Legislature(2013 - 2014)SENATE FINANCE 532
03/03/2014 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB138 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 138 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 138
"An Act relating to the purposes of the Alaska Gasline
Development Corporation to advance to develop a large-
diameter natural gas pipeline project, including
treatment and liquefaction facilities; establishing
the large-diameter natural gas pipeline project fund;
creating a subsidiary related to a large-diameter
natural gas pipeline project, including treatment and
liquefaction facilities; relating to the authority of
the commissioner of natural resources to negotiate
contracts related to North Slope natural gas projects,
to enter into confidentiality agreements in support of
contract negotiations and implementation, and to take
custody of gas delivered to the state under an
election to pay the oil and gas production tax in
kind; relating to the sale, exchange, or disposal of
gas delivered to the state under an election to pay
the oil and gas production tax in kind; relating to
the duties of the commissioner of revenue to direct
the disposition of revenues received from gas
delivered to the state in kind and to consult with the
commissioner of natural resources on the custody and
disposition of gas delivered to the state in kind;
relating to the authority of the commissioner of
natural resources to propose modifications to existing
state oil and gas leases; making certain information
provided to the Department of Natural Resources and
the Department of Revenue exempt from inspection as a
public record; making certain tax information related
to an election to pay the oil and gas production tax
in kind exempt from tax confidentiality provisions;
relating to establishing under the oil and gas
production tax a gross tax rate for gas after 2021;
making the alternate minimum tax on oil and gas
produced north of 68 degrees North latitude after 2021
apply only to oil; relating to apportionment factors
of the Alaska Net Income Tax Act; authorizing a
producer's election to pay the oil and gas production
tax in kind for certain gas and relating to the
authorization; relating to monthly installment
payments of the oil and gas production tax; relating
to interest payments on monthly installment payments
of the oil and gas production tax; relating to
settlements between producers and royalty owners for
oil and gas production tax; relating to annual
statements by producers and explorers; relating to
annual production tax values; relating to lease
expenditures; amending the definition of gross value
at the 'point of production' for gas for purposes of
the oil and gas production tax; adding definitions
related to natural gas terms; clarifying that credit
may not be taken against the in-kind levy of the oil
and gas production tax for gas for purposes of the
exploration incentive credit, the oil or gas producer
education credit, and the film production tax credit;
making conforming amendments; and providing for an
effective date."
9:12:13 AM
Vice-Chair Fairclough looked at slide 3 from the Black and
Veatch presentation from February 19, 2014, "Long Term
North Slope and Gas Revenues are Driven by AK LNG Project
Success" (copy on file). She noted that there was a flat
line that was related to oil only, and she wondered if
there were other oil revenues above that line.
BRUCE CAMPBELL, STAFF, SENATOR PETE KELLY, agreed to
provide that information.
Co-Chair Meyer referred to a presentation from enalytica,
which showed gas prices starting at $10. He requested
scenarios about gas prices below $10. Mr. Campbell asked
if the analysis should be as low as Henry Hub.
Co-Chair Meyer asked for scenarios with gas prices in the
range of $7 to $10. He referred to slide 6 of a
presentation from enalytica on February 27, 2014. Mr.
Campbell agreed to provide that information.
Vice-Chair Fairclough requested a report from the Alaska
Oil and Gas Conservation Commission (AOGCC). She queried
that process that would be used to determine when gas would
be available. She knew that the natural gas would be
reinjected into the Prudhoe Bay field to drive increased
production in oil, which was of highest value to the state.
Mr. Campbell agreed to provide that information.
Co-Chair Meyer asked if a member of AOGCC would be
testifying in front of the committee. Vice-Chair Fairclough
explained that the request was directly from one of her
constituents. She explained that AOGCC announced that there
was no gas available for the pipeline.
9:17:34 AM
Mr. Campbell explained that the field operators would
approach AGDC and explain how the gas would get online.
Co-Chair Meyer stressed that he would like to hear from
AOGCC. Mr. Campbell replied that AOGCC was regulatory
structured to say that there was no gas available. He
stated that there must be proof that gas and oil could be
pulled from the North Slope. The petroleum engineers were
the only people that could provide that proof.
Vice-Chair Fairclough understood that there may be an
outlined process. She knew that AOGCC could not compromise
its regulatory structure. She would like to hear from
someone that the gas would be available, and ready for
market. She stressed that the industry partners had a
vested interest in ensuring that the gas was available for
the project.
Co-Chair Meyer agreed with Vice-Chair Fairclough, and
remarked that there were constant declarations that gas
would not be available, because it was more valuable to
reinject it for more oil. He felt that there were different
scenarios that the gas could be best used. He felt that
AOGCC should comment on the availability, usefulness, and
profitability of the natural gas.
Senator Hoffman requested a timeframe of when the bill
would possibly move out of committee. He referred to a
slide titled, "When the state is out of money", which was
presented in the Senate Resources Committee. He stressed
that gas should be at the burner tip as soon as possible.
Co-Chair Meyer asked for a schedule of the week on the
legislation. Mr. Campbell explained that there were some
requests for participation from various municipalities.
There were efforts to schedule some invited testimony, and
stated that the schedule was at the pleasure of the
committee.
9:23:23 AM
Co-Chair Meyer surmised that the municipalities would
present their perspectives from a taxation standpoint, and
the public testimony would be held the following day.
Vice-Chair Fairclough requested an analysis of cash flow
and impacts of that to the state.
MICHAEL PAWLOWSKI, DEPUTY COMMISSIONER, STRATEGIC FINANCE,
DEPARTMENT OF REVENUE, (DOR) explained that there were some
drafts that were currently under review, that would
eventually be posted online.
Co-Chair Meyer wondered how the project would provide gas
to Alaskans. He stressed that, if gas prices were to
skyrocket, his constituents would still desire gas at the
burner tip.
9:27:09 AM
JOE BALASH, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
(DNR) explained that the Heads of Agreement (HOA) outlined
the opportunity to deliver gas to at least offtake points
in Alaska. He stated that there would be an initial state
share. He stressed that there would be a continual work
with industry partners. He pointed out that there would be
long term contracts that will be drafted, in order to
enhance a guarantee for Liquid Natural Gas (LNG).
Co-Chair Meyer surmised that Alaskans would not get a
discounted rate. Commissioner Balash replied how gas would
be disposed would be a collective decision between state
and industry partners.
Mr. Pawlowski explained that there is possibly a
misperception. He referred to Exhibit C, Page 5, Point 17
of the Memorandum of Understanding (MOU).
9:32:14 AM
Vice-Chair Fairclough wondered if the rate would equal the
tariff for the producers. She wondered if it was presumed
that the 25 percent of the state share would mean that the
state would sell the gas to Alaskans. Mr. Pawlowski
referred to page 14 of the HOA. He stressed that there was
a statement that was consistent with language from the
anti-trust council. He stressed that it was not a resolved
issue.
Vice-Chair Fairclough hoped that there was a preservation
of the revenue stream, because keeping the product in state
would forgo revenue for the state. If the molecules were
owned by a different entity, it may be regulated under
different laws.
Co-Chair Meyer wondered why the tax rate was so low. Mr.
Pawlowski responded that there was an outline in the HOA
that explained how the breakdown of revenue was
distributed, and furthered that the DNR website showed the
specifics of the state's revenue share.
9:38:19 AM
Vice-Chair Fairclough requested an analysis from enalytica
that showed how Alaska lined up against other tax regimes.
She felt that the tax rate should be increased, because
Alaska had oil that was the foundation in the credits. She
wanted to see the limit on the credits, because oil was
still underpinning the frontend of the project for cost
recoveries. She suggested an analysis of where Alaska
compared was compared to others who were attempting to
bring gas to market. She would also like to the income tax
with the overall government take.
Co-Chair Meyer wondered how much say the state had in the
operations of the project, with only a 25 percent interest.
He wondered if all involvement would only be 25 percent.
Commissioner Balash responded that the percent of the
equity is typically the same as the vote on the projects.
He stressed that there were some circumstances that would
require different forms of voting.
9:42:29 AM
Senator Hoffman understood that the administration was
focused on building the gas line. He wondered if the
administration felt that there were legislators that wanted
more than the proposed take off plans, and wanted an AGDC
plan. He stressed that Alaska was an energy state, and many
people felt that Alaska should have some of the lowest
energy costs in the nation. He specifically wondered if the
administration felt that this proposal was enough and
satisfactory for affordable energy for Alaskans.
Commissioner Balash stressed that the proposal was not the
last of the work that would occur. He stressed that the
legislation was an "opportunity." He remarked that there
was still work on finding every opportunity to bring gas to
Alaskans.
Senator Hoffman felt that at every phase the state should
be taking positive and additional steps to reduce tariffs.
He wondered if there would be specific directions to make
Alaskans feel like they can get affordable energy. He
pointed out that some people feel like the project is the
state's last change to obtain affordable energy. He
believed that there should be some direction beyond the
five take-off points. He stressed that there should be a
mandate to expand the project. Mr. Pawlowski responded that
he was hesitant to provide specific estimates, because the
project had a range of $45 to $65 billion, which was a
great deal of uncertainty. He felt that all of the partners
needed to embark on Pre FEED to refine the estimates, so
that the anchor of the project can move forward.
9:50:00 AM
Senator Hoffman remarked that he will work on what he feels
should be the enhancements and eventual expansions to the
projects. He urged the administration to go beyond the
proposed take-off points of the project. Commissioner
Balash welcomed the opportunity to fashion something that
would fit into the phased approach within the proposal.
Senator Bishop echoed Senator Hoffman's comments. He felt
that the agreement should include some certainty that would
not hinder the rural Alaskans. He pointed out that diesel
fuel was less expensive in Juneau that it was in Fairbanks.
Vice-Chair Fairclough stated that the legislature often is
very transparent with the estimates, budgets, and revenues.
She felt that it may be a disadvantage to the state. She
suggested that there should be collaboration with AEA to
form a more confidential approach to sharing its financial
reports.
9:55:28 AM
Vice-Chair Fairclough looked at page 5, Article 1.6 of the
HOA. She wondered what contracts were subject to
legislative ratification. She looked at page 9, section
4.4, and stated that there needed to be fiscal and
commercial terms; those must have approval; and the size
needed to be determined. She expressed concern regarding
the value of instate energy, because it could show up in
many forms. Commissioner Balash replied that the interplay
between the development of the agreements and the various
parties, there were agreements that would go upstream which
would be discussed in the legislature. He furthered that
there would be negotiated on downstream providing
transportation and liquefaction agreements that would be
discussed in the legislature. The sale of the state gas
share would also be approved by the legislature.
Vice-Chair Fairclough looked at page 5, Article 1.6 (b) of
the HOA, and wondered what would be considered "periodic."
Commissioner Balash replied that the probable pace was
approximately quarterly.
Vice-Chair Fairclough looked at page 5, Article 1.7 (a) of
the HOA, and wondered if the intent of that section was to
keep the project cost under control. Commissioner Balash
replied that the issue was related to the limited number of
EPC firms available to do the proposed work. He stressed
that the focus was on the lowest reasonable bids to execute
the project in a cost-efficient manner.
Senator Bishop wondered if he would have the ability to
defend his legislative vote, because there may be an issue
of confidentiality. Commissioner Balash replied that he
could defend his vote, because the access to information
would be confidential. Once the agreements were made
public, the legislature would vote on the agreements.
10:02:57 AM
Senator Bishop surmised that the state would be able to
argue for or against the agreement in the confidential
meetings. Commissioner Balash explained that page 13, lines
20 through 30 of the bill outlined that issue.
Vice-Chair Fairclough looked at page 7, Article 1.17, and
wondered if the state would partake in equity investments
including terminal facilities and auxiliary marine vessels.
Mr. Pawlowski responded that the vessels were just
necessary at the actual terminals, which were specifically
determined to the operations of the terminal. They were
only support vessels.
Vice-Chair Fairclough stated that those vessels may be
considered a guaranteed source of revenue. Commissioner
Balash explained that the responsibility of the ships would
be negotiated in outlining the agreements.
10:07:05 AM
Vice-Chair Fairclough looked at page 9, Article 4.5. She
wondered if TransCanada would function as a marketing arm
for the state during Pre FEED. Mr. Pawlowski responded that
there was no intent to have TransCanada to be the state's
marketing entity.
Vice-Chair Fairclough wanted to see the agreement, because
she wanted the highest value for Alaskans, and it should be
resolved in Pre FEED. Commissioner Balash replied that the
process for selling LNG was very similar to the phased
approach for development of the infrastructure. The
contacts with buyers would agree during Pre FEED, but the
execution of the sales agreement would not occur until
close to the final investment decision.
Mr. Pawlowski looked at page 9, Article 4.5. He stated
that, during the development of the HOA, the interest of
the producer parties was an indication of a difference from
previous efforts.
Senator Bishop commented that instate use may be of better
value to Alaskans. Commissioner Balash imagined a scenario
where the state may not want to take on the risk of
liquefaction and its services. He stressed that there was a
trade-off, if a price mechanism could be determined to
deliver the same net-back value to the treasury. He
stressed, however, that it would limit the state's options.
10:15:22 AM
Vice-Chair Fairclough looked at article 4.2 of the HOA. She
noted that the second line addressed other support
references in article 10 in maintaining progress of the
project. Article 10 addresses the Alaska Right of Way
Leasing Act, and the use of imminent domain. She wondered
what kind of amendments should be made to the Alaska Right
of Way Leasing Act. Commissioner Balash replied that he was
not aware of any changes that should be made. He stated
that there were provisions which were outlined in the
common carrier section of the Act, and the contract
carriage amendments that were enacted the year prior in HB
4.
Vice-Chair Fairclough requested an answer in writing, to
ensure that what is said is what is actually anticipated.
She looked at page 16, which addressed a possibility of an
amendment of the Alaska Right of Way Leasing Act.
10:18:29 AM
Vice-Chair Fairclough stressed that Alaskans had been
waiting for a natural gas pipeline. She wondered if AGDC's
efforts and focus should be amended to focus on the larger
pipeline and bring gas to Alaskans. She remarked that there
was already an appropriation for the Alaska Stand Alone
Pipeline (ASAP). She felt that there may be a duplication
of services. Commissioner Balash replied that this issue
was difficult, and DNR did not want to interfere with the
intention of AGDC. He stated that the legislature had
directed AGDC to continue with ASAP through HB 4.
Vice-Chair Fairclough stressed that there was not an option
of a commercial partnership when the mission of AGDC was
outlined. She felt that there should be an expedited
project. Mr. Pawlowski replied that the administration's
position was outlined on page 3 of the HOA.
10:27:06 AM
Commissioner Balash encouraged that committee to seek out
the council of AGDC regarding the cost of delay for the
efforts that AGDC has undertaken. He stressed that AGDC has
moved forward on ASAP, and did not feel that any of their
efforts should be stalled.
Senator Bishop looked at the expansion principles, and
requested an explanation of the possibility of future
expansion. Commissioner Balash shared that the opportunity
for expansion was very important for a state that had a
mineral interest in the gas beyond Prudhoe Bay and Pt.
Thompson. He shared that there was a challenge when
considering the shift from a North American focus to and
LNG focus. The realization for DNR was about access to the
liquefaction plant to the marketplace. He stated that the
pipeline provisions had been shifted in the current
proposal, which would marry the liquefaction terminal and
the liquefaction trains.
Mr. Pawlowski stated that an LNG project was different,
because it was sold under long-term contract, and the terms
of the sales were complete when the project went online.
The rolled-in concept showed scenarios where the state
would lose, when all of the terms were committed.
10:33:51 AM
Co-Chair Meyer looked at page 19 of a presentation from
Black and Veatch. He remarked that there were some numbers
on the slide that outlined the cost at each state. He
wondered how it would work within the fiscal notes.
Vice-Chair Fairclough looked at page 16, Article 10.1 (c)
of the HOA, and requested information about the partners'
financial contribution to constructing infrastructure.
Senator Hoffman looked at page 3, item (i) delineated how
the different projects under AGDC would interact. He
wondered if there would be a fiscal note that would address
that statement. Commissioner Balash responded that the
point was to ensure that the funds already committed by the
legislature that were sufficient to carry AGDC through
their open season would be unaffected. The current project
would be considered a separate commitment.
Senator Hoffman wondered if it was the full intent of the
language within the fiscal note was intended only for the
one fiscal note. Mr. Pawlowski replied that the language
was specific to the fiscal note.
SB 138 was HEARD and HELD in committee for further
consideration.
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