Legislature(2013 - 2014)BARNES 124
04/08/2014 04:30 PM House RESOURCES
| 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 |
SB 138-GAS PIPELINE; AGDC; OIL & GAS PROD. TAX
4:34:28 PM
CO-CHAIR FEIGE announced that the only order of business is 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."
4:34:43 PM
CO-CHAIR SADDLER moved to adopt Amendment 32, labeled 28-
GS2806\I.A.31, Bullock, 4/2/14, which read:
Page 2, line 11, following "fund;":
Insert "establishing the Railbelt electrical
generation and transmission upgrade fund;"
Page 11, line 20:
Delete "a new section"
Insert "new sections"
Page 12, following line 8:
Insert a new section to read:
"Sec. 37.05.620. Railbelt electrical generation
and transmission upgrade fund. (a) The Railbelt
electrical generation and transmission upgrade fund is
created as a special account in the general fund. The
fund consists of the amount determined and deposited
in the fund under (b) of this section and interest
earned on the fund balance. The purpose of the fund is
to provide a source from which the legislature may
appropriate money to replace and upgrade electrical
generation and transmission infrastructure in the
Railbelt that is approaching the end of its useful and
economic life.
(b) The amount to be deposited in (a) of this
section is 10 percent of the revenue received from the
state's royalty gas transported in an Alaska liquefied
natural gas project that remains after the payment to
the Alaska permanent fund under AS 37.13.010.
(c) The legislature may make appropriations from
the Railbelt electrical generation and transmission
upgrade fund for the purposes described in (a) of this
section or for any other public purpose.
(d) Nothing in this section creates a dedicated
fund.
(e) In this section,
(1) "Alaska liquefied natural gas project"
has the meaning given in AS 31.25.390;
(2) "Railbelt" means the area of the state
between Fairbanks and Homer that is connected by road
or railroad."
CO-CHAIR FEIGE objected.
4:35:51 PM
CO-CHAIR SADDLER explained Amendment 32 would create the
Railbelt electrical generation and transmission upgrade fund.
Most of the state's goods and services are either consumed in or
passed through the Railbelt, which includes communities from
Homer to Fairbanks and communities in between. Reliable energy
and reasonable energy prices percolate through the entire
state's economy. However, the electrical transmission
infrastructure along the Railbelt is at risk. A recent Alaska
Energy Authority study showed that Railbelt energy transmission
faces about $900 million in unmet needs over the next decade.
Additionally, if the Railbelt doesn't have some major capital
improvements the grid could be losing more than $100 million
worth of efficiency per year. These represent significant
statewide infrastructure needs that lead to outages that must be
addressed before the Alaska LNG Project, which will bring more
gas to the state. It is unlikely the state can address these
needs over the next ten years, but it's very likely more
projects will be added to the list.
REPRESENTATIVE SADDLER said innovative funding paradigms exist
in utilities, including the Bradley Lake model built by
splitting the cost between the state and ratepayers; however,
the large backlog of needs in the Railbelt means the burden is
too great for the ratepayers to bear without state assistance.
The Railbelt electrical generation and transmission upgrade fund
created by Amendment 32 would be capitalized by 10 percent of
the post-permanent fund deposit royalty revenues, a similar
mechanism to Section 13 of SB 138, with respect to the Alaska
affordable energy fund. He indicated he'd like confirmation
from the Department of Revenue (DOR) about this, but he
estimated the fiscal note would generate about $90 million per
year [based on] 10 percent [of the post-permanent fund deposit
royalty revenues].
REPRESENTATIVE SADDLER stated that Amendment 32 would give an
alternative to straight general fund appropriations for Railbelt
electrical improvements. It would help utilities leverage state
assistance and utility financing and ratepayer contributions to
meet the nearly $1 billion need. He anticipated that some might
object since it could be argued that this project already does
benefit the Railbelt; however, Southcentral Alaska has had
access to affordable gas since Swanson River and Cook Inlet
fields were discovered in the 1950s. Despite these discoveries,
there remain massive unmet transmission needs in the Railbelt.
He offered his belief that Amendment 32 is a fair, equitable
balance to the affordable energy fund model and he encouraged
members to discuss this and support the amendment.
4:39:10 PM
REPRESENTATIVE P. WILSON noted there is already an energy
section in the bill. Regarding the $90 million, she inquired
whether it is before or after the state's 25 percent royalty
share.
MICHAEL PAWLOWSKI, Deputy Commissioner, Office of the
Commissioner, Department of Revenue (DOR), responded that DOR's
interpretation for the previous section [Section 13] is in the
fiscal note based on preliminary modeling using assumptions.
Each 10 percent would be estimated to generate approximately $90
million based on today's information, which could change with
market condition and project cost.
REPRESENTATIVE P. WILSON remarked she would contemplate this.
4:40:48 PM
REPRESENTATIVE KAWASAKI asked whether some other fund, such as
the power project loan fund, could be used instead of creating a
new fund.
CO-CHAIR SADDLER answered that Alaska Industrial Development and
Export Authority (AIDEA) has a [Sustainable Energy Transmission
Development & Supply Development Fund] (SETS) fund, but it
doesn't work for the Railbelt transmission. For instance, AIDEA
has limits, requires collateral, and the Railbelt's borrowing
capacity was "maxed out" for generation capacity by buying high
efficiency generators. He acknowledged there could be some
long-term savings if [AIDEA] could obtain funding for a long
enough duration but it can't make an investment in new lines on
savings not yet achieved since "cash up front" is necessary. He
indicated this was reviewed which concluded there is a need
outside the SETS fund.
4:41:55 PM
REPRESENTATIVE HAWKER commented he always has concerns about
appropriating money the state does not yet have; in particular,
"skirting" Alaska's Constitution with an attempt to designate
funds even if the funds are not dedicated funds. He expressed
concern about the Alaska affordable energy fund that's in the
bill. He said $90 million represents 10 percent of roughly $900
million, just under $1 billion, which is supposed to be the
revenue received from the state's royalty gas transported in the
Alaska LNG Project. He asked whether he could reconcile that $1
billion with the anticipated annually projected $3.5-$4.5
billion in state profits for this project.
MR. PAWLOWSKI responded the revenues calculated are after
deposits to the [Alaska] permanent fund. He referred to
previous testimony to a schedule of royalty revenues, indicating
the royalty would run approximately $1 billion to $1.4 billion.
He explained that when calculating the fiscal note, he
considered inflation in the initial years, noting the royalty
could exceed $90 million. Thus the 10 percent would be
calculated after the 25 percent of the $1.0-$1.4 billion in
permanent fund deposits.
REPRESENTATIVE HAWKER asked how royalty is being defined. He
asked whether it would be the value in which the state is
accepting tax as gas (TAG).
MR. PAWLOWSKI answered that this is limited to the sale of the
molecules associated with the state's royalty share and not the
TAG. The models for the state's royalty gas run between 13-13.5
percent depending on which field the gas is derived from.
REPRESENTATIVE HAWKER asked whether DOR is valuing the royalty
at the amount the state receives at the sales end.
MR. PAWLOWSKI clarified that DOR is taking the LNG sales price
minus the liquefaction and transportation costs.
4:44:49 PM
REPRESENTATIVE SEATON asked about the nexus between this fund
and the Alaska Railbelt Cooperative Transmission and Energy
Company (ARCTEC) consortium that the legislature has been
funding through capital appropriations.
CO-CHAIR SADDLER answered the nexus is they are both set up to
address a need. He deferred to Mr. Joe Griffith, Alaska
Railbelt Cooperative Transmission and Energy Company (ARCTEC).
JOE GRIFFITH, President, Alaska Railbelt Cooperative
Transmission and Energy Company (ARCTEC); General Manager,
Matanuska Electric Association (MEA), stated that ARCTEC is a
facilitator of the transmission system. Thus, ARCTEC wouldn't
have any role whatsoever in how the funds would be put together.
He allowed that if ARCTEC were to receive grants for particular
projects - currently there is a set of grants in "CAPSYS" - that
would address this very issue. The ARCTEC, as a consortium,
would then undertake the projects as funded. He characterized
ARCTEC's role as being the managers and noted ARCTEC is
currently working on an independent system operator concept,
"ANATRANSCO," which should be in place soon.
CO-CHAIR SADDLER stated Amendment 32 would not dedicate funds
but would designate funds that the legislature would set aside
to fund construction via ARCTEC or perhaps other means. He
pointed out it indicates transmission needs along the Railbelt
are a priority and deserve to have funding streams set aside to
address the needs.
4:46:58 PM
REPRESENTATIVE P. WILSON asked whether private utilities would
receive 10 percent of the royalties.
CO-CHAIR SADDLER clarified that it would go to the people
represented by the utilities. Many are cooperatives that are
owned by the ratepayers and the expectation is that state money
would be matched by funding derived from ratepayers over many
years. So, it is ratepayers and it is utilities.
REPRESENTATIVE P. WILSON understood utilities are supposed to
set aside funds to maintain lines.
CO-CHAIR SADDLER deferred to Mr. Griffith.
MR GRIFFITH answered that to a degree the utilities can, of
course, but the utilities are regulated entities, limited to a
certain rate of return above costs, which translates to probably
less than five percent today. He assured members that any
nickel placed in maintenance or in a sinking fund to build
future requirements comes out of the ratepayers' pockets. The
result would be to raise ratepayers' rates. The Regulatory
Commission of Alaska (RCA) is less than enthralled with allowing
those types of funds.
REPRESENTATIVE P. WILSON acknowledged this is something that
should be addressed, although she suggested it should not be
addressed under this bill. She expressed concern since
Southeast Alaska wouldn't be too excited about using [the 10
percent of royalty] for a specific area [along the Railbelt]
when the proposed project will benefit the Railbelt. She
recalled a proposal to combine all the utilities into one giant
utility. She suggested perhaps that should be considered.
4:50:05 PM
CO-CHAIR FEIGE inquired whether the amendment would be used to
maintain existing transmission or if the sponsor envisions that
the fund would be used to build new transmission to better
connect grids across the state.
CO-CHAIR SADDLER said that is difficult to answer. The goal is
to have a reliable, robust system that serves the ratepayers and
the state. He envisioned some repairs and also new
construction. He thought perhaps it could go to new
communities, although not many new communities are being
constructed along the Railbelt. He offered his belief that it
would be used largely for maintenance with some new construction
to improve overall reliability of the system.
4:50:53 PM
REPRESENTATIVE KAWASAKI related his understanding that the
purpose of the Railbelt electrical generation and transmission
upgrade fund would not be due to the anticipated Alaska LNG
Project.
CO-CHAIR SADDLER answered no, saying there is an opportunity for
a large unmet state need to be funded by potential future
revenue streams. He stated Amendment 32 posits that the need is
significant and if the revenue becomes available that this would
be an appropriate place to designate it so the legislature has
an opportunity to appropriate funds to the proposed fund.
4:51:36 PM
REPRESENTATIVE JOHNSON stated the legislature always has the
ability to appropriate funds to a project. He expressed
reluctance to set aside funds for a specific project. He said,
"When I saw this amendment I kind of broke out into a sweat
remembering the Railbelt Energy Fund (REF) and the fights that
went on between the utilities over that." He recalled that the
subsequent costs of lawsuits exceeded any funds the utilities
received from the REF and expressed reluctance to set a
designated fund so that utilities can sue each other over it,
given "they don't always play well together." Unification of
utilities is happening all over the U.S. and Alaska's utilities
are small compared to the Lower 48 utilities. Until the
aforementioned dynamic is solved by a unified transmission
group, similar to a Susitna group, he said he is not prepared to
fuel utility wars and "sweeten the pot" and pay attorneys. He
recalled that the REF issue was solved by dumping the funds into
another project. He preferred to have the utilities come to the
legislature for each individual project and that the legislature
designate funding on a per project basis.
4:53:54 PM
CO-CHAIR SADDLER understood the concern, but said that Amendment
32 would place the proposed Railbelt [electrical generation and
transmission upgrade] fund in the same section, Chapter 37,
public finance, which includes the marine highway vessel
replacement fund, the Alaska capital income fund, the schools
maintenance construction funds, the Alaska public building fund,
the tobacco education cessation fund, and the Veteran's cemetery
funds. Thus, designated funds already exist; and second, unless
the organizations have the means to accomplish work it won't
help anyone. He offered his belief that the utilities have
learned some lessons from their fractious history and that
ARCTEC represents evidence of lessons learned, since the
utilities have come together in a cooperative arrangement.
However, they cannot do anything unless they have funds.
REPRESENTATIVE JOHNSON said, "Mr. Chairman, I don't want to get
into personalities or individuals utilities, but ask Chugach
[Electric] how it is working out to get their transmission line
through the Homer Electric utilities." Regarding the designated
funds, he remarked that the state has never had a designated
fund with seven groups fighting over it. He argued that each
fund mentioned represents a single entity fighting for a common
cause. Unless all the utilities are fighting for the common
cause of better serving Alaskans, he is unsure of the need to
set up a designated fund to allow them to continue to fight.
4:55:40 PM
REPRESENTATIVE TARR acknowledged the committee has been
considering several amendments that are similar in nature. She
asked for an assessment of the state's overall cash position
with the proposed designation and how it would affect revenue
available for other things. She asked whether the legislature
can spend out of the designated fund.
MR. PAWLOWSKI answered DOR has a zero fiscal note on the cost of
DOR managing the designated funds mentioned here since the funds
are co-invested with the [general fund and other non-segregated
investments]. The funds are invested as a group on a short-term
basis. The revenue going into the designated funds is revenue
that would normally go into the general fund so it's just being
placed in an account within the general fund. Referring to
[page 1, line 23 through] page 2, line 2, of Amendment 32, he
said the language indicates the legislature has the authority to
appropriate for any other public purpose. However, the funds
would not show up as general fund revenue or within the general
fund in the same way since it would be categorized under the
fund that it's in.
4:57:15 PM
REPRESENTATIVE TARR asked whether it would effectively decrease
the amount that is in the general fund for calculation of the
state's financial position. For example, if the state was going
to bond for other projects, the designated funds would come out
of the funds available for debt service. She contemplated the
ratios shown in earlier slides with respect to the state's
built-in limit for taking on debt.
MR. PAWLOWSKI replied he is unsure he knows the specific impact
it may have and would have to get back to the committee with an
answer. For example, at what point is the designation
happening, whether the revenue is being diverted, and how it
shows up on the balance sheet. He said he'd want to discuss
this further with the treasury staff and determine how they
would interpret this.
REPRESENTATIVE TARR commented she is considering the cumulative
impact if all the amendments were to be adopted.
4:58:39 PM
REPRESENTATIVE SEATON recalled another fund was set up under the
bill, which made sense since the property tax would be assessed
and the municipal property tax would be shared through the
Railbelt. He expressed concern about designating additional
funds to the Railbelt for a specific energy project when the
Railbelt is obtaining the benefits from the proposed pipeline
project. He fully agreed with Representative Johnson on the
decisions on transmission projects, which means the good
projects will likely be successful. He said he cannot support
Amendment 32 at this time.
4:59:54 PM
The committee took an at-ease to a call of the chair.
5:29:30 PM
CO-CHAIR SADDLER addressed earlier concerns, recalling that
Representative Johnson did not wish to designate funds until a
unified project moved forward. He responded that Amendment 32
would not cost anyone any money until the proposed natural gas
line is built, approximately in ten years. As the AEA report
indicated, significant Railbelt needs exists. He related a
scenario in which a young couple wants to buy a house someday,
but that shouldn't stop them from saving towards their goal. He
said he takes gentle exception to the statement that the Alaska
LNG Project would provide benefit only to Railbelt communities.
He did not see anything that would guarantee a price of gas for
anyone and suggested it might mean the consumer's prices will be
the same as under the Cook Inlet supply of natural gas. The
vast majority of the gas produced from the North Slope is going
to be aimed towards the export market in Asia, and while he
hopes some will come to Alaska, too, that the target market is
overseas. Certainly, approximately $3 billion in revenue to the
general fund benefits the entire state. Other language in the
bill sends 10 percent of royalty revenue to a rural energy
infrastructure fund. Absent this amendment, the bill doesn't
contain any provision for Railbelt energy infrastructure. He
recalled comments that the property tax revenue would benefit
Railbelt communities. He asked Mr. Griffith whether property
taxes are an appropriate source of funding to address Railbelt
transmission needs.
CO-CHAIR FEIGE said Mr. Griffith is no longer on line.
CO-CHAIR SADDLER questioned whether property tax revenue applied
to a natural gas pipeline infrastructure would be conceived as a
source of funding for Railbelt transmission needs.
5:32:05 PM
REPRESENTATIVE JOHNSON urged Amendment 32 be taken off the table
until the [utilities are unified] and it "is the same choir on
the same tune going in the same direction."
REPRESENTATIVE OLSON indicated that he supported the
transportation fund since the state originally had the fund, but
he did not wish to support any more. He envisioned other
dedicated funds would materialize, such as a dedicated Public
Employees' Retirement (PERS) Fund, Teachers' Retirement (TRS)
Fund, Education Fund, and perhaps others. He offered his belief
that the legislature needs to have some control over spending.
5:33:23 PM
CO-CHAIR SADDLER said it is important to raise the discussion
about the significant energy needs along the Railbelt
communities that serve a lot of the state. The needs will not
go away and his intention was to seek a potential future source
of revenue to plan for future needs. He appreciated the
discussion.
CO-CHAIR SADDLER withdrew Amendment 32.
5:34:23 PM
REPRESENTATIVE KAWASAKI moved to adopt Amendment 33, labeled 28-
GS2806\I.A.40, Nauman/Bullock, 4/3/14, which read:
Page 55, following line 30:
Insert a new bill section to read:
"* Sec. 61. The uncodified law of the State of
Alaska is amended by adding a new section to read:
STATE ADVISORY ROLE. The state may not become an
equity partner or hold an ownership interest in an
Alaska liquefied natural gas project, as defined in
AS 31.25.390, unless the state is given a significant
and meaningful advisory role regarding the assets of
and management of the project, that includes
reasonable access to information about the project and
input into the management of the project."
Renumber the following bill sections accordingly.
Page 56, line 6:
Delete "61"
Insert "62"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE KAWASAKI paused to find his amendment notes.
The committee took a brief at-ease.
REPRESENTATIVE KAWASAKI withdrew Amendment 33.
5:36:57 PM
REPRESENTATIVE HAWKER moved to adopt Amendment 34, labeled 28-
GS2806\I.A.96, Bullock, 4/6/14, which read:
Page 1, line 4, following "projects;":
Insert "making certain contracts by the
Department of Natural Resources and the Department of
Law not subject to the State Procurement Code;"
Page 11, following line 19:
Insert a new bill section to read:
"* Sec. 13. AS 36.30.850(b) is amended by adding
new paragraphs to read:
(47) contracts for professional and
technical services by the Department of Natural
Resources to support the development of agreements and
contracts under AS 38.05.020(b)(10) and (11);
(48) contracts of the Department of Law
developed with client participation for legal services
related to an Alaska liquefied natural gas project as
that project is defined in AS 31.25.390, except that,
to the extent practicable, the Department of Law shall
use the procurement process under AS 36.30.320 with
the participation of the client."
Renumber the following bill sections accordingly.
Page 14, line 3:
Delete "sec. 14"
Insert "sec. 15"
Page 17, line 24:
Delete "sec. 17"
Insert "sec. 18"
Page 21, line 16:
Delete "sec. 27"
Insert "sec. 28"
Page 25, line 9:
Delete "sec. 30"
Insert "sec. 31"
Page 31, line 18:
Delete "sec. 37"
Insert "sec. 38"
Page 53, lines 24 - 25:
Delete "sec. 23"
Insert "sec. 24"
Page 54, line 25:
Delete "sec. 14"
Insert "sec. 15"
Page 56, line 6:
Delete "Sections 1 - 14, 16, 17, 23 - 27, 29, 30,
37, 39, and 55 - 61"
Insert "Sections 1 - 15, 17, 18, 24 - 28, 30, 31,
38, 40, and 56 - 62"
Page 56, line 8:
Delete "Section 38"
Insert "Section 39"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
REPRESENTATIVE SEATON objected for discussion purposes.
5:37:19 PM
REPRESENTATIVE HAWKER explained the committee has already held
considerable discussion on Amendment 34 because it replaces the
previously discussed amendment, labeled [28-GS2806\I.A.69,
Bullock, 4/4/14], that had an exemption for the Department of
Natural Resources (DNR) from procurement code provisions for
contracts for professional technical services by DNR to support
the development of agreements and contracts related to Alaska
LNG. The language of Amendment 34 has the same intent to
similar exemptions crafted for the Alaska Gasline Development
Corporation (AGDC) in the previous legislative session to allow
DNR to move forward with industry. Industry can be very
proactive, reactive, and nimble to react to changing
circumstances at any given time, and the state should be equally
nimble, reactive, and proactive in managing the Alaska LNG
Project. He recalled that during dialogue [on Amendment 8] that
brought the Department of Law and the attorney general into a
legal role with respect to AGDC, the question arose on whether
the DOL and attorney general needed an expedited procurement
process for legal services. Circumstances could arise on an
extraordinary short timeframe requiring technical or precise
legal counsel to resolve issues. He related that he worked with
DOL and said the language on lines 11-15, [paragraph] (48), of
Amendment 34 work well for DOL and would exempt DOL from the
procurement process, except DOL shall use the procurement
process under AS 36.30.320, which is the small procurement
regulation typically used for quick procurement. However,
Amendment 34 would give DOL the latitude to move even more
quickly than that if necessary to accommodate something that
arose with the development of the Alaska LNG Project. He noted
that the procurement of legal services involves the
participation of the client, in this instance, AGDC.
5:40:27 PM
CO-CHAIR FEIGE inquired whether the administration has a
position on Amendment 34.
JOE BALASH, Commissioner, Department of Natural Resources (DNR),
offered the administration's support for Amendment 34, saying
there is value in having this tool in the toolbox. He thanked
Representative Hawker for his work in refining the additions for
the Department of Law. The Department of Natural Resources does
not intend to have all of its contracts exempt from the
procurement code but he anticipated circumstances as DOL seeks
specialized expertise as DNR considers upstream balancing and
offtake agreements in which this will be necessary.
CHRISTOPHER POAG, Assistant Attorney General, Labor and State
Affairs Section, Civil Division (Juneau), Department of Law
(DOL), said he did not directly speak to the attorney general,
but related his understanding that DOL's attorney general has
reviewed the language in Amendment 34, is aware of it, and
approves it.
5:42:01 PM
REPRESENTATIVE P. WILSON requested further clarification on AS
36.30.032.
MR. POAG answered that generally speaking this refers to the
small procurement process. He explained that the language "to
the extent practicable" is important because generally that is
limited to contracts of $100,000 for professional services,
which was amended last year from $50,000 by the legislature, and
this is why the amount is in the supplement and not in the
original statute. He has been involved in this process in a few
instances. Additionally, regulations were adopted to describe
the process. Under the process, a minimum of three law firms
are identified that can provide the unique services that the
department isn't situated to provide. First, the department
sends a letter to them asking that they submit a proposal to
provide representation. Second, the department and the client
agency needing the services would review the proposals and
determine which is most appropriate. Third, the department
would send a notice of intent to award, and begin the contract
negotiation process. The only real dissimilarity from the
typical procurement process is that DOL does not formally draft
a request for proposal (RFP), formally using a period of time in
which it is considered and scored. Nonetheless, the steps are
largely based on the basis of the procurement code which is to
seek competition to ensure that public dollars are well spent.
Both DOL staff and the client agency are involved in determining
the firms that would best serve the department's skills.
5:44:04 PM
REPRESENTATIVE KAWASAKI understood Mr. Poag to have said DOL
would still go out to three firms. He asked whether this
process always requires that competitive nature or could the
department sole source under this new section.
MR. POAG recalled only one instance - a bankruptcy proceeding in
which the Alaska Retirement Management (ARM) Board and the
Alaska permanent fund were involved through a leveraged buyout
that went bad. Bankruptcy trustee litigation tried to draw back
the funds against the merger. Only two law firms represented
public pension funds in that proceeding. In this instance, he
sent letters to both firms asking them to provide terms and DOL
selected the one in the best interest of the state. Typically a
regulation encourages three or more proposals, but sometimes a
sufficient number of firms cannot handle the specific services.
Under Amendment 34, DOL would endeavor to provide competition by
asking a number of firms to submit proposals to provide leverage
on rates and the types of services the firms will provide. This
language envisions a legal issue will arise in which DOL may
need a very quick answer to a legal question. He suggested that
DOL would intend to use the small procurement process as a
guideline. He offered his belief that most of the legal work
would fall under the $100,000 limit, but if it exceeded this DOL
would use this language as a guideline. It doesn't impose a
limit because DOL could seek proposals from more than three
firms, but generally that is the starting point.
5:46:58 PM
REPRESENTATIVE KAWASAKI asked whether DNR would issue
competitive contracts in the same way as DOL or whether DNR
would sole source contracts.
COMMISSIONER BALASH responded the principle of competition is
one DNR will continue to abide by, but the rigors of the
procurement process, including drawing up the scope, the notice,
the opportunity for offerings, and the appeal process could drag
out the assessment or evaluation. Upstream issues will "be a
big darn deal" that will require specialized expertise. As DNR
thinks about marketing aspects, it is likely going to need to
hire people with specific relationships in different countries
and with respect to trade practices DNR wants to be legal in
both the U.S. and in other countries. The department sees the
opportunities for this tool to be effective for DNR, although it
won't represent the norm.
REPRESENTATIVE KAWASAKI asked whether it is more an issue of
timing as it was with DOL in finding specific attorneys or
specialization. He further asked why the current procurement
code cannot be used.
COMMISSIONER BALASH answered that this particular issue is one
DNR runs into when evaluating the geo-license application, as
well as a similar exemption provided to the agencies factoring
the Alaska Stranded Gas Development Act (ASGDA) process. He
explained that contractors are not eager to put their names
forward unless they are fairly confident they will be selected.
The procurement process takes time, specifically outlined in
statute in terms of the award, and the department believes it
needs a little more flexibility to weigh more towards the
technical expertise than the procurement code provides today.
He said when it comes to a project worth billions to the state
he does not want to be tied to the lowest bidder.
5:50:39 PM
REPRESENTATIVE HAWKER reiterated his office has worked closely
with DOL and in this instance DOL shall use the procurement
process under AS 36.30.320. He said this is about the process
and is an exemption from procurement since the detailed rules
may not be applicable; however, the process itself is
applicable.
MR. POAG agreed, saying this language would exempt DOL from the
procurement code, but defines the process that DOL will use in
obtaining legal services. It will not be the strict
requirements of each provision of statute, but rather to define
the firms best suited to provide the legal services, asking them
to submit proposals, evaluating them with the assistance of
AGDC, selecting them, and engaging in the negotiation process.
That's why the language "to the extent practicable" is there.
It is not uncommon for agencies to replace it with some form of
a procurement process. The bill today provides a guideline and
isn't meant to be a strict adherence.
5:52:27 PM
REPRESENTATIVE KAWASAKI observed the language clearly says under
the Department of Law. He asked whether this process is the
same small procurement process that DNR will also follow since
the language is different.
COMMISSIONER BALASH answered that if the committee wishes it
could include the same language that is on lines 13-14:
"project is defined in AS 31.25.390, except that, to the extent
practicable, the Department of Law shall use the procurement
process under AS 36.30.320 with the participation of the
client." He said he would be fine with including this language
on lines 8-10 if the committee so desired.
REPRESENTATIVE KAWASAKI declined to make an amendment to
Amendment 34.
5:53:25 PM
REPRESENTATIVE SEATON observed that lines 11-12 of Amendment 34
include the language "client participation" and specify the
Alaska liquefied natural gas project. He inquired what
potential scope of clients this language would encompass.
MR. POAG responded this language allows DOL to procure legal
services for the project.
REPRESENTATIVE SEATON requested clarification that this wouldn't
include TransCanada as a client for the Department of Law.
MR. POAG said that TransCanada is not a client.
5:54:21 PM
REPRESENTATIVE TARR asked whether the language in paragraph
(47), which refers to AS 38.05.020(b)(10) and (11), represents a
problem since it is the negotiating powers given to the
commissioners. She said that this language refers generally to
the North Slope natural gas project; however paragraph (48)
refers specifically to the Alaska liquefied natural gas project.
She asked whether the language used matters since the projects
are referred to differently.
MR. PAWLOWSKI answered that, while the focus has been largely on
the Alaska LNG Project, the powers contemplated in
AS 38.05.020(b)(10) and (11) are general applications for any
North Slope natural gas project. The needs of the department
for any gas project, be it AGDC advancing a small line with
rapidity, will require similar agreements for throughput,
contractual commitments, and balancing, which are all necessary
to move any gas project forward. Those specific contracts of
any duration will come back to the legislature for approval. It
is important to obtain the best counsel to support the state no
matter which project occurs.
5:56:02 PM
REPRESENTATIVE TARR said she wanted to point out the
aforementioned since one is the general application of North
Slope natural gas project and the other is more specific to the
Alaska LNG Project. Thus, authorizing Amendment 34 would also
authorize the procurement exception for any North Slope natural
gas project that happens.
MR. PAWLOWSKI pointed out that the important exemption for the
Department of Law, in particular, relates to the unconventional
step that has been taken with previous amendments to bring the
Department of Law into the AGDC, which already enjoys an
exemption from procurement to ensure consistency of legal voice.
In doing that, paragraph (48) became very important to ensure
AGDC has the ability to function on behalf of the state in the
way the legislature empowered the corporation last year. He
acknowledged that the language in paragraph (47) is broader
since those agreements will apply to any of the large natural
gas projects to commercialize North Slope gas.
5:57:20 PM
REPRESENTATIVE SEATON observed line 13, [paragraph] (48),
specifies only the project included in AS 31.25.390 of Amendment
34. He requested clarification of what that project is.
MR. PAWLOWSKI said the reference to AS 31.25.390 is the
definition found on page 10 of [CSSB 138 (FIN) am] of proposed
Sec. 12, which provides the most specific statutory definition
of the Alaska LNG Project.
5:58:38 PM
REPRESENTATIVE SEATON removed his objection. There being no
further objection, Amendment 34 was adopted.
5:59:29 PM
REPRESENTATIVE TARR moved to adopt Amendment 35, labeled 28-
GS2806\I.A.41, Bullock, 4/3/14, which read:
Page 53, following line 14:
Insert a new bill section to read:
"* Sec. 58. The uncodified law of the State of
Alaska is amended by adding a new section to read:
RESERVATION RATE IN AN AGREEMENT FOR THE
TRANSPORTATION OF NATURAL GAS. A firm transportation
services agreement or other agreement or contract for
the transportation of natural gas received by the
state as royalty in kind or as payment of tax may not
include a provision that requires the state to pay,
during periods when no natural gas is being
transported, an amount greater than the amount
necessary to capture depreciation recovery, return on
equity, cost of debt, income taxes, fixed operation
and maintenance costs, and other taxes that are not
related to income."
Renumber the following bill sections accordingly.
Page 56, line 6:
Delete "61"
Insert "62"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
REPRESENTATIVE HAWKER objected.
6:00:01 PM
REPRESENTATIVE TARR explained Amendment 35 would provide
protection if a service interruption occurred. She referred to
page 4 of Exhibit C of the Memorandum of Understanding (MOU)
[with TransCanada], commercial term 12, which says that the
state will be responsible for full payment during service
interruption. The term "full payment" is not defined but it
does use two other terms, the "usage rate" and the "reserve
rate." The "reserve rate" reflects the owners cost of capital,
debt, depreciation taxes, and other fixed costs. It doesn't
include the "usage rate" which is the actual cost of operation.
Thus, if Amendment 35 was adopted and in the event the pipeline
is not operating, the state wouldn't have to pay that portion of
the tariff - the operating costs - but would pay the fixed cost,
thereby providing a little protection to the state.
6:01:08 PM
REPRESENTATIVE HAWKER, speaking to his objection, said this is
"the project amendment." Natural gas transportation projects,
which are a constant value chain from the wellhead to market,
are predicated on those firm transportation [services]
agreements (FTSAs). The "take or pay contracts" stem from the
FTSAs and mean the party commits to pay for shipping a certain
volume of gas, whether or not the party actually has that gas to
ship. Those FTSAs represent the collateral value that is taken
to the financing institutions who give the parties credit to
build the pipeline. Financial institutions don't care if any
service interruptions occur or if the parties don't have enough
gas to ship. Financial institutions, to minimize their risk and
recover the money loaned to the project, must be assured that
the party will pay regardless of shipping. He appreciated the
sponsor's desire to protect the state, but said Amendment 35 has
the potential of violating the whole premise under which a
project would be financed and operated in the real world.
COMMISSIONER BALASH said that during its review of Amendment 35,
[the administration] was struck with the question of whom or
what would be protected. The amendment addresses a period in
which no natural gas is being transported so there is a service
interruption. Having a reservation rate and usage rate as
described by the sponsor represents a small difference in terms
of operating costs and fuel gas that might be used to operate
the system. As long as the state can make the payment it seems
as though Amendment 35 directs the state to do what it is
already doing. He requested further clarification on what the
goal or the protection is supposed to be.
6:04:20 PM
REPRESENTATIVE TARR said she would not disagree with
Representative Hawker if the process was farther along; however,
Amendment 35 attempts to put some "sidebars" on the negotiations
that take place to come up with a firm transportation [services]
agreement (FTSA). She related her understanding that the
agreements would not be in place, but the enabling legislation
attempts to provide the department the flexibility to come up
with those agreements. She pointed out the Heads of Agreement
(HOA) and MOU have some of the "sidebars" in place, but
Amendment 35 would provide an additional one. Certainly,
service interruptions could occur that have nothing to do with
the state and she expressed concern about the effect the
interruptions would have on the state's financial position.
Amendment 35 could help avoid some operational costs since the
state is "on the hook" for the FTSAs, which represent financial
losses. She acknowledged that the parties have all come into
the project together, which is why fixed costs are shared;
however, if the state isn't responsible for the service
interruption it would not be required to pay for the operation
absent any gas.
6:06:27 PM
MR. PAWLOWSKI remarked he is caught between Representative
Hawker's concerns about unintended consequences of Amendment 35,
and the impact that language has on the administration going
into a negotiation with the state required to achieve something
that may be commercially unreasonable. For example, the service
interruption may not be anyone's fault, but the cost would be
shared, given alignment. The "daisy chain" of contracts has
underpinned the proposed Alaska LNG Project and to an extent it
is difficult to determine what Amendment 35 covers and what it
does not cover since the agreements are technical agreements
that will be started in the term sheet and brought back.
Introducing something in the middle of the "daisy chain" creates
uncertainty and makes the department uncomfortable. For
example, as Representative Hawker described, it could upset the
state's ability to actually obtain the commitments to deliver
the financing for the project. The "gas not flowing" will
affect all of the parties equally, which is an important point
to remember. It is in everyone's interest to have the capacity
utilized to the maximum extent possible on a regular basis. He
understood the concern, saying it needs to be discussed with the
legislature and represents healthy dialogue with this committee,
but said he does not think the department can support Amendment
35 at this time due to the potential unintended consequences.
6:08:35 PM
REPRESENTATIVE P. WILSON related her understanding of Amendment
35, such that it puts the state in the middle of some of the
negotiations by stipulating "interrupted service" as one of the
negotiation points. She said she doesn't think the state should
engage in this.
REPRESENTATIVE TARR argued that this is the only time for the
state to do so. This needs to be addressed now or it will be
negotiated and come back to the legislature for approval and
will be beyond the time when the state can influence the terms.
Thus, keeping that interest in mind, the state would have the
conversation about what it hopes will be accomplished during the
negotiation.
REPRESENTATIVE P. WILSON disagreed, saying it doesn't seem
reasonable to expect the other parties to pick up the "service
interruption" costs since the state is one of four parties and
therefore it should share the costs.
REPRESENTATIVE TARR replied that is not what Amendment 35 does.
She explained that this references the MOU, which is the state's
relationship with TransCanada but not with the other project
sponsors. Thus, it represents the state's negotiations with
TransCanada. The administration would have the authority to
negotiate these contracts, one of which will be the FTSAs. She
reiterated that once negotiations are completed, the legislature
will be approving the agreements or contract and at that point
it would be too late to introduce new terms. Thus, this is one
item that should be part of the list of items the state should
cover during the negotiations. She reiterated that Amendment 35
doesn't pertain to other project sponsors, but is limited to
TransCanada through the MOU. The state would agree to the fixed
costs; however, during any "service interruption" this language
would pertain only to the state and TransCanada.
6:11:34 PM
CO-CHAIR FEIGE assumed the sponsor is referring to page 4, item
12, of the MOU, Exhibit C. He said that item covers the terms
when an interruption of firm service happens including force
majeure. He further said that the shipper continues to make
full payment during periods of service interruption. He
related his understanding under Amendment 35 that the amount the
state pays would be an amount not greater than the amount "...
necessary to capture depreciation recovery, return on equity,
cost of debt, income taxes, fixed operation and maintenance
costs, and other taxes that are not related to income." He
asked for clarification on any other costs other than the
variable operation and maintenance costs.
REPRESENTATIVE TARR answered the amendment refers to the general
operating costs as defined by the usage rate versus the reserve
rate. The reserve rate would include all the costs just
described, but the usage rate would represent additional costs.
She maintained this is the only opportunity for the state to
negotiate.
CO-CHAIR FEIGE asked whether the sponsor knows what the relative
costs are.
REPRESENTATIVE TARR replied she did not "run the numbers" on
this.
COMMISSIONER BALASH commented the state will be engaging the
legislature through committees during the negotiation process so
the state will have an opportunity for feedback and guidance to
ensure nothing "lands with a thud." Second, although he doesn't
specifically have an issue with Amendment 35, he has previously
objected to anything that may interfere with negotiations, so
he's inclined not to support this.
6:14:58 PM
REPRESENTATIVE HAWKER, from an investment banker's perspective,
asked for clarification on what Amendment 35 means and what the
difference is between all the costs being incurred. Even if
this language doesn't really do anything, it could impact
negotiations. Even though financial companies are accustomed to
FTSAs, this language is unusual and could create an increased
risk and increased interest costs that could pass through to the
entire project. He expressed further concern that if the state
is not absolutely clear on [the language] it can become an
unknown in the underwriting process that could result in either
a failed process or increased risk and costs to the state. He
characterized Amendment 35 as a "poison pill" at the
underwriting table.
REPRESENTATIVE SEATON said he has never seen a firm
transportation services agreement (FTSA). He suggested that if
a usage cost rate is a normal term then it makes sense that the
state isn't paying costs that the investors don't care about.
The project is supported by the return on equity cost and
depreciation. Acknowledging this is beyond his expertise, he
said he's inclined not to put in Amendment 35, but noted the
departments have a heightened awareness of the concerns raised.
6:19:56 PM
REPRESENTATIVE KAWASAKI asked whether the language in Amendment
35 represents something similar to language in other contracts.
JANAK MAYER, Partner, Energy Consultant, enalytica, concurred
with Commissioner Balash, stating it is not clear to him that
this isn't already in the MOU or part of a firm transportation
services agreement (FTSA). He noted variable costs go up and
down with transport of gas in the pipeline. However, he cannot
see any direct protection that would be provided to the state
but any it would provide would be minimal. He offered his
belief that to the extent Amendment 35 adds ambiguity, it seems
the cost is greater than the benefit, as was pointed out by
Representative Hawker.
NIKOS TSAFOS, Partner, Energy Consultant, enalytica, agreed with
Mr. Mayer, stating that especially thinking about a pipeline,
the chief variable cost is the cost of gas used to power the
pipeline so if there isn't any gas flowing, the number would be
multiplied by zero or would be a small amount.
6:23:33 PM
REPRESENTATIVE TARR withdrew Amendment 35, stating that this
conversation has been helpful. She referred to the MOU with
respect to full payment, noting that without it being defined it
led her to be concerned. She offered her belief that the
conversation is sufficient to highlight the concern and to give
the commissioners direction as they go through the negotiation
process. She indicated that Alaska's situation is different
since the state is not a multi-national corporation conducting
oil and gas development projects throughout the world, such that
if one project doesn't perform well, other projects provide
revenue sources.
6:25:24 PM
REPRESENTATIVE TARR moved to adopt Amendment 36, labeled 28-
GS3806\I.A.27, Bullock, 4/1/14, which read:
Page 53, following line 14:
Insert a new bill section to read:
"* Sec. 58. The uncodified law of the State of
Alaska is amended by adding a new section to read:
SUBMISSION OF AGREEMENTS AND CONTRACTS FOR
LEGISLATIVE APPROVAL AND THE AUTHORITY TO EXECUTE. (a)
The commissioner of natural resources may not submit
an agreement or contract associated with a North Slope
natural gas project for legislative approval and the
authority to execute before the license issued under
AS 43.90 (Alaska Gasline Inducement Act) has been
revoked or abandoned.
(b) At the time an agreement or contract
associated with a North Slope natural gas project is
submitted for legislative approval and the authority
to execute under AS 38.05.020(b)(11), enacted by sec.
14 of this Act, the commissioner of natural resources
shall certify in writing that the license issued under
AS 43.90 (Alaska Gasline Inducement Act) has been
revoked or abandoned."
Renumber the following bill sections accordingly.
Page 56, line 6:
Delete "61"
Insert "62"
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
REPRESENTATIVE OLSON objected.
REPRESENTATIVE TARR withdrew Amendment 36, stating that a lot of
discussion surrounds the timeline. She indicated a number of
issues have been resolved as the committee substitute further
outlines the transition timeframe, which is the reason that she
is comfortable withdrawing Amendment 36.
6:26:49 PM
REPRESENTATIVE KAWASAKI moved to adopt Amendment 37, labeled 28-
GS2806\I.A.39, Bullock, 4/3/14, which read:
Page 53, following line 14:
Insert a new bill section to read:
"* Sec. 58. The uncodified law of the State of
Alaska is amended by adding a new section to read:
REOPENER PROVISION IN A FIRM TRANSPORTATION
SERVICES AGREEMENT. If the commissioner of natural
resources or another person acting on behalf of the
state enters into a firm transportation services
agreement for the transportation of natural gas
received by the state as royalty in kind or as payment
of tax, the firm transportation services agreement
must include a provision providing that the agreement
may be reopened for modification if a sales contract
for the natural gas that is transported provides that
the sales contract may be reopened for renegotiation."
Renumber the following bill sections accordingly.
Page 56, line 6:
Delete "61"
Insert "62
Page 56, line 9:
Delete "secs. 62 and 63"
Insert "secs. 63 and 64"
CO-CHAIR SADDLER objected.
REPRESENTATIVE KAWASAKI explained that Amendment 37 would place
a reopener provision in a firm transportation services agreement
(FTSA) in the uncodified law. The amendment seeks to ensure
that there's a provision reopener in the shipping contracts with
TransCanada, or the company holding the state's midstream
interests. So, if gas sales and marketing contracts are
revisited due to change in the marketing fundamentals that
destabilizes gas, such as gas changes price or locations change
price, that the contracts can be adjusted. He said he does not
believe the current MOU addresses this aspect.
6:28:14 PM
COMMISSIONER BALASH said this provision is not in the term sheet
or MOU so it would represent a material change. It would not be
well received by the counter-party and it is not reasonable in
terms of the pipeline transportation services agreement. He
said there may be other agreements that the state negotiates in
the course of this commercial transaction that may be
appropriate for reopeners, but not this one.
REPRESENTATIVE HAWKER recalled a previous discussion which
highlighted that what happens downstream in the market is a risk
the state takes moving into this entire project. The entire
pipeline project is underpinned by firm transportation services
agreements (FTSAs), which are "take or pay agreements" in the
value chain. He expressed concern that if the state goes to the
debt market indicating it will reopen FTSAs and the "take or pay
contracts" due to downstream market changes, it will introduce
risk, ambiguity, and much higher cost for capital. He said he
has a difficult time with renegotiating firm transportation
shipping commitments if something happens in the market, which
is counter to the foundation of the pipeline project.
6:30:21 PM
REPRESENTATIVE TARR suggested the consultants could weigh in
since she recalled that oftentimes this does happen but if one
contract is reopened it may allow for another contract to be
revisited.
MR. TSAFOS responded enalytica has discussed that the LNG
contracts are likely going to include the conditions under which
a price review may occur. That price review could be both
periodic, such as every three or four years, as well as
conditions that allow for an extraordinary review of price if
the market fundamentals have changed completely. Additionally,
enalytica has said the state can specify in the contracts both
the conditions under which the price review may happen as well
as limit the extent to which the price may change. He recalled
some contracts allow the price to be changed, but it may be
limited to 5, 10, or 15 percent above or below the initial
price. If the seller of the gas is buying that gas from some
other party, it's quite possible that a provision will link the
buying and selling of gas. He related a scenario in which
[Dimosia Epichirisi Paroxis Aeriou] (DEPA) is buying gas from
%27$ù3HWUROHXP3LSHOLQH&RUSRUDWLRQ (BOTAS), and BOTAS is
buying gas from Azerbaijan. He explained that Azerbaijan
increased the price to BOTAS, who subsequently tried to increase
the price to DEPA, which ended up in arbitration. One of the
arguments was if one of the two contracts had the exact same
provisions whether the contract could get renegotiated. They
further held discussions on retroactivity of the renegotiations.
Thus, it certainly would be possible to have this happen, he
said.
6:33:11 PM
MR. TSAFOS, speaking specifically to Amendment 37, pointed out
two things. First, in terms of unintended consequences, it is
possible it could result in a price increase the state would
need to hand over to TransCanada. He understood the intention
is to protect the state against the state's margin "getting
squeezed," but depending on how the language is written, it
might be possible to obligate the state to share with
TransCanada as part of a reopener. Second, he speculated this
type of risk is one that TransCanada would be uncomfortable
taking on since it is basically a market risk. TransCanada's
model allows it to take on construction risk, operation risk
with compensation via a tariff; however, TransCanada does not
take on market risk in the sense that its price is subject to
volatility in the end-user price. He imagined that this
provision would expose TransCanada to a type of risk that it is
not accustomed to taking nor is TransCanada experienced in
mitigating that type of risk.
6:35:35 PM
REPRESENTATIVE TARR stated that through these discussions she
realizes there are opportunities in which the state could
benefit, but in crafting the amendment, she had been considering
that the market might worsen and the state could share the risk
or reduced revenue. She asked whether it would be worthwhile to
consider this for the aforementioned scenario.
MR. TSAFOS replied his reaction to what was just described by
Representative Tarr is that there is a certain amount of sales
risk that is taken on. However, other counter parties would be
better suited to help the state manage its risk, whether it is
the counter parties that the state sells its gas to or if it is
the three producers if the producers are marketing the gas on
the state's behalf. He fully understood the exposure
Representative Tarr hopes to mitigate, but his reaction is that
TransCanada would not be the vehicle to reduce that exposure.
He instead suggested that the sales contracts are the more
appropriate vehicles to accomplish mitigation.
6:37:47 PM
MR. JANEK, with respect to Mr. Tsafos's comments on allocation
of risk and reward, said that it comes back to fixed claims and
the impact on project risk. One benefit of royalty-in-kind
participation is there isn't a fixed tariff that implicitly
applies to the entire midstream. For example, one of the
dangers that could come from reintroducing fixed claims would be
TransCanada doing some form of it. It is important to be
inherently aware of the risk that comes with fixed claims on the
project cash flow; however, with this type of participation,
there are costs and benefits. It is a hard risk to avoid since
the nature of TransCanada's participation in this project is
that the pipeline company has a fixed claim on the project's
cash flow. As Mr. Tsafos said earlier, TransCanada provides
financing and technical expertise with a limited degree of cost
and project risk, but it is not exposed to market risk. So, to
ask TransCanada to do something else would be to expect the
company to completely transform its role.
6:39:40 PM
REPRESENTATIVE KAWASAKI withdrew Amendment 37, stating that he
appreciated the conversation and the committee discussion of
Alaska and its risk profile as compared to other partners. He
highlighted his goal is to find ways so Alaska doesn't
"shoulder" more risk, given that its partners have many other
projects [to spread risk.] He acknowledged that the reopener
provisions and tying it to the service agreements probably
doesn't make quite as much sense. He wondered if dealing with
the reopener provisions in the sales and marketing contracts or
some other option would be a more appropriate way to transfer
some of the risk.
6:41:10 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 38, labeled
28-GS2806\I.A.21, Bullock, 4/1/14, which read:
Page 11, line 28:
Delete "10"
Insert "[20]"
[Note to reader: The amendment labeled 28.GS2806\I.A.21,
Bullock, 4/1/14, and provided by Legislative Legal and Research
Services, Legislative Affairs Agency, is not the version of
Amendment 38 offered in committee.]
CO-CHAIR SADDLER objected.
REPRESENTATIVE P. WILSON explained Amendment 38, noting that
changes were made to the [affordable] energy fund in the bill in
the other body to insert 30 percent of [the revenue received
from the state's royalty], which was later reduced to 10
percent. She expressed concern that once everything is taken
out of the state's royalty it leaves about 7.5 percent for the
[affordable] energy fund. Amendment 38 would increase the
percentage to 20 percent, which would ultimately result in 15
percent to the [affordable] energy fund.
CO-CHAIR FEIGE asked whether the effective rate would be 15
percent of the total.
REPRESENTATIVE P. WILSON answered yes.
6:42:40 PM
REPRESENTATIVE KAWASAKI understood the affordable energy fund is
intended to help develop infrastructure in areas of the state
that are not expected to have direct access. He requested a
definition of the term "direct access" since Fairbanks would not
have direct access, but the project will be in its "backyard."
CO-CHAIR FEIGE offered his belief that Fairbanks would be
directly connected.
REPRESENTATIVE P. WILSON recalled maps were previously provided
that showed which areas of the state were directly affected;
Amendment 38 would apply to those areas not on the map. She
clarified that the effective rate would be changed from 7.5
percent to 15 percent.
6:44:19 PM
CO-CHAIR SADDLER said that regardless of how the percentages are
changed, the proposal would change the reservation from about
$90 million per year, according to the fiscal note, to $180
million per year. Given he has heard some fairly compelling
arguments against dedication of funds, he said he would have a
hard time supporting doubling the rate regardless of how the
percentage is calculated.
REPRESENTATIVE SEATON explained that the purpose of the
[affordable energy] fund is to assist areas not receiving direct
benefit from the pipeline or property taxes, which is the
economic development impetus. He could envision it in this
case, but he could not support dedicating funds to the Kenai
Peninsula, Anchorage, or Fairbanks since those areas will have
access to gas. He did not find the amendment to be an
unreasonable apportionment throughout the state. Additionally,
he thought some type of distribution would be necessary for
development of mining and other development that will generate
economically for the whole state.
6:46:06 PM
REPRESENTATIVE P. WILSON felt it was important to put something
like this in place for rural areas not on the road system
without access although she wasn't including her area. She said
in terms of fairness it is important to assist rural areas in
particular, since the Power Cost Equalization funding is being
removed.
REPRESENTATIVE HAWKER sympathized with the argument being made,
but pointed to the overall fiscal picture of the state. He
maintained Amendment 38 would be taking "money off the table" in
future years instead of requiring all of the needs to compete on
equal footing. He cautioned that the legislature can't be
certain of what needs may arise in 10 years. Although he is
personally uncomfortable with the [affordable] energy fund in
the bill, he found Representative Seaton's argument compelling.
He understood some communities will have a direct impact from
the operation of a pipeline but there are those that won't.
Thus he could accept the current 10 percent in the bill, but
maintained he will be uncomfortable increasing the amount.
6:50:00 PM
REPRESENTATIVE TARR pointed out another bill, SB 183, would
extend the emerging energy technology and grant program. She
asked how that fund is different than this one.
MR. PAWLOWSKI asked whether Representative Tarr is referring to
the emerging energy technology fund or the sustainable energy
transmission supply fund.
REPRESENTATIVE TARR replied she is referring to the emerging
energy technology fund.
MR. PAWLOWSKI answered that the emerging technology fund is a
grant program within the Alaska Energy Authority to fund start-
up technologies. Those may or may not work, he said. They go
through an advisory panel that uses some of the national
renewable energy laboratory standards in terms of identifying a
start-up technology. The amendments to SB 138 proposed by the
other body were for the more proven infrastructure for areas
without direct access to the pipeline. He said one of the
things the department has described are re-gas facilities in
coastal communities to ensure that they can benefit from the LNG
that is coming out of this project or a continuation of the LNG
plant on the Kenai Peninsula. He said that nexus of the
discussion was important in the evaluation; however, they are
completely different funds.
REPRESENTATIVE TARR asked whether Mr. Pawlowski has any concerns
that the Alaska affordable energy fund is not defined. She
offered her belief that it would be up to the legislature's
discretion as to what the legislature would want to appropriate.
She envisioned the process would include application and
regulations being developed by the department.
MR. PAWLOWSKI responded that while the fund is a repository, it
is up to the legislature to appropriate that fund to a program.
The legislature could appropriate the funds to the emerging
energy technology fund or the renewable energy grant fund since
the legislature has wide discretion on the use of the funds.
6:52:32 PM
REPRESENTATIVE TARR said her concern is the affordable energy
fund and who makes the decision and how that is defined.
MR. PAWLOWSKI answered that the fund and the appropriate
projects would be defined by the legislature.
CO-CHAIR SADDLER noted that nothing in the language says
"affordable" other than the title. He inquired whether any
criteria would be available to judge whether access to the
energy would be affordable. Additionally he said did not see
any definition of "direct access" except in the title.
REPRESENTATIVE TARR referred to page 11, proposed AS 37.05.610
(a) which read, "The Alaska affordable energy fund ...."
6:53:31 PM
CO-CHAIR SADDLER maintained his objection to Amendment 38.
A roll call vote was taken. Representatives Seaton, P. Wilson,
Tarr and Feige voted in favor of Amendment 38. Representatives
Johnson, Olson, Kawasaki, Hawker, Saddler voted against it.
Therefore, Amendment 38 failed by a vote of 4-5.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Letter of Clarification - DNR & TC 4.4.14.pdf |
HRES 4/8/2014 4:30:00 PM |
SB 138 |
| AGDC.DNR.DOR MOU.pdf |
HRES 4/8/2014 4:30:00 PM |
SB 138 |
| I.A.21.Wilson.PDF |
HRES 4/8/2014 4:30:00 PM |
SB 138 |
| I.A.91.Feige-Hawker.pdf |
HRES 4/8/2014 4:30:00 PM |
SB 138 |
| I.A.95.Tarr.pdf |
HRES 4/8/2014 4:30:00 PM |
SB 138 |
| I.A.96 Hawker-Admin.pdf |
HRES 4/8/2014 4:30:00 PM |
SB 138 |
| I.A.97Feige-Hawker.pdf |
HRES 4/8/2014 4:30:00 PM |
SB 138 |
| I.A.98 Hawker- Admin.pdf |
HRES 4/8/2014 4:30:00 PM |
SB 138 |
| I.A.99 Seaton.PDF |
HRES 4/8/2014 4:30:00 PM |
SB 138 |
| I.A.101 Saddler.pdf |
HRES 4/8/2014 4:30:00 PM |
SB 138 |
| I.A.100.Tarr.pdf |
HRES 4/8/2014 4:30:00 PM |
SB 138 |
| I.A.103 Seaton.pdf |
HRES 4/8/2014 4:30:00 PM |
SB 138 |