Legislature(2009 - 2010)BUTROVICH 205
03/15/2010 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB301 | |
| HB44 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 301 | TELECONFERENCED | |
| + | HB 44 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 44-ENERGY BONDS/INVESTMENTS/ANGDA
3:45:06 PM
CO-CHAIR MCGUIRE announced HB 44 to be up for consideration
[before the committee was CSHB 44(FIN)am].
3:45:51 PM
REPRESENTATIVE CHENAULT, sponsor of HB 44, explained that it
preauthorizes Alaska Housing Finance Corporation (AHFC) and the
Alaska Natural Gas Development Authority (ANGDA) to issue bonds
for energy related programs and projects. It also expands
ANGDA's authority to provide natural gas from sources anywhere
within the state to markets within Alaska allowing the Authority
to broadly Alaskans and Alaskan markets. The language expanding
ANGDA's authority was originally found in HB 163 and has been
incorporated in this legislation.
3:46:33 PM
SENATOR HUGGINS joined the committee.
REPRESENTATIVE CHENAULT continued that the bill was introduced
in an effort to address the state's energy needs especially for
weatherization and energy efficiency programs, and to provide an
impetus for an instate gas line. Although the legislature has
authorized a number of these projects through the AHFC and has
made appropriations to the ANGDA, he believed it is now time to
proceed to a higher level.
He said the Fairbanks, Matsu, and Cook Inlet areas will all
require gas and affordable energy within the next five years.
Processing of liquids from our natural gas supply will also help
rural areas by relieving them from the high cost of diesel fuel.
He would prefer that private industry would build this project,
and this legislation may provide the impetus for any private
corporation to work with ANGDA in constructing an instate gas
line.
3:47:24 PM
CO-CHAIR WIELECHOWSKI asked how this interplays with the various
bills to turn over construction of the line to the Alaska
Railroad.
REPRESENTATIVE CHENAULT answered that they looked at this as an
opportunity to fund any project in the state of Alaska; it is
just an option, but it would play well in the overall picture of
financing instate gas.
3:49:11 PM
SENATOR HUGGINS said it looks like the mentality behind this
bill is to push a project forward, but then a number of people
say the economics don't work. As this bill is portrayed, it will
push the instate gas project forward, so they will know if the
economics can be met or any other challenges.
REPRESENTATIVE CHENAULT replied that they need to know what the
cost of a pipeline is before going ahead with a final decision.
If the state doesn't make that determination, they will never
know.
3:52:04 PM
SENATOR HUGGINS said the way his bill is portrayed it assumes a
robust petrochemical gas-to-liquids industry that essentially
puts Alaskans to work as part of the project.
REPRESENTATIVE CHENAULT said that is a big part of this bill. He
represents Nikiski where a facility was shut down that provided
$385,000/year jobs to Alaskans. The current LNG facility employs
about 100 people. His fear is that those jobs will be lost as
well the way things are going in Cook Inlet today. This is the
only way to move Alaska forward.
CO-CHAIR MCGUIRE asked if the Railroad concept moves forward and
it issues bonds, what the value of expanding the bonding
authority to $250 million would be. Did he see a conflicts
between the role that ANGDA would have in potentially using some
of its bonding authority in AGIA should the instate line go
forward.
REPRESENTATIVE CHENAULT said he didn't see a conflict between
AGIA and this piece of legislation, and the attorneys had not
contacted him about it.
3:59:11 PM
SENATOR FRENCH said he shared Representative Chenault's desire
for action. He said he saw $100 million in it for AHFC; it looks
like this is building on the weatherization program the state
did a couple of years ago. He asked how he selected $250 million
as a figure for the ANGDA bonds.
REPRESENTATIVE CHENAULT replied that he didn't think the
legislature would go for $1 billion. There is no particular
reason other than $250 million is enough skin in the game so
other players feel comfortable.
SENATOR FRENCH asked if he felt this would be the state's equity
position in a bullet line under the push this bill provides.
REPRESENTATIVE CHENAULT answered yes.
SENATOR STEDMAN asked why they would want AHFC to issue $100
million in bonds instead of just using cash.
REPRESENTATIVE CHENAULT said he wanted his staff to answer that.
4:01:35 PM
TOM WRIGHT, staff to Representative Chenault, answered that they
discussed it with AHFC at one point and they didn't think they
needed this. If the legislature ever decides to expand the
program, they could do so and they wanted to give AHFC this
option. AHFC was accepting of that.
4:02:20 PM
SENATOR HUGGINS said the state gave the Canadians $500 million
and he thought the instate line was worth at least half of that.
REPRESENTATIVE CHENAULT agreed.
CO-CHAIR WIELECHOWSKI said the way ANGDA is currently structured
it doesn't have any limit on the amount of bonds it can issue
and asked why they would want to limit it.
REPRESENTATIVE CHENAULT answered that it is the committee's
prerogative. The CEO of ANGDA said this number would actually
allow them to bond for any projects they see on the horizon.
4:04:03 PM
CO-CHAIR WIELECHOWSKI said his staff just pointed out that AS
41.41.320 does place a limitation on the issuance of bonds by
ANGDA. It says the authority may not issue bonds in an amount
that exceeds the amount of bonds authorized to be issued by the
legislature.
CO-CHAIR MCGUIRE stated there is an equity ratio when you look
at the $4.5-5 billion it would cost to build an instate line.
REPRESENTATIVE CHENAULT said he had no problems going with a
higher amount. A number of projects could be funded and this
gives them more options to do that.
SENATOR HUGGINS said he supports the big gas line, but is
concerned about the economics of it. But $8-10 billion would
build the gas treatment plant. Here they are spending half of
that to get to gas to ourselves. Gas storage is part of any
scenario as well as a petrochemical industry. But equally
important is looking for infrastructure and transportation to
start solving some of the rural and big projects - Donlin Creek,
as an example. He asked Representative Chenault if he saw
anything in particular as a scenario of things to build upon.
REPRESENTATIVE CHENAULT answered that with a reasonable cost gas
supply the options are endless. He believed that Alaska has to
move forward and soon Alaska will have to import LNG, and while
it might be the cheapest, how do they explain that to Alaskans?
4:10:37 PM
CO-CHAIR MCGUIRE thanked him for the bill and said they are all
part of an instate gas caucus where everyone has brought ideas
to the table. His points were right on. The use of natural gas
has shifted from what they might have thought a pure export to
value added uses in-state. She said she didn't see a future for
Alaska without access to natural gas saying "It's the feedstock
that can grow the economy."
4:12:14 PM
REPRESENTATIVE CHENAULT said it is not his intention to derail
the AGIA process; it'll come to its own conclusion. He said "We
have to be ready and we have to be ready now to make a decision
- and I want to be able to make that decision based on good
information and not what some of us may think is good
information."
4:13:30 PM
HAROLD HEINZE, CEO, Alaskan Natural Gas Development Authority
(ANGDA), strongly supported HB 44. He highlighted that from
ANGDA's point of view the bill has two parts: clarifying the
statutory authority and paying back the revenue bonding for the
projects. He emphasized that it is not about general obligation
bonding. There is no way ANGDA is authorized to pledge the full
faith and credit of the state, he said. Rather, as an entity,
ANGDA has an advantage in terms of the credit aspects because
the state seal provides reassurance to the bankers.
He said the clarifying language is basically driven by advice
they have received from a number of financial advisors over the
years. It simply says once you start dealing in bonds that are
denominated in lots of millions of dollars, bankers want
statutory language to be perfect. That is what this does; it
makes it clear that ANGDA can work on instate gas supply and
instate demand.
The second thing it does is pre-approves the $250 million. ANGDA
was given the authority to issue bonds with one proviso: that
the limit of the bonds would be determined by a vote of the
legislature. This sum was chosen as something that is the
largest non-trivial number that the legislature could
appropriately pre-approve at this time. There is no reason to
ask for a lot more. If they need more, he would ask for it.
4:18:34 PM
Basically, he said, a list of things that are currently being
worked on that might be covered by this kind of bonding
authority include: gas purchase, ownership of cushion gas in a
storage field, partnering in the Kenai LNG plant and expanding
its operational capabilities, open season commitment in the big
pipe, open season commitment in a spur line, and development of
a North Slope wholesale propane facility. The list wouldn't have
been the same last year.
4:19:25 PM
SENATOR THOMAS WAGONER joined the committee.
MR. HEINZE said they believed this authority would be granted,
so in the interim they formed the Natural Gas Supply Company, a
cooperative formed under the general cooperative statutes of the
State of Alaska. Its membership is populated by the electric
utilities in Alaska, and he explained they chose that group to
work with because ANGDA is committed to doing things that
facilitate and advance projects - the spur line, any of the
pipeline projects, and other types of physical facilities in
that area. But they are also committed to doing financing to the
benefit of consumers under the concepts of a public/private
partnership. What they have to offer in working with the
electrical co-ops is aggregation of volume for discounts
(compared to several smaller transactions) and the ability to
pay low interest through their bonding authority while at the
same time getting a high rate of return that could flow through
to the customer. They are working with electric utilities
because they are either co-ops or municipally owned - so every
dollar they save immediately passes through to the consumer.
4:22:10 PM
MR. HEINZE said they could reach a point where they can make a
deal if they know what the financial terms are. The back
stopping of any bonds they issue will be consumers through the
electric utilities and their monthly cash flow. Everyone is
required to pay their bills; and from a banker's point of view,
that is a bankable monthly cash flow. The pledge of that over
time is sufficient to pay off the bonds; the bonds at a low
interest rate allow one to conduct a transaction with people
that have a higher value on their money. It also in this case
inherently helps the electric utilities all of whom in essence
are credit-strapped to use their credit that they have for
generating facilities, transmission facilities and local
distribution needs. It saves them from having to use up their
credit to procure longer term discounted stable gas supplies, in
this case. Almost all of these are focused on the gas issue and
the co-op was set up as a gas supply co-op. The reason AHFC is
in it is to provide balance, because as they know, the cheapest
energy around is conservation.
4:23:56 PM
SENATOR STEDMAN said Alaska statute has numerous authorities to
issue bonds and they have tried to repeal some to clean the
books up and asked how long he anticipated wanting authority for
the $250 million.
MR. HEINZE replied that for what they are trying, five years.
The hurdles are considerable, but the opportunities that are
defined have a high level of urgency to them and won't be around
long.
CO-CHAIR WIELECHOWSKI said the more he hears about this bill the
more he likes it. AS 41.40.400 specifically says the credit of
the state is not pledged. He was wondering if that provides
enough teeth. Do they need to put the full faith and credit of
the state behind it, because it would help to get lower bond
ratings?
MR. HEINZE replied that going to full faith and credit of the
State of Alaska is a responsibility he wasn't sure he wanted to
shoulder. It's driven by the fact that the state, in its long
history, at times has made some "less than perfect" choices. He
wanted to be able to have the strength of testing the commercial
market. If a banker loans them money to do something, he felt
they had done their job to assure that the project is good, that
it will be a good use of the consumer's money; and they will be
the ultimate payer in the monthly check that they write.
On the other hand, he said, this is modeled after the successful
financing of the Bradley Lake Hydro Electric project that used
"moral obligation," which means the state stood next to the
electric utilities and smiled as the bonding was signed. It is a
term of art, but the financial people he has talked to are very
comfortable that that moral obligation coupled with the basic
strength of a banker looking at the credit of an electric
utility is very strong and will achieve the lowest interest
rates. The other part is that depending on the circumstances,
one could get an even lower interest rate if the bonds were tax
exempt. But that is not a given in this case; they are looking
at the quality of the credit just driving the interest rate
down.
4:28:01 PM
SENATOR HUGGINS asked where his term "the moment of truth" fits
into this scenario.
MR. HEINZE described the first item on the list as an example.
If the state strikes a bargain with a Cook Inlet producer who
currently has gas available and agrees to pay them $25 million
cash for a seven-year supply of gas at a certain volume, that
would require the utilities to take an interest in how much of
that gas they want and make firm contractual commitments to pay
for it; then ANGDA would go out and issue bonds. The moment of
truth is when that commitment is made amongst all of the players
and bankers say they will take the deal.
SENATOR HUGGINS asked if he is saying the source of the gas is
Cook Inlet, necessarily.
MR. HEINZE said the items on the list are numerous and deal with
both Cook Inlet and North Slope gas. The list is driven largely
by the members of the electric utility co-op. Their two highest
priorities are the acquisition of gas along with the concept of
buying multi-years supply, and buying it at a discount for both
time value and volume is something ANGDA "would add to the
party." Significant concern over the future of the LNG plant has
also been voiced, and it is fair to reflect to them that the
electric utilities are very sensitive to the fact that if the
export license of that plant is not renewed, in less than one
year from now that facility could "start to warm up." The
subsequent summer of 2011 would find them shutting in wells in
Cook Inlet where they already have a deliverability problem. The
following winter of 2011/12 those wells would have lost
productivity and deliverability. At that point they might be in
a very dangerous position. The next summer the position would
deteriorate even further.
He explained that the electric utilities believe that working as
a co-op with ANGDA as a partner in it, they can strike an
arrangement with ConocoPhillips and Marathon who are the owners
of the plant, and that provides them a basis to continue
operating the plant and at the same time provides an opportunity
for that plant to be more valuable in servicing the local needs
through truck and barge and providing some re-gas capability
operating a "peak shaver" where on some of the really bad days
not only do they not take gas, they actually regasify some of
the gas that is in the LNG storage tanks. Those two
opportunities are on the top of their list and both of them have
a level of urgency that is very high.
SENATOR HUGGINS asked him to address an element on page 2, line
29, that talks about acquisition of natural gas on the North
Slope and other regions of the state including the Outer
Continental Shelf.
MR. HEINZE answered that language hadn't been interpreted by the
Attorney General (AG). The Attorney General was asked to look at
five specific contracts to see whether they met the statutory
definition of their authorities. Broadly the AG responded that
as long as they could make some linkage to the North Slope, even
if it was not immediate and overpowering, that it was within
ANGDA's authorities to do. They can be in business activities
within the state, but not outside.
4:34:08 PM
In the past, Mr. Heinze said, they have looked at keeping the
Nikiski plant around and operational until North Slope gas can
be brought to the area. It is one of key anchor tenants. So
their activities related to that plant could be construed as
contributing towards the more ultimate goal of bringing North
Slope gas into the Cook Inlet area. The other part of the
benefits of the bill is that it clarifies that language.
4:34:53 PM
SENATOR HUGGINS followed up asked if having the LNG export
permit on the Kenai or any place is hugely valuable going
forward because it is precedent setting. "Is that certificate
valuable or just nice to have?"
MR. HEINZE responded that he believes the opportunity
represented by that facility and the ability legally to export,
which expires at the end of the first quarter next year, is very
valuable. Having it available for a "brown field" project is an
expanded use. In the short term, having the ability to keep the
Cook Inlet wells going in the summer is extremely important;
nothing else can perform that function in the next few years. In
terms of their due diligence on this issue, he included a letter
they recently sent to the two owners of the plant at the behest
of the natural gas supply company basically offering to meet and
negotiate in a very open sort of way whatever it took to get
that plant to stay open.
4:37:30 PM
CO-CHAIR MCGUIRE said that is one of the topics she wanted to
discuss with him since they would be talking to Senator
Murkowski about taking a leadership role in her Energy Committee
on the export license. It is an important part of any industrial
anchor. She understood that ConocoPhillips has a public
relations challenge that every time they go out to reapply for
the certificate there is a perception by some that why are we
looking at exporting our gas when we have shortages. ANGDA could
be that voice that a member of the public would listen to
without the skepticism that they might have in listening to a
for-profit energy company. Can ANGDA play any role in filing
amicus curie, a friend of the court brief?
MR. HEINZE thanked her for the kind words about ANGDA, but in
this case the real power folks are the electric utilities - for
two reasons: one, they mail out monthly statements and can
explain to people why the continuity of that plant plays such a
key role in their system. One of the reasons they have raised
the issue of partnering the way they did with the two commercial
companies is that the combination of the electric utilities
through the co-op structure, with ANGDA also as a member of the
co-op and able to provide financing and contractual arrangements
under the co-op, has a good will factor that has to be
incredible going before the FERC and asking for renewal of the
license.
4:41:48 PM
CO-CHAIR MCGUIRE asked if he saw a gas-to-liquids facility in
Cook Inlet or the North Slope that could use Fischer Tropsch
technology to create synthetic crude to extend the life of TAPS.
MR. HEINZE answered the concepts of gas-to-liquids, a methane
based manufacturing process, and petrochemical, an ethane based
manufacturing process, are both very important. The problem with
those, ultimately, is how to marry up a pipeline situation that
requires long term firm commitments with an investment in a
plant that only makes sense if you have a long term supply and
market.
The Wyoming Gas Pipeline Authority was borne of a similar
dilemma and actually "tastes" like ANGDA. In Wyoming the dilemma
was that people wouldn't drill and explore because there was no
pipeline space and the pipeline wouldn't build because there was
no new gas to put in their pipeline. So the Authority found a
way in a credit sense to stand between the two and say you
drill, you build and we will back you up. And they provided a $3
million line of credit. The good news is that nobody ever drew a
nickel out of the fund and the State of Wyoming woke up a couple
of years later and was making a half billion dollars more on
their royalty gas.
MR. HEINZE said it is important to get the people who are
knowledgeable about value-added to come here and have those
discussions and find out what kind of position the state has to
stand in to touch some folks and bring them into contact. That
may be a very valid role for the state and for ANGDA.
CO-CHAIR MCGUIRE wanted to know to if they needed to address
that point within the scope of ANGDA's authority.
4:46:32 PM
CO-CHAIR WIELECHOWSKI said on the issue of extension of the LNG
plant, he wanted to remind everyone that the last time the RCA
and a number of the local utilities pretty harshly criticized
the administration for getting out in front so early because it
took away a lot of leverage from the utilities in negotiating
contracts with the producers. So, they should tread carefully on
that issue.
MR. HEINZE said his guidance was duly noted and that two
signatures were on the letter, Tony Izzo and himself. Both he
and Mr. Izzo are very comfortable with carrying the burden and
believe there is a "win-win bargain" to be struck here.
4:47:54 PM
SENATOR FRENCH said AHFC has had bonding authority for some time
and asked if ANGDA has had bonding authority up until now.
MR. HEINZE answered that the initial Proposition 3 that passed
in 2002 had the exact language as today, and it was intended
that ANGDA would always have some of the authorities that
attributed to political subdivisions of the state, in particular
to two: bonding and the right of eminent domain. ANGDA was not
given taxing or police powers.
SENATOR FRENCH asked if they have issued bonds ever.
MR. HEINZE answered no.
4:49:07 PM
SENATOR FRENCH asked what the first application of this
authority would be if this bill passed.
MR. HEINZE replied that he thought a couple of these
opportunities would mature very rapidly: the Kenai LNG plant and
the Golden Valley Energy Authority (GVEA), because every
pipeline goes through Fairbanks right next to their power plant
and they desperately need gas. A propane project is pretty ripe
from a number of points of view, but he didn't know how the
bonding would fit into that. They are talking to more than one
Cook Inlet gas supplier about purchasing gas and that could come
together pretty fast.
SENATOR HUGGINS remarked that he has read how "the Chinese are
coming to town" between now and June 1, and he asked what role
they might have in the scenarios he has described or other
realistic scenarios.
MR. HEINZE answered that the materials they developed for the
visit to China focused on petrochemicals. China has the world's
largest demand for plastics for the next 50 years.
Petrochemicals are driven by ethane and it is not a commodity
that is easily available all over the world. The North Slope has
a "huge supply" and that linkage is key to the Chinese interests
here. They could partner nicely with a domestic company.
Secondly, he said, they focused on LNG. A company came forth
during the AGIA process represented by a very modest sized
company. The parent company is one of the largest international
companies in the world. He may personally have a chance to visit
with them and he thought they had a sincere interest in long
term LNG from Alaska. China has a huge market and more money
than we do. They would be a good partner.
4:54:42 PM
CO-CHAIR MCGUIRE thanked him for his comments and, finding no
further business to come before the committee, she adjourned the
meeting at 4:54 p.m.
| Document Name | Date/Time | Subjects |
|---|