Legislature(2003 - 2004)

02/16/2004 03:36 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
          SB 271-NATURAL GAS DEVEL AUTHORITY PROJECTS                                                                       
CHAIR SCOTT OGAN announced SB 271 to be up for consideration.                                                                   
MR. HAROLD HEINZE, CEO, Alaska  Natural Gas Development Authority                                                               
(ANGDA),  noted the  current zero  fiscal note.  He informed  the                                                               
committee that to stay involved in  the project, he had written a                                                               
letter to the  two different applicant groups  under the Stranded                                                               
Gas Act. He  could live with a zero fiscal  note for the present,                                                               
but  if ANGDA's  involvement  became serious  in  the future,  it                                                               
would need additional support.                                                                                                  
CHAIR OGAN asked if he had received a response to the letters.                                                                  
MR.  HEINZE replied  that he  only  wrote the  letters last  week                                                               
and, therefore, it was a little early.                                                                                          
SENATOR ELTON asked if he  had any discussion with the Department                                                               
of Revenue (DOR) on protocol when he wrote the letters.                                                                         
MR. HEINZE replied  that since the last hearing,  he had numerous                                                               
discussions   with   Deputy    Commissioner   Porter   on   their                                                               
relationship.  He  summarized  the discussions  saying  that  the                                                               
Authority is  prepared to work  diligently as a major  element of                                                               
the team  to assure  that the  stranded gas  applications receive                                                               
all the consideration  possible. He wrote the  letters because he                                                               
wanted  both  applicants to  understand  that  the authority  had                                                               
certain  abilities  that were  very  unique  to  it as  a  public                                                               
SENATOR ELTON  was concerned  that the  applicants know  there is                                                               
only  one point  of access  to negotiate  their contracts  and he                                                               
wanted it to be through the governor's negotiating team.                                                                        
MR. HEINZE  responded that the  Authority has nothing to  do with                                                               
the  negotiations that  will take  place,  but it  does help  the                                                               
project move along to becoming a commercial reality.                                                                            
SENATOR ELTON continued  to voice his concern  that ANGDA express                                                               
itself through the Department of  Natural Resources (DNR) and the                                                               
governor's negotiating team.                                                                                                    
CHAIR OGAN  chimed in to  say that ANGDA  has nothing to  do with                                                               
the TransCanada  pipeline project;  its scope  is Prudhoe  Bay to                                                               
Valdez.  But,  the  Authority's   tax-free  status  might  be  of                                                               
interest to  the applicants [the  producers] and requiring  it to                                                               
review  the state's  involvement  in the  pipeline is  important,                                                               
because it uses more of a private sector approach.                                                                              
MR. HEINZE pledged:                                                                                                             
     If  it is  the  desire of  the State  of  Alaska, as  a                                                                    
     matter of  policy, that the  Authority not look  at the                                                                    
     fact that we share the  first 530 in common with moving                                                                    
     gas from the  North Slope down the  highway or wherever                                                                    
     it goes,  if we're not  supposed to  look at that  in a                                                                    
     commercial  way -  we might  combine  our efforts  with                                                                    
     each of the  sponsor groups - then, I think  we need to                                                                    
     know that. It  is certainly the view  of the Authority,                                                                    
     and  we have  maintained this  position throughout,  we                                                                    
     will work  with any  legitimate project sponsor  in any                                                                    
     way, shape or form...[END OF TAPE].                                                                                        
TAPE 04-9, SIDE B                                                                                                             
SENATOR ELTON  said he didn't know  the tenor of the  letters and                                                               
asked if Mr. Heinze could send a copy to the chair.                                                                             
MR.  HEINZE apologized  that that  hadn't been  done and  said he                                                               
SENATOR ELTON  expanded on  his concern saying  that DOR  had the                                                               
responsibility to  share appropriate  information with  ANGDA and                                                               
that ANGDA should share information  with DNR, also. Letters that                                                               
go out should be funneled through one place.                                                                                    
MR.  HEINZE offered  to send  copies of  all his  letters to  the                                                               
committee and  to send them  through whomever they direct  him to                                                               
send them through.                                                                                                              
MR. STEVEN PORTER, Deputy Commissioner,  DOR, inserted that there                                                               
is   a   single  contact   point   for   negotiations  and   both                                                               
Exxon/ConocoPhillips/BP [the  Producers] and MidAmerica  know who                                                               
they  are negotiating  with and  how to  distinguish between  the                                                               
Authority and negotiations with the  state under the Stranded Gas                                                               
Act.  He  affirmed that  there  are  two applications  under  the                                                               
Stranded  Gas Act  and that  he  intends to  negotiate with  them                                                               
simultaneously.  He used  a  truckers analogy  to  expand on  his                                                               
explanation. Basically,  the State  of Alaska is  the owner  of a                                                               
field; the industry leased the  field and produced a harvest. The                                                               
harvest can  go to market one  of three ways. Industry  can do it                                                               
themselves;  the  state  can  buy   its  own  trucking  line  and                                                               
independents  can bring  the product  to market.  Often, a  trunk                                                               
line goes from  L.A. to Chicago and the little  cities in between                                                               
don't get serviced unless the  independents service them. He sees                                                               
the Authority  complementing the  trunk line  by focusing  on in-                                                               
state gas benefits (like spur lines to smaller communities).                                                                    
SENATOR  ELTON  took  a  line  out  of  one  of  the  letters  to                                                               
ConocoPhillips/BP and ExxonMobil [the Producers] that read:                                                                     
     Your  Beaufort  Sea   alternative  route  might  become                                                                    
     possible if  North Slope gas was  available to Alaskans                                                                    
        as provided for in our project and we would also                                                                        
      welcome the opportunity to discuss your cooperation                                                                       
     toward that objective.                                                                                                     
He asked  if that  letter had  been vetted  by Mr.  Porter, would                                                               
that line have been in it.                                                                                                      
MR.  PORTER  answered that  ANGDA  reports  through DOR  and  the                                                               
governor's position  has not changed  on that issue.  The primary                                                               
goal [of the letter] is gas  to market and in-state gas benefits.                                                               
Mr. Heinze  brought forward the  secondary issue of  the Beaufort                                                               
Sea route  as a future  possibility and Senator Elton  would have                                                               
to ask him what his intent was.                                                                                                 
SENATOR  ELTON said  he didn't  want anyone  to suggest  that the                                                               
Beaufort  Sea alternative  route might  become possible  if North                                                               
Slope gas was  available to Alaskans. This sentence  seems to him                                                               
to illustrate  why the administration  should be speaking  to the                                                               
applicants with one voice.                                                                                                      
MR. PORTER retorted that the  administration is speaking with one                                                               
voice in its negotiations with the applicants.                                                                                  
SENATOR  ELTON insisted  that  his point  is  that another  state                                                               
entity is  also speaking with  one clear  voice. "I want  to make                                                               
sure the clear voices are saying the same thing."                                                                               
CHAIR OGAN said  Senator Elton's point is well taken  and that he                                                               
shared his concern with the  language mentioning the Beaufort Sea                                                               
route. He thought it sent mixed signals to the industry.                                                                        
MR. HEINZE  vouched that the  application filed by  the producers                                                               
clearly states  that it  is not route  specific and  proposes two                                                               
routes. That is what he was  responding to. ANGDA would share the                                                               
first 530 miles of the  first alternative, the highway route, and                                                               
something there might be beneficial  to both projects. The second                                                               
alternative, the  over-the-top route,  is not abandoned  in their                                                               
SENATOR SEEKINS  said he wasn't  aware of anything in  ANGDA that                                                               
says their CEO cannot communicate however he wants to.                                                                          
CHAIR  OGAN said  he was  correct  and that  it was  a matter  of                                                               
SENATOR   LINCOLN  said   the   Legislature   is  expanding   the                                                               
responsibilities  of  the  Authority  and  she  is  uncomfortable                                                               
because she senses it does not  have the complete blessing of the                                                               
administration. The current fiscal note  is zero through 2010 and                                                               
the second paragraph says explicitly  that to reduce duplication,                                                               
the state  will coordinate research  on all gas  pipeline options                                                               
and provide ANGDA  with any research it develops  that may assist                                                               
ANGDA in  the fulfillment of  its obligations. There may  also be                                                               
research that is appropriate for  ANGDA to conduct and to provide                                                               
that information to the State of Alaska. She cautioned:                                                                         
     It doesn't sound to me  that that coordination is there                                                                    
     and when  we're talking  about the Authority  taking on                                                                    
     additional    responsibilities    of   evaluation    of                                                                    
     opportunities  for private  sector  involvement in  the                                                                    
     planning,  development,  construction,  management  and                                                                    
     operations of the gas  transmission pipeline project, I                                                                    
     don't know how that can be  a zero. And that report has                                                                    
     to come  back to  us within a  year, before  January of                                                                    
     '05 - that  report including the new task  we gave them                                                                    
     has to  be before  us in  less than a  year and  yet we                                                                    
     still  have a  zero fiscal  note.... I  don't want  the                                                                    
     Authority  coming back  and saying  we don't  need more                                                                    
     money    because   SB    271    gave   us    additional                                                                    
     responsibilities to handle....                                                                                             
CHAIR  OGAN compared  SB  271  to, "...putting  our  bait in  the                                                               
water. We want to attract a strike."                                                                                            
If companies express an interest,  he'd get the checkbook out and                                                               
write a check. However, they  might not express interest and this                                                               
won't  do anything.  He  asked  Mr. Heinze  if  that  was a  fair                                                               
MR. HEINZE replied that he  has looked at the Authority's ability                                                               
under several  different scenarios  and the  supplemental request                                                               
of $2.5  million will  allow it  to pursue  any of  the projects.                                                               
However, he doesn't have a good  sense of how long the state will                                                               
pursue the stranded gas application process and said:                                                                           
     I'm happy  at this point to  leave it at a  zero fiscal                                                                    
     note.  I  do  not  believe  I  could  probably  promise                                                                    
     Senator   Lincoln  that   under  all   circumstances  I                                                                    
     wouldn't need additional funding....                                                                                       
SENATOR LINCOLN  said he was  assuming that the  Authority's $2.5                                                               
million  request  would  be  fully   funded.  If  it  isn't,  she                                                               
suggested that he rethink his reply in regards to SB 271.                                                                       
MR.  HEINZE  replied  that  if   the  funding  situation  changed                                                               
substantially, he  would have to  rethink the whole  relevance of                                                               
the Authority and what SB 271 was asking ANGDA to do.                                                                           
CHAIR OGAN said that SB 271 goes  to Finance next and he hoped to                                                               
get  it there  so  it could  be considered  along  with the  bill                                                               
requesting the supplemental funding.                                                                                            
MR. PORTER enlightened the committee  with his explanation of the                                                               
indeterminate fiscal  note saying that  the key is to  assume the                                                               
present law is  fully funded and go from  there. Some information                                                               
may become available  to ANGDA in such a way  that may save money                                                               
on  the original  plan; it  could easily  be a  wash. "We  do not                                                               
believe this  will incrementally cost the  state additional funds                                                               
at this present time."                                                                                                          
CHAIR OGAN  asked if  he thought  this was  an important  tool to                                                               
have - that may or may not work for this project.                                                                               
MR.  PORTER replied  with  a question.  If  proposition 3  didn't                                                               
exist  and the  Legislature  decided to  create  an entity,  what                                                               
responsibilities would  it give  it over  Alaska gas?  He thought                                                               
evaluating the TransCanada pipeline  and how it complements their                                                               
mission  was  a fair  use  of  ANGDA's  time and  he  recommended                                                               
broadening their responsibility to include it.                                                                                  
SENATOR SEEKINS said proposition  3 passed because of frustration                                                               
over  the  lack  of  action   and  he  encouraged  every  entity,                                                               
including ANGDA,  to try  to help the  state and  the Legislature                                                               
find ways  to get the gas  to market as economically  and quickly                                                               
as possible.                                                                                                                    
SENATOR  ELTON  noted  that  the  title of  SB  271  gives  ANGDA                                                               
authority   to   evaluate   opportunities  for   private   sector                                                               
involvement in the project, but page 2, line 13, says:                                                                          
     (C)   to  authorize   as   part   of  the   Authority's                                                                    
     development planning,  evaluation of  opportunities for                                                                    
     private   sector    involvement   in    the   planning,                                                                    
     development,  construction,  management, and  operation                                                                    
     of the project.                                                                                                            
He asked  if this authority  gives ANGDA a  seat at the  table as                                                               
the  state evaluates  the MidAmerica  application that  envisions                                                               
private sector involvement.                                                                                                     
CHAIR OGAN pointed out that he was reading intent language.                                                                     
SENATOR   ELTON  maintained   that   the   lines  he   referenced                                                               
"authorized"  ANGDA's  participation  in  evaluation  of  private                                                               
sector involvement.  He rephrased his  question and asked  if Mr.                                                               
Porter  took  this  as  a legislative  directive  to  have  ANGDA                                                               
involved  at   the  table  in   the  review  of   the  MidAmerica                                                               
MR. PORTER answered no.                                                                                                         
MR. HEINZE further answered:                                                                                                    
     I  felt  that  language   was  an  instruction  to  the                                                                    
     Authority  that  we  should   include  in  any  of  our                                                                    
     thinking  ways  that   private  individuals  and  other                                                                    
     investors,  frankly,  could   become  involved  in  the                                                                    
     project if they wished in whatever we did.                                                                                 
CHAIR  OGAN said  he  didn't  have any  problem  with taking  the                                                               
intent language out.                                                                                                            
MR. PORTER  expanded his answer  saying it  is not the  intent to                                                               
have ANGDA  sit at the table  with the state in  negotiating with                                                               
MidAmerica.  However,  he  felt  that  both  the  state  and  the                                                               
Authority are committed to in-state  gas benefits from local hire                                                               
and  contracting, including  participation  in  ownership of  the                                                               
MR.HEINZE said  he found the  language in SB 271  helpful because                                                               
it  added consideration  of  a special  offering  to Alaskans  to                                                               
whatever ANGDA developed in the way of a funding plan.                                                                          
SENATOR  DYSON  echoed  Senator   Seekins'  comment  about  voter                                                               
frustration and  wanting to see  things move. He has  respect for                                                               
Mr. Heinze and hears him saying  ANGDA wants to be very useful in                                                               
collecting  needed   information  to  make   informed  decisions.                                                               
Expanding  its ability  to look  at the  possibility of  a shared                                                               
portion of the pipeline is very useful.                                                                                         
MR. ROBERT  VALDATTA, member of  the Municipal Advisory  Panel on                                                               
Stranded  Gas, Seward,  supported SB  271, because  it would  put                                                               
Alaskans to work.                                                                                                               
SENATOR  WAGONER  moved  to  pass  SB  271  from  committee  with                                                               
individual recommendations and attached fiscal note.                                                                            
SENATOR ELTON objected saying, while he intends to vote for                                                                     
passage of SB 271 and supports the $2.5 million request so the                                                                  
state can have every tool it needs:                                                                                             
     We  have to  carefully  parse, kind  of, the  testimony                                                                    
     from  the department  whether  they  are supportive  of                                                                    
     $2.5 million  or how  does this  work with  ANGDA. And,                                                                    
     while I agree that all the  tools ought to be there, we                                                                    
     ought to have a good  understanding of who is using the                                                                    
     tools and what the tools  are meant to accomplish. And,                                                                    
     I'm  not quite  there, yet.  So,  I think  that puts  a                                                                    
     little  bit  of  responsibility on  the  Department  of                                                                    
     Revenue  and on  ANGDA  to develop  those protocols  so                                                                    
     that  we  understand  and we're  comfortable  with  the                                                                    
     process -  because I do believe  that we are at  a very                                                                    
     delicate stage  right now. I  don't want the  left hand                                                                    
     not knowing what  the right hand is  doing as potential                                                                    
     contracts that are  going to be presented  to the whole                                                                    
     body,  hopefully in  a timely  manner, come  up.... I'm                                                                    
     going  to  be  a  no-rec  on the  bill.  I  think  it's                                                                    
     important to move  it forward so that we  can keep some                                                                    
     momentum behind  this.... It would  sure be  helpful if                                                                    
     we  knew what  those protocols  were before  we finally                                                                    
CHAIR OGAN responded that his points are well taken. He has been                                                                
told that the state often sends a very mixed, and somewhat                                                                      
dysfunctional, message to the market.                                                                                           
SENATOR ELTON removed his objection.                                                                                            
CHAIR OGAN announced that SB 271 passed from committee. There                                                                   
being no further business to come before the committee, he                                                                      
adjourned the meeting at 5:05 p.m.                                                                                              

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