Legislature(2013 - 2014)HOUSE FINANCE 519

04/16/2014 08:30 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 178 PASSENGER & REC. VEHICLE RENTAL TAX TELECONFERENCED
Heard & Held
+= SB 169 IMMUNIZATION PROGRAM; VACCINE ASSESSMENTS TELECONFERENCED
Moved HCS CSSB 169(HSS) Out of Committee
+= SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= SB 191 GENERAL OBLIGATION BOND FUND TRANSFER TELECONFERENCED
Heard & Held
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."                                                                                      
                                                                                                                                
10:03:57 AM                                                                                                                   
                                                                                                                                
MICHAEL PAWLOWSKI,  DEPUTY COMMISSIONER,  STRATEGIC FINANCE,                                                                    
DEPARTMENT   OF    REVENUE,   introduced    the   PowerPoint                                                                    
presentation    titled    "Response   to    Question    from                                                                    
Representative Edgmon"  (copy on  file). He  discussed Slide                                                                    
2, which  was an example  of the opportunities  that existed                                                                    
for small-scale use of LNG:                                                                                                     
                                                                                                                                
     "The  CIRI   Talkeetna  Lodge  is  a   212  room  Lodge                                                                    
     operating  the the  tourism  season.  FNG provides  LNG                                                                    
     year round  for heating,  hot water and  cooking. There                                                                    
     is   10,000  gallons   of  LNG   storage  on-site   for                                                                    
     uninterrupted   supply  of   natural  gas.   The  Lodge                                                                    
     receives  a delivery  of  LNG  approximately every  two                                                                    
     weeks."                                                                                                                    
                                                                                                                                
Mr. Pawlowski relayed  that very rough estimates  by AEA put                                                                    
the cost of equipment currently  at $1,000,000. He said that                                                                    
when  discussing future  deposits to  the Affordable  Energy                                                                    
Fund it  should be  noted that  the fund  is for  all energy                                                                    
sources.                                                                                                                        
                                                                                                                                
Mr.  Pawlowski  turned to  Slide  3,  "SB 138  Includes  AEA                                                                    
energy planning." He noted that  the important issue related                                                                    
to the  affordable infrastructure and areas  not directly on                                                                    
the pipeline  route. Section 69  of SB 138 directs  the AEA,                                                                    
in consultation with  AGDC, AIDEA and DOR to  prepare a plan                                                                    
for developing  infrastructure to deliver  affordable energy                                                                    
to areas of  the state that are not expected  to have direct                                                                    
access to a North Slope natural gas pipeline.                                                                                   
                                                                                                                                
10:08:15 AM                                                                                                                   
                                                                                                                                
Representative Edgmon hoped that  there was substance behind                                                                    
the commitment to provide affordable  energy to all parts of                                                                    
the Alaska,  and not just  the more convenient areas  of the                                                                    
state.  He  wondered  if  there  was a  way  to  tie-in  the                                                                    
language in the bill to  the existing language pertaining to                                                                    
the energy policy in the uncodified state statutes.                                                                             
                                                                                                                                
10:09:24 AM                                                                                                                   
                                                                                                                                
Mr.  Pawlowski referred  to Page  60,  section 67  of the  H                                                                    
version of  the bill.  He believed  that the  uncodified law                                                                    
existed as  direction to the  state, but a reference  in the                                                                    
section to the context of that policy could appropriate.                                                                        
                                                                                                                                
10:10:28 AM                                                                                                                   
                                                                                                                                
Representative  Edgmon requested  a statement  regarding the                                                                    
offtake points exit points and expense.                                                                                         
                                                                                                                                
10:11:30 AM                                                                                                                   
                                                                                                                                
Mr.  Pawlowski replied  that the  commitment of  the offtake                                                                    
points  in  the  HOA  was  to  look  for  the  benefits  for                                                                    
Alaskans, with  access to  reliable and  predicable supplies                                                                    
of   energy.  He   said  that   the  trick   would  be   the                                                                    
affordability  of access  as distance  became  a factor.  He                                                                    
stated that it  would need to be examined  whether taking at                                                                    
the  offtake  would  be  the   best  option,  or  whether  a                                                                    
localized  energy  solution would  be  a  better option.  He                                                                    
assured the committee that both  options would be pursued as                                                                    
part of the development of  the agreements. He said that the                                                                    
commitment to  the issue was  deep and that the  section put                                                                    
the right  tools in place  to build on regional  energy work                                                                    
already being done by AEA.                                                                                                      
                                                                                                                                
10:12:30 AM                                                                                                                   
                                                                                                                                
JOE BALASH,  COMMISSIONER, DEPARTMENT OF  NATURAL RESOURCES,                                                                    
added  that  the  department had  contributed  to  the  work                                                                    
pertaining to  the tap in points  to the line. He  said that                                                                    
pre-installing the  takeoff points during the  initial build                                                                    
would  be cheaper.  He relayed  that  the incremental  costs                                                                    
associated with a tap was approximately $1 million.                                                                             
                                                                                                                                
10:13:37 AM                                                                                                                   
                                                                                                                                
Mr. Pawlowski  interjected that  in pervious  gasline plans,                                                                    
the offtake  had potentially been  expensive because  of the                                                                    
high natural  gas liquids content  in the proposed  plan. He                                                                    
asserted that the  current plan involved very  clean LNG gas                                                                    
and did  not require  the expensive equipment  necessary for                                                                    
the stripping of liquids.                                                                                                       
                                                                                                                                
Representative Guttenberg  assumed that  a takeoff  point in                                                                    
Nikiski would have  charges based upon the  GTP, tariffs and                                                                    
distance sensitive  rates. He asked about  the Asian market;                                                                    
if the flow  was backtracked to the middle  of the pipeline,                                                                    
the rate  would be  relevant to the  takeoff point,  and not                                                                    
everything else downstream.                                                                                                     
                                                                                                                                
Mr. Pawlowski  responded yes, and  that the  distinction was                                                                    
critical.  He  added  that  under the  MOU,  the  state  had                                                                    
already  agreed to  distance sensitive  rates for  the areas                                                                    
along the pipeline in three  zones: the Nanana Zone, the Big                                                                    
Lake Zone, and the delivery to the LNG plant.                                                                                   
                                                                                                                                
Representative  Guttenberg asked  how  the  Nanana Zone  was                                                                    
defined.                                                                                                                        
Commissioner   Balash  replied   that   the  zone   included                                                                    
everything north of Nanana.                                                                                                     
                                                                                                                                
10:17:39 AM                                                                                                                   
                                                                                                                                
Representative Wilson understood the  benefits to the owners                                                                    
and  TransCanada,  but  she expressed  discomfort  with  the                                                                    
balance the energy issues in  the interior and the bush. She                                                                    
wished to better understand why  the project was a good deal                                                                    
for state residents.                                                                                                            
                                                                                                                                
Commissioner   Balash   replied  that   the   transportation                                                                    
infrastructure would provide a  relatively low-cost means of                                                                    
delivering  the commodity  either  from the  North Slope  or                                                                    
Cook Inlet. He said at  that point options would be examined                                                                    
and that the  lowest cost option to get gas  to the corridor                                                                    
would be selected.                                                                                                              
                                                                                                                                
Commissioner Balash referred  to Slide 2 from  the Black and                                                                    
Veatch presentation, "State  Participation on AKLNG Project,                                                                    
April 15,  2014"(copy on  file). The slide  showed at  a $16                                                                    
dollar commodity  price in Asia  the state's  wellhead value                                                                    
would be approximately $7/MMBtu. He  said that taking the $7                                                                    
price,  adding the  treatment plan  cost of  $2, adding  the                                                                    
pipeline cost to  the interior of $1 would total  $10 to get                                                                    
gas  to Fairbanks.  He  furthered that  if  natural gas  was                                                                    
priced a  $6 in  the Cook Inlet  Basin, the  backhaul rates,                                                                    
negotiated  with  TransCanada in  the  MOU,  would mean  the                                                                    
benefit  of  Cook Inlet  pricing  in  Fairbanks without  the                                                                    
transportation cost. He predicted  that as the market demand                                                                    
in  Cook Inlet  grew, additional  supplies would  be proven,                                                                    
and  additional opportunities  for  smaller producers  would                                                                    
open up. He asserted that the  same thing would occur on the                                                                    
North Slope, as  long as a viable third  party mechanism was                                                                    
maintained  through  the  state's  equity  capacity  in  the                                                                    
pipeline, there would be companies  and operators with small                                                                    
amounts of gas that would  be looking to make in-state sales                                                                    
and could be willing to sell  their gas for less than $7. He                                                                    
said that  the biggest  distinction between the  project and                                                                    
the TAPS  scenario was that the  states crude oil had  to be                                                                    
refined in order to make  it useful; natural gas and methane                                                                    
took very little refinement.                                                                                                    
                                                                                                                                
10:23:03 AM                                                                                                                   
                                                                                                                                
Representative Wilson  understood that  all of  the language                                                                    
was in the bill.                                                                                                                
Commissioner Balash replied that it  was not in the bill. He                                                                    
said that how transportation charges  would be priced was in                                                                    
the MOU with  TransCanada. He said that in  2015 there would                                                                    
be a piece of legislation approving the Firm Transportation                                                                     
Services Agreement (FTSA) with the specific terms laid out.                                                                     
                                                                                                                                
Representative Wilson said she would prefer to see the                                                                          
terms before voting on the legislation.                                                                                         
                                                                                                                                
Co-Chair Stoltze discussed housekeeping.                                                                                        
                                                                                                                                
10:24:58 AM                                                                                                                   
                                                                                                                                
Mr. Pawlowski stated that he appreciated the guidance about                                                                     
the technical amendments on the bill.                                                                                           
                                                                                                                                
CSSB 138(FIN) am was HEARD and HELD in committee for                                                                            
further consideration.                                                                                                          
                                                                                                                                

Document Name Date/Time Subjects
SB 178 Amendment #1 Gara.pdf HFIN 4/16/2014 8:30:00 AM
SB 178
SB169 Vax Assess Fund diagram.pdf HFIN 4/16/2014 8:30:00 AM
SB 169
SB169PayerPyramid_15Apr2014.pdf HFIN 4/16/2014 8:30:00 AM
SB 169
SB169 without it.pdf HFIN 4/16/2014 8:30:00 AM
SB 169
Marks SB 138 Gara Response 041514.pdf HFIN 4/16/2014 8:30:00 AM
SB 138
SB 138 4.16.14 Presentation HFIN Edgmon Question.pdf HFIN 4/16/2014 8:30:00 AM
SB 138
SB 138 4.16.14 Resource Reports Required by Appendix A to Part 380 of FERC Regulations.pdf HFIN 4/16/2014 8:30:00 AM
SB 138
SB 138 enalytica - response to Rep Gara.pdf HFIN 4/16/2014 8:30:00 AM
SB 138