Legislature(2013 - 2014)HOUSE FINANCE 519

04/14/2014 08:30 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
Heard & Held
+ Presentation by Dept. of Transportation & Public TELECONFERENCED
Facilities, David Bloom, P.E., Gasline Liaison &
Jeff Ottesen, Division Director, Program
Development
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 287 APPROVE TESORO ROYALTY OIL SALE TELECONFERENCED
Moved CSHB 287(FIN) Out of Committee
CS FOR SENATE BILL NO. 138(FIN) am                                                                                            
                                                                                                                                
     "An Act  relating to the  purposes, powers,  and duties                                                                    
     of   the   Alaska  Gasline   Development   Corporation;                                                                    
     relating  to  an  in-state  natural  gas  pipeline,  an                                                                    
     Alaska  liquefied natural  gas project,  and associated                                                                    
     funds; requiring  state agencies and other  entities to                                                                    
     expedite  reviews and  actions related  to natural  gas                                                                    
     pipelines  and projects;  relating  to the  authorities                                                                    
     and  duties of  the commissioner  of natural  resources                                                                    
     relating to a North Slope  natural gas project, oil and                                                                    
     gas and gas only leases,  and royalty gas and other gas                                                                    
     received  by  the  state   including  gas  received  as                                                                    
     payment for the production tax  on gas; relating to the                                                                    
     tax on oil  and gas production, on  oil production, and                                                                    
     on  gas  production;  relating to  the  duties  of  the                                                                    
     commissioner  of  revenue  relating to  a  North  Slope                                                                    
     natural  gas project  and gas  received as  payment for                                                                    
     tax;  relating to  confidential information  and public                                                                    
     record  status of  information provided  to  or in  the                                                                    
     custody of the Department  of Natural Resources and the                                                                    
     Department  of   Revenue;  relating   to  apportionment                                                                    
     factors of the Alaska Net  Income Tax Act; amending the                                                                    
     definition of gross value at  the 'point of production'                                                                    
     for  gas for  purposes of  the oil  and gas  production                                                                    
     tax; clarifying that  the exploration incentive credit,                                                                    
     the oil or gas producer  education credit, and the film                                                                    
     production tax credit may not  be taken against the gas                                                                    
     production tax paid in gas;  relating to the oil or gas                                                                    
     producer education  credit; requesting the  governor to                                                                    
     establish  an  interim  advisory board  to  advise  the                                                                    
     governor  on municipal  involvement  in  a North  Slope                                                                    
     natural gas  project; relating to the  development of a                                                                    
     plan  by the  Alaska  Energy  Authority for  developing                                                                    
     infrastructure  to deliver  affordable energy  to areas                                                                    
     of  the state  that will  not have  direct access  to a                                                                    
     North Slope  natural gas pipeline and  a recommendation                                                                    
     of   a  funding   source   for  energy   infrastructure                                                                    
     development; establishing the  Alaska affordable energy                                                                    
     fund; requiring the commissioner  of revenue to develop                                                                    
     a  plan  and  suggest legislation  for  municipalities,                                                                    
     regional corporations,  and residents  of the  state to                                                                    
     acquire ownership  interests in  a North  Slope natural                                                                    
     gas  pipeline  project; making  conforming  amendments;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
9:56:26 AM                                                                                                                    
                                                                                                                                
Co-Chair  Austerman   requested  an  understanding   of  the                                                                    
state's responsibility  regarding the  gas pipeline  and the                                                                    
accompanying  infrastructure.   He  noted  that   roads  and                                                                    
bridges would  provide important components of  the project.                                                                    
He requested  that Department  of Transportation  and Public                                                                    
Facilities provide  input regarding Article 10  of the Heads                                                                    
of  Agreement (HOA)  and additional  state  support for  the                                                                    
Alaska Liquefied  Natural Gas (LNG)  project. He  pointed to                                                                    
Article   10.1  (c)   "appropriations  permitting   for  the                                                                    
construction  of  necessary instate  infrastructure  [roads,                                                                    
bridges]  including  drafting   and  introducing  supporting                                                                    
legislation." He asked  if the HOA reflected  that the state                                                                    
would be responsible for  all infrastructure and improvement                                                                    
costs  throughout the  project.  He interpreted  the HOA  to                                                                    
read that  the state  would be responsible  for construction                                                                    
of all necessary infrastructures.                                                                                               
                                                                                                                                
9:58:31 AM                                                                                                                    
                                                                                                                                
PAT  KEMP, COMMISSIONER,  DEPARTMENT  OF TRANSPORTATION  AND                                                                    
PUBLIC  FACILITIES  introduced  himself,  Jeff  Ottesen  and                                                                    
David Bloom.                                                                                                                    
                                                                                                                                
JEFF  OTTESEN, DIRECTOR,  DIVISION  OF PROGRAM  DEVELOPMENT,                                                                    
DEPARTMENT OF TRANSPORTATION  AND PUBLIC FACILITIES provided                                                                    
a  historical  background  related to  Alaska  and  pipeline                                                                    
construction.  He stated  that  the department  was not  yet                                                                    
informed  about the  precise  infrastructure needs  required                                                                    
for  the   gasline  project.  He  knew   the  general  route                                                                    
established  for the  gas pipeline,  but  specifics had  not                                                                    
been  determined. He  compared the  project to  Trans-Alaska                                                                    
Pipeline  System (TAPS)  and noted  that current  population                                                                    
and  traffic was  triple that  of  the 1970s.  He wished  to                                                                    
maintain  safety  standards  and statistics  on  the  Dalton                                                                    
Highway.                                                                                                                        
                                                                                                                                
10:02:36 AM                                                                                                                   
                                                                                                                                
Mr. Ottesen  commented that the  natural gas  pipeline would                                                                    
be buried  leading to additional  earth work as  compared to                                                                    
TAPS.  He mentioned  the need  to replace  the Tanana  River                                                                    
Bridge as it presented a weak  link between the Lower 48 and                                                                    
Alaska.  He stated  that both  a large  and medium  diameter                                                                    
pipeline  was  proposed for  the  Parks  Highway, which  was                                                                    
parallel  to  the  Alaska Railroad.  He  expected  that  the                                                                    
railroad would  provide a major  component of  any logistics                                                                    
plan.  The Richardson,  Alaskan  and  Haines highways  would                                                                    
have  minimal improvements  as well.  He provided  a handout                                                                    
"Parks  Highway  Planned  Construction Information  -  2014"                                                                    
(copy on  file). He  pointed out that  many of  the projects                                                                    
addressed features that would  prove helpful to the pipeline                                                                    
construction  such as  14  new passing  lanes  built on  the                                                                    
Parks Highway in the summer of 2014.                                                                                            
                                                                                                                                
10:06:53 AM                                                                                                                   
                                                                                                                                
Mr.  Ottesen discussed  maintenance expenses  ineligible for                                                                    
federal contribution. He expected  the department to ask the                                                                    
legislature  for  general  funds for  the  relatively  small                                                                    
costs  averaging $12-$15  million annually.  He stated  that                                                                    
the  department  would  provide more  information  when  the                                                                    
logistics plan was determined. Highways  were blessed with a                                                                    
dedicated  source   of  federal   funds  that   allowed  for                                                                    
adaptation to the possibility of  new pipelines. The Federal                                                                    
Aviation program was specific in  its funding, which led the                                                                    
department  to  spend  funds   in  areas  disconnected  from                                                                    
pipeline plans.                                                                                                                 
                                                                                                                                
10:09:40 AM                                                                                                                   
                                                                                                                                
DAVID   BLOOM,   P.E.,   GASLINE  LIAISON,   DEPARTMENT   OF                                                                    
TRANSPORTATION  AND PUBLIC  FACILITIES, stated  that he  had                                                                    
very little  exposure to  the project  via the  sponsors. He                                                                    
mentioned  a  high-level  overview  provided  to  state  and                                                                    
federal  agencies   offered  by  the  project   sponsors  in                                                                    
February  2014. He  mentioned another  meeting in  Fairbanks                                                                    
related to  the permits required  for the summer  2014 field                                                                    
season. He  noted that upcoming  information such  as access                                                                    
and egress points for the  laydown yard, and safety lanes on                                                                    
the  highway would  prove essential  to  the department.  He                                                                    
pointed  out  that airports  and  their  service needs  also                                                                    
required  consideration. He  noted substantial  improvements                                                                    
to  the Dalton  and Parks  Highways with  approximately $120                                                                    
million allocated  to the Parks Highway  maintenance for the                                                                    
summer of 2014.                                                                                                                 
                                                                                                                                
10:13:00 AM                                                                                                                   
                                                                                                                                
Co-Chair Austerman asked  if the state would  be expected to                                                                    
pay   for   the   large  module   accommodation   and   road                                                                    
maintenance.                                                                                                                    
                                                                                                                                
Mr.  Kemp  replied that  highways  and  roadways within  the                                                                    
right-of-way must  accommodate legal  or permit  able loads.                                                                    
He  stated  that  the  highway  must  be  strong  enough  to                                                                    
accommodate  a   permitted  load.   He  believed   that  the                                                                    
department was responsible for the  majority of the work. He                                                                    
stated that an intersection requiring  an access road to the                                                                    
pipeline  should be  assigned  to the  developer. A  similar                                                                    
arrangement  was  often  embarked  on  with  a  large  store                                                                    
requiring an  intersection. He explained that  some portions                                                                    
of  the project  allowed  for  federal participation,  while                                                                    
others did not. The department  would request some help from                                                                    
the legislature  for those  portions ineligible  for federal                                                                    
funding. He  stated that the Parks  Highway required repairs                                                                    
whether the pipeline  was constructed or not.  He added that                                                                    
the  Parks  Highway was  not  free  of weight  restrictions.                                                                    
Understanding the Alaska  Railroad's level of responsibility                                                                    
would help the department to better understand theirs.                                                                          
                                                                                                                                
10:16:50 AM                                                                                                                   
                                                                                                                                
Co-Chair Austerman  asked if layout yards  or pull-off areas                                                                    
for larger modules  would be constructed by and  paid for by                                                                    
the producers.                                                                                                                  
                                                                                                                                
Commissioner  Kemp replied  that passing  lanes would  be an                                                                    
improvement addressed by the  department, while the pull-off                                                                    
area for a module would be covered by the developer.                                                                            
                                                                                                                                
Co-Chair  Austerman  asked  about   the  federal  funds.  He                                                                    
expressed concern  that the Dalton and  Parks Highways could                                                                    
use up the federal funds needed elsewhere in the state.                                                                         
                                                                                                                                
10:18:02 AM                                                                                                                   
                                                                                                                                
Mr. Otteson replied that the  many projects on the Parks and                                                                    
Dalton   Highways  were   underway  despite   the  potential                                                                    
pipeline.   The  work   was  prioritized   because  of   the                                                                    
connection  to  Prudhoe  Bay.  The   revenue  from  the  oil                                                                    
resources fueled  the Alaskan  economy. He  acknowledged the                                                                    
tension  between projects  and provided  an example  of such                                                                    
tension.                                                                                                                        
                                                                                                                                
10:20:08 AM                                                                                                                   
                                                                                                                                
Co-Chair Austerman agreed in reference  to the importance of                                                                    
the North Slope, but noted  that the benefit extended to the                                                                    
producers making  the profit. He  asked if any of  the three                                                                    
testifiers helped draft the language in the HOA.                                                                                
                                                                                                                                
Commissioner Kemp replied no.                                                                                                   
                                                                                                                                
10:21:09 AM                                                                                                                   
                                                                                                                                
Vice-Chair  Neuman asked  Mr.  Ottesen  about each  proposed                                                                    
gasline. He wondered about Port  Mackenzie as a staging area                                                                    
for either pipeline.                                                                                                            
                                                                                                                                
10:22:01 AM                                                                                                                   
                                                                                                                                
Mr. Otteson replied yes; he  expected Port Mackenzie to be a                                                                    
key staging area  as part of the  rail extension. Completing                                                                    
the extension was an important component of the project.                                                                        
                                                                                                                                
10:22:34 AM                                                                                                                   
                                                                                                                                
Representative  Guttenberg noted  the $800  million deferred                                                                    
maintenance  budget on  the Dalton  Highway.  The state  was                                                                    
asked  to  fund  the  agreement in  general  terms.  Massive                                                                    
amounts of  heavy-walled pipe  would compromise  the asphalt                                                                    
and shoulders  of the  highway. He  asked about  the state's                                                                    
obligation entering into the project.                                                                                           
                                                                                                                                
10:23:51 AM                                                                                                                   
                                                                                                                                
Commissioner Kemp replied that  the information would become                                                                    
available  later.  He  questioned the  deferred  maintenance                                                                    
quote offered  by Representative Guttenberg. He  wondered if                                                                    
deferred   maintenance  was   not   confused  with   routine                                                                    
maintenance. He agreed that the  questions must be answered,                                                                    
but stressed that the state's  roadways were in better shape                                                                    
than they  were in the  time of TAPS construction.  He noted                                                                    
the   department's   focus   on  safety   in   addition   to                                                                    
accommodation of the increased industry traffic.                                                                                
                                                                                                                                
10:25:02 AM                                                                                                                   
                                                                                                                                
Representative  Gara  noted  that  Governors  Murkowski  and                                                                    
Palin approached  the legislature with  infrastructure costs                                                                    
during their gasline proposals dependent  on the size of the                                                                    
chosen pipeline.  He recalled estimates of  approximately $2                                                                    
billion worth  of infrastructure increases.  The legislators                                                                    
were  able  to  incorporate  the information  into  the  Net                                                                    
Present Value calculations.                                                                                                     
                                                                                                                                
Co-Chair Austerman concurred.                                                                                                   
                                                                                                                                
CSSB  138(FIN)  am  was  HEARD and  HELD  in  committee  for                                                                    
further consideration.                                                                                                          
                                                                                                                                

Document Name Date/Time Subjects
Am 1 to Am 3 to HB 287.pdf HFIN 4/14/2014 8:30:00 AM
HB 287
HB 287 Replacement Amendment #2 GARA.pdf HFIN 4/14/2014 8:30:00 AM
HB 287
HB 287 Amendment #2 to Amendment #3 Austerman.pdf HFIN 4/14/2014 8:30:00 AM
HB 287
HB 287 New Fiscal Note CS FIN DNR.pdf HFIN 4/14/2014 8:30:00 AM
HB 287
SB 138 3 10 14 Responses to Senate Finance_February 27 Hearing- Signed.pdf HFIN 4/14/2014 8:30:00 AM
SB 138
SB 138 3.10.14 AS 38.05.180(i)-exploration-incentive-credits.pdf HFIN 4/14/2014 8:30:00 AM
SB 138
SB 138 3.11.14 Response to Sen Olson_Municipal Taxation.pdf HFIN 4/14/2014 8:30:00 AM
SB 138
SB 138 HFIN Weissler Comments 4-14-14.pdf HFIN 4/14/2014 8:30:00 AM
SB 138