Legislature(2015 - 2016)HOUSE FINANCE 519
01/29/2016 07:30 AM House LEGISLATIVE BUDGET & AUDIT
| Audio | Topic |
|---|---|
| Start | |
| Approval of Minutes | |
| Enalytica, Inc. Contract Renewal | |
| Other Committee Business | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE BUDGET AND AUDIT COMMITTEE
January 29, 2016
7:30 a.m.
MEMBERS PRESENT
Representative Mike Hawker, Chair
Representative Kurt Olson
Representative Lance Pruitt
Representative Steve Thompson
Representative Sam Kito
Senator Anna MacKinnon, Vice Chair
Senator Lyman Hoffman
Senator Cathy Giessel
Senator Bert Stedman
Senator Click Bishop
MEMBERS ABSENT
Representative Mark Neuman (alternate)
Senator Pete Kelly (alternate)
COMMITTEE CALENDAR
APPROVAL OF MINUTES
ENALYTICA~ INC. CONTRACT RENEWAL
OTHER COMMITTEE BUSINESS
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
RENA DELBRIDGE, Staff
Representative Mike Hawker
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Offered details for the proposed renewal of
the contract with enalytica, Inc.
ACTION NARRATIVE
7:30:45 AM
CHAIR MIKE HAWKER called the Legislative Budget and Audit
Committee meeting to order at 7:30 a.m. Representatives Hawker,
Thompson, and Kito and Senators MacKinnon, Giessel, Bishop, and
Stedman were present at the call to order. Representatives
Olson and Pruitt and Senator Hoffman arrived as the meeting was
in progress.
^Approval of Minutes
Approval of Minutes
7:31:53 AM
CHAIR HAWKER announced that the first order of business would be
approval of the minutes.
SENATOR MACKINNON made a motion to approve the minutes of
November 17, 2015, and December 7, 2015. There being no
objection, the minutes from the meetings of November 17, 2015,
and December 7, 2015, were approved.
^enalytica, Inc. Contract Renewal
enalytica, Inc. Contract Renewal
7:32:45 AM
CHAIR HAWKER announced that the next order of business would be
discussion regarding the renewal of the contract with enalytica,
Inc.
7:34:41 AM
RENA DELBRIDGE, Staff, Representative Mike Hawker, Alaska State
Legislature, shared that she had discussed a contract renewal
with both Mr. Mayer and Mr. Tsafos from enalytica, Inc. She
explained that the past contracts had been with each individual,
but, since formation of the corporation, enalytica, Inc., a new
contract had now been negotiated with enalytica, Inc. She
reported that the new contract was "essentially on the same
terms" and the current dollar amount reflected a doubling up of
the two individual contracts into one contract. She detailed
that the services of both men would be available for the
upcoming year, at a retainer of $20,000 per month for 10 days of
work each month.
7:36:31 AM
CHAIR HAWKER asked whether the retainer services had been
utilized in the last billing cycles.
MS. DELBRIDGE, in response, said that there were only one or two
months during the past year in which enalytica, Inc. did not
have work from the Alaska State Legislature to fill those five
days of contractual work from each individual. She reported
that in the other months the requests for reports to help with
policy decisions or the presentations in Juneau for specific
analysis resulted in full use of the retainer. She relayed that
the retainer contract had been slightly restructured, and would
now allow for the rollover of any unused days to the next month,
which would be capped quarterly. She noted that this [rollover
structure] was a negotiated benefit to the state. She shared
that the only other changes were technical word choices.
7:38:29 AM
REPRESENTATIVE KITO asked if enalytica, Inc. was paid
regardless, or was work required in order to be paid.
MS. DELBRIDGE replied that the retainer would be paid as agreed
in the contract, regardless of whether the Legislature has
specific work requests for them. She detailed that the monthly
retainer included ten days of work product, not charged in
addition to the retainer. She opined that the framework seemed
to be working fairly well, and had allowed for enalytica to
maintain a work readiness for any special items that arose,
including educational symposiums. She shared that there was a
risk with a no retainer relationship as without a retainer they
may need to pursue other clients.
CHAIR HAWKER stated that there was nothing about this retainer
relationship that was, in any way, unusual or not in ordinary
business practice. He explained that enalytica. Inc. would make
the commitment of time and be on call with this retainer.
7:40:11 AM
SENATOR STEDMAN offered his belief of a need for more
consultants, noting that historically there had been "a few
more." He mentioned past contracts with Roger Marks. He opined
that the Legislature needed "to be careful with our tool box, we
don't end up with no tools in it." He pointed out that it would
take any consultant time to come up to speed for the mechanisms,
the complexity, and the history of the structure, as it was not
clear cut. He suggested that it was a good practice to keep
people on retainer, instead of a two to three month wait while
they built a model of cash flow and tax structure.
CHAIR HAWKER expressed his agreement with those concerns, and
asked that this be addressed during a discussion later in the
meeting for additional resources that were necessary and
appropriate, an "essential spend for the State of Alaska." He
reiterated his agreement:
We're looking at one of the world's largest mega
projects, in the gas line, and we're looking at the
lifeblood of the State of Alaska in our oil and gas
tax system. These are critical issues, and I firmly
believe we owe it to the public of the State of Alaska
that adequate, qualified resources [are] available to
us as we need them.
7:42:10 AM
SENATOR BISHOP asked for clarification that the unused days of
consultation could be carried forward.
MS. DELBRIDGE replied that Representative Hawker had requested
this in order to make full use of every retainer day possible,
and enalytica, Inc. was accommodating and agreeable. She
pointed out that this was capped quarterly in order to avoid too
much of an accrual of days.
CHAIR HAWKER explained that, although this agreement paid
enalytica, Inc. monthly, the hours in the contract would be
reconciled quarterly. He allowed that, although future
projections were dangerous, consistency with the previous use
patterns, minimized the "risk of leaving any money laying on the
table with the quarterly retainer." He acknowledged that
enalytica, Inc. had rolled some unused hours forward in the
past.
SENATOR BISHOP expressed his appreciation for this negotiation.
He concurred with the earlier comments by Senator Stedman. He
noted that enalytica, Inc. was being quoted in other oil and gas
publications, and that "they're a known commodity, I like 'em
personally. I think they're good." He further stated: "I like
a big tent with all the knowledge I can get."
7:45:32 AM
SENATOR GIESSEL acknowledged that the two consultants from
enalytica, Inc. had been consulting with the Alaska State
Legislature for "a long time, so getting up to speed isn't a
problem with them." She expressed her concern to the possible
need for more consulting days, and she asked about the
likelihood of exceeding the contracted number of days.
MS. DELBRIDGE replied that "the not to exceed contract amount of
$400,000, based on our past use history, should be more than
adequate to take care of that." She explained that any extra
days would be billed at a daily rate of $3000 per day [for each
of Tsafos/Mayer].
7:46:46 AM
SENATOR GIESSEL expressed her concern that she did not have a
copy of the contract.
CHAIR HAWKER replied that the long standing process [in the
Legislative Budget and Audit Committee] was for the committee
chair to be authorized to negotiate a contract "with the not to
exceeds." He stated that this specific contract was not yet
completed, as the ministerial aspects were still being
negotiated between the attorneys for enalytica, Inc. and the
Alaska State Legislature.
7:47:28 AM
MS. DELBRIDGE acknowledged that nearly all the contract was
complete, and there was nothing material left to be negotiated.
She stated that there was only a "fairly immaterial change."
7:48:00 AM
SENATOR GIESSEL expressed her desire to read the contract prior
to her agreement.
CHAIR HAWKER offered the option for Senator Giessel to vote
against the motion to approve the contract. He stated that, in
his 14 years on the Legislative Budget and Audit Committee, he
had "never seen this committee get into the specifics of
contract negotiations."
7:48:35 AM
REPRESENTATIVE THOMPSON offered his belief that enalytica, Inc.
was "some of the best in the world." He stated that, although
he did not have a need to review the contract, he wanted
clarification on some specifics. He asked if the agreed upon
payment of $3000 per day was for each consultant, to total $6000
per day.
MS. DELBRIDGE replied that the terms were the same as prior
contracts, and the payment of $3000 per day was per person. She
added that "travel was at half of that." In response to
Representative Thompson, she relayed that the necessity for the
services of both men was dependent "on the nature of the
specific request."
REPRESENTATIVE THOMPSON asked if expenses above the contract
price were included.
MS. DELBRIDGE replied that reasonable travel expenses, including
airfare, lodging, and per diem for meals, were also reimbursed.
She noted that these were included in the overall not to exceed
cap on the contract, but were not included in the daily rate.
In response, she relayed that the "not to exceed cap" was
$400,000.
CHAIR HAWKER reiterated that "there is no change in the not to
exceed number." He reminded the committee that it was necessary
for the Legislative Budget and Audit Committee to continue or
extend a contract.
7:50:33 AM
REPRESENTATIVE KITO acknowledged that enalytica, Inc. had
provided good advice, and asked if enalytica, Inc. had any
clients other than the State of Alaska.
MS. DELBRIDGE replied "not to my knowledge," suggesting that
enalytica, Inc. would be better able to answer that for
themselves.
REPRESENTATIVE KITO asked for clarification that, although the
contract was for five days each month, was enalytica, Inc.
expected to be available full time to the Alaska State
Legislature.
MS. DELBRIDGE stated, "Not exactly." She explained that the
contract kept enalytica, Inc. under contract to the Alaska State
Legislature, and they had been very responsive to these needs.
She declared that enalytica, Inc. had "made themselves available
absolutely."
CHAIR HAWKER explained that this was the reason for the requests
to other committee chairs for advance notice to their needs, so
the consultants could maintain availability. He stated that
enalytica, Inc. had always adjusted their schedule to meet
committee requirements.
7:52:41 AM
SENATOR STEDMAN suggested that a review of the history of the
consultants in the international arena for mega projects and gas
proposals would be beneficial to the committee. In response to
Chair Hawker, he explained that, as this consultancy was a very
small marketplace, many of the firms had conflicts, often having
preexisting contracts with the major oil companies involved in
Alaska. He relayed that this created a challenge, and, as it
was a competitive market place, many companies would tie up the
consultants so their competitors would not have the necessary
analytical help. He emphasized that this put Alaska at a
disadvantage, as the state's sole existence was not oil and gas.
Consequently, "we don't have a smorgasbord of consultants we can
just dial up and have 'em beat down our door." He relayed that
the two aforementioned consultants came from the firm with which
the committee had previously contracted, which had subsequently
merged with another company so that they had started their own
consultancy.
CHAIR HAWKER interjected that this previous consulting contract
had been with PFC Consultants, one of the few firms that did not
have conflicts. However, after the PFC merger with a second
firm, this reorganization had resulted in a conflict, so Mr.
Mayer and Mr. Tsafos formed enalytica, Inc. He offered that
this was fortunate for Alaska, as they had been the two
consultants from PFC working with Alaska.
7:55:29 AM
SENATOR MACKINNON explained that she had been Chair of the
Legislative Budget and Audit Committee at that time of
transition. She offered some background to this contract,
noting that the newly merged company had decided to retain its
contracts with the large oil companies. She relayed that the
committee had reached out to a variety of consultants, and
ultimately, enalytica, Inc. had approached the committee. She
stated that the consultants had been very professional and had
provided information which was as political free as possible.
She acknowledged the challenge and the difficulty of relaying
pending contracts to individual committee members, especially as
the contracts were usually negotiated in early January. She
stated her support for the pending contract, and offered her
belief that these contracts would be available to all the
committee members. She reported that the amounts were within
the standard parameters of what had previously been issued. She
noted the value of Senator Stedman's comment for the need of
additional contracts.
7:58:27 AM
CHAIR HAWKER explained that procurement of these specialized
contractors in a very specialized environment came from a very
limited field. The committee, after discussion and research for
alternatives, had determined that it was an appropriate contract
without the formal RFP (Request For Proposals) solicitation and
award process, because of the "unique services, the unique
knowledge of theirs with the State of Alaska." He declared that
the priority was a search for quality, noting that the contract
was exempt from the solicitation and contract award requirements
of legislative procurement, even as it was in compliance with
those provisions.
7:59:48 AM
REPRESENTATIVE THOMPSON expressed his support for the contract
but asked to clarify the total numbers.
MS. DELBRIDGE, in response to Representative Thompson, clarified
that the contract was for a monthly payment of $20,000 to
enalytica, Inc. She explained that the "not to exceed amount"
would cover the reimbursable travel expenses, which had been
agreed upon with the Legislative Audit Division, as well as any
additional days that may become necessary. She pointed out that
this was reflective of the amount in the previous contract,
which had served well as a dollar value over the past few years.
CHAIR HAWKER reiterated that the two former contracts had been
$10,000 each, but these two contracts had now been merged, which
became $20,000 for the firm, enalytica, Inc. He stated that the
committee vote was to authorize a contract that could, if all
the money was used, spend $400,000.
REPRESENTATIVE THOMPSON observed that the $400,000 included all
the extra expenses.
8:01:59 AM
REPRESENTATIVE KITO expressed his agreement that enalytica, Inc.
provided a valuable service to the state; however, noting the
constraints to the current proposed budget, he suggested that
the committee be careful moving forward, while asking the rest
of the state to scale back. He asked if there had been an
effort to negotiate a lower fee with enalytica, Inc. especially
as the State of Alaska was its only contract. He asked if there
was concern for enalytica, Inc. working with other companies.
He offered his belief that the limited monthly time obligation
to the State of Alaska would offer the opportunity for
enalytica, Inc. to search for other contracts. He suggested
that this was the chance to negotiate a lower fee.
8:03:02 AM
SENATOR MACKINNON, in response, offered her belief that the
State of Alaska was not the only contract held by enalytica,
Inc. She relayed that enalytica, Inc. had been in business for
more than one year, and that they were soliciting other work.
She stated that this proposed contract was a better agreement
than the original, as that original did not include rolling the
days forward. She expressed agreement with the need to be
judicious in any spending. She offered to research whether
enalytica, Inc. had other contracts.
CHAIR HAWKER affirmed that it was his understanding that the
State of Alaska was not their only client. He stated: "by
committing to the State of Alaska, they do commit to us to be
available." He said that this was a criteria asked of all
consultants. He added that the country of Greece was a client
of enalytica, Inc., adding "these guys are truly internationally
recognized consultants." He assured the committee that the
legislature of the State of Alaska was "one of the most
demanding clients there is," pointing out that some consultants
did not want to work with the legislature because of the unique
time demands. "We ask a lot, we demand a lot of the people that
provide these services to us," he emphasized. He suggested that
a review of the contracts signed by the administration would
indicate that the Alaska State Legislature was receiving a
"fair, market driven transaction with these folks."
8:05:35 AM
SENATOR STEDMAN opined that there had been some problems, some
competitive disadvantages embedded in Alaska's Clear and
Equitable Share (ACES), which had needed to be reviewed, and
possibly restructured. When the Legislative Budget and Audit
Committee set out to deal with this, and tried to find
consultants, they kept coming up with "firms that were
conflicted out." He shared that he and the Chair had identified
some mechanical problems within ACES. He allowed that there
could be discussion for the politics and policy, but he
underscored that there were "some issues embedded in there that
needed to be rectified." He shared that they had difficulty
finding a consulting firm because the major oil companies and
the administration had already contracted with them, before they
located PFC Energy and started the review of the ACES structure.
He continued with this history of the involvement with
consultants and pointed out that, although Mr. Tsafos and Mr.
Mayer had been doing the background work for the state, they
were not the initial interface people with whom Senator Stedman
and Chair Hawker met. He expressed his concern with the cost of
the contracts, but declared that this was a pittance compared to
"what we could face if we walked into these negotiations at
all." He stated that the administration had hired consultants
away from the legislature through "politically tactful
maneuvers, sometimes induced by our own members of this
committee." He declared a need to be protective of the
consultants and to build a consultant team to help the committee
make the best policy decision. He suggested the need for a
discussion to broaden the team with less expensive consultants
who did not require the global market positioning and
international viewpoint of a gas structure, but understood the
mechanics "of what we're dealing with."
8:09:07 AM
SENATOR HOFFMAN asked if there were any renewal or extension
options in this contract.
MS. DELBRIDGE opined that this was simply a yearlong contract,
for which the Alaska State Legislature could discuss a renewal
at its end.
CHAIR HAWKER explained that there were not any renewal options
in the first contract, and there were not any in the current
contract. He stated that this was a one year contract extension
that will, necessarily, be renewed if needed in a year.
8:10:13 AM
SENATOR GIESSEL commented that she had enjoyed working with
enalytica, Inc. and she expressed her full support for re-
engaging and working with them. She expressed her full
understanding that there were historical procedures, but, as
there were still questions about the contract and as it was her
responsibility to read the contract before voting its approval,
she would not vote for the contract until she had read it.
8:11:03 AM
SENATOR MACKINNON moved and asked unanimous consent that the
Chair of the Legislative Budget and Audit Committee be
authorized to enter into a contract with enalytica, Inc. at a
cost not to exceed $400,000. The contract will be exempt from
the solicitation and contract award requirements of the
Legislative Procurement Procedures.
8:11:47 AM
SENATOR HOFFMAN asked for the term of the contract.
SENATOR MACKINNON objected for discussion.
8:12:08 AM
MS. DELBRIDGE explained that the time frame of the contract
would begin on February 1, 2016, through January 31, 2017.
8:12:25 AM
SENATOR MACKINNON removed her objection.
SENATOR GIESSEL objected.
8:12:38 AM
A roll call vote was taken. Representatives Hawker, Pruitt,
Thompson, Olson, and Kito, and Senators MacKinnon, Hoffman,
Bishop, and Stedman voted in favor of renewal of the contract
with enalytica, Inc. Senator Giessel voted against it.
Therefore, the contract proposal with enalytica, Inc. was
adopted by a vote of 9 to 1.
CHAIR HAWKER said the contract, as soon as completed, would be
available as a public document and that he would provide a copy
of the contract to Senator Giessel.
8:13:54 AM
SENATOR MACKINNON offered some background to her early time as
the Chair of Legislative Budget and Audit Committee. She
expressed her hope that the committee would enter into a
contract at the end of 2016 if it was decided to retain
consultants. She acknowledged that the contract process had
been completed prior to her chairmanship, and she now better
understood the difficulty of having all the necessary
information at a particular point in time, and why it had not
been left for her to complete.
CHAIR HAWKER agreed that this would be reviewed during the
upcoming fall.
SENATOR MACKINNON recognized that this was a great help to an
incoming new chair.
^Other Committee Business
Other Committee Business
8:16:44 AM
CHAIR HAWKER announced that the next order of business would be
to begin a dialogue for what additional resources might be
essential to the Alaska State Legislature as it moved forward
with legislation regarding oil and gas fiscal systems. He
pointed out that the governor was going to insist that the
entire Alaska LNG Project be "papered and those papers be
delivered to the legislature by the end of the 90 day session
and we are to be acting upon them and in an immediately called
special session."
CHAIR HAWKER allowed that Senator Stedman had discussed the need
for "other resources that are on call, that are not as
expensive, but they can satisfy our needs for modeling and
technical work." He shared that typically this level of
procurement had been done on the chair's authority with the
concurrence and knowledge of the committee. He offered Roger
Marks, a former state petroleum economist, as an example. He
solicited suggestions from Senator Stedman for resources to
engage for these more routine matters, who could be on call to
individual legislators with deference to committee chairs,
especially those who had bills in their jurisdiction. He
offered his belief that a more challenging end was that the
legislature was facing a decision by the end of the 90 day
session, which would be based on the entire document package for
the Alaska LNG Project and could be feet thick. He declared the
necessity to be prepared, and opined that none of the individual
legislators had the experience in the complete value chain of
"one of the largest economic projects in the history of the
world, in a very competitive environment." He offered his
belief that it was necessary for an additional high level
resource of someone with successful practice and experience with
consultation to a sovereign for the development of a complete
value chain and the accompanying business transaction. He
declared that it was necessary to consider a significant
contract by the committee.
8:20:39 AM
SENATOR STEDMAN, in response to Chair Hawker, reflected that,
for any new members to the committee, there was a substantial
learning curve, as it was a complicated system. He allowed that
the price of the contract was significant and he would prefer
not to use enalytica, Inc. for the mechanical process of day to
day operations. He reflected that the committee had used Dan
Dickinson in past years. He offered an example of policy,
dealing with credits, and noted that these were confidential,
although they were co-mingled for a total. He shared that a
policy with a cost needed to be reviewed for its effectiveness,
and this became a problem when it was dealing with confidential
information that was not available. He offered his belief that
the increased complexity of the system would create a new fiscal
structure to embed in the current structure, and that it was
important for legislators to understand the mechanical process.
He expressed his concern for statutes and processes that
hindered themselves. He reiterated that it was beneficial for
new members to understand at least "a rough layout" of the tax
structure, noting that sometimes a policy change was made
without an anticipation of the outcome until years later upon
review.
8:24:21 AM
CHAIR HAWKER offered to discuss this further and suggested that
consultants could be available on standby contracts.
8:25:03 AM
REPRESENTATIVE KITO opined that it was important to note that
the largest proposed engineering project in the world was
"sitting at our doorstep and it may be worthwhile to have a
little bit of due diligence on the technical aspects of the
engineering of the project" to ensure that the proposed cost of
the project, $45-$65 billion, was similar to the cost proposed
by the staff.
8:25:55 AM
SENATOR MACKINNON suggested that, as many areas needed to be
reviewed, engineering may be a lower priority for her because
the three partners were pushing for lower costs, as well. She
expressed a greater concern with the gas sales agreement,
pointing out that the legislature may not have any expertise.
She added that the financing realm was also a priority. She
suggested that the committee look at categories as the needed
expertise would be for more than one field. She offered to
reach out to former members of the Alaska LNG Project board of
directors who had worked on successful projects for their
recommendations to expert consultants.
CHAIR HAWKER agreed that everyone recognized these needs, and
his staff had anticipated the conversation. He reported that
his search had found there were very few qualified resources who
did not already work with Exxon Mobil.
8:28:54 AM
MS. DELBRIDGE, in response to Chair Hawker, offered a matrix of
the 24 different current agreements that would comprise the
Alaska LNG Project package which the state had shared with the
legislature after the recent special session. These ranged from
the commercial and governance agreements to payments in lieu of
taxes (PILT), all of which raised concerns. She expressed her
understanding that it would be critical for the legislature to
look at the terms and to fully understand the interface of all
the associated agreements, as well as the cumulative effect on
the project. She pointed out the importance for retaining the
full value proposition which drove the state to participation in
the project. She reported that she was tasked with assessing
professional firms for consulting services to review this suite
of project enabling agreements. She allowed that there could be
little time before a special session when due diligence would be
expected of the legislature to review and understand the package
even though the contracts would already have been negotiated.
8:30:58 AM
CHAIR HAWKER observed that it was critical to keep in mind that,
although the legislature was not a negotiator in this
transaction, its role was to understand the transaction and
approve the critical documents to move it forward. He pointed
out that there was a big difference between negotiation and
structure of the agreements as opposed to understanding,
reviewing, and passing judgement on those agreements.
8:31:25 AM
MS. DELBRIDGE shared her research of contractors with the
necessary integrated project experience, and had resources to
bear on the entire value chain, from upstream supply agreements,
marketing structure, new infrastructure agreements, fiscal and
governance agreements, and financing proposals. She pointed out
that this contract would be for a review of due diligence
without any negotiation of the contracts. She noted that these
would need to be firms willing to work in the public realm to
provide written and verbal testimony within the public arena,
and were also free of the aforementioned conflicts. She added
that this was a small field, and she had narrowed this to an in-
depth look at 12 firms, although most lacked some of the entire
value chain expertise. She had identified two strong
candidates, with a third candidate that had a potential conflict
that could not be navigated.
CHAIR HAWKER expressed his desire to reconvene the committee to
continue this conversation, in executive session, to discuss the
specific candidates in more depth and determine the will of the
committee for procuring additional support for the project. He
suggested a review of the contracts the administration had
signed. He declared that he was not suggesting spending
millions of dollars to redo everything done by the
administration. He acknowledged that it would be expensive to
hire someone to "take that capstone view from our due diligence
perspective on the work that is being done" by the shared
project sponsors.
8:35:23 AM
ADJOURNMENT
There being no further business before the committee, the
Legislative Budget and Audit Committee meeting was adjourned at
8:35 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Agenda_LBA_29Jan16.pdf |
JBUD 1/29/2016 7:30:00 AM |