Alaska Conservation Voters

Conservation Watch

Alaska Conservation Voters
works to protect Alaska's environment through public education and advocacy, and supports pro-conservation candidates for public office.

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Suzanne Bostrom
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suzanne@akvoice.org

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“It's like sipping from a fire hose.”
--- Senator Gary Wilken (R-Fairbanks) commenting on trying to grasp the provisions of the fiscal proposal put forward by Murkowski at the start of the special session last week.

• The Gasline Contract
  • Public Hearing Schedule
• End of Session Wrap-Up
  • The Good News
  • The "Not-So-Good" to Bad News
  • The Budget News
  • Other News
• Hot Bills

Act II - The Gasline Contract

If you thought PPT was going to be a challenge, brace yourself for the start of the discussions on the Gas Pipeline. The Legislature now has turned its attention to the Governor’s proposed gasline contract in a special session that began on Wednesday, May 10. The proposal is being negotiated under the auspices of the Alaska Stranded Gas Development Act (“SGDA”). The term “stranded gas” refers to "gas that is not being marketed due to prevailing costs or price conditions as determined by an economic analysis by the Commissioner of Revenue for a particular project. BP, ConocoPhillips, and Exxon Mobil have used the law to make a natural gas pipeline deal with Gov. Frank Murkowski.

The SGDA is a law that allows the state change the way it is compensated by a company developing natural gas resources. Instead of requiring a royalty and tax system similar to other projects, the state can make an agreement with companies for “payments in lieu of taxes,” or PILTs. As opposed to taxes, which lawmakers can change at any time, the PILTs can be fixed for the life of the contract, thereby reducing the investment risk. The law also allows the state to make the compensation more progressive by taking more from the companies when prices—and profits—were high, and less when they are low. The state is also able to shift the timing of the taxes and other payments to avoid overwhelming companies with expenses before they receive any income from the project.

When the law was created in 1998, lawmakers believed that a huge amount of natural gas on the North Slope was “stranded,” because of the high cost of getting it to market. They also believed that developing the “stranded” gas could provide benefits to the state in the form of revenue, jobs, and gas. The SGDA was created to encourage projects that otherwise might not happen.

While it is too soon to discuss and evaluate the proposed contract terms and conditions, we thought it would be useful to give you a brief summary of the review and approval process that is just getting started.

Once a proposed contract is developed under the Stranded Gas Act with a qualified applicant for a qualified project, the commissioner is required to develop preliminary findings and determine if the proposed contract terms are in the long term fiscal interest of the state. To develop these findings, the commissioner compares the anticipated public revenue from the project with the estimated operating and capital costs of the additional state and municipal services that will result from the project. He must also “address the reasonably foreseeable effects of the proposed contract on the public revenue.”

The contract, findings and supporting information then go to the Governor and, if approved, on to the Legislature for a public and legislative review period that must last at least 30 days. A 45-day process is now underway for review of the unsigned, proposed 350 page contract with the three major producers and the related 300 pages of fiscal interest findings. The review period includes several days of lectures to legislators on the contract and background information and additional time for committee scrutiny. Eight public hearings will be held between May 19 and June 15 around the state along with additional teleconferences at local Legislative Information Offices to allow for public comment.

The governor's office currently states that the proposal does not meet the requirements of the SGDA and that the law will have to be changed to make the current proposal fully legal. Starting May 22, the Legislature is expected to address the Governor’s proposed amendments to the SGDA to bring it into conformance with the terms of the proposed contract. The Legislature plays a key role in this aspect of the negotiations, as it has the power to change--or not change--the law on which Murkowski and the three oil companies based their deal.

On Thursday, May 18, it was also announced that the agenda of the special session will be expanded to include the Petroleum Production Tax, which failed to pass by the end of the regular session. Murkowski will be introducing his original version of the bill, but Senate President Ben Stevens has already stated that the governor’s 20-20 bill will immediately be replaced by a substitute version with a higher base tax rate which increases at high oil prices. For more information, visit the Anchorage Daily News.

After the review period is completed and any Stranded Gas Act amendments have been approved by the Legislature, the Commissioner will evaluate public and legislative comments, prepare amendments in consultation with the DNR Commissioner and any municipal advisory group (of “revenue affected” municipalities) established under the Act, attempt to re-negotiate the contract as appropriate, revise the findings as necessary, finalize the contact/findings and submit to the Governor for approval. These final findings are subject to legal challenge under the current law.

The Governor may then transmit the approved, final contract to the Legislature along with a request for authorization to execute it. The Legislature can make an up or down decision but has no authority to modify terms. There is likely to be a second special session with a start date that has yet to be determined.

This is a huge and complicated business deal and the state is being asked to participate as an owner and not just as a regulator or taxing entity, which is a tall order that is likely to generate much discussion and debate over the next few months. We are being told that if the gas line going to succeed the state will have to work closely with industry and assist the project without “giving away the farm.”

The contract issues will be many but some of the biggest ones currently in the mix include:

1. Whether the state should buy a piece of the action and then take its share of gas (including royalty share) in kind and handle all marketing through a state entity;
2. Whether the contract should lock in gas and oil tax requirements for extended periods of time (30 years for the oil tax rates; 45 years for the gas tax rates);
3. Whether there should be a firm starting date or at least a binding commitment to develop the resource by the operators; and, if so, what are the appropriate penalties for non-performance;
4. And, ultimately whether the considerable risks of low prices and cost overruns should trump a significant profit potential if all goes reasonably well.

The reserve tax issue also is starting to heat up. The pipeline that would deliver 35 trillion cubic feet of North Slope Gas to markets in Alberta and Chicago is estimated to cost between $19 billion (to Alberta) and $27 billion (if it has to go all the way to Chicago), or much more.

While most of the environmental issues will be dealt with later during the permitting phase, the contract is a very important policy issue facing our great state and we will keep a close eye on it for the conservation community. Stay tuned.

For more information visit:

Conservation Watch #8

The Special Session Webpage

The Gas Pipeline Webpage

How can you get involved?
The public review process, which is scheduled to last for at least 45 days, has already begun. There are numerous avenues by which you can comment and make your voice heard on the proposed fiscal contract.

A. Online - Directions and the link to submit your comments online can be found at http://www.phxurs.com/commador/.

B. At Public Hearings & Project Fairs - Eight public hearings will be held throughout the state, with Project Fairs and Public Hearings starting at following times and locations:

C. During Statewide Public Hearings at Legislative Information Offices - Public hearings will also take place at Legislative Information Offices on three dates. Individuals who cannot attend the hearings at a local LIO because of a disability or location difference can call (888) 295-4546 at the same time as the LIO teleconferences. To look up the location of your nearest LIO, click here.

D. By Calling Toll Free - 1-866-51AK-GAS (1-866-512-5427)

E. Community Presentations - Presentations will be held to provide information in the following communities. The venues are Chambers of Commerce, rotary meetings, city councils, etc. and vary by community. Testimony will not be taken at these presentations.

End of Session Wrap-Up

Done! The regular legislative session is over. It has been a long haul but Alaska’s Conservation community has many reasons to celebrate and a few to lament. We’d like to thank you all for your interest and support during this very challenging session. Here’s the final tally:

The Good News

HCR30 Climate Impact Assessment Commission - Rep. Joule (D-Kotzebue)
One of our highest priorities, this resolution led a charmed life and made it all the way to the goal line in great shape. Its companion, SB 278 by Senator Olson, graciously took the back seat when HCR 30 passed over to the Senate and became the vehicle for this issue.

The Legislature did good work on this one and deserves a very big thanks for doing the right thing. We also would like to thank Rep. Joule and Senator Olson for their leadership and the co-sponsors for their support; especially Rep. Samuels for his strong advocacy throughout the process and his offer to provide seasoned, professional staff (Tim Benintendi) for this very important effort.

HB307 Knik River Public Use Area - Rep. Stoltze (R-Chugiak)
HB307, which establishes the Knik River Public Use Area, passed the Legislature in good shape. This very controversial bill traveled a very rocky road but got better and better as we, local residents and users of this very special place– good folks like Cecily Fritz, Robert Howard, Eric Uhde and Brit Lively– worked closely with the sponsor committee by committee. The bill turned the corner in Senate Finance where they substantially beefed up the fiscal note to allow for additional enforcement and adopted a letter of intent that asks DNR to look into setting up a user fee system to help pick up the cost of operations and necessary facilities. Our thanks to Rep. Stoltze, Senator Huggins and Senator Green for listening carefully to the concerns of locals and users and then doing something about it. Rep. Kerttula, who grew up in the Mat-Su Valley, also made a difference. The real fun will begin during the management plan development process.

HJR9 / SJR17 Honor Exxon Valdez Judgment / Exxon Valdez Reopener - Rep. LeDoux (R-Kodiak) / Sen. French (D-Anchorage)
SJR 17 was merged with HJR 9 and passed the Legislature on the last day. This resolution now calls on Congress to honor the Exxon Valdez Damages Judgment and the Governor and the Bush Administration to trigger the “Reopener for Unknown Injury” clause. If the Department of Justice and the Alaska Department of Law do not act to reopen the litigation to continue the damage discussion, the opportunity to recover up to an additional $100 million will be lost forever. Another good move by the Legislature. To learn more about a recently published study on the lingering effects of the oil spill, click here.

SB85 Dalton Highway ORV Use - Sen. Seekins (R-Fairbanks)
This bill would break a longstanding promise to the people of the region by repealing the ban on the use of certain off-road vehicles within five miles of the right-of-way of the James Dalton Highway . After zipping through the Senate, it died a slow death in the House Transportation Committee as a result of substantial opposition from local residents, the conservation community and the North Slope Borough. The sponsor is undaunted and said he will try again next year.

SB86 Public Interest Litigation - By Request of the Governor
Despite the focused efforts of the Administration to pass this bill in the final weeks of the session, we are pleased to say that SB 86 died in House State Affairs. Representatives Seaton, Gruenberg, Gatto, and Gardner held their ground despite considerable pressure from the Administration to move the bill. We worked hard on this effort and would like to thank the domestic violence community, the Alaska Womens’ Lobby and their lobbyist, Caren Robinson , for their help in killing this bad idea.

The bill would have limited the award of attorney's fees to public interest litigants who have filed claims against the state and municipalities. Currently, these litigants are often granted full fees in cases determined by the court to be advancing an issue that reflects strong public policies. This “government trumps the people” measure upsets the balance just to save a few bucks and will discourage lawsuits by ordinary citizens to address important policy issues.

HB378 Chilkat Bald Eagle Preserve Advisory Committee – Rep. Thomas (R-Haines)
This bill, replacing the Haines City Mayor’s seat on the Alaska Chilkat Bald Eagle Preserve Advisory Council with a member of the Haines Borough Assembly, passed the Legislature. It started out a bad bill but we worked closely with sponsor Rep. Thomas and turned it into a pretty good one.

HB420 Riparian Protection Standards - By Request of the Governor
Another winner, this bill will complete the task of setting statewide riparian standards that began with the 1990 changes to the Forest Practices Act (AS 41.17) and had our strong support.

Stampede Road - Capital Budget – see more below
Thanks to an excellent grass roots campaign backed by groups such as the Denali Citizens Council as well as strong local opposition and other problems with the proposal, the Legislature wisely dropped the Governor’s effort to continue funding for the Stampede Road Project. Unfortunately, valiant attempts by Rep. Guttenberg to reprogram last years Stampede Road money were unsuccessful. This issue will probably be back next year. The results of the North Denali Access Reconnaissance Study, which are likely to be completed later this year, may also influence the outcome.

HB380 State Veterinarian Powers (Avian Flu) - Rep. Meyer (R-Anchorage)
This good bill that we actively supported also passed the Legislature this year. HB 380 repeals and reenacts several provisions of Title 3 to modernize the powers of the Commissioner of the Department of Environmental Conservation and the State Veterinarian. It will allow the State Veterinarian to respond to immediately to potential dangers to Alaskans and our animal populations. Current statute was created at a time (prior to statehood in 1949) when the legislature was concerned primarily with fur farms and animals labeled as “livestock.” As such, the State Veterinarian was limited to respond only to infections and diseases present in livestock. HB380 expands and modernizes this authority to allow the State Veterinarian to respond to diseases such as avian influenza in wild animals.

HB306 Convey Hatcher Pass to Mat-Su Borough - Rep. Stoltze (R-Chugiak)
This very controversial measure that picked up steam at the end of the session would have made the acreage on the southern border of the Hatcher Pass Public Use Area available to the Matanuska-Susitna Borough. Private developers were hoping to take it from there. Despite a big lobbying effort to keep the bill moving, HB 306 died when sponsor Rep. Stoltze withdrew it due to many unanswered questions about the potential adverse impacts on public use of the area that could result from the private development proposal. Rep. Kerttula and the Alaska Outdoor Council also played a role in the bill’s demise.

SB 170 Department of Fish & Game Powers & Duties - Sen. Seekins (R-Fairbanks)
This very long, very complicated and very controversial measure that covers a lot of Fish and Game territory came up too late in the game and just didn’t get any traction. It is good to see that it died.

HB318 Eminent Domain - Reps. McGuire (R-Anchorage), Holm (R-Fairbanks) and Hawker (R-Anchorage)
Passed the legislature in good shape if you can accept the premise that homes deserve to be protected from recreational takings. The bill does provide an out – the Legislature can pass a bill authorizing the condemnation. We’d like to thank Sponsor Rep. Lesil McGuire and her aide, Craig Johnson, for keeping open the lines of communication with the conservation community.

The "Not So Good" to Bad News

A couple of our priority issues didn’t make the cut this year. Much of that is due to the fact that complicated and controversial bills often take two or more years to get through the maze. This year was especially challenging due to the PPT related delays in the House Resources and Finance Committees.

HB328 Ban Mixing Zones in Spawning Areas - Reps. Seaton (R-Homer), LeDoux (R-Kodiak), Olson (R-Soldotna) and Gatto (R-Palmer)
Another high priority, this bill would have prevented a rollback as currently proposed by the Administration and codify the existing regulatory ban on mixing zones in spawning areas with some improvements. Due to unresolved concerns about its impacts on placer miners - and the lateness of the day thanks to PPT delays in House Resources – this bill died before its time but is likely to rise again. We’d like to thank Rep. Seaton and aide Louie Flora for taking this one and hanging in there to the bitter end.

Roads and Bridges - Capital Budget
Unfortunately, this was an uphill battle and despite a comprehensive education and lobbying push thanks to the tireless efforts of Emily Ferry of the Alaska Transportation Priorities Project, Jan Wrentmore, our interns and many others, the $45 million in general funds for the Juneau Road Extension survived. Partial federal funding for the two “bridges to nowhere” (Knik Arm and Gravina Island) remained in amounts initially proposed by the Governor but, thankfully, did not receive any contributions of state funding.

HB445 Alternative Energy Grant Fund - Rep. Thomas (R-Haines)
This priority bill stayed in House Finance and died at the end of the session. While there was substantial and growing interest in the topic - including other good ideas in the hopper by Representatives Berkowitz, Crawford and Ramras and Senator Dyson - there just wasn’t enough time to develop a solid proposal. Like the mixing zone and mining tax legislation this is a two year (or more) bill - and yet another PPT victim. Nonetheless, the issue is alive and well and will re-surface next session.

The bill would have set up a grant program within the Alaska Energy Authority for alternative energy and energy efficiency projects. Each year that West Coast oil prices exceed $35 per barrel the bill suggests the legislature appropriate to the fund an amount equal to 10 cents per barrel of oil produced plus income earned on the fund. Grants can be up to $20 million per grantee. Grantees could be electric utilities, a government entity, or independent power producer. Grants are subject to a 25% match.

HB324 Invasive Species - Rep. LeDoux (R-Kodiak)
This House bill also didn’t make it. HB 324 would have banned the importation, transfer, and cultivation of orange hawkweed and purple loosestrife. The bill was frequently criticized for being too narrow. Many felt a more comprehensive approach to invasive species issues was in order. We will continue to encourage the Administration to establish a working group to take a close look at all marine and terrestrial issues. Of special note is the fact that the Washington Legislature recently established an Invasive Species Council.

HB415 Liability for Recreational Land Use - Rep. Seaton (R-Homer)
This good and non-controversial House bill died suddenly in Senate Resources from an undetermined cause. It encouraged recreational use of private lands by granting immunity to landowners who allow free access. The sponsor is likely to try again next year.

HB418 Mining Taxes and Royalties - Rep. Seaton (R-Homer)
Mining tax and royalty reform discussions are timely but HB 418 didn’t make it this time around. The bill was intended as a conversation starter and no one expected it to pass this year. We suspect the issue will be back.

HCR29 Pebble Mine - Rep. Hawker (R-Anchorage)
This resolution requested the Commissioner of Natural Resources to complete a management plan for the area encompassing the Pebble copper deposit. After an initial, big splash that included many warring and highly paid lobbyists, the bill sat in House Resources for months and then died.

HB360 Regulation of Public Drinking Water – Rep. Meyer (R-Anchorage)
This bill also died. It would have directed the Department of Environmental Conservation to regulate small public water systems to ensure that the public's water supply is safe and clean. There were a number of unresolved concerns expressed by some committee members about the scope of and need for this program and little time was left to work things out.

The Budget News

SB232 Supplemental Appropriations – Released by Request of the Governor
The Supplemental Appropriations bill also passed and includes $750,000 for Arctic Power; $3 million to PAC West Communications for a lobbying effort to open ANWR; $3.3 million for the Power Cost Equalization program (House number); and $250,000 for the bulk-fuel loan program .

HB365 House Operating Budget – Released by Request of the Governor
The House Operating Budget passed the Legislature and appropriates $2.3 billion in General Funds, $1.8 billion in Federal Funds and $3.3 billion in other funds for a whopping total operating budget of $7.4 billion. Major components of the budget include social services, education (K-12 and University), Transportation and Public Safety. This budget is larger than FY '06 but less than requested by the Governor. Most department priorities were funded.

SB231 Capital Budget – Released by Request of the Governor
The Capital Budget appropriates $690 million in general fund money as part of $3.6 billion total. The money will be used to fund various road, harbor and airport projects statewide and will pay for deferred maintenance efforts. It also includes numerous grants to schools and non-profit organizations as well as $29 million for water and wastewater projects. Funding for a number of rural schools as well as a $182.7 million allocation to the Power Cost Equalization endowment program are currently in limbo, as their inclusion in the budget was contingent on the passage of certain items in the PPT. Since the PPT failed to pass during the session, it has yet to be determined whether or not these amounts will be included as a result of work done during the special session.

Other News

SB 166 Wildlife Conservation Tag - Sen. Bunde (R-Anchorage)
This bill died in Senate Resources due to lack of interest and time. A new CS would have changed this from a mandatory fee system to an optional one where you could buy a conservation pin with proceeds going to a wildlife conservation account in the fish and game fund.

SB305 Oil & Gas Production Tax – Released by Request of the Governor
The Senate failed to concur in House amendments to PPT legislation. The Senate version of the bill brought the tax rate closer to the governor's proposal -- 22.5 percent instead of 25 percent -- plus increased the price at which the escalator tax would kick in and flattened the rate at which the escalator would rise. They also increased from 20 percent to 25 percent the tax credit companies could claim on their annual capital investments. The oil companies and administration opposed this compromise proposal. The House version dropped the rate to 21.5 %, reduced the credits to 20%, revised the progressivity provision and made several other significant changes. Now that they are in Special Session, the fate of this bill is unclear but it’s not over yet. On Thursday, May 18, Governor Murkowski expanded the agenda of the special legislative session to include the oil tax bill, which will be reintroduced in its original form on Monday, May 22. Senate President Ben Stevens said the governor’s 20-20 bill would immediately be replaced by a substitute version with a higher base tax rate which increases at high oil prices. For more information, click here.

SB 316 Court Review of Stranded Gas Development Act - Senate Judiciary
“An act amending the Alaska Stranded Gas Development Act to eliminate the opportunity for judicial review of the findings and determination of the commissioner of revenue on which are based legislative review for a proposed contract for payments in lieu of taxes and for the other purposes described in that Act; and providing for an effective date.” Following extensive hearings led by Chair Seekins, a very careful review of the issues and a major rewrite that turned a bad bill into a pretty good one, SB 316 died due to opposition from the Administration and possibly others. The issue may resurface during the Special Session. Companion bill HB502 also died but received less attention in the House.

Hot Bills

The following chart summarizes the final results for a number of the bills tracked this session by the conservation community.