Legislature(2011 - 2012)BELTZ 105 (TSBldg)
04/05/2012 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB314 | |
| HB9 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | HB 9 | ||
| + | HB 264 | TELECONFERENCED | |
| + | HB 314 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 9-IN-STATE GASLINE DEVELOPMENT CORP
4:13:10 PM
CHAIR OLSON announced the consideration of HB 9.
4:13:16 PM
REPRESENTATIVE MIKE CHENAULT, Alaska State Legislature, said HB
9 was a continuation of HB 369, a bill passed in 2010 that dealt
with an in-state gas pipeline. He said HB 9 would remove hurdles
and roadblocks for the Alaska Gasline Development Corporation
(AGDC) to move the pipeline project forward. He said HB 9 was a
complex bill that was crafted to fit concerns of numerous
departments.
4:14:57 PM
CHAIR OLSON asked how HB 9 differed from HB 369.
REPRESENTATIVE CHENAULT responded that HB 9 was enabling
legislation that helped to move the in-state gas pipeline to an
open season. He said HB 369 set the foundation for what a
project should look like within the restrictions set by the
Alaska Gasline Inducement Act (AGIA) process. He said HB 369
asked AGDC to look at the most economic pipeline route from
Prudhoe Bay to "tidewater" in Southcentral. He said HB 9 would
allow AGDC to proceed down a path to get to a possible open
season with shippers and sellers.
4:16:52 PM
THOMAS WRIGHT, Staff for Representative Chenault, Alaska State
Legislature, said HB 9 had undergone a transformation since it
started out in 2011. He said HB 9 sets a framework for AGDC to
serve as the state's gas pipeline entity and to continue working
on the 500 million standard cubic feet per day (MMSCFD) line
that would link North Slope gas to Fairbanks and the "Railbelt"
at the lowest possible cost.
He said AGDC would continue to analyze where commercially
feasible lines could be built to connect additional communities
to natural gas. He said HB 9 would also provide AGDC with the
structure to consider other gasline opportunities now and in the
future. He said AGDC would be set up to act on Alaska's behalf
to participate on an aligned North Slope project with Exxon
Mobil, ConocoPhillips and British Petroleum, as well as a
possible project with Trans Canada.
He said HB 9 would consolidate state spending on gasline work
and maximize the Alaska Natural Gas Development Authority
(ANGDA) work as a gas marketing entity. He said ANGDA would be
redefined as an equal subsidiary corporation under the Alaska
Housing Finance Corporation (AHFC). He said ANGDA would be
provided with the tools needed to act in its new role.
He said HB 9 would address uncertainties pertaining to gas
pipeline regulation and whether the carrier would be able to
offer contractual firm service needed to secure project
financing.
He said AGDC would be empowered to act on behalf of Alaskans'
best interest in proving natural gas to Alaskans. He said state
and local governments would be called upon to participate in
ways to reduce tariffs that Alaskans would ultimately pay for,
i.e., waiving property taxes during the pipeline's construction
period and requiring state and local resources be made available
at usual rates.
4:19:25 PM
MR. WRIGHT said Section 1 in HB 9 expressed legislative intent
and findings.
CHAIR OLSON asked if a lot of Section 1 was in HB 369.
MR. WRIGHT answered that portions were derived from HB 369.
He said Section 2 added a new section to AHFC's statutes and
described AGDC's duties and abilities as a subsidiary
corporation. He said AGDC would advance an in-state gas pipeline
project and proceed with additional pipeline analysis once
construction started. He said AGDC would manage and invest the
newly created pipeline fund and noted that $200 million was set
aside last year with $240 million required to get AGDC through
an open season. He said following the open season capacity
contract phase, making natural gas available to Fairbanks,
Southcentral and other communities would proceed. He said AGDC
may decide how a pipeline would be owned and operated, including
joint ownership or operatorship. He said AGDC would exercise the
state's existing right-of-way of eminent domain to acquire
property and interest in pipelines as needed. He said AGDC would
manage its assets including transfer, disposal, parts or all of
a pipeline project, provide transportation of natural gas by way
of contract carriage and issue revenue bonds limited to AGDC's
backing to carry out AGDC's purpose.
4:23:31 PM
MR. WRIGHT said Section 3 would exempt ANGDA from the state
procurement code when only contracting for professional
services. He said Section 3 was conforming language to Section
20.
He said Section 4 provided AGDC access to confidential
information of state agencies that were directly related to
designing, constructing and operating an in-state natural gas
pipeline. He said the Joint In-State Gasline Development Team
would change its name to AGDC.
He said Section 5 would direct state agencies to cooperate and
gave priority to AGDC requests and exempted leases from common
carriage convents in the state right-of-way leasing act. He said
the exemption allowed AGDC to operate as a contract carrier.
CHAIR OLSON asked what the difference was between common carrier
and contract carrier.
MR. WRIGHT answered that contract carriage would allow for 20 or
30 year commitments in order to pay off bonds that may be
assumed. He said the majority of pipelines in other states were
contract carriage.
4:25:58 PM
SENATOR MENARD asked if there were any limitation on the amount
of indebtedness.
MR. WRIGHT answered no. He said a lot was going to depend on
what would happen during the open season process. He said the
current project estimate was $7.5 billion, plus or minus 30
percent.
SENATOR MENARD asked when the earliest would be for an open
season.
MR. WRIGHT answered that an open season could occur by July,
2013.
RENA DELBRIDGE, Staff for Representative Hawker, Alaska State
Legislature, Juneau, responded that AGDC was scheduling its open
season to start in early 2013 and continue through most of the
year.
4:27:28 PM
SENATOR MENARD asked about the need for a longer open season.
MS. DELBRIDGE answered that the intent was to conclude the open
season by December of 2013 in order to determine if secured
shipping commitments would fully support financing the project.
4:28:12 PM
CHAIR OLSON asked what would happen if shipping commitments were
not secured.
MS. DELBRIDGE responded that sufficient shipping commitments
would be required to move the project forward.
4:28:45 PM
MR. WRIGHT said Section 7 allowed AGDC to enter into
confidentiality agreements as necessary to carry out its duties.
He said municipalities and state agencies would be called upon
to provide non-hydrocarbon natural resources at customary rates.
He said state agencies would be required to issue permits and
leases at no cost, except for permits and leases through the
State Pipeline Coordinator's Office. He said AGDC would be
required to bear the usual and customary costs, but costs would
not be allowed to be rate based. He said AGDC would be allowed
state right-of-way lease transferal to another party under the
same terms and conditions via the approval of the Commissioner
of the Department of Natural Resources (DNR).
He said Section 8 revised AGDC's definition, the in-state
natural gas pipeline and natural gas pipeline.
He said Section 9 was conforming language that dealt with right-
of-way leasing. He said Section 9, Section 10, Section 11 and
Section 12 were conforming language sections to match with
Section 6.
4:30:06 PM
MR. WRIGHT said Section 13 would limit judicial review of the
state lease permits or other authorization decisions to superior
court only and prohibited the courts from granting injunctive
relief. He said a court that granted relief must be via final
judgment and claims would have to be brought within 60 days of
an action for which the relief was sought.
He said Section 14 would exempt information covered by an AGDC
confidentiality agreement.
CHAIR OLSON addressed Section 13 and asked why a higher court
would not be allowed.
MR. WRIGHT answered that judicial review would start at superior
court.
CHAIR OLSON asked if the superior court would be the final
authority.
MR. WRIGHT answered that the superior court would have to issue
a final judgment and could not grant injunctive relief. He said
HB 9 was modeled after the Trans-Alaska Pipeline System
legislation.
4:31:24 PM
MR. WRIGHT said Section 14 would exempt information covered by
an AGDC confidentiality agreement from the Alaska Public Records
Act.
He said Section 15 enabled ANGDA to act as a gas marketer
instead of a transporter.
SENATOR MENARD asked to confirm that ANGDA did not go away.
MR. WRIGHT answered that ANGDA would be under AHFC's guidance
and the AHFC board would be the board for ANGDA and AGDC.
4:33:04 PM
SENATOR MENARD confirmed that the change would be similar to a
merger.
MR. WRIGHT answered yes.
SENATOR MENARD commented that ANGDA did a lot of good work
regarding licensing and permitting.
MR. WRIGHT responded that ANGDA had done some preliminary work
that AGDC would be able to use as a beneficial asset. He said
ANGDA was originally setup as a pipeline builder and those
responsibilities would be deleted in HB 9. He said ANGDA was an
active entity and HB 9 was crafted to honor the voter initiative
and not do away with ANGDA.
SENATOR MENARD asked if the ANGDA board members would still
remain.
4:34:02 PM
MR. WRIGHT answered that the AHFC board would act as the ANGDA
board.
CHAIR OLSON asked if this was a voluntary subordination by ANGDA
to come under AHFC.
MR. WRIGHT answered that Chair Olson would have to ask the ANGDA
members. He said a recent audit prescribed doing away with ANGDA
and the consensus was they had some assets that would be
valuable to AGDC.
CHAIR OLSON asked if ANGDA had privileges that might be useful
to AGDC.
MR. WRIGHT answered correct.
SENATOR MENARD asked if ANGDA would maintain their same office
in downtown Anchorage.
MR. WRIGHT answered that he did not know.
SENATOR MENARD mentioned that the ANGDA board was appointed
during the Palin administration.
MR. WRIGHT answered that the board was appointed in 2002.
MS. DELBRIDGE responded that the ANGDA board members had cycled
through different appointment levels and confirmed that ANGDA
was created by a voter initiative in 2002. She said one member
of the board was a sponsor of the initiative that created ANGDA
and was still on the board. She said she did not believe the
board was at fully functioning numbers due to the lack of
appointments. She said HB 9 sponsors believe ANGDA would serve a
very critical purpose in a gasline discussion going forward. She
said if ANGDA was not able to serve as the marketing arm,
another subsidiary corporation would have to be created to do
that. She said ANGDA had already taken on some of the marketing
functions to try and work with local utilities in Southcentral
and the Railbelt to help build cooperatives to arrange for space
on an AGIA spur-line. She said HB 9 was a logical continuation
of some of the work that ANGDA had been involved with and it
would keep intact all of the incredible work that ANGDA has
done, e.g., studying how propane might be distributed throughout
rural Alaska on barges.
4:36:49 PM
MR. WRIGHT said Section 16 clarified ANGDA's role as a gas
marketer.
He said Section 17 allowed ANGDA and the DNR Commissioner to
pledge state royalty gas for contracts entered into by ANGDA.
He said Section 18 stated that the AHFC board of directors would
serve as the ANGDA board of directors.
He said Section 19 was conforming to Section 18 that allowed for
board member per diem and travel expenses for when conducting
ANGDA business.
He said Section 20 included legal counsel in the services that
ANGDA may contract for and exempted procurement of contracted
services from the state procurement code.
He said Section 21 removed involvement with a project from the
circumstances regarding disclosure.
He said Section 22 expanded ANGDA's existing confidential
records authority to include information in a confidential
agreement between ANGDA and AGDC.
4:38:21 PM
He said Section 23 removed ANGDA's authority to exercise eminent
domain as ANGDA would serve as a marketing arm and not a
pipeline builder.
He said Section 24 conformed to Section 18 by defining ANGDA'S
board as AHFC's board.
4:39:25 PM
MR. WRIGHT said Section 25 through Section 29 would implement a
new regulatory chapter that was applicable to an in-state
natural gas pipeline authorized to provide contract
transportation.
He said Section 30 exempted an AGDC project from state and local
property taxes during a pipeline construction period.
He said Section 31 repealed seven statutes and the majority
pertained to either the Joint In-State Gasline Development Team
or ANGDA.
He said Section 32 repealed a portion of the 2002 ballot measure
due to ANGDA's revised authority.
He said Section 33 was transition language that expressed the
legislative intent that existing right-of-way leases between
AGDC and DNR were to be amended to reflect the exemption from
common carriage covenants. He said the Alaska Constitution
barred the legislature from passing laws that retroactively
applied to contracts in place.
He said Section 34 revised instruction and Section 35 sets an
immediate effective date.
4:41:30 PM
CHAIR OLSON asked for an explanation of the exemptions from
Section 28 for a common carrier.
MS. DELBRIDGE answered that AGDC would operate as a contract
carrier with a specified exemption from potential regulation as
either a public utility or as a common carrier pipeline.
CHAIR OLSON asked how the exemption would benefit the state.
MS. DELBRIDGE responded that a clear regulatory process going
forward with limited Regulatory Commission of Alaska (RCA)
involvement would allow two parties to come together and form a
contract. She said RCA would judge contracts just and reasonable
if they are in fact done in a fair transaction, without duress
or fraud.
CHAIR OLSON asked if it was two parties.
MS. DELBRIDGE answered yes. She said what Section 28 would not
provide for was traditional cost based regulation that the RCA
would normally do.
4:43:34 PM
CHAIR OLSON asked if there was nothing RCA could do if two
parties agreed on a contract.
MS. DELBRIDGE answered that was generally correct. She said
there were a few backstops.
CHAIR OLSON asked about the backstops.
MS. DELBRIDGE responded that negotiated agreements would require
RCA approval. She said approved agreements would provide
regulatory certainty to the people buying gas and that would
enable AGDC to continue forward to get financing and start
construction. She said RCA could step in if a contract with a
public utility threatened public health, safety and welfare. She
said a partial certificate of public convenience and necessity
was created for RCA to go ahead and issue for the carrier of the
gas pipeline.
4:45:35 PM
CHAIR OLSON asked if it was a federal certificate.
MS. DELBRIDGE answered no. She said RCA issued state
certificates and it was a finding of whether or not the
applicant was fit, willing and able to provide the service that
was in the public's interest, convenience and necessity. She
said this was structured due to AGDC operating on the state's
behalf with a mandate to provide gas at the lowest rates to
Alaskans.
CHAIR OLSON asked about the savings for the end customer from a
contract carrier versus a common carrier.
MS. DELBRIDGE answered that the majority of gas pipelines
throughout the Lower 48 were contract carriers. She noted that
the majority of oil pipelines were common carriers. She said a
contract carrier and a gasline work together because gas goes
directly from the producer to the user. She said there were no
big oil storage tanks in a hub that dispersed product and firm
service was required without interruption. She said a common
carriage line was essentially a common service where pipeline
space had to be made available and current customers had to make
room. She said power plants ran the risk of not receiving their
gas if someone else suddenly had a contract that required their
gas to be fed into the common carrier line. She said contract
carriage lines were important with the natural gas pipeline and
firm commitments to transfer gas for 10 or 20 years without
interruption was the key to financing.
4:48:16 PM
CHAIR OLSON asked if exporting Liquefied Natural Gas (LNG) from
the pipeline was in the plans.
MS. DELBRIDGE answered that there was no LNG component. She said
the pipeline terminated where it hooked into the Southcentral
distribution grid near Big Lake. She said the pipeline project
with Trans Canada did include an LNG export component. She said
an LNG facility would require a firm commitment to meet its
daily production requirements.
CHAIR OLSON asked if a common carrier would more easily
accommodate an LNG facility rather than a contract carrier.
MS. DELBRIDGE responded that an LNG facility would require a
direct link from its gas supplier to efficiently process gas.
She said sharing the pipeline with in-state users could cause
space efficiency issues and affect the cost of natural gas.
4:50:42 PM
DANIEL FAUSKE, President, Alaska Gasline Development
Corporation, Anchorage, said ANGDA had one employee and that
individual would be transferred to AGDC offices if HB 9 passed.
He said AGDC had 27 employees with the majority contracted
strictly for the pipeline project. He said no bureaucracy was
created in terms of ongoing operations.
He said one of the difficulties in financing a pipeline was due
to Alaska's small population. He said a pipeline required long
term commitments from utilities to finance the project. He said
the proposed gas pipeline would be financed via revenue bonds
with two layers of security provided by rating agencies and
scrutiny by investors. He said the bonds and debt of AGDC would
be the bonds and debt of AGDC, not of the state or AHFC. He said
AGDC's bonding authority would be similar to the Northern
Tobacco Securitization Corporation (NTSC) that was formed from
the tobacco settlement in 1998. He said AHFC was called upon to
securitize and capitalize the settlement. He said $300 million
in bonds were sold with the total indebtedness solely that of
NTSC, a subsidiary of AHFC. He said the gas pipeline would be
based upon the merits of the business traction taking place with
investors and others involved in the project.
4:54:20 PM
MR. FAUSKE said the pipeline funding plan would require a 70/30
debt equity ratio. He said the issuance of debt was cheaper than
financing equity. He said the rate of return on most large
capital projects was 12 to 14 percent and the best strategy was
to avoid a "big player" to come in and demand the same rate of
return on all of their equity when AGDC could be selling much
cheaper debt. He said a blended rate at a 70/30 ratio would
drive the pipeline tariff down and follow HB 369's mandate to
deliver gas at the lowest possible cost. He said state equity
participation or ownership was always anticipated and not the
operation of the pipeline to keep down tariffs.
MR. FAUSKE said if the state were to own the pipeline, self-
regulation via RCA involvement would add an additional hurdle
and increase financing costs. He said investors want a clear
path to their investment and adding a regulatory body that could
step in and potentially alter cash flows would impinge on the
ability to issue debt.
4:56:58 PM
He said one of the project's primary goals was to beat pricing
of imported LNG to Alaska. He said the current calculated
pipeline delivery rate to Anchorage was $9.93 per Thousand Cubic
Feet (MCF) and Fairbanks was $10.45 per MCF. He noted that both
rates carried a plus-minus factor of 30 percent. He said
Fairbanks was currently paying $23.33 per MCF for the same
amount of British Thermal Units (BTU).
He said the pipeline's pre-project planning was guided by a
three stage approach using the Front End Loading (FEL) process.
He noted that the project was currently in FEL-Stage 2 phase. He
said the advantage of FEL planning was the ability to address
project feasibility constantly and to provide the legislature
with pertinent information.
4:58:28 PM
CHAIR OLSON asked what the imported LNG rates were.
MR. FAUSKE answered that the estimated rate was between $12 and
$16 per MCF. He noted that utilities were having difficulty
negotiating LNG contracts beyond two years.
CHAIR OLSON commented that imported LNG selling at $14 per MCF
was close to the projected pipeline price of $10.45 per MCF when
the 30 percent plus-minus factor was taken into account.
MR. FAUSKE responded that was correct. He said the plus-minus
factor would decrease to 10 percent when the project proceeded
to FEL-Stage 3.
JOE DUBLER, Vice President, Alaska Gasline Development
Corporation, Anchorage, said the imported LNG and pipeline rates
were not comparable and noted that the $14 to $16 per MCF rate
for LNG did not include delivery costs to Fairbanks. He said an
open season failure without enough commitments to fill the
pipeline would lead to project abandonment.
5:00:59 PM
MR. FAUSKE said total state funding for the project was $400
million to get to an open season. He said the legislature
reserved $200 million for the project in 2011, $21 million was
in the Governor's current capital budget and $28.2 million had
recently been received. He said the project would be revenue
bond funded and the state would not outlay $7.5 billion in
capital. He said pipeline companies indicated interest in
project bidding if the state spent the money required to
determine project viability.
5:02:25 PM
SENATOR WAGONER asked if funding, private operator entry or an
LNG manufacturer could be determined after a successful open
season.
MR. FAUSKE answered yes.
SENATOR WAGONER responded that he wanted everyone to know that
AGDC was not saying it was going to do this and proceed right
through the process.
MR. FAUSKE answered that was absolutely correct.
MR. DUBLER responded that HB 9 would give AGDC the power to
determine the appropriate ownership and bonding for the pipeline
project.
5:03:22 PM
MR. FAUSKE said AGDC had completed a great deal of work and the
draft for the Environmental Impact Statement (EIS) was in the
hands of the U.S. Army Corps of Engineers. He noted that the EIS
would be completed by May or June. He said the transfer of the
state right-of-way had occurred with AHFC and HB 9 would
continue the transfer. He said the federal government announced
that they were prepared and had enough information to issue the
federal right-of-way. He said he was proud of the fact that the
state had never been this far in reference to the pipeline and
noted an estimated 2,200 permits were currently required for the
project.
5:04:12 PM
CHAIR OLSON asked how many permits were completed by AGDC.
MR. DUBLER answered not many. He said AGDC was still going
through the regulatory work.
MR. FAUSKE commented that AGDC had a great working relationship
with native corporations and people would be put to work on the
project. He said a 737 mile long pipeline would deliver a lot of
gas to the state.
CHAIR OLSON [announced that HB 9 would be held.]
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