Legislature(2013 - 2014)BARNES 124
04/09/2014 08:00 AM 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
8:07:26 AM
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."
8:07:32 AM
REPRESENTATIVE SEATON moved to adopt Amendment 39, labeled 28-
GS2806\I.A.7, Bullock, 4/1/14, which read:
Page 15, following line 30:
Insert a new bill section to read:
"* Sec. 16. AS 38.05 is amended by adding a new
section to read:
Sec. 38.05.023. Timing of state investment in a
North Slope natural gas project. An agreement or
contract negotiated under AS 38.05.020(b)(11) or other
agreement or contract in which the state is a party
and that is associated with a North Slope natural gas
project may not require an investment by the state in
the project until a final investment decision is made
to construct the project."
Renumber the following bill sections accordingly.
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 56, line 6:
Delete "16, 17, 23 - 27, 29, 30, 37, 39, and 55 -
61"
Insert "16 - 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"
CO-CHAIR SADDLER objected.
REPRESENTATIVE SEATON explained Amendment 39 would direct that
the timing of the state's investment [in the project] would not
be until the project was sanctioned or a final investment
decision (FID) to construct the project was made. He reminded
the committee that consultants representing the legislature had
previously testified on the amendment but they were not in
agreement. Testimony was also heard from consultants
representing the administration. He requested the committee
hear the administration's opinion on Amendment 39 at this time.
8:08:43 AM
MICHAEL PAWLOWSKI, Deputy Commissioner, Office of the
Commissioner, Department of Revenue, said the administration
does not support Amendment 39 for several reasons. Firstly, the
basic premise of the Heads of Agreement (HOA) was centered on
the percentage of state participation, the process to move the
project forward and - most importantly - that the state will
participate. He expressed the administration's belief that the
material benefits for state participation early in the project
are interwoven through the HOA in terms of the development of
the commercial agreements regarding expansion policies and the
access for third parties to gas. Also, ensuring the state has
access to data and a full understanding of the project
indirectly through TransCanada (TC), or directly through the
Alaska Gasline Development Corporation (AGDC), is critical to
the sizing and the design of the components of the project.
Lastly, the other parties to the HOA see state participation as
a key enabler for the project that demonstrates the state's
commitment, and sends a message to the natural gas marketplace.
He stressed the importance of the market's reception to the
project during the Pre-Front-End Engineering and Design (Pre-
FEED) stage. Mr. Pawlowski restated the administration's
opposition to Amendment 39.
REPRESENTATIVE SEATON recalled the concern stated by Roger Marks
[contract petroleum economist consultant to Legislative Budget
and Audit Committee] about circumstances that would result if
the project does not go forward and is not sanctioned. He
concluded that the subject has been thoroughly vetted, and
withdrew Amendment 39.
8:12:13 AM
REPRESENTATIVE SEATON moved to adopt Amendment 40, labeled 28-
GS2806\I.A.99, Bullock, 4/6/14, which read:
Page 15, following line 30:
Insert a new bill section to read:
"* Sec. 16. AS 38.05 is amended by adding a new
section to read:
Sec. 38.05.023. State access to data developed
under contract. An agreement or contract in which the
state or an agent of the state is a party that is
negotiated under AS 38.05.020(b)(11) must include a
requirement that, if the commissioner determines that
the North Slope natural gas project is not making
adequate progress toward a final investment decision,
the state shall have access to data developed under
the agreement or contract in which the state has
participated financially. Access by the state to the
data may not be on terms that are more restrictive
than the terms that are applicable for access by any
other party in the North Slope natural gas project."
Renumber the following bill sections accordingly.
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 56, line 6:
Delete "16, 17, 23 - 27, 29, 30, 37, 39, and 55 -
61"
Insert "16 - 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"
CO-CHAIR SADDLER objected.
REPRESENTATIVE SEATON explained Amendment 40 seeks to ensure
that the state's investment leads to the use of data [that would
have been developed under contract] should the project not
achieve sanction. He said he wants the [forthcoming] agreements
to make clear that after the state invests $600 million it gains
full use of the data pertaining to the project, should the
project not go forward. Representative Seaton related previous
testimony by the legislature's consultants that projects "don't
get a vote of not going forward or not sanctioning" but can be
delayed for years. Therefore, Amendment 40 directs that if a
project stops making adequate progress to FID after achieving
the FEED stage, the commissioner of natural resources can
determine that the project has stalled and the state can use the
data. He assured the committee the amendment does not take away
data from other parties and referred to page 1, lines 10-12 of
Amendment 40 which read:
Access by the state to the data may not be on terms
that are more restrictive than the terms that are
applicable for access by any other party in the North
Slope natural gas project.
8:15:33 AM
REPRESENTATIVE SEATON then moved to adopt Amendment 1 to
Amendment 40 as follows:
Page 1, line 9, after "has":
Insert "directly"
REPRESENTATIVE SEATON explained Amendment 1 to Amendment 40 will
make sure "that we're not talking about our relationship with
TransCanada." He clarified that Amendment 40 is applicable when
the state has put in its 20-25 percent of the costs in [the
project], and the state would then have the full use of that
data for another project if this one stalls.
8:17:19 AM
REPRESENTATIVE JOHNSON objected to Amendment 1 to Amendment 40.
He requested clarification on whether the amendment to the
amendment specifically excludes information that the state may
have paid for through TransCanada. He surmised the state may
want access to that information as well as what the state has
"directly" paid for. He expressed his concern that there are a
lot of things the state might not have access to because the
state wrote the check to a second party who then got the data;
although the state paid for it, it was not paid "directly."
MR. PAWLOWSKI said the principle of access to data is a key
interest of the state; the state's relationship with TransCanada
on a prospective basis is that TransCanada would be making
expenditures directly, while the state, through Pre-FEED and
with 90-day notice, has the right to terminate the relationship
with TransCanada. In that event, the state would repay
development costs and allowance for funds used during
construction (AFUDC) if the state terminated, and TransCanada
would release the data to the state "as is, where is." Thus the
intent of Amendment 1 to Amendment 40 is to recognize that the
aforementioned exchange of information has already been pre-
agreed to and specified in the Memorandum of Understanding (MOU)
[with TransCanada].
REPRESENTATIVE JOHNSON referred to the "as is, where is" clause
and expressed additional concern about how the data would be
acquired. He requested clarification on how the two agreements
with TransCanada compare related to "what data is available
"under the current agreement that we're replacing with this
agreement ...."
8:20:57 AM
MR. PAWLOWSKI directed attention to the Letter of Clarification
to Memorandum of Understanding (Letter of Clarification) [dated
4/4/14] released to the committee by the parties that describes
the process by which the previous relationship with TransCanada
under the Alaska Gasline Inducement Act (AGIA) [passed by the
25th Alaska State Legislature] would be terminated in a
sequential fashion. The terms of the MOU are built around the
contribution of the previous data "that the state has paid for a
portion of, a very substantial portion of, but not the entirety
of." The MOU covers the use of that data and the purchase of
the data with the payment of development costs should the state
exercise its termination rights. On the matter of "as is, where
is," he pointed out the importance of [Amendment 13, adopted on
4/5/14,], which put AGDC in a prime consultative role with DNR
in the development of the agreement. He explained it is
important because AGDC would be using the remanded data, and
having AGDC work directly with DNR means to have the utmost use
of the data after it is transferred. Mr. Pawlowski
characterized [Amendment 13] as one of the key factors to the
state's success in this process.
8:22:34 AM
REPRESENTATIVE JOHNSON said he was "not totally comfortable with
the explanation" and opined the data is all the state has in the
project even though a significant amount of money has been paid.
He said he wants full access to everything the state has paid
for, or invested in, or the state's partners have invested in.
He expressed his concern that he does not know if "this gets us
there" and whether "'directly' changes it that much." He
cautioned that not having the data may lead to a competitive
disadvantage for partners in another project. There remain
issues about the data but "if we're paying for it we should own
it." He withdrew his objection to Amendment 1 to Amendment 40.
8:24:56 AM
REPRESENTATIVE P. WILSON objected, and requested Mr. Pawlowski
to further explain the administration's stance on the amendment
to the amendment.
MR. PAWLOWSKI explained that the way the amendment is crafted
causes broad concern amongst the parties. Specifically,
"directly" is relevant to the [Alaska LNG Midstream Services
Term Sheet] agreed to with TransCanada in the MOU, because post-
FEED, the commissioner of DNR could exercise a different
termination right than the ones that have already been agreed to
in the MOU. He restated that for the next 18-24 months the
state can terminate its relationship with TransCanada with 90-
day notice. At that point, the state would pay development
costs and AFUDC. His concern with Amendment 40, without
Amendment 1, is that the amendment would "clearly upend a term
in the MOU relating to termination events after, during, the
FEED stage."
REPRESENTATIVE P. WILSON suggested the use of the word
"indirectly" instead of "directly."
8:27:01 AM
MR. PAWLOWSKI expressed his understanding that in the context of
the amendment "directly" recognizes that the state is not
directly paying for its share of the midstream, unless the state
exercises a termination event with TransCanada. In the
midstream, TransCanada is "writing the checks ... and paying the
cash" and Amendment 40 would upend the relationship where, if
the state terminates, a true-up occurs and the parties exchange
information.
REPRESENTATIVE P. WILSON inquired whether, no matter what, the
state will get that information with Amendment 1 to Amendment 40
and the word "directly."
MR. PAWLOWSKI affirmed that the exchange of information is in
the Term Sheet of the MOU, and when the state pays the
development costs, it gets the information. Because this
agreement is in the commercial agreements, he reiterated that it
is very important to the state to have AGDC working with the
agencies since AGDC will be using the data and needs to be
engaged in the development process.
8:29:18 AM
JOE DUBLER, Vice President and Chief Financial Officer, Alaska
Gasline Development Corporation, Department of Commerce,
Community & Economic Development, acknowledged that the access
to data has been a difficult issue for the state and TransCanada
under AGIA and the Alaska Liquefied Natural Gas Project (the
Alaska LNG Project). He stressed that the data needs to be
available to AGDC in the event of the failure of the Alaska LNG
Project so the state can use the data that it has paid for in
the Alaska Stand Alone Pipeline (ASAP) project. Currently, AGDC
is not a participant "in the midstream" and would only
participate in the event of exercising the 40 percent option in
the MOU with TransCanada. If the project fails within 18
months, the state will not have spent money on the data, thus
will not have access to the data. However, if the state
exercises its option at the end of Pre-FEED, the state has a
right to the data. The term "as is, where is" does not mean the
data is "locked up" but that TransCanada would provide the data
in its existing form.
REPRESENTATIVE HAWKER turned the debate to Amendment 40, and
asked whether the state has access to the data if TransCanada
withdraws. The specifics of the amendment are not about
TransCanada "going away" but are about "not making adequate
progress." He directed attention to page 9 [of Exhibit C of the
MOU, Key Item 9, Termination Event Alaska LNG Midstream Services
Term Sheet,] paraphrasing the item as follows:
Upon a termination event and payment for those
development costs, then the Transporter, TransCanada,
shall assign all of its interest in the Pre-FEED JVA
[joint venture agreement] or the FEED Agreement,
including all of its equity stake to the shipper, the
State of Alaska
REPRESENTATIVE HAWKER asked for verification that the preceding
statement means the state gets all the data upon a termination
event. He began a review of several related points. It is
clear there is a list of termination events that would result in
the state getting the data without the amendment, including
giving 90-day notice before FEED. If the termination event is
prior to the negotiations of the firm transportation service
agreements (FTSA), the five-year "tag" goes away too. After
FEED, if partners withdraw or if the state is unable to sell gas
on acceptable terms, the state gets the data. At FID, the state
or TransCanada can walk away from the project for any reason and
the state gets the data. Representative Hawker listed further
termination events specified in the MOU. He then asked for
concurrence with his opinion that the state is adequately
protected under the MOU as previously cited, but warned that the
amendment modifies the MOU by adding the descriptor of "not
making adequate progress," and further specifies that the state
gets "access," when the termination event clause directs that
the state gets the data. Finally, Amendment 1 to Amendment 40
adds the modifier of "directly" with the implications thereof.
He said he does not agree with the amendment in general and
addition of the word "directly" boxes the state into something
that he does not want to go to.
8:37:23 AM
REPRESENTATIVE SEATON observed that the four parties to the
agreement are the three producers and the state. The state may
subdivide its interest with TransCanada, and the amendment
addresses the state's access to the data with the other three
parties. The administration suggested the addition of the word
"directly" to avoid the appearance of an "end run around the MOU
and the termination events." On the other hand, after a
termination event, the state will have directly participated
financially. The purpose of Amendment 40 is to ensure that if
the project does not proceed to FID but stalls, the state has
full access to the data for which it has paid $600 million.
Representative Seaton concluded that Amendment 1 to Amendment 40
ensures the relationships agreed to with TransCanada in the MOU
are not interrupted.
CO-CHAIR SADDLER stated his opposition to Amendment 1 to
Amendment 40.
REPRESENTATIVE TARR observed that data not already established
in the MOU with TransCanada would come from the work of the
first joint venture during Pre-FEED. She asked whether the
state needs to address access to the data specific to the joint
venture work because the state's participation would not be
direct or indirect, but through AGDC's position in the joint
venture.
8:40:35 AM
MR. PAWLOWSKI reminded the committee that the terms of the
termination events as described in the MOU will be further
developed and expanded. In the HOA are found principles related
to the sharing, access, and use of data by the administration
and the parties. The Alaska Gasline Development Corporation
will be "in the room" on substantial portions of the project and
now, with the amendments made by this committee, indirectly
through the commissioner of natural resources on the development
of the transportation agreements. During the development of the
commercial terms that govern how data is shared and used by the
Pre-FEED joint venture agreement (JVA), AGDC will be working on
the state's behalf to ensure that the principle of the state's
access to data is upheld.
CO-CHAIR FEIGE noted that the state's agreement with TransCanada
and the terms regarding the data after a termination event are
well-explained on page 9 of Exhibit C of the MOU [Key Item 9,
Termination Event Alaska LNG Midstream Services Term Sheet]. He
surmised that because Amendment 40 pertains to the other parties
to the future JVA, or other contracts, the word "directly" is
necessary.
8:43:17 AM
MR. PAWLOWSKI responded that the suggestion of the word
"directly" was to recognize that there is an indirect
relationship in the midstream, and the specifics of how
TransCanada's interest is conveyed to the state are in the MOU.
The administration's concern is about the introduction of a new
subjective standard - "if the commissioner determines that" - to
what is a detailed commercial arrangement where termination
events are defined to both parties, so they are not subjective
as the project moves through the FEED stage. During Pre-FEED,
there is acceptance of a 90-day termination event with
TransCanada for any reason, because there is a lower level of
commitment before FID is made. Although this amendment is
applicable prior to FID, he remarked:
It's [that] subjectivity that I think creates more
confusion in what [are] commercial terms and how
they'll be executed. That's why I think some of the
[discomfort] comes from, related directly to the
TransCanada memorandum of understanding, and the word
"directly."
CO-CHAIR FEIGE inquired as to whether [Amendment 1 to Amendment
40] is a support for the process, or creates a limitation on the
administration's ability to negotiate in the future.
MR. PAWLOWSKI said he viewed the word "directly" as a clarifying
term. He deferred to the commissioner of natural resources.
8:45:49 AM
JOE BALASH, Commissioner, Department of Natural Resources,
speaking as Commissioner-appointee to the Department of Natural
Resources, assured the committee the principle identified by the
[amendment and the amendment to the amendment] is consistent
with the state's policy. In this context, the insertion of the
word "directly" introduces the question of timing; the state's
direct financial participation becomes relevant if, or when, it
makes a payment, which is not direct involvement, but an
extension of the state's credit. At the point in time the state
makes a payment, it has participated directly, financially.
Commissioner Balash opined the word "directly" helps relative to
the state's relationship with TransCanada, but does not
necessarily help in the state's relationship with AGDC; for
example, at the time the commissioner of natural resources and
the president of AGDC have to make an agreement on midstream
services for the liquefaction plant. He questioned whether AGDC
is directly involved from the beginning due to its status as a
public corporation. He restated that the insertion of the word
"directly" helps in the case of the TransCanada MOU, but was
unsure if it was helpful in the case of arrangements with AGDC.
MR. DUBLER agreed with the testimonies of the commissioner of
natural resources and the deputy commissioner of revenue.
REPRESENTATIVE P. WILSON asked for an opinion from the
Department of Law (DOL) on its interpretation of the effect of
Amendment 1 to Amendment 40.
8:50:03 AM
MARY GRAMLING, Assistant Attorney General, Oil, Gas and Mining
Section, Civil Division (Juneau), Department of Law (DOL),
advised that the addition of the word "directly" potentially
limits the type of participation considered under the amendment.
%he type of the financial participation would be determined by
the terms of the contract and how the state has been involved.
MR. PAWLOWSKI stated it is difficult to put commercial terms
into statute due to the nuances of negotiated agreements. The
administration agrees with the principle in the proposed
statute; however, unintended consequences around the words when
it comes to the commercial agreements are a problem in Amendment
1 to Amendment 40, and, more broadly, in Amendment 40.
8:52:18 AM
REPRESENTATIVE P. WILSON removed her objection to Amendment 1 to
Amendment 40.
CO-CHAIR SADDLER objected.
A roll call vote was taken. Representatives Johnson, Seaton,
Tarr, Kawasaki, and Feige voted in favor of Amendment 1 to
Amendment 40. Representatives Hawker, Olson, P. Wilson, and
Saddler voted against it. Therefore, Amendment 1 to Amendment
40 was adopted by a vote of 5-4.
8:53:36 AM
CO-CHAIR FEIGE returned discussion to Amendment 40.
CO-CHAIR SADDLER expressed his concern about giving the
commissioner [of natural resources] the unilateral right to
declare that there has not been adequate progress. Although not
a real termination event, this declaration may lead to "a path
to failure." He requested clarification on what data the state
would have access to during contract negotiations - after a
finding of insufficient progress or after termination - that it
would not have otherwise.
MR. PAWLOWSKI deferred to AGDC.
MR. DUBLER responded that some of the data acquired by AGDC and
applied to the Alaska LNG Project, from the AGIA-based project,
includes geologic borehole data, which helps determine how to
best drill through the subsurface, stream-crossing data, fish
surveys, cultural resource surveys, and other Geological
Information System (GIS) data that helps the engineers that are
designing the pipeline.
8:56:20 AM
CO-CHAIR SADDLER asked whether this information is the type of
data that would become available under contract negotiations for
the Alaska LNG Project.
MR. DUBLER replied correct, and added that if AGDC participates
in the midstream, which would exercise the 40 percent buy-in
option for the state, AGDC would have access to that information
through the Alaska LNG Project. However, because AGDC would not
be an owner in the midstream, but only in the joint venture,
AGDC's ability to access data has not been determined.
CO-CHAIR SADDLER then asked what "new" data the state would have
access to if there were a declaration of inadequate progress.
MR. DUBLER cautioned a declaration of insufficient progress
which caused the project to "wind up" would not necessarily give
the state unfettered access to data. The Alaska LNG Project has
restrictions on the release of data; thus, as long as the
producers think the project is going forward, the data would not
be available to be used on a different project.
REPRESENTATIVE SEATON pointed out Amendment 40 would preclude
the aforementioned problem, which is that if the project stalls
for many years, the state could not use the data it paid for to
design another project. The problem right now is that the state
would pay for 25 percent of the data, and not wait until FID [to
make its investment of $600 million], but if the project is
delayed, the data is unavailable. He acknowledged that the
state would not have access to licenses, but would have access
to information such as that on compression station spacing,
which would be of value to a different project. He warned of a
situation where the state has made an investment of 25 percent,
but is unable to benefit due to the terms of the Alaska LNG
Project. Amendment 40 asserts that each party is a "tenant of
the entirety of the data if the project doesn't go forward."
Representative Seaton stressed that each party will be able to
use the data. Furthermore, prior agreements have determined
what constitutes adequate progress, so Amendment 40 would apply
to a situation in which the project languishes, and the state
would not have to prove that the project was uneconomic. He
reiterated that Amendment 40 establishes tenants by the entirety
of the data, only after timelines that have already been agreed
upon have been met.
9:02:41 AM
CO-CHAIR FEIGE observed that there are two elements to Amendment
40. First is the determination by the commissioner [of natural
resources] that the project is not making adequate progress,
which is a matter of judgment or further definition, and second
is that the terms are not more restrictive than the terms of the
other parties to the project. He requested the administration's
advice on what would constitute not making adequate progress and
on the terms for sharing data that are currently under
consideration.
COMMISSIONER BALASH, regarding the determination of adequate
progress, opined the state is approaching the project through
the HOA which has established a stage-gated set of mechanisms.
There will be one agreement to advance through Pre-FEED and
another to advance through FEED, and at that point there will be
a "bundle of work products and deliverables." If parties are
not ready to advance at that point on the timeline, the reason
must be determined: underlying financial catastrophe;
fundamental disruption in the marketplace; or other. He
suggested Amendment 40 provides leverage that could be useful,
but may cause a problem in getting agreements executed on the
front-end because of fear about how the state may use that
leverage. He said his view of adequate progress is progressing
from each phase or gate into the next as follows: Pre-FEED,
FEED, sanction, the deliverables associated with each phase, and
the decisions to progress from one to another. Regarding the
typical terms applied to data-sharing in the agreements,
Commissioner Balash said it is not unusual for each party to
have access to the data and deliverables; however, there are
limitations as to how the data can be used publically or
competitively, and that is where the limitations such as time
limits or exclusivity, must be negotiated. The administration
remains steadfast in its stance that all of the data associated
with the pipeline, and the corridor for the pipeline, is
available to the state for its use in the event the project does
not go forward. Under these terms, it would not matter what the
other parties do, and the state maintains a level of leverage.
9:07:48 AM
REPRESENTATIVE JOHNSON stated that the MOU "bill-package" gives
up state ownership and control of state resources. He expressed
his belief that at completion, the agreements will subjugate the
state to the role of junior partner at best. He remarked:
I use the word clawback [provision that money or
benefits need to be returned] because I think that's
what it's going to take, to clawback any of that
ownership or control, is going to be something that
I'm going to have a hard time not supporting. ...
This doesn't get us anywhere near where I want to be
in terms of either of those ownership or control
issues. ... This doesn't get us close to where I think
we need to be in terms of recapturing some of that
control and ownership, but I think I have to support
it just because it's so far the best thing ... to give
us even a little bit.
REPRESENTATIVE TARR shared others' concerns about how to move
forward after the failure of the project. Noting the five-year
clause that is incorporated in the MOU with TransCanada, she
observed that it seems reasonable to restrict how one of the
parties might move forward in the event of failure. She
surmised Amendment 40 gives the administration some direction,
and alerts the parties that the state intends to possess and use
assets towards a new project.
9:10:04 AM
COMMISSIONER BALASH recalled that part of the reason the
administration is comfortable with pursuing parallel paths on
two pipelines, ASAP and the Alaska LNG Project, in the Pre-FEED
phase, is to have cooperation and a sharing of the costs of
gathering data. He stated that AGDC will continue to acquire
data and information to move forward with ASAP in the Pre-FEED
stage, regardless. However, the major investment that is
required to advance into the FEED phase, and the terms and
conditions around the use of data in the event of a failure to
advance the project further, may inform the decision on whether
state resources are available for the ASAP project.
9:12:16 AM
REPRESENTATIVE TARR suggested other language to prevent a
similar issue as the five-year provision with TransCanada.
Important for her is that the state is not prohibited from
taking a new path by a time limitation. She offered the
following:
There couldn't be a limitation on the state moving
forward on a similar project.
COMMISSIONER BALASH acknowledged that those kinds of
conversations have occurred. However, the proprietary value
associated with this data and whether it will be used to compete
with the other parties is the "sensitivity that we will have to
work around." There is no opposition to the state constructing
a pipeline to deliver gas to Alaskans, but the problem arises
when the state proposes to sell to others. He observed this
matter must be left to negotiation and agreement by the parties.
9:14:06 AM
REPRESENTATIVE KAWASAKI returned attention to Amendment 40 and
the issue of the determination of adequate progress by the
commissioner [of natural resources]. He posed the scenario of a
commissioner determining that there was not adequate progress at
a time the state was not in a position to terminate.
COMMISSIONER BALASH expected that the commensurate commitments
within the phased agreements will have sufficient definition to
provide objective measures. As such, there will be deliverables
or a measurable scope of work to be accomplished by the project
at each phase. If there is a point where the deliverables are
in hand, and the parties are not prepared to proceed, the next
steps and decisions to be made will be apparent. On the other
hand, the hardest areas to measure will be the progression of
the marketing agreements for the sale of LNG, because of the
limitations imposed on the parties by anti-trust concerns. This
is the one area where measuring progress will be challenging.
In further response to Representative Kawasaki, Commissioner
Balash said the definition of adequate progress found in the MOU
is sufficient for the subjects of data, information, and
drawings - which are definable - but commercial areas are harder
to measure.
CO-CHAIR SADDLER described the benefits of building the project
with and without partners, and asked whether Amendment 40 gives
the state access to data that can be used commercially, or
whether the data remains subject to contract negotiations.
COMMISSIONER BALASH opined Amendment 40 gives the state access
to the data, but does not speak to any limitations on the
state's use of the data.
9:18:50 AM
CO-CHAIR SADDLER asked for the meaning of "tenants of the
entirety" and if the principle applies to all of the agreements
or solely to the sharing of data in the agreement under
discussion.
COMMISSIONER BALASH deferred to the Department of Law.
CHRIS POAG, Assistant Attorney General, Labor and State Affairs
Section, Civil Division (Juneau), Department of Law, qualified
he is not a property or estate lawyer, and provided an example
of tenants in the entirety. He remarked:
The concept would be: The whole is equally owned by
each, and if one leaves the party, the other entirely
owns it, and we don't have to go fight about ownership
interests.
REPRESENTATIVE HAWKER asked whether the "overall construct" of
the HOA and the MOU places the parties of the project as joint
tenants or as tenants in the entirety.
MR. POAG qualified he was not involved in the drafting of the
HOA or the MOU, but expressed his belief that the project is
"more of a joint tenancy."
9:22:16 AM
REPRESENTATIVE TARR referred to previous testimony that the
amendment relates to access to the data, but does not address
how the data can be used. Her understanding of Amendment 40 is
that it directs that when the contract is negotiated, access to
data is to be a provision of that contract. She asked what
would happen if the amendment was adopted but the other parties
refused to include the provision in the contract.
COMMISSIONER BALASH referred to the last sentence of Amendment
40 which read:
Access by the state to the data may not be on terms
that are more restrictive than the terms that are
applicable for access by any other party in the North
Slope natural gas project.
COMMISSIONER BALASH opined this sentence says that all the
parties have to agree to treat each other equally, thus all
could agree that all the parties can have a copy of the data,
but that would not ensure that the data can be used publicly.
He remarked:
That doesn't get us where I believe Representative
Seaton wants to go, and so I'm not sure it
accomplishes that particular goal in that regard, so,
and believe me, that's not something we would seek to
achieve or agree to, and I'm not suggesting that
that's what any of the parties has talked about,
either. But one thing I did just want to say on the
point of "joint" versus "entirety," is in this
particular phase that we're talking about with regard
to Pre-FEED, we're largely talking about information,
and I would characterize the conversations there as
more of the tenant variety, in terms of cost
allocation and ownership of information. But when it
comes to things that are indivisible assets -
property, land, whatever - those are the things that
are going to be more of the "joint" flavor, in terms
of who's paid for what and gets what.
9:24:50 AM
REPRESENTATIVE TARR proposed language for Amendment 40 as
follows:
Page 1, line 10, after "financially":
Insert ", without restrictions on how that data
could be used."
REPRESENTATIVE TARR explained this addition would put the state
closer to its goal, and asked whether this addition would be
looked at unfavorably by the other parties.
COMMISSIONER BALASH advised the aforementioned specific language
would present a challenge since all of the parties are prepared
to advance their share of the costs "and treat each other the
same." However, if the state were able to unilaterally use the
data, the other parties would be justified in their opposition.
REPRESENTATIVE TARR pointed out that her suggested language
would be used in the situation where adequate progress was not
being made and the project was stalled.
COMMISSIONER BALASH cautioned that the partners in the project
have certain commitments and fidelity to each other with the
goal of continuing the progress of a major project. The parties
are prepared to share costs and information in a manner that
benefits all, but not if their investment can potentially be
revealed to their competitors.
9:27:07 AM
CO-CHAIR SADDLER proposed language for Amendment 40 as follows:
Page 1, line 8, after "access to":
Insert "and commercial use of"
CO-CHAIR SADDLER acknowledged this addition would also give a
party the unilateral right to pull out and use the data in a
competing commercial project. He agreed with others about the
concern that the project could die of neglect, and the state
would want the opportunity to make progress on a second project.
REPRESENTATIVE SEATON pointed out that there have been several
previous revisions of Amendment 40. He assured the committee
the language of the amendment was thoroughly reviewed by the
producers and state agencies.
CO-CHAIR SADDLER maintained his objection to Amendment 40.
REPRESENTATIVE SEATON referred to the problem of "subjective
standard of decision." He was reluctant to put a deadline for
FID in the amendment, as the project should progress naturally.
He concluded that if the project fails due to economics, in
return for an investment of $600 million the state should be
able to use the data in the same way as the producers.
9:32:34 AM
A roll call vote was taken. Representatives Johnson, Olson,
Seaton, P. Wilson, Tarr, Kawasaki, and Feige voted in favor of
Amendment 40, as amended. Representatives Hawker and Saddler
voted against it. Therefore, Amendment 40, as amended, was
adopted by a vote of 7-2.
9:33:18 AM
REPRESENTATIVE SEATON moved to adopt Amendment 41, labeled 28-
GS2806\I.A.103, Bullock, 4/8/14, which read:
Page 15, following line 30:
Insert a new bill section to read:
"* Sec. 16. AS 38.05 is amended by adding a new
section to read:
Sec. 38.05.023. Limitation on the application of
a payment in lieu of property tax. A proposed
agreement or contract associated with a North Slope
natural gas project may not include a provision that
changes a payment in lieu of property tax on property
that was previously taxable under AS 43.56."
Renumber the following bill sections accordingly.
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 56, line 6:
Delete "16, 17, 23 - 27, 29, 30, 37, 39, and 55 -
61"
Insert "16 - 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 JOHNSON objected for the purpose of discussion.
REPRESENTATIVE SEATON explained Amendment 41 would disallow a
provision in an agreement or contract on the Alaska LNG Project
that changes a payment in lieu of property tax on property that
was previously taxable under AS 43.56. Therefore, the existing
oil and gas properties that are paying property taxes to the
state and municipalities would not be included in the provision
of the bill that allows payment in lieu of taxes.
CO-CHAIR FEIGE surmised payments in lieu of taxes (PILT) would
only apply to new infrastructure that directly pertains to a
North Slope gas project.
9:34:53 AM
MR. PAWLOWSKI said the intent of Amendment 41 is good. The
intent of the administration is to bring the municipalities
together for a public discussion through the [interim advisory
board to advise on the municipal involvement provision in the
bill]. The consensus recommendation of the advisory [board]
will determine "what we bring to the table." The HOA is
specific to the Alaska LNG Project, but the amendment "may take
things off the table, if a group wishes to discuss those." He
assured the committee it is not the intent of the administration
to delve into PILT for previously taxable property.
9:36:08 AM
REPRESENTATIVE JOHNSON asked whether there are any shared
facilities related to oil production that may be also related to
gas production, and that may garner property tax and PILT. In
addition, if the oil and gas projects share assets, there may be
an issue about paying double taxes.
MR. PAWLOWSKI clarified that the relative key provision in HOA
is the definition of the Alaska LNG Project, which is the new
infrastructure including transmission lines from Point Thomson
to the gas treatment plant (GTP), and the transmission line from
Prudhoe Bay to the GTP, so there really is not the shared
infrastructure. Upstream, additional development of Point
Thomson, is a little different, but that is not included in the
Heads of Agreement here.
CO-CHAIR FEIGE observed that Amendment 41 addresses the concern
of some municipalities that the PILT provision [in the bill]
would extend to oil property taxes. He stated that the PILT
provision would apply specifically to the new infrastructure
associated with the Alaska LNG Project or other North Slope
pipeline projects.
9:38:21 AM
REPRESENTATIVE TARR expressed her support for Amendment 41 and
related that the mayor of Barrow said local revenue from
property taxes is a significant issue for Barrow.
MR. PAWLOWSKI reiterated that changes to property tax are
achieved through law and not through a contract; in fact, any
changes to property tax must be brought to the legislature for
authorization. He advised that Amendment 41 is restrictive to
the administration and its ability to execute executive
privilege. He remarked:
... the terms need to be authorized, need to be
enacted by the legislature prior to inclusion in the
contract, we think that's an important distinction
from this process and previous processes.
REPRESENTATIVE KAWASAKI expressed his and his constituents'
concern that the administration seeks an opportunity to shift
the tax burden away from a project in order to favorably affect
the economics of said project. He stated his support for
Amendment 41. He then asked the sponsor of the amendment
whether new and additional structures "might be part of a PILT."
REPRESENTATIVE SEATON reminded the committee that property tax
on oil and gas is not a municipal tax but is a state property
tax. Amendment 41 directs that state property taxes under AS
43.56 are not to be changed to a different form for the Alaska
LNG Project.
9:42:15 AM
REPRESENTATIVE JOHNSON removed his objection to Amendment 41.
There being no further objection, Amendment 41 was adopted.
9:42:35 AM
CO-CHAIR SADDLER moved to adopt Amendment 42, labeled 28-
GS2806\I.A.101, Bullock, 4/7/14 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:
AGREEMENTS AND CONTRACTS RELATING TO THE
TRANSPORTATION OF NATURAL GAS. (a) An agreement or
contract entered into by the state or an agency of the
state for the transportation of natural gas may not
allow a transporter to have an option to participate
in an in-state natural gas pipeline project that is
primarily intended to make natural gas, including
propane and other hydrocarbons associated with natural
gas other than oil, available to Fairbanks, the
Southcentral region of the state, and other
communities in the state at the lowest rates possible.
(b) In this section, "transporter" means a
person providing gas treatment plant processing and
natural gas transportation services in natural gas
pipelines and gas transmission lines that are
components of an Alaska liquefied natural gas project,
as that term is defined in AS 31.25.390(7), enacted by
sec. 12 of this Act."
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"
9:42:54 AM
CO-CHAIR FEIGE objected for the purpose of discussion.
CO-CHAIR SADDLER explained Amendment 42 seeks to clarify [Key
Item 9, Termination Event, Alaska LNG Midstream Services Term
Sheet, Exhibit C] in the MOU, which reads [original punctuation
provided]:
Shipper's Rights To Terminate (Shipper Termination
Event):
Prior to FEED:
Any time provided a 90-day notice is given
to Transporter.
From start of FEED through FID:
Within 60 days from the date one or more ANS
Producers or Transporter withdraws from the
Alaska LNG Project
At any time if Shipper (or the ANS
Producers, if the SOA elects RIV) is unable to
sign agreements to sell all of its royalty or tax
gas on terms acceptable to Shipper.
At FID, for any reason.
Transporter Rights to Terminate (Transporter
Termination Event):
Legislature fails to provide statutory authority
to DNR/DOR to enter into PAs by June 30, 2014.
Shipper fails to execute the PA within the
specified time.
Shipper fails to execute the FTSA by December 31,
2015.
Shipper fails to maintain the standard of
Creditworthiness Requirements. Transporter shall
provide notice to Shipper of a failure to meet
such standards, and Shipper shall have a
reasonable period to cure.
At FID, if all Transporter corporate/Board
approvals have not been obtained.
Within 3 months from FID, if debt financing has
not been secured on terms and conditions
satisfactory to Transporter in its sole
discretion
Either Transporter or Shipper may terminate:
If term(s) of the FEED Agreement or Definitive
Agreements is/are not acceptable to Shipper or
Transporter
Within 90 days from the date of issuance of any
final regulatory authorizations, certificates, or
permits that includes material unacceptable
conditions(s) or requirements(s) to Transporter
or Shipper
At FID, if not all right-of-ways, easements and
land leases have been secured
Conveyance of Transporter Alaska LNG Project Interest
to Shipper:
Upon a Termination Event and payment to
Transporter of the Development Costs, and the
associated AFUDC, as applicable, Transporter
shall assign all of its interest in the Pre-FEED
JVA or the FEED Agreement, including all of its
equity stake in the AKLNG Project, to the Shipper
promptly without addition consideration. Any
such assignment shall be made on an "as is, where
is" basis, without representation or warranty of
any kind by Transporter.
Within a period of 5 years of SOA exercising its
termination right, if SOA participates in a
pipeline project to commercialize North Slope gas
that is substantially similar to the Alaska LNG
Project, SOA shall offer to Transporter an option
to participate in the GTP and Pipelines of such
project on terms and conditions consistent with
those set forth in this Term Sheet, except the
cost of debt and ROE to be negotiated based on
conditions existing at the time. The SOA shall
not be obligated to offer the foregoing option to
the Transporter if:
i. the Transporter is in material default of
the PA or FTSA at the time of the termination,
and
ii. the material default was capable of being
remedied, and
iii. Transporter was offered a reasonable time
period to remedy the material default and failed
to do so.
9:43:07 AM
CO-CHAIR SADDLER explained the aforementioned provision directs
that if an agreement between TransCanada and the state is
terminated, for the next five years TransCanada has the right of
first refusal on any gas pipeline project in which the state
becomes involved that is substantially similar to the Alaska LNG
Project. He said he was looking for a definition of
substantially similar that would positively indicate whether a
small-diameter, in-state pipeline is similar to a large-diameter
pipeline for the export of natural gas. Co-Chair Saddler
expressed his concern that if the Alaska LNG Project falters,
there would be a threat to ASAP. Amendment 42 would ensure that
TransCanada would not use its negotiated right to participate in
the in-state line, and that a project with the primary purpose
of delivering affordable natural gas for use within the state is
not substantially similar to the Alaska LNG Project. He
described previous iterations of Amendment 42 and assured the
committee the concerns of the administration were addressed. In
the amendment, the in-state pipeline project is defined as one
that "has the primary purpose of making natural gas available to
Fairbanks, Southcentral, and other communities in the state at
the lowest possible rates." Further, the amendment does not bar
AGDC from involving TransCanada if desired. He concluded that
the amendment protects TransCanada's rights to a large pipeline
and protects the state's ability to pursue an in-state pipeline
if the large pipeline falters.
9:45:38 AM
REPRESENTATIVE HAWKER pointed out the difference in the
presentation of Amendment 42, during which was stated "primary
purpose," and the language in the amendment, which was
"primarily intended." He opined that is a material difference.
Already in the MOU is the undefined clause "substantially
similar" and the amendment complicates the circumstances by the
use of substantially similar or primarily intended - a "doubling
of the standard of ambiguity." Representative Hawker suggested
a different amendment that directs the state to develop its
contracts, such as the FTSA, to set a better contractual
definition of substantially similar in the business terms that
are being negotiated, rather than adding a second vague
standard. He said the amendment fails to clarify a vague clause
by increasing the density of the fog.
9:47:48 AM
REPRESENTATIVE TARR suggested using Amendment 42 as the
opportunity to define substantially similar. In further
response to Co-Chair Saddler, she said the definition would use
the language in Amendment 42, beginning on page 1, line 8, after
"intended," and paraphrased as follows:
to make natural gas, including propane and other
hydrocarbons associated with natural gas other than
oil, available to Fairbanks, the Southcentral region
of the state, and other communities in the state at
the lowest rates possible.
REPRESENTATIVE TARR said this would be the definition of a not
substantially similar project.
CO-CHAIR SADDLER deferred to the Department of Law.
REPRESENTATIVE SEATON called attention to Amendment 42, page 1,
line 11, which read:
at the lowest rates possible.
REPRESENTATIVE SEATON said this statement makes a problem
because to achieve the lowest rates possible the pipeline must
be large in diameter and carry the highest number of molecules,
which would be a substantially similar pipeline. He suggested
Amendment 42 should end at page 1, line 10, which read:
available to Fairbanks, the Southcentral region of the
state, and other communities in the state
9:50:38 AM
CO-CHAIR SADDLER stated the language in Amendment 42 is based on
the intent of AGDC's ASAP pipeline. If the large diameter
pipeline project fails and ASAP proceeds, ASAP seeks to provide
gas to Alaskans at the lowest rates possible.
REPRESENTATIVE KAWASAKI directed attention to page 3, line 13,
paragraph 4, of the bill which read:
(4) advance an in-state natural gas pipeline as
described in the July 1, 2011, project plan prepared
under former AS 38.34.040 by the corporation while a
subsidiary of the Alaska Housing Finance Corporation,
with modifications determined by the corporation to be
appropriate to develop, finance, construct, and
operate an in-state natural gas pipeline in a safe,
prudent, economical, and efficient manner, for the
purpose of making natural gas, including propane and
other hydrocarbons associated with natural gas other
than oil, available to Fairbanks, the Southcentral
region of the state, and other communities in the
state at the lowest rates possible;
REPRESENTATIVE KAWASAKI said the abovementioned descriptor would
need to be added to Amendment 42.
MR. PAWLOWSKI acknowledged Co-Chair Saddler's many efforts to
address this issue. He stressed that the in-state pipeline plan
was designed specifically to allow the [AGDC board of directors]
to make modifications to the project, thus even while following
the project plan, the board has wide latitude to manage how AGDC
would advance the interests of the state.
9:52:34 AM
MR. POAG qualified he did not participate in drafting Exhibit C
to the MOU. He directed attention to page 9 of Exhibit C in the
MOU [Key Item 9, Termination Event, Alaska LNG Midstream
Services Term Sheet] and said the language specifically refers
to a project that is substantially similar to the Alaska LNG
Project, which is capitalized in the text of the MOU because it
is a defined term in Article 1.1 (f). The definition of the
Alaska LNG Project in the MOU extends beyond "a pipeline to
deliver our gas to our Alaskans" and has many components,
including a marine terminal and an LNG facility. Although the
term substantially similar is not defined in the MOU, he opined
that a project that delivers gas to Alaskans and does not
involve marine terminals or liquefaction would not be
substantially similar. He noted that the intent of the
amendment is to modify existing language, and referred to the
Alaska State Constitution, Article 1, Section 15, which read:
Prohibited State Action~No bill of attainder or ex
post facto law shall be passed. No law impairing the
obligation of contracts, and no law making any
irrevocable grant of special privileges or immunities
shall be passed. No conviction shall work corruption
of blood or forfeiture of estate.
MR. POAG explained that the amendment cannot modify a contract
that has already been "inked"; however, the amendment would
provide guidance to the administration on future contract
negotiations and provide clarity about the term substantial
similarity. Mr. Poag further advised that an in-state gas
pipeline is not substantially similar to the Alaska LNG Project.
9:55:09 AM
CO-CHAIR SADDLER understood that AGDC has the authority to
expand the capacity of the ASAP project in size and volume after
the AGIA limitation of [500 million cubic feet per day of gas]
is terminated. Furthermore, the demand for gas in Alaska is
approximately 250 million cubic feet per day of gas, thus other
customers are necessary to keep costs low and there will be an
economic incentive to expand the scope of ASAP to include
liquefaction and export. In this manner, Co-Chair Saddler
cautioned that an in-state project could quickly morph into a
project that could be substantially similar to a large
[diameter] pipeline. He related his efforts to define
substantially similar, and asked DOL for guidance.
MR. POAG said if the legislature wants to provide to the
administration language to define what is or is not
substantially similar to include in future contracts, DOL will
research case law for a definition.
9:57:10 AM
CO-CHAIR SADDLER asked Mr. Dubler whether the unanswered
question of what is substantially similar has an effect on the
progress of the ASAP project.
MR. DUBLER advised that the issue of the five-year claw back for
TransCanada gives AGDC uncertainty in its search for an owner-
builder-operator for the ASAP project. The search is for a
firm or a pipeline company - similar to TransCanada - that would
build and operate the project on behalf of the state and AGDC.
He explained that ASAP would progress only if the Alaska LNG
Project fails, and if TransCanada has the right to replace
ASAP's designated owner-builder-operator, AGDC would have to
negotiate a clause directing that "we would have to make them
whole in the event TransCanada comes back in through this five-
year clawback." He advised this contingency would not be cheap
and described the terms of the five-year provision with
TransCanada. Further, Mr. Dubler addressed the possibility of
expanding ASAP to a project similar to one that ExxonMobil,
ConocoPhillips, and BP deem uneconomic, and said that
possibility is "kind of a naïve position, in my opinion .... If
the big three companies that do these projects all over the
world, and are very good at it, can't make it happen, the chance
that the State of Alaska is going to be able to step in their
place and make it, is very, very slim."
10:00:38 AM
REPRESENTATIVE KAWASAKI remarked to Mr. Dubler:
I think I heard you say that that while you're working
on the ASAP line, trying to find an owner-builder-
constructor, that if this bill were to pass without
this amendment, that somehow AGDC's mission would be
completely different, or maybe go away.
MR. DUBLER said no. He clarified that as long as TransCanada
has a five-year clawback, AGDC's negotiations with an owner-
builder-operator will require a provision to pay the owner-
build-operator off, plus AFUDC, in the event they are removed
from the project. Further, he cautioned that prospective owner-
builder-operator firms may not want to take the risk of working
on a project that they may lose.
REPRESENTATIVE KAWASAKI questioned whether AGDC's ability to
hire a firm to build the project is lessened without the
adoption of Amendment 42.
MR. DUBLER stated:
We've actually spoken quite a bit with the
commissioner of DNR and the deputy commissioner of
revenue about this and ... we believe through our
discussions and the clarification that we got in the
letter from TransCanada and the commissioners of DNR
and DOR, that it did clear up somewhat, ... the timing
of the ... firm transportation agreements. And the
... agreements they've got with TransCanada will make
it such that the likelihood that this actually happens
is very slim, but it's a policy call ... and that's up
to the legislature and the administration.
10:03:38 AM
MR. PAWLOWSKI reminded the committee of the contents of the
Letter of Clarification issued by TransCanada. He said the
likelihood of the state choosing to make a multi-million dollar
commitment to move through the FEED stage with the Alaska LNG
Project, while continuing to progress an alternative ASAP
project is minimal. According to the MOU and the Letter of
Clarification, the state is fully able to pursue both projects
"with no hands being bound" until 12/31/15. Subsequently, with
the commitment to proceed to FEED, and with the execution and
ratification by the legislature of a firm transportation service
agreement, the state's position will be different than it is at
this time. Mr. Pawlowski said the purpose of the 90-day
termination right to the state, prior to the entry into FEED,
was to create the "exit from AGIA, into a commercial
relationship where the state has a cooling-off period to work
together collaboratively on this project going forward in the
state's interest, while maintaining momentum on other options as
well, that was the policy call the administration made in
advancing both of those ...."
REPRESENTATIVE SEATON acknowledged there is the concern about
"tying the hands of AGDC to go forward." However, the condition
is that the projects must be substantially similar; thus, if
ASAP is not substantially similar, the five-year provision does
not apply. He opined the circumstance of the state building a
project substantially similar is remote, and said he is not in
favor of changing a negotiated commercial relationship.
CO-CHAIR FEIGE maintained his objection.
10:07:32 AM
A roll call vote was taken. Representatives Kawasaki, Saddler,
P. Wilson, and Tarr voted in favor of Amendment 42.
Representatives Seaton, Hawker, Johnson, Olson, and Feige voted
against it. Therefore, Amendment 42 failed by a vote of 4-5.
REPRESENTATIVE HAWKER said he is very troubled by Amendment 42,
which could be read many different ways. His negative vote on
the amendment was not a reflection that he is in favor of the
five-year tag provision in the MOU; in fact, the five-year tag
provision may be the language that "sinks the entire package of
legislation that these folks are asking us to pass ...."
REPRESENTATIVE JOHNSON agreed, adding "... and my 'no' vote
doesn't in any way soften my belief that this is the wrong path
for the State of Alaska to follow."
[CSSB 138(FIN) am was held over.]
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