have brought  up a point  that is  not actually addressed  by the                                                               
bill, which is the possibility  of something like a natural event                                                               
that is beyond  the control of the owner/operator  of the storage                                                               
facility.  The  bill, as written, may not provide  a safety valve                                                               
that would allow the commissioner  to overlook a violation of the                                                               
statute.  He said that is something to take a look at.                                                                          
                                                                                                                                
REPRESENTATIVE GUTTENBERG  suggested this  could be put  into the                                                               
regulations because HB 280 gives the director a lot of leeway.                                                                  
                                                                                                                                
1:54:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GUTTENBERG  requested  Representative  Hawker  to                                                               
expand on the provisions of Section 20, Version C.                                                                              
                                                                                                                                
REPRESENTATIVE HAWKER  replied many  folks would argue  that Cook                                                               
Inlet  is over-regulated  and that  the Regulatory  Commission of                                                               
Alaska  has  made decisions  that  were  not  of benefit  to  the                                                               
community and may have exacerbated the  problems.  As a result of                                                               
having no clear guidance, the  RCA did not approve some contracts                                                               
for long-term gas supply, and  had those contracts been approved,                                                               
industry would  be scrambling hard  today to  bring gas up.   The                                                               
sponsors of  HB 280 are  trying to  include some tooth  that says                                                               
the regulatory authorities should  be encouraged to approve long-                                                               
term  supply  contracts  without  trying  to  set  any  empirical                                                               
measure  by which  to  tell them  to  do it.    For example,  Mr.                                                               
Pickett of the RCA has pointed  out that there is nothing telling                                                               
the RCA  that it must consider  what would happen if  it does not                                                               
approve a  contract.  Section  20 and  Section 5, Version  C, add                                                               
this  new philosophic  guidance that  the RCA  must consider  the                                                               
consequences of saying no.                                                                                                      
                                                                                                                                
1:58:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK  understood HB 280  has two parts:   one that                                                               
would  pave the  way for  third party  storage and  the other  to                                                               
incentivize exploration  in the Cook  Inlet region.   He inquired                                                               
whether there is  the potential that third party  storage may not                                                               
be  necessary  should  HB  280   be  passed  and  exploration  is                                                               
incentivized, but the LNG export license is not renewed.                                                                        
                                                                                                                                
REPRESENTATIVE  HAWKER answered  there  is unanimous  concurrence                                                               
among the stakeholders  in the inlet that storage  is an absolute                                                               
necessity, even  if LNG export stops.   Gas will still  be needed                                                               
to meet those peak requirements and  to do that there needs to be                                                               
increased capacity  to pull  gas out of  the ground,  which takes                                                               
storage.  If  the export facility continues to  operate, a buffer                                                               
of gas storage will still be  needed for those days of excess gas                                                               
production and days of insufficient gas production.                                                                             
                                                                                                                                
2:00:43 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON held over  HB 280.  He noted that  this is a key                                                               
issue for  his community, so  the committee will be  returning to                                                               
the bill as quickly as possible.                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
CS HB 280 (LC).pdf HRES 3/12/2010 1:00:00 PM
HB 280
HB280 Background.pdf HRES 3/12/2010 1:00:00 PM
HB 280
HB280 Overview.pdf HRES 3/12/2010 1:00:00 PM
HB 280
HB280 Sectional Summary.pdf HRES 3/12/2010 1:00:00 PM
HB 280
HB280 Sponsor Statement.pdf HRES 3/12/2010 1:00:00 PM
HB 280
HB 280-1-1-021710-ADM-N.pdf HRES 3/12/2010 1:00:00 PM
HB 280
HB 280-2-2-021710-CED-N.pdf HRES 3/12/2010 1:00:00 PM
HB 280
HB 280 WD v. C.pdf HRES 3/12/2010 1:00:00 PM
HB 280
HB 280 Changes v. C.pdf HRES 3/12/2010 1:00:00 PM
HB 280
HB 280 v. C Sectional Analysis.pdf HRES 3/12/2010 1:00:00 PM
HB 280
HB 280 v. C Overview.pdf HRES 3/12/2010 1:00:00 PM
HB 280
CSHB280-DNR-OG-03-05-10.pdf HRES 3/12/2010 1:00:00 PM
HB 280
CSHB280-REV-TAX-03-07-10 Cook Inlet Recovery Act.pdf HRES 3/12/2010 1:00:00 PM
HB 280