Legislature(2013 - 2014)BARNES 124
03/24/2014 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB230 | |
| HB316 | |
| HB60 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 230 | TELECONFERENCED | |
| += | HB 316 | TELECONFERENCED | |
| += | HB 60 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 230-AIDEA BONDS FOR PROCESSING FACILITIES
3:29:04 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 230, "An Act allowing the Alaska Industrial
Development and Export Authority to issue bonds for an oil or
gas processing facility; and creating the oil and gas
infrastructure fund to finance construction or improvement of an
oil or gas processing facility."
3:30:03 PM
LOUIS FLORA, Staff, Representative Paul Seaton, Alaska State
Legislature, stated that HB 230 would allow the Alaska
Industrial Development & Export Authority (AIDEA) to issue bonds
for an oil and gas processing facility on the North Slope. It
would also create an oil and gas processing facility
infrastructure fund to allow the legislature to allocate funding
to the facility. He highlighted a number of specific findings
that demonstrated the difficulty of some of the smaller
operations on the North Slope to access processing facilities on
the North Slope. The intent is to increase oil throughput in
the Trans-Alaska Pipeline System (TAPS) pipeline, he said.
3:31:20 PM
REPRESENTATIVE REINBOLD moved to adopt the proposed committee
substitute (CS) for HB 230, labeled 28-LS1053\N, Nauman,
3/17/14, as the working document [Version N].
CHAIR OLSON objected for the purpose of discussion.
3:31:38 PM
REPRESENTATIVE SADDLER referred to page 2, line 4, and suggested
inverting "for" and "allow" such that it would read, "would
allow for new production ...."
MR. FLORA acknowledged the suggested change.
3:32:01 PM
REPRESENTATIVE JOSEPHSON asked him to identify the perceived
target or beneficiary of the bill.
MR. FLORA answered that the bill is not intended for anyone
specifically, but it will generally allow anyone who approaches
AIDEA to hold discussions on project financing. He specifically
referred to page 2, line 8, paragraph (6), the "findings"
language that discusses access issues. More specifically, this
language would remove the limit on bonding authority for
processing facilities and other infrastructure to allow small
companies without capital to finance oil and gas processing
facilities to move more oil from new fields and essentially
reach out and expand oil and gas throughput.
3:33:19 PM
REPRESENTATIVE JOSEPHSON asked whether he has discussed maximum
credits and foregone revenue with the Department of Revenue.
MR. FLORA deferred to the Department of Revenue to answer.
3:33:46 PM
REPRESENTATIVE REINBOLD wondered why bonding is necessary, since
a good project would be able to obtain private funding.
MR. FLORA answered that the bill is being offered as a concept,
which was previously adopted in SB 21 as part of a broader
package to increase throughput in the TAPS and provide a range
of incentives.
3:34:41 PM
REPRESENTATIVE REINBOLD offered her belief the only way to
obtain additional throughput is by drilling for more oil.
REPRESENTATIVE CHENAULT commented that throughput can be
increased for TAPS without drilling any new wells. He suggested
that the current problem of constriction in the process facility
is that the pipeline was designed to transport more crude oil
than water. However, today's oil wells are putting out more
water and gas than crude oil. Thus, the production facility is
limited by throughput for each category. Again, the wells today
produce more water and gas, which limits the amount of oil
production. For example, a well might put out 1,000 barrels of
water, oil, and gas per day, he said. It makes more sense to
run that capacity through the pipeline rather than to have five
other wells that might produce 300 barrels of oil, with the
remaining production being gas and water. He noted that this
can be remedied and configured; however, that process is very
expensive. He addded that throughput can be increased by
expanding the production facility or by providing more
opportunities, which is what HB 230 proposes by building another
production facility to allow others to input oil.
3:36:48 PM
REPRESENTATIVE JOSEPHSON understood the bill would allow an
additional $200 million increase in the AIDEA allowance for
maximum bond capacity. He asked whether the Department of
Revenue has an idea of the maximum dollar credit under the bill.
3:37:31 PM
MATT FONDER, Director, Anchorage Office, Tax Division,
Department of Revenue (DOR), answered that the division doesn't
"have a good handle on that" since it is difficult to determine
the number of taxpayers who might take advantage of this credit.
It's also important to note that any taxpayer will need to
invest a significant amount of money to utilize the credit. The
credit amount under the bill is the "lesser of 10 percent" or
$10 million. Therefore, the taxpayer would have 90 percent
"skin in the game" so the bill will help, but it will not offer
much of an incentive to move forward with the project. Thus, he
did not believe it would be the "deal breaker," but it is hard
to tell how many taxpayers will take advantage of the credit.
3:38:37 PM
REPRESENTATIVE JOSEPHSON asked him to predict what new
facilities would be built with the AIDEA bonding.
MR. FONDER said he really didn't know; the legislature's
"crystal ball" is probably just as good as his.
REPRESENTATIVE CHENAULT asked whether any companies have asked
for this type of enhancement for a project.
3:39:32 PM
TED LEONARD, Executive Director, Alaska Industrial Development &
Export Authority (AIDEA), Department of Commerce, Community, &
Economic Development, answered yes; AIDEA has been working with
Brooks Range Petroleum Corporation, who would like to finance a
production facility to develop the Mustang Oil Field [of the
southern Miluveach Unit].
3:40:04 PM
REPRESENTATIVE SADDLER asked for a general assessment of the
impact of an additional $200 million in lending authority and if
it will affect AIDEA's interest rates, AIDEA's ability to
finance other projects, or Alaska's bond rating. He asked if
this process would stand alone or if it would have any ripple
effects.
MR. LEONARD answered that AIDEA believes this financing will not
affect its capacity to finance other projects or its rating. He
explained that these bonds will be AIDEA bonds and could either
be general obligation (GO) bonds or revenue bonds. It should
not affect the state's rating since the project will be funded
by revenue generated by the project or will be supported by
AIDEA's assets, but none of the state's assets would be pledged
for a project under this bond authorization.
3:41:27 PM
REPRESENTATIVE SADDLER recalled discussions on the possible
liquefied natural gas (LNG) transmission line with respect to
the state's general debt-to-equity ratio such that 8 percent of
the general fund principal would be allowed. He asked whether
an informal policy exists in terms of what AIDEA cannot exceed
in terms of GO bonding.
MR. LEONARD answered yes; the rule of thumb under the capacity
model is $500 million of bonding capacity. He reported that
AIDEA has approximately $70 million in outstanding bonds so
AIDEA has significant capacity available. In addition, it would
also depend on the type of bond, for example, revenue bonds will
not affect AIDEA's capacity. Overall, it would depend on the
individual project whether AIDEA will want to use its general
bonding capacity or if it will issue revenue bonds; however,
AIDEA has the capacity to issue up to $200 million in bonds for
these types of facilities. Again, just because AIDEA would have
the bonding authority doesn't mean it will use all of its
authority. He indicated that AIDEA will consider its capacity
for each and every project under this bond authorization to
ensure AIDEA has sufficient capacity and that it will not
adversely affect AIDEA's ability to fund other projects. He
assured members that AIDEA undergoes the same capacity analysis
on every project it considers in terms of bond financing.
3:43:45 PM
REPRESENTATIVE SADDLER asked how much Brooks Range Petroleum
Corporation would need for its processing facility.
MR. LEONARD was offline.
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 230.
[HB 230 was held over.]