Legislature(2013 - 2014)BARNES 124
04/09/2014 01:00 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
1:06:06 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."
1:06:18 PM
REPRESENTATIVE TARR moved to adopt Amendment 43, labeled 28-
GS2806\I.A.100, Bullock, 4/7/14, which read:
Page 1, line 7, following "on gas;":
Insert "relating to a report and recommendations
by the commissioner of natural resources regarding the
delivery and availability of North Slope natural gas
in the state, including the identification of risks
and recommendations for mitigation;"
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:
REPORT AND RECOMMENDATIONS BY THE COMMISSIONER OF
NATURAL RESOURCES ON THE DELIVERY AND AVAILABILITY OF
NORTH SLOPE NATURAL GAS IN THE STATE; IDENTIFICATION
OF RISKS AND RECOMMENDATIONS FOR MITIGATION. (a) The
commissioner of natural resources shall prepare and
make available to the legislature a report on a plan
and alternatives to make North Slope natural gas
available for delivery and use in the state. The
report must address
(1) the means by which North Slope natural
gas may be delivered for use in the state;
(2) the anticipated benefits, risks, and
liabilities associated with the sale by the state to
utilities and other customers in the state of natural
gas received by the state as royalty in kind or as
payment of tax;
(3) the effect and consequences, including
the fiscal effect and liability to third parties, of
the state's transport of a reduced amount of natural
gas south of an in-state delivery point or
underutilizing capacity in a liquefied natural gas
plant; and
(4) other issues the commissioner of
natural resources determines are relevant to the
delivery and use of North Slope natural gas in the
state and should be considered by the legislature.
(b) In conjunction with the report in (a) of
this section, the commissioner of natural resources
shall recommend the means for eliminating or
minimizing the risks and liabilities identified in the
report. The recommendations for minimizing risk and
liabilities while still allowing the state to meet the
natural gas requirements of residents of the state may
include authorizing the commissioner of natural
resources to
(1) negotiate agreements with other
shippers to provide natural gas to the state in
proportion to the shipper's share of the capacity in a
North Slope natural gas project for the purposes of
maintaining balance in the system downstream of a
delivery point;
(2) acquire additional incremental
transportation capacity on an as-needed basis to meet
demand for natural gas in the state; or
(3) make unused transportation capacity
held by the state available to other shippers subject
to terms that do not reduce the state's receipt of
revenue below the amount the state would receive if
the state's gas were not sold in the state.
(c) The commissioner of natural resources shall
make the report and recommendations required by this
section available to the legislature on or before the
date a firm transportation services agreement in a
North Slope natural gas project to which the state is
a party is submitted to the legislature for approval.
(d) In this section, "North Slope natural gas
project" has the meaning given in AS 38.05.965, as
amended by sec. 23 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"
CO-CHAIR SADDLER objected.
REPRESENTATIVE TARR explained Amendment 43 directs that a report
be provided to the legislature to discuss an in-state pipeline
and the use of in-state gas. The amendment is related to the
3/26/14 letter sent to Co-Chairs Feige and Saddler from
Representatives Tuck, Kawasaki, and Tarr, which asked the
following questions: Who will supply gas for in-state use? Who
will be penalized for selling gas in-state? Can we ensure in-
state gas is affordable? Are we bearing too much of the burden
for supplying in-state gas? Can Cook Inlet producers benefit?
She concluded, saying Amendment 43 will allow for a process to
report to the legislature the answers to the above questions.
1:07:45 PM
CO-CHAIR FEIGE requested the administration's position on
Amendment 43.
JOE BALASH, Commissioner, Department of Natural Resources (DNR),
speaking as Commissioner-appointee to DNR, informed the
committee the administration supports the overall intent of the
amendment, with reservation. He directed attention to the
amendment, beginning on page 2, line 6, after "report" and
continuing through line 16, which read:
The recommendations for minimizing risk and
liabilities while still allowing the state to meet the
natural gas requirements of residents of the state may
include authorizing the commissioner of natural
resources to
(1) negotiate agreements with other
shippers to provide natural gas to the state in
proportion to the shipper's share of the capacity in a
North Slope natural gas project for the purposes of
maintaining balance in the system downstream of a
delivery point;
(2) acquire additional incremental
transportation capacity on an as-needed basis to meet
demand for natural gas in the state; or
(3) make unused transportation capacity
held by the state available to other shippers subject
to terms that do not reduce the state's receipt of
revenue below the amount the state would receive if
the state's gas were not sold in the state.
COMMISSIONER BALASH said the administration would support the
amendment if the above identified language were removed.
REPRESENTATIVE HAWKER said the aforementioned language is very
problematic. He suggested that many of the questions are
answered in the project plan and expressed his preference for
DNR to answer questions before the legislature, rather than
through a report added to statute.
REPRESENTATIVE KAWASAKI pointed out that the 2011 Alaska Gasline
Development Corporation (AGDC) small pipeline proposal is much
different than [the Alaska LNG Project] proposal; many of the
concepts materially change AGDC. He opined it is in the state's
best interest to know how the delivery and offtake points are
going to impact aspects of the project, such as the tariffs. He
urged the committee to support [the intent of the amendment] in
uncodified law or elsewhere.
1:11:30 PM
REPRESENTATIVE TARR moved to adopt Amendment 1 to Amendment 43,
as follows:
Delete the following:
The recommendations for minimizing risk and
liabilities while still allowing the state to meet the
natural gas requirements of residents of the state may
include authorizing the commissioner of natural
resources to
(1) negotiate agreements with other
shippers to provide natural gas to the state in
proportion to the shipper's share of the capacity in a
North Slope natural gas project for the purposes of
maintaining balance in the system downstream of a
delivery point;
(2) acquire additional incremental
transportation capacity on an as-needed basis to meet
demand for natural gas in the state; or
(3) make unused transportation capacity
held by the state available to other shippers subject
to terms that do not reduce the state's receipt of
revenue below the amount the state would receive if
the state's gas were not sold in the state.
There being no objection, Amendment 1 to Amendment 43 was
adopted.
1:13:01 PM
REPRESENTATIVE TARR moved to adopt Amendment 2 to Amendment 43
as follows:
Page 1, line 13, after "resources":
Insert "in consultation with the Alaska Gasline
Development Corporation"
There being no objection, Amendment 2 to Amendment 43 was
adopted.
REPRESENTATIVE SEATON expressed his understanding that
specifying a report [by adopting Amendment 43] would give DNR a
framework in which to report to the public, and said he
supported the inclusion of the report.
CO-CHAIR FEIGE directed attention to the amendment, page 2,
subsection (c), noting the report and recommendations would be
available to the legislature on or before the date a firm
transportation services agreement (FTSA) is submitted to the
legislature for approval. He requested clarification on when
the report would be made public.
COMMISSIONER BALASH surmised the report would be made public
prior to the proposed date. He expected that, prior to
presenting an FTSA to the legislature for approval, the
information required by the report, such as how in-state gas is
managed, would have already been explained "in the course of
bringing something forward," and added "putting that specific
report in one place ... might be useful to the public and the
bodies."
1:16:45 PM
REPRESENTATIVE JOHNSON asked whether the administration finds
the amendment helpful, or just does not object to the amendment.
COMMISSIONER BALASH clarified that the administration does not
object to the amendment, and "having some guidance in terms of
what it is the legislature wants to see from us ... I prefer
that ...."
CO-CHAIR SADDLER directed attention to Amendment 43 beginning on
page 1, line 18, which read:
(2) the anticipated benefits, risks, and
liabilities associated with the sale by the state to
utilities and other customers in the state of natural
gas received by the state as royalty in kind or as
payment of tax;
CO-CHAIR SADDLER asked whether the issue of the sale of gas to
the utilities is addressed by "the market." He observed that if
a utility wants to buy or bid for gas, it considers the cost,
liabilities, and benefits to make that assessment, and he
concluded that [the proposed report] is duplicative. He then
directed attention to language beginning on page 1, line 21,
which read:
(3) the effect and consequences, including
the fiscal effect and liability to third parties, of
the state's transport of a reduced amount of natural
gas south of an in-state delivery point or
underutilizing capacity in a liquefied natural gas
plant; and
CO-CHAIR SADDLER remarked:
There's talk about the effect of a reduced amount of
natural gas and that presumes that there's some other
normal way to reduce ... of natural gas. I don't know
who sets that amount and who defines what is a reduced
amount, if it's below capacity - design capacity -
it's just not quite clear what that is. And
underutilizing on line 23: What is underutilizing?
What is the proper utilization? Those are [analyses]
that might be done by those [who] design the size of
the pipeline, not necessarily the commissioner. ...
And ... we talk about "south" of in-state delivery, I
would ... amend it to "downstream"; that might make
more sense.
REPRESENTATIVE KAWASAKI observed this amendment addresses
specifically in-state use because it is known that taking gas
off this line potentially harms residents downstream, or south
[of the delivery] point, due to underutilization of the
pipeline. He said either the term downstream or south is
acceptable.
1:20:02 PM
MICHAEL PAWLOWSKI, Deputy Commissioner, Office of the
Commissioner, Department of Revenue (DOR), stated there is no
intent to design overcapacity in the system in a way that would
have adverse effects on the state. In that case all of the
parties, including AGDC and the state, would not be operating
"in the fashion that these projects get designed and developed
on." He stressed that he did not want there to be the
perception that as part of the Pre-FEED stage, adverse
consequences for capacity are something "that's a given in this
project, or something that the state would actively walk into."
REPRESENTATIVE TARR responded to Co-Chair Saddler's comments to
the language in the amendment beginning on page 1, lines 18-19,
saying she reads the provision from the opposite viewpoint. The
utilities would decide what their contract would be from the
perspective of the utility. She continued:
This would be us looking at it from the opposite
viewpoint of the state and so how those utilities
would impact us. ... They're looking to serve their
customers and from that perspective; we're looking at
it from, from preserving the use of in-state gas.
CO-CHAIR SADDLER suggested clarifying the intent by the
insertion of "to the state."
1:22:15 PM
REPRESENTATIVE TARR moved to adopt Amendment 3 to Amendment 43
as follows:
Page 1, line 18, after "sale":
Insert "to the state"
The committee took a brief at-ease.
1:24:13 PM
REPRESENTATIVE TARR moved to adopt an amendment to Amendment 3
to Amendment 43 as follows:
Page 1, line 18, after "liabilities"
Insert "to the state"
There being no objection, it was so ordered.
[The committee treated the adoption of the amendment to
Amendment 3 to Amendment 43 as also the adoption of Amendment 3
to Amendment 43.]
CO-CHAIR SADDLER maintained his objection to Amendment 43, as
amended.
1:25:10 PM
REPRESENTATIVE TARR said the administration is supportive of
Amendment 43, which is a way to reassure Alaskans who are
seeking an opportunity for in-state gas, and which provides
guidance to the administration on the type of information
desired by constituents.
1:25:48 PM
A roll call vote was taken. Representatives Kawasaki, Seaton,
P. Wilson, Tarr, and Feige voted in favor of Amendment 43, as
amended. Representatives Hawker, Olson, and Saddler voted
against it. Therefore, Amendment 43, as amended, was adopted by
a vote of 5 to 3.
REPRESENTATIVE TARR recalled previous discussion regarding
changes to the [interim municipal advisory board created in the
bill] in order to ensure that the proposed statute directs that
the board is not an interim board, but one that is more
permanent and created under the existing statute for boards and
commissions. She advised that the issue would not be broached
in committee but that the administration would address this
issue in the next committee of referral.
1:27:26 PM
REPRESENTATIVE KAWASAKI moved to rescind the committee's action
on 4/8/14 [meeting called to order at 4:34 p.m.] in failing to
adopt Amendment 38, labeled 28-GS2806\I.A.21, Bullock, 4/1/14,
which read:
Page 11, line 28:
Delete "10"
Insert "[20]"
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE KAWASAKI stated his intention to change his vote.
1:31:14 PM
A roll call vote was taken. Representatives Seaton, P. Wilson,
Tarr, Kawasaki, and Feige voted in favor of the motion to
rescind. Representatives Hawker, Johnson, Olson, and Saddler
voted against it. Therefore, the motion to rescind the
committee's action in failing to adopt Amendment 38 was adopted
by a vote of 5-4.
1:32:08 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, provided by Legislative Legal and Research
Services, Legislative Affairs Agency, is not the version of
Amendment 38 offered in committee.]
CO-CHAIR SADDLER objected.
CO-CHAIR FEIGE clarified this was the same Amendment 38 [offered
at the committee's 4/8/14 meeting, called to order at 4:34 p.m.]
REPRESENTATIVE P. WILSON restated her motion and informed the
committee the amendment directs a change in the percentage of
revenue [that is received from royalty gas and is to be paid to
the Alaska affordable energy fund] from 10 percent to 20
percent. After allowing for [payment to the Alaska Permanent
Fund Corporation] the actual percentage would be increased from
7.5 percent to 15 percent of revenue.
CO-CHAIR FEIGE asked for the effective date.
REPRESENTATIVE P. WILSON responded the amendment would be
effective at the time "the [gas] starts flowing."
REPRESENTATIVE KAWASAKI said at the time of the previous vote on
Amendment 38 it was unclear to him whether Fairbanks would
benefit from direct access [to the pipeline] or [from the funds
paid into the Alaska affordable energy fund].
CO-CHAIR SADDLER maintained his objection.
1:34:48 PM
A roll call vote was taken. Representatives Seaton, P. Wilson,
Tarr, Kawasaki, and Feige voted in favor of Amendment 38.
Representatives Johnson, Olson, Hawker, and Saddler voted
against it. Therefore, Amendment 38 was adopted by a vote of
5-4.
The committee took an at-ease from 1:35 p.m. to 1:36 p.m.
1:36:10 PM
CO-CHAIR FEIGE, for purposes of discussion, directed attention
to the Letter of Intent for SB 138 [adopted by the Senate on
3/18/14]. He requested the administration's position on the
Letter of Intent.
COMMISSIONER BALASH said the administration was a signatory to
the Heads of Agreement (HOA) which includes the language of the
Letter of Intent, and believes the language represents a
commitment by all of the parties to include the terms and future
relevant agreements contained therein. He pointed out specific
terms in the Letter of Intent are not appropriate in a general
statute, but that does not obviate the administration's intent
to pursue the terms. He urged that the Letter of Intent be
forwarded with the fiscal notes attached to the bill.
REPRESENTATIVE P. WILSON asked whether Article 11.2 of the
Letter of Intent directs that each person working on the project
must be a member of a labor union.
COMMISSIONER BALASH explained that Article 11.2 represents a
commitment to negotiate a project labor agreement (PLA), which
is a tool used by project sponsors and funding sources to ensure
labor stability in order to prevent increases to the overall
cost and schedule of a project. The terms of a PLA are
negotiated; PLAs are varied and can be union, non-union, or
other.
1:40:01 PM
REPRESENTATIVE SEATON inquired as to whether a PLA directs that
contractors ensure that employees have appropriate
certifications and experience.
COMMISSIONER BALASH noted that DOR and DNR will not be
signatories to a PLA. Although the state will sign the FTSA
with the sponsors and equity owners, the sponsors and equity
owners in the venture will execute PLAs.
CO-CHAIR FEIGE clarified that the purpose of the Letter of
Intent was to focus on Article 11 in the HOA, because Article 11
could not be drafted into the body of the bill. The Letter of
Intent will attach to the bill and become a permanent part of
the public record with the intent to provide clear legislative
guidance through the completion of the liquefied natural gas
(LNG) project.
The committee took an at-ease from 1:43 p.m. to 1:47 p.m.
1:47:48 PM
REPRESENTATIVE KAWASAKI inquired about the impacts of the Letter
of Intent for CSSB 138(FIN) am - which addresses Alaska hire -
versus uncodified law, and whether they carry the same effect.
DON BULLOCK, Attorney, Legislative Legal Counsel, Legislative
Legal and Research Services, Legislative Affairs Agency,
informed the committee that adopting a Letter of Intent is
similar to passing a resolution in that it is not binding and is
not law. Codified law and statutory law are both binding laws
in place and may have requirements and prohibitions, so a Letter
of Intent says, "We'd sure like this to happen." He added that
a Letter of Intent expresses the preference of the legislature.
REPRESENTATIVE KAWASAKI recalled that in 2007 similar language
was included in the Alaska Gasline Inducement Act (AGIA) [passed
in the 25th Alaska State Legislature]. A requirement was put
into codified law for "a commitment to negotiate before
construction a project labor agreement to the maximum extent
permitted by law." He asked whether language to ensure PLAs are
negotiated would be a problem to put into the bill.
MR. BULLOCK said it is possible; however, the context of AS
43.90.130 was the solicitation of applications for the AGIA
license, and the abovementioned language was one of the
requirements of the application. He questioned how the proposed
requirement could be enforced, but acknowledged it has been
codified before and could be again, particularly with the
limitation "to the maximum extent of law."
1:52:07 PM
REPRESENTATIVE JOHNSON assured the committee that a project of
this size will have a PLA, saying it will be essential and will
be part of the project. However, for the legislature to include
the requirement for a PLA in statute adds a limitation on the
contractor to the negotiations. The labor unions can provide
this and he expressed his preference to utilize the Letter of
Intent.
CO-CHAIR FEIGE pointed out the benefits from the sections of the
Letter of Intent that address Alaska hire, vocational training
through the Department of Labor & Workforce Development, and
local advertising for labor.
REPRESENTATIVE TARR appreciated the discussion of the Letter of
Intent. Although her preference is for the language that
requires a PLA to be included in the bill, she agreed with
Representative Johnson that [a PLA] will be negotiated.
Furthermore, the producers have indicated PLAs will be necessary
for the project. The Alaska hire and PLA components are very
important to her and to the public, and recent projects have
shown their successful use.
1:56:22 PM
REPRESENTATIVE HAWKER moved to adopt the Letter of Intent for SB
138, written on Senator Click Bishop's letterhead, and adopted
by the Senate on 3/18/14. There being no objection, it was so
ordered.
CO-CHAIR FEIGE directed attention to the current fiscal notes
attached to the bill and the effects of amendments thereon.
REPRESENTATIVE HAWKER deferred to agency representatives to talk
about the fiscal notes. He pointed out that the fiscal notes
fund the project for two years.
MR. PAWLOWSKI agreed that the current fiscal notes relate to the
Pre-FEED stage, which is direct costs through the end of fiscal
year 2015 (FY 15). He turned to fiscal note number 10
[identifier: SB138CS(FIN)-DCCED-AGDC-03-16-14; prepared by
AGDC], which requested $1,394,000 in personal services. He
deferred to AGDC.
1:59:11 PM
MILES BAKER, Director, Government Relations and External
Affairs, AGDC, said AGDC prepared two fiscal notes. Fiscal note
number 14 [identifier: SB138CS(FIN)-FUNDCAP-LDNPF-03-16-14;
prepared by AGDC] capitalizes the new Alaska LNG Project fund,
and requests $66,726,700 for an FY 14 supplemental request. For
members to better understand the requests, he returned attention
to fiscal note number 10, and explained that as part of the
budget process, AGDC, in order to implement HB 4 [passed in 2013
by the 28th Alaska State Legislature], recognized that it only
submitted for personal services in its FY 15 budget submission.
Other operating costs are associated with the corporation, but
to be consistent with AGDC's initial submission, the fiscal note
was prepared with only personal services included. Through the
budget process, additional AGDC costs, such as travel, lease
expenditures, contractual services, and additional AGDC board
expenditures have been included in other project-related
expenditures shown on page 2 of the fiscal note. When the
fiscal note is updated, the aforementioned expenditures will be
moved from the analysis section to the numbers section. Also,
the name of the new fund has been changed. In essence, the
fiscal note recognizes the additional responsibilities given
AGDC to participate in the Alaska LNG Project, which are to
create a new allocation called the Alaska LNG Participation to
track the costs of the project and add six positions, including
a program manager. The analysis on the fiscal note reflects
Pre-FEED costs through FY 17, but the fiscal note requests cash
necessary for the remainder of FY 14 and FY 15. Returning to
contractual services, he said AGDC anticipates utilizing two
full-time equivalent (FTE) legal contractors, three FTE
positions for commercial gas marketing and engineering design
contractors for a total of $15 million through FY 17. Returning
to other additional costs, Mr. Baker explained that many of the
meetings to negotiate contracts and coordination are occurring
out of state, more leased space is needed, and the AGDC board
will be meeting more frequently.
2:05:50 PM
MR. BAKER continued to the next sections of the fiscal note
which further the analysis of the state's equity participation
in the project - AGDC's 25 percent share of the LNG facility -
which is $57,850,000. He said a 30 percent contingency is
included, which is based on the rough initial cost estimates and
on the requirements of the cash calls agreed to in the joint
venture agreements (JVA). Also, the state's 40 percent option
is estimated at $42,250,000. At this time, AGDC is not
requesting the 40 percent option funds that are not needed
before FY 16. Page 4 includes the analysis of the state cost to
meet the conditions of the Memorandum of Understanding (MOU)
between TransCanada (TC) and the state to reimburse TransCanada
for development costs and allowance for funds used for
development costs (AFUDC) should the project fail. Further, the
fiscal note summary contains an Alaska LNG Project expenditure
summary from FY 14 through FY 17, including an FY 14
supplemental in the amount of $11,188,200, and an FY 15
supplemental in the amount of $55,538,500, for a total of
$66,726,000. Lastly, the legislation creates a new fund similar
to the in-state gas pipeline fund; AGDC will track the two
projects separately, requiring a cost allocation system for
each.
2:10:20 PM
REPRESENTATIVE TARR recalled that there has been concern about
keeping the funds for ASAP separate from funds for the Alaska
LNG Project. She asked whether any of the $400 million
appropriated for ASAP have been used for the Alaska LNG Project
and if so, if the ASAP fund would be reimbursed.
MR. BAKER was unsure of the balance remaining in the ASAP fund.
In further response to Representative Tarr, he said AGDC's
involvement with the Alaska LNG Project coincided with the
appointment of the new AGDC board. HB 4 granted AGDC the
authority to work on alignment with the Alaska LNG Project as
long as the ASAP project was not adversely affected, and AGDC
management and board are aware that the allocated funds were to
be used for moving ASAP to open season. A separate fund was
established for the Alaska LNG Project, and prior to work -
beyond attending meetings - a separate appropriation from the
legislature is warranted in order for AGDC to pursue [HB 4]. He
described the amount of money that has been paid for staff
travel as de minimis. Mr. Baker was unsure whether these
charges would be transferred to the "new appropriation";
however, the cost allocation methodology is being developed to
track expenses such as administrative staff, finance team staff,
leases, supplies, and board member travel.
2:15:32 PM
REPRESENTATIVE TARR directed attention to page 3 [of fiscal note
number 10]. She questioned why there will be high expenses for
contractor services instead of hiring more FT staff for the
corporation.
MR. BAKER responded that AGDC has tried to keep true to the
directive given in HB 4 that while the timeline for the project
is long, the project will end, and so AGDC will only maintain
the level of state employees absolutely necessary. Also, some
staff will be highly specialized, and only needed for a short
period of time.
REPRESENTATIVE TARR observed that if the state purchases the
pipeline at the end of the first term, expert staff will be
needed to continue operations and hiring now would provide the
time and opportunity to build staffing for the future.
MR. BAKER agreed with Representative Tarr's assessment and said
AGDC anticipates proposing some in-house hiring to the
legislature, especially on the gas-marketing side.
2:20:51 PM
REPRESENTATIVE HAWKER recalled that proponents of HB 4 were
cautioned against building a base of employees, but rather staff
at AGDC were to be task-focused and dismissed. He said this is
not a "continuing operations staff."
REPRESENTATIVE TARR returned attention to the supplemental
request of [$582,600 on page 3 of fiscal note 10] for increased
responsibilities and authority for the AGDC board. She
questioned whether the board will be overburdened with the tasks
of both ASAP and the Alaska LNG Project proposals.
The committee took a brief at-ease due to technical
difficulties.
2:24:38 PM
MR. BAKER answered that the AGDC board meets in person and
telephonically monthly, and subcommittees also meet. However,
the board is meeting frequently because it is a new corporation;
of the $582,600, $285,000 is for travel, approximately $200,000
is for stipends, and $100,000 is for associated costs. He
advised that this is a reasonable estimate for work during the
remainder of this fiscal year and all of the next fiscal year.
REPRESENTATIVE HAWKER clarified the number being discussed on
page 3 of fiscal note 10 is $582,600. On page 4 this amount is
shown as the total required for the AGDC board for FY 14-FY 17.
MR. BAKER said correct.
2:28:25 PM
MR. PAWLOWSKI addressed fiscal note number 11 [identifier:
SB138CS(FIN)-DOR-TRS-03-16-14; prepared by the Treasury
Division, DOR]. He said page 1 includes a $500,000 item for
services for FY 15, and for FY 16 there is a $150,000 item for
services to the Treasury Division of DOR. The analysis on page
2 explains that the allocations are in response to Section 13 of
the bill, which creates the Alaska affordable energy fund.
There should be no administrative costs to managing the fund;
however, Section 60 of the bill directs the commissioner of DOR
to develop a plan for municipalities, regional corporations, and
residents to invest in the project, and it is estimated that
developing the plan will cost $500,000. Also, providing a
broader range of understanding the financing of the project will
require additional funding to the Treasury Division on fiscal
note 11 to develop the financing matrix, although no additional
staff will be hired.
MR. PAWLOWSKI continued to fiscal note number 13 [identifier:
SB138CS(FIN)-DOR-TAX-03-16-14; prepared by DOR]. Included on
page 1, for FY 15, is a $750,000 item for services to the Tax
Division of DOR. The analysis on page 2 explains that $500,000
is for expenses incurred while the Tax Division installs and
upgrades the tax revenue management system to account for the
changes made to the production tax. Finally, $250,000 is for
reimbursable services agreements (RSAs) with the Department of
Law related to regulations that are needed to implement the
bill. Again, no new positions will be added for the
aforementioned tasks. Mr. Pawlowski pointed out that the
incorporation of the analysis of Cook Inlet for the Oil and Gas
Competitiveness Review Board and the targeting of the gross
value of reduction will not require new positions or contractors
up to the FY 17 date; thus, the only addition is for the
financing options in the report required by the amended version
of the bill.
2:32:41 PM
REPRESENTATIVE TARR directed attention to the language in fiscal
note 13, page 2, paragraph 2, which is related to the education
tax credit, and paraphrased the language as follows:
It is difficult to determine how this language will
affect taxpayer behavior and, therefore, it is
difficult to determine if this bill will affect
revenue from the oil and gas production tax.
REPRESENTATIVE TARR asked whether information on how an
education tax credit was previously used can be made available
to the committee.
MR. PAWLOWSKI said he would research the Tax Division annual
report and the Revenue Sources Book for this information. He
explained that reporting on these types of credits is delayed
because they are applied for in the following tax year.
2:34:06 PM
COMMISSIONER BALASH drew attention to fiscal note number 12
[identifier: SB138CS(FIN)-DNR-NSG-3-16-14; prepared by DNR].
Commissioner Balash stated part of the reason DOR's fiscal notes
are so low is because DNR holds much of the responsibility
related to the bill: In FY 15 and FY 16, DNR's [estimated
operating expenditures totaled $8,961,700 per year]. He pointed
out that the enabling contracts will be brought forward within
FY 16, which begins 7/1/15. The various line items include six
positions to be hired under the special exemption clauses of [AS
39.25 the State Personnel Act], as new hires will be "off
[salary] schedule" in order to hire those qualified in the gas
marketing effort. In addition, travel costs are high in
anticipation of overseas travel to Asia in order to determine
how to market the gas. Also anticipated is a high cost for
contractual services for subject-matter experts, especially for
RSAs with DOL to support the development of contracts. However,
Commissioner Balash doubted if there would be an increase to
fiscal note 12 for costs associated with issuing the report
required by Amendment 43.
2:37:07 PM
REPRESENTATIVE KAWASAKI observed that there are several DNR
expenditures associated with marketing, travel, and services
that are similar to the request by AGDC. He asked whether these
are duplicative functions within the agency.
COMMISSIONER BALASH responded that AGDC's marketing efforts in
the next two years will be primarily related to the in-state
aspects [of marketing natural gas]. Potentially, a separate
subsidiary to market LNG exports may be formed - which would
preclude hiring marketing experts at DNR - as the in-state and
export marketing functions are distinct. Regarding legal
services and support, there are five categories of agreements -
two will be signed by AGDC and four will be signed by DNR - thus
there will be some overlap, although the total number of the
agreements remains the same. In response to Representative
Tarr, he clarified that the agency and AGDC will be signing the
midstream services agreement for liquefaction service, as the
category of midstream services agreements involves both the
state and AGDC. Regarding equity or governance-type of
agreements, only AGDC will sign; on the other hand, upstream,
offtake, and balancing agreements will be signed only by the
agencies. For fiscal, or enabling-type contracts and leases,
agencies only will sign. Finally, the disposition agreements
will be signed by the agencies and maybe by AGDC.
2:41:34 PM
MR. PAWLOWSKI directed attention to fiscal note number 15
[identifier: SB138CS(FIN)-DCCED-AEA-03-17-14; prepared by the
Alaska Energy Authority (AEA)]. He said operating expenditures
for FY 15 to the Department of Commerce, Community & Economic
Development (DCCED) are zero. However, there is an estimated
capital cost of $1,375,000 in response to the requirement in the
bill for the Alaska Energy Authority (AEA), in consultation with
AGDC, the Alaska Industrial Development and Export Authority
(AIDEA), and DOR to develop a plan for infrastructure to deliver
more affordable energy to areas of the state that are not
expected to have direct access to the North Slope natural gas
pipeline. The plan will coordinate AEA's existing work around
regional energy plans and begin the groundwork for the movement
to other energy sources for the aforementioned regions of the
state. In response to Representative Tarr, he understood that
the abovementioned capital expense will be a line item in the
capital budget.
REPRESENTATIVE SEATON offered his appreciation for all of the
work that has been done regarding CSSB 138(FIN) am. He informed
the committee that a number of issues that were not appropriate
for the codified sections of the bill would be incorporated in a
sign-on letter to ensure that the issues would be clear to the
agencies. The sign-on letter will be offered to the committee
members for signature.
2:44:41 PM
CO-CHAIR SADDLER provided a summary of the work done on CSSB
138(FIN) am: the governor and administration's proposal and
path to the project was analyzed; questions were asked and most
were answered; the HOA and MOU were evaluated; processes and a
variety of scenarios were discussed to better understand what
lies ahead; a record number of amendments were offered to
improve the environment in which to negotiate contracts;
sideboards for the preliminary agreements were sought to protect
Alaska's interests; clear intent on the final agreements was
provided; the option of ASAP was preserved; and hard work was
done to understand the details of the project.
The committee took a brief at-ease.
2:47:43 PM
REPRESENTATIVE JOHNSON agreed that the work of the committee
provided a way forward, although he remained cautious about
ownership and control of the project. He opined the project has
the potential for success and urged the administration and the
agencies to ensure that the project is the best for the state.
He expressed support for the bill, adding that he wishes to
review the proposed committee substitute and fiscal notes when
possible.
CO-CHAIR FEIGE stated that the committee will receive copies as
requested.
2:51:30 PM
REPRESENTATIVE TARR expressed her goals for the committee's
work: direct benefit to Alaskans; a fair return for the
resource; and a good process to follow. Many of the amendments
addressed concerns related to these topics, and she is pleased
Amendment 43 was adopted because the report on in-state gas will
have an effect on the direct benefit to Alaskans. Although the
committee did not have much impact on the process, she noted
that the committee was able to express its concerns and will
provide additional guidance to "the department" via
Representative Seaton's sign-on letter. Of great importance is
a fair return for the resource, and she reminded the committee
that during the lean years ahead the proposed project will
create the state revenue needed. Representative Tarr said she
is glad to hear representatives of DNR and DOR state their
involvement in the project in order to avoid past mistakes. She
complimented the work of the administration, the committee, and
especially that of Mr. Bullock at Legislative Legal and Research
Services.
REPRESENTATIVE KAWASAKI appreciated the amount of time the
committee spent with consultants and the administration,
although he still has questions on ownership and control that he
hopes will be addressed by the House Finance Committee.
2:56:45 PM
REPRESENTATIVE P. WILSON said she felt the bill was improved and
fair for all Alaskans. She thanked everyone for their work.
CO-CHAIR FEIGE observed the committee considered the bill for 25
days of meetings and he appreciated the work of all of the
members of the committee. The staff and committee aides also
worked long hours, as did Legislative Legal and Research
Services, especially Ms. Nauman and Mr. Bullock. By its review
of the amendments, the Letter of Intent, and the fiscal notes,
the committee has taken a close look at the bill, as will the
next committee of referral, he said.
3:00:19 PM
REPRESENTATIVE HAWKER told a personal story and then stated that
there are areas of the bill he would like to see done
differently, such as the transfer of wealth to TransCanada in
the MOU and the HOA, and the ownership and control provisions;
however, there are other elements to be lauded. On balance, he
said he would support the bill. He reminded the committee that
votes against amendments in committee would not restrict
subsequent negotiations by DOR, DNR, or AGDC on topics related
to the failed amendments.
3:03:14 PM
REPRESENTATIVE HAWKER moved to report [CSSB 138(FIN) am], as
amended, and with the attached Letter of Intent, out of
committee with individual recommendations and the accompanying
fiscal notes. In addition, Legislative Legal and Research
Services is authorized to make any necessary conforming
amendments. There being no objection, HCS CSSB 138(RES) was
reported from the House Resources Standing Committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HRES Passed Amendments to CSSB138 Version I.A. Packet 1.pdf |
HRES 4/9/2014 1:00:00 PM |
SB 138 |
| HRES Passed Amendments to CSSB138 Version I.A. Packet 2.pdf |
HRES 4/9/2014 1:00:00 PM |
SB 138 |
| HCS CSSB138(RES) Version H 4.10.14.pdf |
HRES 4/9/2014 1:00:00 PM |
SB 138 |
| HCS CSSB138(RES) Sectional Analysis.pdf |
HRES 4/9/2014 1:00:00 PM |
SB 138 |
| HCS CSSB138(RES) Summary of Changes.pdf |
HRES 4/9/2014 1:00:00 PM |
SB 138 |
| HRES SB 138 Issues Letter 4.15.14 .pdf |
HRES 4/9/2014 1:00:00 PM |
SB 138 |
| HRES 4.18.14 AGDC Responses to Questions.pdf |
HRES 4/9/2014 1:00:00 PM |
SB 138 |