Legislature(2011 - 2012)HOUSE FINANCE 519
03/22/2012 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB158 | |
| HB9 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 158 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 9 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
March 22, 2012
1:38 p.m.
1:38:33 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:38 p.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Co-Chair
Representative Anna Fairclough, Vice-Chair
Representative Mia Costello
Representative Mike Doogan
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Reggie Joule
Representative Mark Neuman
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Joe Michel, Staff, Co-Chair Stoltze; Larry DeVilbiss,
Mayor, Mat-Su Borough; Delena Johnson, Mayor, City of
Palmer; Dan Sullivan, Mayor, Anchorage; Michael Foster,
Chairman, Knick Arm Bridge and Toll Authority; Jeff
Otteson, Director, Program Development, Department of
Transportation and Public Facilities; Jeff Stark, Chief
Assistant Attorney General, Transportation Section,
Department of Law; Bob French, Chairman, Government Hill
Community Council; Ben Northey, President, Colaska Inc.;
Robert Dun, Engineer, Colaska Inc.; Doug Smith, President
and CEO, Little Red Services, and Chair, The Alliance;
Representative Mike Hawker, Co-Sponsor; Bill Walker, Owner,
Walker Levesque, LLC, Anchorage; James Mery, Vice
President, Lands and Natural Resources, Doyon, Limited; Tom
Wright, Staff, Representative Mike Chenault; Senator
Huggins; Representative Mike Chenault, Sponsor;
Representative Alan Austerman; Representative Steve
Thompson.
PRESENT VIA TELECONFERENCE
Lyn Carden, Wasilla, Executive Director, Wasilla Chamber of
Commerce; Pete Mulcahy, President, Chugiak and Eagle River
Chamber of Commerce; Aves Thompson, Executive Director,
Alaska Trucking Association; Darcie Salmon, Assembly
Member, Mat-Su Borough; James Kenworthy, Self, Anchorage;
Jeff Cook, Regional Director, External Affairs, Flint Hills
Resources, Fairbanks; Richard Fineberg, Self, Fairbanks;
Lynn Willis, Self, Eagle River; Richard Peterson, Self,
Anchorage; Brad Henspeter, Self, Copper River; Lisa
Herbert, Executive Director, Greater Fairbanks Chamber of
Commerce; George Pierce, Self, Kasilof; Clai Porter, Self,
Anchorage; Gene Therriault, Vice President, Resource
Development and External Affairs, Golden Valley Electric,
Fairbanks; Chuck Wiegers, Self, Fairbanks; Deborah
Brollini, Self, Anchorage; Julie Duquette, Self, Fairbanks;
David Owens, Owens Inspection Services, Palmer; Chuck
Renfro, Home Builders Association, Anchorage; Leigh Skiles,
Self, Homer; Tom Lakosh, Self, Anchorage.
SUMMARY
HB 9 IN-STATE GASLINE DEVELOPMENT CORP
HB 9 was HEARD and HELD in Committee for further
consideration.
HB 158 KNIK ARM BRIDGE AND TOLL AUTHORITY
CSHB 158(FIN) was REPORTED out of committee with
a "do pass" recommendation and with one new zero
fiscal note from the Department of Transportation
and Public Facilities.
1:38:40 PM
HOUSE BILL NO. 158
"An Act relating to the authority and obligations of
the Knik Arm Bridge and Toll Authority, to bonds of
the authority, and to reserve funds of the authority;
authorizing the state to provide support for certain
obligations of the authority; relating to taxes and
assessments on a person that is a party to an
agreement with the authority; and establishing the
Knik Arm Crossing fund."
1:39:07 PM
Vice-chair Fairclough MOVED to ADOPT proposed committee
substitute for HB 158, Work Draft 27-LS0431\T (Martin,
3/22/12) as a working document.
Co-Chair Stoltze OBJECTED for purpose of discussion.
JOE MICHEL, STAFF, CO-CHAIR STOLTZE, relayed that the
committee substitute (CS) included two changes. The
following language was deleted from the original bill
(Section 1 part of AS 19.75.111(a)):
Monetary obligations incurred by the authority under
the partnership or contract are obligations of the
state and satisfactions of those obligations from
funds other than authority funds is subject to
appropriation.
Mr. Michel shared that the additional bill sections had
been renumbered. The second change was on page 4, line 25
where the words "ad valorem taxes on real or personal
property and special property tax assessments" were
inserted following the words "shall be exempt from all."
Co-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION, it was so ordered.
1:41:26 PM
REPRESENTATIVE MARK NEUMAN, SPONSOR, presented the bill
relating to bonds and the authority of the Knik Arm Bridge
and Toll Authority (KABATA). He relayed that he had been a
non-voting member on the KABATA board for five years. He
believed the state had opportunities moving forward with
the bridge and that it was part of the critical
infrastructure development. The bridge would cross the Knik
Arm and would provide access to the potential gas pipeline
terminus, opportunities to move into western Alaska, gas or
coal reserves, and a potential gas pipeline from Cook Inlet
into the Interior. He stated that the bridge connected many
of the different infrastructure projects together. The
bridge would also link the Port of Anchorage (that received
the majority of freight imported into the state) and Port
MacKenzie (an industrial port with 14 square miles of land
designated for industry). He stressed that the industry
utilizing Port MacKenzie could help support an instate gas
pipeline, oil and gas storage facilities, a gas to liquids
facility, and other. He communicated that there were
experts available to discuss the issue in depth. He
communicated the intent to address the state's obligation
in relation to the project; the section had been removed
from the legislation.
Representative Neuman discussed that a portion of the bill
proposed an increase in the bonding authority from $500
million to $600 million. He furthered that the bill would
create a reserve fund, but funds were not being requested
currently; work continued to determine how to progress. He
emphasized that the project represented an opportunity to
provide income to the state; within the first ten years the
bridge was expected to bring in over $1 billion for instate
transportation projects (e.g. ferry, airport, road, or port
projects). He opined that with a drop in throughput in the
Trans-Alaska Pipeline System (TAPS) it was important to
diversify the economy and locate new revenue streams for
the future. He accentuated that the bridge "literally is
free to the state government" and would be funded by toll
revenues that would cover maintenance for the first 35
years. Additionally, within the first 35 years over $10
billion in revenue projects were estimated for the state;
the excess revenue would go through the general fund for
designation by the legislature for transportation projects.
He stressed that the bridge would not cost the state
government money. He introduced individuals involved in the
project development.
Co-Chair Stoltze asked several mayors to provide brief
statements regarding their position on the legislation.
LARRY DEVILBISS, MAYOR, MAT-SU BOROUGH, supported the
bridge. He pointed to road and traffic problems in Palmer
and Wasilla that would need to be addressed by a bridge or
significant improvements to the Glenn Highway; if the
industrial traffic going north could bypass the areas it
would be a huge relief. He emphasized that the economic
element in Mat-Su was significant; Port MacKenzie was an
industrial port and a direct connection to Anchorage
provided great potential for economic expansion. He relayed
that the economic development would eventually occur
without the bridge; however, the project would accelerate
the development, jobs, and revenue. He reiterated the
borough's support for the project.
DELENA JOHNSON, MAYOR, CITY OF PALMER, spoke in support of
the bridge. She explained that all residents from the Mat-
Su Valley drove the road frequently to reach the major
facilities in Anchorage. She opined that it was important
to have an alternate route to Anchorage for safety and
population expansion reasons. She was concerned that
currently there was only one way to reach the valley by
road for emergency response vehicles. She encouraged the
committee to help "make something happen."
1:51:06 PM
Mr. DeVilbiss communicated that Wasilla Mayor Verne
Rupright and the Mayor of Houston were also very supportive
of the project.
Co-Chair Stoltze believed the two mayors had litigated
against some "forces" in the City of Anchorage on behalf of
the project in the past.
Representative Gara noted that approach roads, a tunnel,
and possibly a second bridge were also included in the
project. He wondered what necessary improvements would be
made on the Wasilla side of the bridge to get drivers from
the bridge to Wasilla and Willow. He asked about a cost
estimate related to the items.
Mr. DeVilbiss answered that the legislature had set aside
$250,000 for the items the prior year. The "Port to Parks"
project was of "imminent" importance and the goal was to
bypass the traffic heading north around the west side of
Big Lake. Currently the project terminated where the Knik
Goose Bay road turned towards Wasilla. He stated that the
project was not a road to nowhere.
Representative Gara asked about the required length of the
road to Willow from the bridge drop-off and its estimated
cost. Mr. DeVilbiss replied that he did not have a cost
estimate.
Co-Chair Stoltze remarked that the Department of
Transportation and Public Facilities (DOT) would be better
equipped to answer the question.
Mr. DeVilbiss continued that the road would be less than 30
miles; the rail extension was 32 miles and went to the
port. The bridge included a road component of approximately
11 miles that went considerably away from the port.
Representative Gara wondered whether any improvements would
be required on Knik Goose Bay Road in order to accommodate
the bridge. Mr. DeVilbiss replied that "that's already
scheduled and in the in design process." He added that DOT
could speak better to the question.
Co-Chair Stoltze commented that the projects were a highway
safety corridor and were irrespective of the Knik bridge
project. He relayed that Representative Neuman had put the
$250,000 through for an impact study and to help local
communities plan and be involved in the process.
1:54:52 PM
Representative Neuman addressed what would happen after the
bridge was built. He explained that if a new road followed,
(such as the railroad corridor) it could help reduce
traffic by 25,000 to 30,000 vehicles per day on the Glenn
Highway. He furthered that the state spent $40 million to
$50 million every five years on highway rehabilitation,
which could be extended out further if traffic was funneled
onto a new road that continued north off of the bridge. He
surmised that the cost of the road would be substantially
less than the maintenance that would be required on
existing roads. He discussed increasing safety and reducing
traffic congestion.
DAN SULLIVAN, MAYOR, ANCHORAGE, vocalized support for the
legislation. He had been a proponent of the bridge for
decades and believed it was timely for the state to
complete the project. He discussed that the Port of
Anchorage brought in approximately 240,000 containers per
year and that a significant number were sent up the highway
to Palmer, Wasilla, Fairbanks, and other; unfortunately,
each of the shipments had to travel through downtown
Anchorage; therefore, reducing the number of trucks
traveling through downtown would increase the quality of
life in the city. He opined that a secondary access route
through the two most populated areas of the state made
sense; he pointed to Glenn Highway road closures (due to
accidents or other) that resulted in 18,000 to 20,000
people being stranded for up to many hours; time is money
and when people were stranded economic loss resulted. He
furthered that there were significant resources north of
Anchorage and access by road, rail, and port provided the
critical infrastructure needed to get the items to market.
Mr. Sullivan expounded that Anchorage was running out of
developable land. He stated that there were large numbers
of people moving to the Mat-Su Valley and access to more
available land for residential and industrial use made
sense from an economic standpoint. He was a "100 percent
supporter" of the project. He would prefer that the bridge
was not a toll bridge and believed the state was
responsible for building critical infrastructure that were
essential to the developmental needs of its regions;
however, he was confident that after a number of years
there would be an economic benefit to the state from the
tolls that would then help fund projects statewide.
Co-Chair Stoltze asked Mr. DeVilbiss to confirm that there
was no plan to annex any part of Anchorage. Mr. DeVilbiss
affirmed.
2:00:05 PM
MICHAEL FOSTER, CHAIRMAN, KNICK ARM BRIDGE and TOLL
AUTHORITY, appreciated the opportunity to testify. He
discussed that KABATA had been established by legislation
in 2003 with a mission to connect the east and west sides
of the inlet. The property boundary was a bridge structure
of approximately 14,000 feet and 18 miles of connecting
road. He relayed that there had been some changes from the
previous bill version offered the prior year and that he
had worked diligently with the governor's office on the
legislation. He relayed that the bill had three parts. The
first part was the increase of the private activity bond
from $500 million up to $600 million. The bond would allow
a private equity and partner to be a conduit for the bond;
the entity would be able to access the bond through the
federal government. The limit was currently $600 million
and the legislation allowed the limit to be available to a
private partner.
Mr. Foster relayed that KABATA was pursuing a public (the
state) and private (private investor) partnership. He
reiterated that the project was a conduit and that the
state had no obligation or risk associated with the
project; the bill provided a conduit for a private partner
to access cheaper money; if the money was cheaper the
state's payments would be less. The second part of the
legislation clarified that the bridge would be part of the
state's transportation system and was therefore not subject
to property tax. The language was to ensure that a private
developer would not apply a risk factor that would cost the
state more money. The third part of the bill established a
reserve fund. Excess revenue generated by the bridge would
go into the fund. He relayed that according to the project
model the reserve fund needed to have approximately $150
million by the time the bridge opened; it was the
equivalent to a secured line of credit that showed the
developer the state could make its payments if toll revenue
was not sufficient. He relayed that a secured a line of
credit would lead to cheaper money and a lower cost
proposal to the state.
Mr. Foster informed the committee that the project had been
approved by the Federal Highway Administration; it had also
received a no-jeopardy determination related to the
endangered Beluga whale species. The entity was currently
working to obtain core and coast guard permits and a letter
of authorization from the National Marine Fisheries
Service. The project was in the right-of-way acquisition
phase; phase 1 on the east side had two residential
properties, a strip-mall, and two business properties; one
of the properties had been acquired and KABATA was in
negotiations to purchase the remaining four. He noted that
some relocation had been done as part of the right-of-way
acquisition. He relayed that the project was in line with
the federal highway's right of way process. He noted that
his colleague would talk more extensively about the issue.
Mr. Foster explained that KABATA was currently in a
solicitation process. The solicitation had received a
substantial response from six highly qualified firms
(designers, financers, operators, and builders) and the
list had been reduced to three. The entity and the
governor's office were working on the draft Request for
Proposal (RFP) process; he provided detail on the process.
He expressed that population was the key word. He explained
that the bridge was built for the future and not for the
current population. He stated that population models by the
University of Alaska Anchorage Institute of Social and
Economic Research (ISER), Department of Labor and Workforce
Development, Woods & Poole, and Wilbur Smith all showed the
same data for the Mat-Su Borough. He referenced the
Anchorage Metro Area Transportation Solution (AMATS)
Metropolitan Transportation Plan, which showed that the
Mat-Su Borough had approximately 90,000 residents in 2010;
models showed that the borough would increase by 118
percent to 190,000 by 2035. He relayed that all of the
population models were very similar. The same models showed
that the Eagle River to Eklutna would grow by 74 percent
(from 39,000 to 68,000). He stated that the models
indicated that the Anchorage area was running out of room
(the models showed 15 percent growth in the Anchorage
"bowl" area). He stressed that the models showed the
population growth would occur with or without a bridge.
2:10:20 PM
Mr. Foster highlighted what things would look like in 25
years related to population and traffic growth with no
bridge. Currently at the Eklutna Bridge the average daily
traffic count was 30,000; the daily average had been 15,000
25 years earlier (the Mat-Su Borough population had been
almost half of the current population). He discussed what a
population growth of 119 percent would mean for traffic at
the Eklutna Bridge; the KABATA model showed that in 25
years the average daily traffic would be 65,000 vehicles.
For context he explained that in 2010 the average daily
traffic was 52,000 by the weigh station at the Highland
Bridge in Eagle River; 25 years earlier it had been 39,000;
projections showed that without a bridge the number would
go to 110,000. According to a 2008 DOT study, improvements
to the Glenn Highway would cost $3 billion and would
include 8 traffic lanes to handle the traffic if a bridge
was not built. He stated that the Glenn Highway would slow
down without a bridge to handle the population growth. He
did not know whether federal highway money would be
available to fund the Glenn Highway improvements; the
state's match would be at least $300 million if the federal
money was available.
Mr. Foster addressed what no bridge would mean for traffic,
safety, and corridors. The $3 billion in improvements did
not include impacts to Eagle River, Chugiak, Peters Creek,
or Eklutna. He pointed to the argument that the bridge
would require significant work on the west side of the
inlet and stressed that the state would have to spend more
money on infrastructure if a bridge was not built. He
emphasized that the commute would be closer from Point
MacKenzie than it was from Eagle River. He reiterated that
there was available commercial, industrial, and residential
land in the west. He accentuated that the bridge would be
utilized by traffic in both directions; trucks moving
containers from the Port of Anchorage would utilize the
bridge instead of driving through the city to the Glenn
Highway. He observed that the cost to the state without a
bridge was "pretty phenomenal." The bridge is "private
equity" and it "cost the state nothing." He stated that
there was risk and the state did have "skin in the game,"
but risk represented reward. The project was a public-
private partnership. The state's risk was related to
whether there would be sufficient traffic to generate
enough revenue to make the annual payments; the KABATA
model showed that there was. He relayed that there was a
choice; without a bridge there was a definite cost and with
a bridge using private equity there was infrastructure that
paid a return back to the state. He expounded that a bridge
would create economy.
Mr. Foster continued to discuss the project. He referenced
a conversation with a Kenai assembly member who had relayed
that 47 percent of the Kenai Borough land was located on
the west side of the inlet and the bridge represented the
first connection to the west side. He detailed that 28
miles from the bridge on the west side was a connection to
existing roads. He had met with the governor and had
communicated that the road would be the first true road to
resources.
2:18:04 PM
JEFF OTTESON, DIRECTOR, PROGRAM DEVELOPMENT, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES (DOT), addressed the
concept of a public-private partnership (P3s), which was
new to the state. He explained that P3s were used globally
in many jurisdictions (e.g. Korea, Australia, New Zealand,
South America, Europe, British Columbia, and other). He had
visited an office called Partnership B.C. in British
Columbia (B.C.); the purpose of the office was to determine
whether an infrastructure project should be done by P3 (the
default choice was P3). The province used P3 for
infrastructure, utility projects, hospitals, and all types
of government built construction. He referred to the
availability model approach, which meant the owner (the
state) was responsible for making the annual bond payment
if the revenue was not there; B.C. also used the approach
as a default and preferred method in conjunction with a P3.
He explained that the approach lowered financial risk and
in turn provided a better financing rate. He addressed why
a P3 would be used if the revenue risk was taken off of the
builder and placed on the owner. He detailed that
Partnership B.C. liked the idea of giving a single entity
responsibility for all parts of a project (i.e. design,
financing, construction, and long-term maintenance); the
risk involved was placed on the P3. He elaborated that the
"best and brightest" were brought in from around the globe;
he stated that the listed teams represented a "who's who"
of infrastructure. The partnerships were widely used;
Canada had approximately one-tenth of the U.S. population,
but its dollar volume of P3s was 10 times greater (per
capita Canada was using P3s 100 times the U.S. rate).
Mr. Otteson pointed to the availability payment issue that
required some amount of state money backing the bonds to
cover the difference between earnings and the bond payments
in the early years of the bridge. He relayed that the
concept was not unusual and that it was used in B.C. He
referred to the Red Dog Mine as an example of an
infrastructure project where the state made payments to a
private investor; state funds to supplement the mine
revenue after 19 years (it took 19 years for the project to
break even). He believed the project had been very good for
the state and Nenana region.
Mr. Otteson discussed that the project was the only surface
transportation project in the state that was proposing to
pay for its operating, maintenance, and capital. He
stressed that all other projects that came before the
committee required the entire capital cost to be funded by
the state. He expounded that the bridge was the only
project that would provide a dividend to the state when
revenues exceeded the payments in the future; he believed
there was approximately $9 billion in excess revenue
expected that would begin in about 20 years; the funds
would then be available to fund any other surface
transportation projects (ferries, roads, bridge, and
transit). He referenced an earlier question about how the
road to Willow/Houston would be funded. He explained that
if the bridge was not built other roads would need to be
built in the Mat-Su area to deal with the population. He
relayed that the road cost would be determined by
population and not the project. He stressed that population
led to traffic and traffic led to investment needs. He
emphasized that rebuilding costs would be higher to go
around the Parks/Glenn Interchange because the distance was
longer.
2:24:29 PM
Representative Doogan asked whether Mr. Otteson currently
worked for the state. Mr. Otteson replied in the
affirmative.
Representative Doogan asked whether the governor supported
the legislation. Mr. Otteson answered that the governor
supported the project and intended to make a decision on
the financing model once permits had been obtained.
Representative Doogan asked for verification that the
governor supported the project but did not want to fund it
with state dollars at present. Mr. Otteson responded that
the governor had not proposed any state funding in the FY
13 capital budget.
Co-Chair Stoltze asked whether the project was currently
waiting on some federal processes. Mr. Otteson responded
that the project was awaiting permits from the Corps [Army
Corps of Engineers] and the Coast Guard, which could change
the overall cost due to mitigation or changes in structural
design.
2:25:37 PM
Representative Gara noted that the committee had only heard
from supporters of the project and requested that Bob
French be allowed to present his side of the story. He
relayed that Mr. French had worked on the project for many
years and was the president of the Government Hill
Community Council.
Co-Chair Stoltze agreed.
Representative Gara expressed frustration that although the
project had not gone forward, KABATA had engaged in
imminent domain and had purchased and made property offers
to residents in Government Hill; the gas station, mall,
hotel, and two homes were being purchased so KABATA could
build a tunnel through the area. He asked Mr. Foster
whether it was premature to spend the money before the
project had been secured.
Mr. Foster responded in the negative. He elaborated that
DOT was currently working on the right-of-way acquisition
for the state, which had begun after the state had federal
authorization. The process entailed that the right-of-way
acquisition was to occur during the project design phase.
Typically under a P3 model the right-of-way was acquired
and established prior to the contract. He corrected that
the infrastructure would be a cut-and-cover tunnel with a
greenbelt on top. He noted that Mr. Otteson could expound
on the federal highway process.
2:28:25 PM
Mr. Otteson explained that the right-of-way stage occurred
after the environmental documents and record of decision
had been received. He detailed that the record of decision
had a three-year shelf life; the environmental document may
need to be redone if a project did not go forward during
the three-year period, which could be time consuming and
expensive. He stressed that once a record of decision had
been issued those involved were "under the gun" to execute
the next steps of the project. The right-of-way had been
authorized by the Federal Highway Administration. He
emphasized the importance of moving forward and noted that
there were many items that tended to act as roadblocks to
major infrastructure projects.
Vice-chair Fairclough inquired whether the right-of-way was
similar to the one at Lake Otis and Tudor when a motel and
gas station had been removed prior to the road work. Mr.
Otteson replied in the affirmative. He relayed that the
properties had been bought by the Municipality [of
Anchorage] several years in advance of the project.
Representative Gara asked how much time remained to
purchase the Government Hill property under federal rules.
Mr. Otteson answered that work would need to begin within
approximately 21 months. He reiterated that if the work had
not begun there was risk that the environmental document
would go stale.
Representative Gara believed KABATA should have waited for
the legislation to pass prior to "condemning people's
property and businesses in the city's oldest neighborhood."
He pointed to a $600 million bonding allowance in the
legislation and wondered who was responsible for the money
if the private party defaulted. Mr. Foster replied that the
state had no fiscal responsibility for the bond; if the
private developer defaulted the issue was between the
private party and the federal government. He reiterated
that the state was only a conduit and had no fiscal
responsibility for the bond.
Representative Gara asked for verification that if the
private developer defaulted the state would not be held
liable for the money under any circumstance. Mr. Foster
responded in the affirmative.
Representative Gara asked for verification that (according
to the original KABATA studies) the time travel estimate
would be longer to Palmer and Wasilla if the bridge and
road upgrades were completed than it would be on the Glenn
Highway.
Mr. Foster believed so. He thought there was a point in
Wasilla where there would be a 7 minute savings if the
bridge were constructed. He referenced his earlier
testimony that the bridge would provide a time savings for
future populations. He did not expect people in Eagle River
or Wasilla to quit using the Glenn Highway unless there was
a road closure.
Representative Gara pointed to use estimates that were
relevant to determine whether the private party would make
sufficient money on toll revenue. He surmised that for many
years to come with a limited population in the Knik area
nobody would want to spend money on a toll bridge if they
could drive a highway for free and could get home at a
similar time in the Palmer and Wasilla areas.
2:32:48 PM
Mr. Foster believed the statement was fair; however, he
opined that businesses would build in the area near the
bridge site if the project went forward. He remarked that a
bridge was not needed if a person did not believe in Alaska
or that its population would grow.
Representative Gara hoped that Mr. Foster did not mean that
people who disagreed with the plan did not believe in
Alaska. Mr. Foster replied in the negative. He believed the
population growth would occur and that new infrastructure
was needed.
Representative Gara wondered whether it would be the
state's responsibility to pay for the approach and
departure roads on both sides of the bridge. He pointed to
a previous proposal that would have privately financed the
roads in addition to the bridge. He listed the tunnel from
Government Hill, a bridge from Ingra and Gamble Streets,
roads to Wasilla and Willow. He wondered what the private
contractor would pay for.
Mr. Foster responded that the cut-and-cover bridge and the
approach roads were covered under phase one of the project.
The Ingra/Gamble connection under phase two was not
included in the existing P3; it may be added at a later
time. He furthered that the Ingra/Gamble connection would
not be built until user revenue had been created. Phases
one and two were through KABATA; phase one was through a
contract with KABATA and a private partner; phase two would
be paid for with project user fees.
Representative Gara took Mr. Foster's testimony to be up to
date, but noted that written plans showed that the
Ingra/Gamble connection would be built ten years after the
bridge. He asked for the total cost to public entities for
roads to Wasilla and Willow, Knik Goose Bay Road upgrades,
and roads on the Anchorage side.
Mr. Otteson addressed each road individually. He explained
that the Knik Goose Bay Road needed to be widened due to
current traffic. He noted that environmental documents for
the work were underway.
Co-Chair Stoltze asked for discussion to focus on projects
that were currently in the Statewide Transportation
Improvement Program (STIP) to accurately reflect costs.
Mr. Otteson did not have an exact cost estimate. He
discussed that there were a couple of possibilities for the
alignment of the connection to the Big Lake and Houston
areas. There was a right-of-way along the new rail
alignment that had been made available by the borough; he
noted it would be a huge cost savings to have the right-of-
way already available. Projects would be driven based on
how soon they were needed. He relayed that initially Vine
Street would be used, which bypassed congested areas of
Wasilla and the Knik Goose Bay Road.
2:38:11 PM
Mr. Otteson furthered that as the bridge generated traffic
it would generate enough revenue to begin to pay for the
additional improvements. He detailed that the timing of the
Ingra/Gamble connection would be determined by the pace of
traffic growth; it could be in 8 years, 12 years, or other.
Representative Gara noted that he had not received an
answer related to the cost estimate.
Co-Chair Stoltze explained that the projects were all
ongoing and he believed that the answer would only be a
speculation. He asked Mr. Otteson if the assessment was
fair.
Mr. Otteson agreed. He added that many of the roads would
be needed regardless of the bridge.
Representative Gara doubted a highway was needed from
Willow to Knik in the absence of a bridge.
Co-Chair Stoltze remarked that there was a rail spur and
encouraged committee members to drive out to look at it.
2:39:50 PM
Representative Costello asked how important it was for the
bridge to self-finance its operations, maintenance, and
capital costs.
Mr. Otteson replied that the project would bring its own
money to the table, would solve a transportation need
between Mat-Su and Anchorage, and would be funded by a non-
state or non-federal source. He expounded that the bridge
would allow money to be spent elsewhere in the state. He
added that the project would self-fund operating costs for
the life of the P3, which always constrained projects.
Representative Costello asked whether there were examples
of the state backing bonds on private investors in relation
to transportation in Alaska. Mr. Otteson was not aware of
any apart from the Red Dog Mine. He believed that the fact
that Red Dog had required state support of the bonds for
close to 20 years was a good example.
Representative Costello asked which other projects the
state would look at and how they would be financed if
KABATA did not go forward.
Mr. Otteson responded that it would be necessary to widen
the Glenn and Parks Highways sooner. He believed that the
widening would occur with or without the bridge due to
population growth in Mat-Su. He furthered that even
postponing the widening would allow other projects to go
forward across the state. He believed that the ability to
postpone the widening for 5 or 10 years would be a
"powerful benefit" for Alaskans.
Representative Costello enquired whether assumptions had
been built into the projections that related to pipeline
throughput. She pointed to ISER's research on the Alaska
economy and that one out of three jobs was related to one
industry. Mr. Otteson did not have the information.
2:42:40 PM
Representative Guttenberg asked about the foundation for
the legal justification that the state would not be
responsible for debt if the private entity defaulted.
Mr. Foster answered that the private activity bonds were a
conduit. The private partner would apply for the bonds from
the federal government and the activity did not fall under
the state's books. He furthered that in the event of a
private partner default, the state (as the owner) would
have a commitment to make payments, but the liabilities of
the private partner would not come back to the state.
JEFF STARK, CHIEF ASSISTANT ATTORNEY GENERAL,
TRANSPORTATION SECTION, DEPARTMENT OF LAW, elaborated that
the protection was in the type of bond sold; private
activity bonds were a relatively common form of financing
and the protection was in the documentation included in the
bond sale. He discussed 2003 legislation that had given
KABATA the authority to sell up to $500 million in bonds;
the current bill increased the authority by 20 percent to
$600 million. The legislation did not limit the type of
bonds that would be sold; theoretically if the P3 structure
fell apart, KABATA would have the legal authority to sell
bonds that it would be responsible for; however, KABATA's
current focus was on requiring a private developer to raise
all of the financing. The entity would have the ability to
secure the financing of its choice (i.e. through a bank or
other) and the state would have no involvement. He detailed
that private activity bonds issued by a state entity were
free from federal income taxes; therefore, the rate and
deal for the state were much better. The state would issue
the bonds, but under the terms of the bonds it would have
no obligation to pay them; the sole obligation would fall
to the private developer. He furthered that the state's
only obligation would be the availability payments to the
developer. He detailed that if the developer defaulted on
the bonds, the bond investors would have a claim against
the developer, but not the state. He explained that if the
state defaulted on its payments to the developer, the bond
holders would have no right against the state; the
developers would have the right to pursue the state. He
reiterated that the financing technique was common and was
not unique to Alaska.
Representative Guttenberg communicated that he was always
concerned when states were compared because each state has
different laws.
2:48:22 PM
Representative Doogan asked whether the information
provided by Mr. Stark represented a settled matter of law.
Mr. Stark responded in the affirmative. He detailed that
the types of bonds were issued on a regular basis and the
public entity did not have a liability if they were sold as
private activity bonds.
Representative Doogan queried whether the issue had been
litigated and that courts had agreed with the assessment
provided. Mr. Stark replied that he did not know the
answer. He stressed that it was his firm understanding from
talking to innumerable lawyers and financial experts that
the technique was common and that there was no liability
[to the public entity].
Representative Doogan requested any information on whether
or not the issue had been litigated. He wanted to know
whether the issue was a settled matter of law, an economic
assumption, or other. Mr. Stark would follow up with the
information.
Representative Gara queried earlier testimony that the
state would be liable for obligation payments.
Mr. Stark answered that KABATA would enter into a contract
with a private developer under a public-private agreement
(PPA); the agreement would require KABATA to make quarterly
or monthly availability payments to the private developer
once the bridge was in use. He clarified his earlier
testimony that the payments would be KABATA's (and not the
state's) only obligation. He explained that if the private
developer chose to issue public activity bonds, the bonds
would be issued by KABATA, but only the private developer
would have an obligation to pay the bonds. The bond holders
would have no claim or lawsuit against KABATA if the
private entity defaulted on payments. He added that if
KABATA failed to pay the developer [the availability
payments] the private developer could sue KABATA. He
summarized that there was one contractual relationship
between KABATA and the developer and a separate contractual
relationship between the developer and the bond holders.
2:51:54 PM
BOB FRENCH, CHAIRMAN, GOVERNMENT HILL COMMUNITY COUNCIL,
clarified that his testimony was on behalf of himself. He
stated that although the removal of language that would
have made any obligations of KABATA into obligations of the
state may have made the bill more palatable, it was
important look at what KABATA had promised the federal
government and the prospective P3 partners. He read from
KABATA's pro forma that had been included in its TIGER
[Transportation Investment Generating Economic Recovery]
grant application (page 8) related to the $150 million
reserve fund proposed under the legislation: "If the ending
balance falls below $50 million the state will replenish
the account back to $50 million." He encouraged the
committee to look at the entity's next loan application to
determine whether the information was still included. He
believed that KABATA would probably give assurance of the
state guarantee even if language making KABATA's
obligations into obligations of the state was removed.
Mr. French stated that it was clear that the full faith and
credit of the state was still being pledged if the bonds
were issued through a state agency. He communicated that
the obligation of the state was to make availability
payments to the developer. He continued that KABATA's pro
formas showed that the availability payments totaled $2.98
billion over the life of the project; the payments were
intended to be paid for with tolls; however, they would be
paid by the state if tolls were not sufficient. He stated
that data disputed the accuracy of future traffic
estimates. Two separate traffic projections done for DOT
showed traffic counts of approximately half of those
predicted by KABATA; the forecasts had been conducted for
the most recent Anchorage MTP [Metropolitan Transportation
Plan] and Mat-Su LRTP [Long Range Transportation Plan]. He
noted that DOT had not released the Mat-Su information
despite multiple requests; the council had filed a public
records act in an effort to obtain the information. He
stated that having half of the traffic prediction come to
fruition would be more accurate than 12 other nationwide
toll project projections that KABATA's traffic consultants
Wilbur Smith Associates had made. He referred to an exposé
that had been released in January 2012 showing that Wilbur
Smith's projections were 2.27 times greater than the actual
traffic in the first five years of operation.
Mr. French related that two toll roads Wilbur Smith had
provided projections for (one in South Carolina and one in
California) had gone bankrupt; two others had been forced
into changes in ownership and/or debt restructuring. He
referred to a KABATA graph (copy on file); the green line
showed a projection that toll revenues would significantly
exceed cost. He explained that if only half of the traffic
showed up, the cost (red line) would be below the revenue
line for the entire life of the project. He discussed that
in a 2011 traffic and revenue forecast for a traffic zone
on the Mat-Su side of the bridge, Wilbur Smith predicted
13,828 new jobs for 2035, which was 1,000 jobs less than
the entire employment in the Mat-Su Borough in 2009. The
number was also 673 jobs more than there were in the Kenai
Peninsula and 3,000 jobs more than there were in Juneau. He
noted that in 2007 Wilbur Smith had predicted 6,740 jobs
for the same areas for the same time period. He addressed
what had changed between 2007 and 2011. He explained that
in 2007 KABATA had a population estimate for Mat-Su of
approximately 250,000 and in 2011 the estimate had gone
down to 200,000. He believed the entity had to boost its
traffic projections somehow and that it looked like KABATA
was trying to show that there were additional jobs in Point
Mackenzie that would create traffic going both directions
on the bridge. He stated that the numbers were not
compatible with the 14 square mile industrial zone that
Representative Neuman had discussed. He stressed that the
industrial zone would not support the high job number.
Mr. French referred to a real cost paper that showed an
average annual shortfall of $55 million. He emphasized that
it was important to note that the $55 million would come
from the state in order to make the availability payments.
He surmised that there would be a number of necessary
statewide projects that would not have funding if the state
had to fund the availability payments. He referenced a
Legislative Budget and Audit Committee (LB&A) audit that
was underway and opined that it was worthwhile to wait for
its completion. He thought it was a good idea to review the
accuracy of the population and toll numbers that KABATA
used for its financial plan. He also believed LB&A should
conduct an audit of past spending and predicted future
spending to determine whether KABATA's projected rate of
return made sense. He opined that LB&A should make a
recommendation on whether further state investment was
justified. He noted that in KABATA's absence, there were
currently approximately $58 million in transportation funds
that could be used for other federally eligible
transportation projects throughout the state; he pointed to
alternatives (e.g. bridge upgrades over Eagle River
estimated at $60 million).
3:00:58 PM
Representative Neuman asked whether Mr. French had any
credentials or background in traffic studies or if he was
an engineer. Mr. French answered that he is a professional
engineer, but not a traffic engineer.
Vice-chair Fairclough thanked Mr. French for his testimony
and participation in community council. She was curious
about the $55 million shortfall that would occur if the
traffic did not show up. She asked about the formula that
had been used to determine the number.
Mr. French replied that the formula was fairly complicated
and had been developed by Jamie Kenworthy. He deferred the
question to Mr. Kenworthy.
Vice-chair Fairclough asked for detail regarding the number
just under $3 billion if no tolls were collected. Mr.
French answered that KABATA's 2011 pro forma showed that
the availability payments would be $2.98 billion over the
life of the P3 process.
Representative Gara asked how the state would be on the
hook for availability payments if the tolls did not match
the cost to the contractor. Mr. French believed that the
availability payments were the obligation that the state
said would happen. He equated the payments to having a
guaranteed income when applying for a home loan. He
detailed that payments would be made to the developer and
the developer would acquire the private activity bonds for
financing.
Representative Gara queried where the state's legal
obligation to make the availability payments was located in
the legislation. Mr. French deferred the question to Mr.
Stark.
3:04:38 PM
LYN CARDEN, WASILLA, EXECUTIVE DIRECTOR, WASILLA CHAMBER OF
COMMERCE (via teleconference), spoke in support of the
bill. She stated that the project would support Wasilla's
expanding population and economy and would provide jobs,
housing, and reliable transportation across the state. She
relayed that Port MacKenzie was a strategic port designed
to export bulk commodities (e.g. base and rare earth
mineral ores, coal, wood chips, and gravel); the port was
also utilized to import materials (e.g. cement and steel
pipe). The project would support freight handling capacity,
mobility, and improved regional operations; thereby
supporting airport, military, and consumer needs while
improving safety for Southcentral residents through an
alternate north-south emergency response and disaster
evacuation route. She furthered that the project would
support a transportation infrastructure for existing and
projected population and economic growth statewide. She
believed that the bridge would foster economic development
at Port MacKenzie on the west side of Cook Inlet. She
explained that port's industrial district had over 8,000
available acres for future economic development expansion.
Ms. Carden relayed that additional projects (including the
Port MacKenzie rail extension) were currently underway to
take advantage of the port's "strategic" location. She
opined that the bridge would provide a unique opportunity
for Alaska to expand its economy. She urged the committee
to pass the legislation.
PETE MULCAHY, PRESIDENT, CHUGIAK AND EAGLE RIVER CHAMBER OF
COMMERCE (via teleconference), voiced support of the bill
on behalf of the chamber. He discussed that the chamber was
focused on projects that would increase the economic health
and vitality of the local community and Alaska. He
addressed the importance of appropriate infrastructure that
would support the development of resources. He relayed that
the board had not made a final approval of the KABATA
project; its last resolution had been in 2001 that
supported the project's fact finding phase. The chamber
understood that there were some fiscal concerns, but noted
that it had consensus on several of the aspects related to
KABATA. He relayed that the chamber had always agreed that
the creation of a beltway road system would ease pressure
on the Glenn Highway and would provide a second access in
and out of Anchorage. He stated that transportation
infrastructure needed to move forward with large resource
development projects was not in place. He stressed that the
projects would demand much greater capacity than what
currently existed. The chamber believed that the bridge
would solve multiple problems that would benefit the
Chugiak/Eagle River area including increased economic
activity and solving the congestion issues on the Glenn
Highway.
Mr. Mulcahy understood and liked that the bill provided a
funding framework and state oversight of the project. The
chamber liked that the bill clarified the process of the
public-private partnership. He relayed that the issue was
on the March 2012 board meeting agenda; the board would
discuss a resolution at that time.
3:11:02 PM
AVES THOMPSON, EXECUTIVE DIRECTOR, ALASKA TRUCKING
ASSOCIATION (ATA) (via teleconference), vocalized support
for the bill. The ATA saw the Knik Arm crossing as a vital
link in the state's future transportation network that
would provide an alternative route to and from the Port of
Anchorage for northbound freight and would improve the
ability to safely and efficiently move freight on the road
system. He believed the project represented a once in a
generation opportunity to build on the state's
transportation system. He urged the passage of the
legislation.
DARCIE SALMON, ASSEMBLY MEMBER, MAT-SU BOROUGH (via
teleconference), voiced support for the bill on behalf of
himself. He relayed that when Port MacKenzie had been built
there had been discussion that it would increase economic
activity to justify the Knik Arm Bridge. He stated that he
had been working on the issue for over 25 years. He likened
Point Mackenzie to the fulcrum of a teeter-totter with
Fairbanks, the Interior, and resources on one end and
Anchorage and the workforce on the other end; he pointed to
the "natural ebb and flow of economic activity" that the
analogy depicted. He communicated that the project had been
titled a "360 degree economic transportation corridor" to
create a cyclical flow. He pointed to the new prison in the
area that would create jobs. He believed a new city would
be created in the future in Point MacKenzie; he discussed
that the combination of the Point MacKenzie Port, Anchorage
Port, rail spur, Knik Arm Bridge, labor force, and natural
resources would result in progress, opportunity, and
prosperity. Additionally, he believed there would be a
pipeline to Point MacKenzie in the future. He opined that
the benefits outweighed the negatives. He stressed that the
bridge, rail, and port brought together 500,000 Alaskans
economically. He reiterated his "ardent" support for the
project.
3:17:22 PM
JAMES KENWORTHY, SELF, ANCHORAGE (via teleconference),
relayed that his total bridge deficit estimate was $2.5
billion or $55 million per year until 2035. He had
determined the number based on three calculations. First,
he pointed to the 2011 KABATA pro forma done by Citigroup
(page 7) that showed $4.5 billion in cumulative toll
revenue to 2050; he estimated that the number would be half
of the $4.5 billion. He elaborated that when CH2M Hill had
modeled the ISER demographic data it included 17,700 trips
crossing the bridge in 2035 as opposed to KABATA's 36,000
trips (the KABATA figure was 103 percent higher). Second,
he shared that the former CIA economist who tracked Wilbur
Smith's national projects reported that the company had a
118 percent over-estimation error rate. Third, he addressed
a land conflict issue at Point MacKenzie, which he believed
was appropriately zoned for industrial and manufacturing;
however, the KABATA data showed $1.7 million square feet of
retail at Point MacKenzie, which he thought conflicted with
the industrial plan. He opined that the degree of retail
would not work next to coal processing and Liquid to
Natural Gas (LNG) plants.
Mr. Kenworthy summarized that his toll revenue estimate was
$2.3 billion; he believed that KABATA would not receive a
$308 million federal TIFIA [Transportation Infrastructure
Finance and Innovation Act] loan it had been turned down
for in 2007, 2010, and 2011 (the loan was included on page
1 of KABATA's financial plan); and that he had reduced
KABATA's estimate of the return on investment the developer
would receive from 12 percent to 10 percent, which would
add $150 million back in. He pointed to page 1 of the pro
forma and noted that KABATA was counting on $79 million of
equity going in, but the developer was projected to get a
net cash flow (page 5) of $920 million going out. He
wondered why the state with a AA credit rating (that could
borrow long at less than 4 percent) would pay a developer
10 or 12 percent to finance the project. He referred to the
committee's questions related to what would occur if the
developer defaulted and advised that a better focus would
be on the state's ability to make the annual availability
payments, which totaled $3 billion (page 4). He believed
that the focus should be on the toll shortfall and opined
that it would suck money out of the transportation budget.
Co-Chair Thomas asked whether Mr. Kenworthy was
representing himself. Mr. Kenworthy responded in the
affirmative. He provided his credentials. He was the former
director of the Alaska Science and Technology Foundation,
had read business plans for a living for 30 years, and was
a private investor.
Representative Gara asked how the state would become liable
for the availability payments. He wondered whether the
state had signed a contract related to the payments.
Mr. Kenworthy responded that the contract would presumably
be signed after KABATA conducted a request for proposal
(RFP). The contract would not pledge a direct state credit.
Like a Alaska Industrial Development and Export Authority
(AIDEA) or a Alaska Housing Finance Corporation (AHFC)
bond, KABATA would be on the hook to make the annual
availability payment that was estimated at $3 billion. He
noted that the appropriate question was what would happen
if the toll revenue shortfall occurred and the state had to
appropriate $55 million per year to make up the money. He
likened the situation to what would occur if AIDEA or AHFC
did not make payments on their bonds. He noted that the
agency bonds clearly indicated that the purchase of the
bonds was not a direct obligation to the state; however, he
believed there was a moral obligation to the state as it
would impact the state's credit rating.
3:23:48 PM
BEN NORTHEY, PRESIDENT, COLASKA INC., spoke in support of
the bill. He stressed that it was time to build the bridge.
He had worked in the infrastructure industry for 30 years
and wanted to be able to travel safely to the Mat-Su
Valley. He quoted a slogan that "Anchorage is only 15
minutes from the true Alaska."
ROBERT DUN, ENGINEER, COLASKA INC., urged support for the
bill. He stated that there would be a population increase
in the Anchorage and Mat-Su areas. He opined that it made
sense to have the population growth as close to the center
of Anchorage as possible and believed the closest area was
directly across the Knik Arm. He discussed that alternative
areas for development were to increase population in Eagle
River and in Wasilla. He emphasized that there was no zero
cost alternative to the bridge. He stated that the failure
to perform long-term planning could be painful (as
experienced in the effort to connect the Glenn and Seward
Highways); the project was stuck because there was no
right-of-way in the area. He believed that the problems
would only be exacerbated by time and further development
in the Government Hill area. He encouraged the committee to
view the bridge as an investment for the future and in the
short-term health of the state. He related that the project
construction timeline was parallel to the time that there
would be a decrease in federal highway funding. He surmised
that from a jobs perspective that the future looked bleak
without the bridge. He stressed that the benefits that the
bridge would bring to the state would be provided by
funding from private investment.
Representative Gara asked whether the state or KABATA's
obligation to make the availability payments in the event
of toll revenue deficits would be included in contract. Mr.
Dun replied that Colaska Inc. was on the technical side and
could not answer the question.
3:28:50 PM
Kirk Zerkel, Project Manager, Alaska Interstate
Construction, voiced his support for the project. He stated
that the bridge would provide thousands of valuable
construction jobs and would be funded by the user. He
believed that the project would eventually create a
surplus, which could fund other statewide projects thereby
providing for ongoing jobs. He stressed that the project
would provide invaluable training and expertise needed for
Alaska's future. He communicated that the bridge would free
up quality land for residential, commercial, and
recreational purposes in Mat-Su; he opined that the items
would increase the quality of life and decrease the cost of
living in Anchorage. He expounded that the bridge would
ease congestion of large truck traffic through downtown
Anchorage and would decrease traffic along the Glenn
Highway, thereby decreasing the safety hazards in the
areas. The project would decrease the burden of record gas
prices facing Alaskans. He emphasized that the project was
for future Alaskans and urged the legislature to help
continue to grow and develop the state to provide for
future jobs and commerce.
3:31:33 PM
DOUG SMITH, PRESIDENT and CEO, LITTLE RED SERVICES, spoke
in support of the bill on behalf of the Alliance [Alaska
Support Industry Alliance]. He noted that there were
several gates left in the process and that the passage of
the bill did not mean the state was committed to build the
bridge or to make up the difference in tolls before the
commercial terms were known. The Alliance felt that the
bridge was so important to the state that it would warrant
building it without a toll. He relayed that the Alliance
did not see the risk as a reason not to go forward with the
project; if the state had to make up a slight difference in
availability payments the investment level was lower than
would be required without private participation. He
discussed Alaska's bright future. He believed that Outer
Continental Shelf resource development would happen in the
future. He had participated in construction in Alaska for
years, some of which would not have been possible without
AIDEA investment. He believed that the types of projects
brought opportunities but the overall value was
significant. The industrial zone that would be created by
the bridge would help support fabrication and large module
development to support offshore drilling. He pointed to
landlocked areas that had no way to expand in Anchorage and
opined that a better footprint was needed to participate
fully in development for Alaska's future.
Co-Chair Thomas CLOSED public testimony.
3:35:08 PM
Representative Gara asked for KABATA to confirm where the
potential state liability came from.
Mr. Foster clarified that the availability payment was not
on top of a return on investment. He explained that the
availability payment was like a lease payment; a return on
investment was not guaranteed. Under the PPA the private
partner was responsible for financing, designing, building,
operating, and collecting tolls for 35 years; in turn the
state paid the developer an availability payment (also
known as a lease payment). He elaborated that the state's
obligation was to make the payment to a private developer.
From the time the developer began spending the $700 million
to $800 million it was approximately four or five years
before the developer would receive the first payment;
availability payments would not be made until the bridge
opened for use. He relayed that the total payment would be
approximately $3 billion; he equated it to a house payment
- payments needed to be made or the owner would default.
The state would be in default if payments to the developer
were not made. He reiterated that the model was not tied to
return on investment or toll shortfall; the state would
still be required to make the payment in the absence of
traffic. He furthered that KABATA's model showed that there
would be enough toll in the long-term to make the payments;
however, in the beginning there would be a shortfall.
Representative Gara queried whether the state's liability
would be $1.5 billion if tolls fell short of construction
by that amount. Mr. Foster answered that the state would
make up the difference if the tolls fell short. The state
would have to invest approximately $100 million in capital
if it chose to build the bridge itself using the federal
highway model that provided matching funds; the state would
also be responsible for the ongoing maintenance and
operation of the facility, including the toll collection if
applicable. When comparing a state built project with a P3
model it was necessary to look at apples to apples; if the
traffic was short and a deficit resulted the state would be
required to pay; if the state built the bridge itself it
would be responsible for a portion of the project. He had
trouble understanding how people could expect the developer
to invest over $1 billion, but did not want the state to be
obligated to make payments. One could argue whether there
would be enough toll revenue to make the payments, but the
obligation of the state was to pay the developer for its
investment in the project.
3:40:50 PM
Vice-chair Fairclough asked whether there was an estimate
for the annual payment.
Mr. Foster referred to a KABATA graph and answered that the
payment cost built over time. He relayed that the graph
showed a shortfall for the first seven years of operation;
the proposed reserve fund would make up the initial
shortfall. The total availability payment equaled
approximately $3 billion over 35 years. He pointed out that
the contract would contain a termination for convenience
clause, which would allow the state to terminate at any
point; if the state decided it wanted to own the project
the total exposure was roughly $1 billion. He likened the
purchase to a home purchase and explained that the
principle would go down annually after the initial $1
billion payment.
Vice-chair Fairclough asked for verification that the terms
to be negotiated would fall under a 30 year contract. Mr.
Foster answered that the contract would be 35 years.
Vice-chair Fairclough asked for a copy of the KABATA pro
forma that had been generated by Citigroup. Mr. Foster
replied that it could be provided to committee members.
Vice-chair Fairclough asked for an explanation on the loan
that KABATA had applied for. Mr. Foster responded that
TIFIA [Transportation Infrastructure Finance and Innovation
Act] was part of the federal highway program and provided
low cost financing for infrastructure projects. In
reference to earlier testimony he explained that a TIGER
grant was another part of the major projects or TIFIA
program for federal highways. The TIFIA was funded through
Congress and was a leveraging of money at a 10-to-1 ratio.
He believed Alaska received up to two TIGER grant
applications in the prior DOT submittal. He elaborated that
the grants were a process; his team had met with the
administrators of the program in December 2011. He
explained that every time KABATA had applied for the loan
in the past it had expected to be turned down because the
project had not been ready (right-of-way and procurement
had not been achieved and permits were still needed). He
expounded that as the project matured it got "closer and
closer to that TIFIA gate"; the process was competitive. He
relayed that KABATA felt positive about its current TIFIA
application and that the legislation helped it get closer
to obtaining the loan. He relayed that in terms of low cost
financing, TIFIA was worth approximately $300 million to
private partners; if the loan was obtained it would lower
the cost of the availability payments and the obligation of
the state.
Vice-chair Fairclough asked whether KABATA had been
provided feedback when its grant applications had been
rejected. She wondered whether feedback had given the
entity a better outlook on the possibility of acquiring the
financing.
Mr. Foster responded in the affirmative. He relayed that
KABATA always asked to know what it was missing from the
application. He added that a current U.S. Senate
transportation bill included approximately $1 billion for
TIFIA, which would increase the available pool of money. He
had met with U.S. Department of Transportation Secretary
LaHood twice on TIFIA; at the prior meeting KABATA had been
told that the project was mature and was the type of
project the administration looked for (i.e. toll type and
private investment projects). He felt confident about the
KABATA team and that the project would be at the top of the
list if the TIFIA money was be available.
Vice-chair Fairclough discussed the need to manage mega
projects carefully due to their susceptibility to exceed
their original cost. She asked whether KABATA was looking
at the lowest cost bid or whether it had a way to ensure
that quality individuals were managing the project.
Mr. Foster answered that the issue had been included in
KABATA's statement of qualifications. He expounded that six
firms had submitted applications and through a rigorous
review process, three had been selected. He furthered that
all three were quality firms made up of local, national,
and international firms (including engineering,
construction, and operation firms). He reiterated earlier
testimony that responsibility of the private partner was to
finance, design, build, and operate the bridge; project
cost overruns would not be the state's liability. The
state's commitment to the developer would be the
availability payments. He detailed that the expansive
contract included penalties for items such as clearing snow
too slowly, lane closures, failure to collect tolls, and
other, all of which were the responsibility of the private
partner. Through DOL the state had been diligent in making
sure its liabilities were protected; therefore, it did not
have liability for construction, operations, and
maintenance overruns. He hoped the developer and the state
would both make money. He opined that a good partnership
was one in which both parties did well; both parties would
have their own risk and returns.
3:50:14 PM
Co-Chair Thomas asked whether there was someone from
Legislative Legal present.
Representative Doogan pointed to page 2, line 29 of the
legislation that read "deposits made into the reserve fund
established under this section must include" and provided a
list of sources; one source was money that the legislature
had appropriated for "that purpose." He had never seen the
language "must include" and asked for an explanation.
Mr. Stark explained that the intent was to create security
for the developer. He furthered that the developer would
enter into the agreement with KABATA, which would describe
the developer's responsibility in great detail (the
agreement was approximately 1,000 pages). The developer
would be responsible for building and financing the project
and would have to put 10 percent of its own money in; it
would be on the hook for over $700 million and would be
required to operate and maintain the bridge for 35 years.
He related that KABATA's only responsibility was to make
the availability payments. The legislation was intended to
create a level of certainty for the developer that the
money would be there. The legislation and the PPA both
included an obligation for KABATA to place the toll revenue
into a reserve account to be held as security for the
payments owed to the developer. In the event of a revenue
shortfall, KABATA would need to request funds from the
legislature to fund the reserve account. He reiterated that
the design was intended to lower the risk to the developer
and investors and to reduce the cost of the developer,
which would reduce the cost to KABATA.
Representative Doogan was concerned about the bill's
prescriptive language that required the state to pay money
that the legislature would appropriate for the purpose. Mr.
Stark clarified that the purpose was for the money to go
into the reserve account.
Representative Doogan understood what the language was for;
however, he believed it read that the state would be
required to put money in the reserve account. He opined
that the wording should be revised if it was not the
intent.
Mr. Stark replied that he did not believe the language
meant that the legislature must appropriate money. Section
5(l) included language that the KABATA chair would come to
the legislature or governor in the event of a shortfall in
revenue. The section provided that the legislature "may
appropriate to the authority the amount certified by the
chair of the board that is needed to restore a reserve fund
to the reserve fund requirement." He expounded that the
obligation of the legislature was a "may"; there was no
legal obligation to appropriate the funds. He clarified
that the funds must go into the reserve account if the
funds were appropriated.
Representative Doogan wondered why the language did not
read "may." Mr. Stark answered that the funds must go into
the reserve fund if the funds were appropriated; if the
funds were not appropriated they would not.
Representative Doogan surmised that the language should
read "may include" rather than "must include" as it related
to the establishment of a reserve fund. Mr. Stark clarified
that the intent was to provide certainty to assure the
developer that the money would be available; the stronger
the language, the more assurance was provided to the
developer, which meant cost would be lower to KABATA.
Representative Doogan believed Mr. Stark's explanation
conflicted itself. He thought Mr. Stark had said that the
language required the legislature to appropriate money into
the reserve fund and that he had previously indicated that
it "may" put the money in the reserve fund. Mr. Stark
responded in the negative.
Vice-chair Fairclough clarified that the state may choose
to appropriate the money; however, once KABATA received the
money could not put it into any account but the reserve
fund.
Representative Neuman MOVED to report CSHB 158(FIN) out of
committee with individual recommendations and the
accompanying fiscal note.
Representative Gara OBJECTED for discussion. He had been
surprised that language naming the state liable for a
shortfall if toll revenue did not cover the cost of
operation and construction; however, he had learned that
the requirement would be included in the contract. He
appreciated Mr. French's explanation of the state's
liability related to the availability payment. He discussed
that in a free enterprise system companies were free to
take risk, but he opined that it was no longer free
enterprise when the government guaranteed that a company
would not lose any money. He had initially thought the bill
had been substantially changed from the prior version, but
he believed that was not the case; the state's obligation
to pay for shortfalls that could be $1.5 billion was
included in the contract. He was unhappy that a straight
forward answer had not been provided by KABATA. He relayed
that he would vote against the bill on the House floor.
Representative Gara WITHDREW his OBJECTION.
Representative Doogan OBJECTED for discussion. He did not
believe in the concept that putting more money into a
project would guarantee success; he pointed to a fish plant
in his district that had failed despite a $50 million
investment by the state. He listed additional items the
state had invested in that had failed including, a Point
MacKenzie milk facility, grain terminals, and other. He
stressed that he could not vote for something of that
nature. He referenced a saying "fool me once, shame on me.
Fool me twice, shame on you"; he had been fooled before and
did not believe that the current argument was either the
"best job that's been done or the most compelling job
that's been done."
Representative Doogan WITHDREW his OBJECTION. There being
NO further OBJECTION, it was so ordered.
CSHB 158(FIN) was REPORTED out of committee with a "do
pass" recommendation and with one new zero fiscal note from
the Department of Transportation and Public Facilities.
4:04:46 PM
RECESSED
5:12:33 PM
RECONVENED
HOUSE BILL NO. 9
"An Act requiring the Joint In-State Gasline
Development Team to report to the legislature
recommended changes to state law that are required to
enable or facilitate the design, financing, and
construction of an in-state natural gas pipeline so
that the in- state natural gas pipeline is operational
before 2016; and providing for an effective date."
Co-Chair Stoltze asked for a brief recap of the
legislation.
REPRESENTATIVE MIKE HAWKER, CO-SPONSOR, briefly explained
the bill. He relayed that Representative Mike Chenault was
the prime sponsor of the legislation. The bill would
advance the state's ability to construct a gasline from the
North Slope to tidewater. He stated that the ability was a
long held dream of Alaskans. The bill elaborated on HB 369,
legislation that had passed unanimously two years earlier
that directed AHFC to establish a working group with the
goal of developing a pipeline proposal. The plan had been
completed July 1, 2011 in accordance with the best
management practices of the Institute for Project Analysis.
He detailed that the plan informed the legislature how it
could facilitate monetizing Alaska's gas with a pipeline
from the North Slope to tidewater and make gas available to
Alaskans at the lowest possible cost. He furthered that the
plan identified numerous empowerments needed for a state
agency to move the project forward; HB 9 was an empowerment
bill that gave the Alaska Gasline Development Corporation
(AGDC) the necessary tools to advance a specific pipeline
project forward. He elaborated that the specific pipeline
project was the only pipeline allowed under the previously
passed Alaska Gasline Inducement Act (AGIA) law, which
granted an exclusive license to the TransCanada Corporation
(and its partner ExxonMobil) for the monetization of a
pipeline that would handle all of the North Slope gas (with
the exception of 500,000 cubic feet per day) and had any
state involvement. He stated that the bill had been
developed respectful of the constraints under AGIA. He
relayed that the sponsor believed that a larger project
that monetized a greater amount of Alaska's gas would be in
the state's greater good; however, a larger line was
prohibited under AGIA.
Representative Hawker addressed that HB 9 additionally
empowered AGDC to act as the state's representative in
negotiations with TransCanada and ExxonMobil in hopes of
bringing a larger project to fruition; however, if a larger
project was not feasible, the bill provided AGDC with the
necessary tools to move forward to an open season within
the constraints of AGIA to determine whether there was a
market of willing buyers and sellers of Alaska's gas. He
emphasized that without the bill the state did not have a
seat at the table with the producers and would not have a
project moving forward. He concluded that HB 9 was about
taking steps to move a project forward to get Alaska's
North Slope gas to instate consumers at the least possible
cost. He pointed to the online legislative information
system (BASIS) that contained an outline of the regulatory
authority. He relayed that an amendment had been passed the
previous day that created the full framework for the
regulation of a contract carriage pipeline in the state,
which was critical to obtaining financing and empowering
AGDC to bring a project to fruition.
5:18:55 PM
JEFF COOK, REGIONAL DIRECTOR, EXTERNAL AFFAIRS, FLINT HILLS
RESOURCES, FAIRBANKS (via teleconference), spoke in support
of the legislation. He relayed that the Flint Hills and
other nearby refineries at North Pole and in Valdez were
the only refineries in the country that did not have
natural gas; the company had to refine oil to energize its
refinery resulting in expensive energy costs. He relayed
that the expense put the company at a competitive
disadvantage; the situation was exacerbated by the high oil
prices. The company was working with others on an LNG
trucking project to bring cheaper and cleaner energy from
its refinery to Fairbanks sooner; however, the project had
always been viewed as a bridge project to a gas pipeline
that would go to Fairbanks. He urged the committee to move
forward with the bill and to make sure that affordable gas
was made available to Interior residents and businesses. He
opined that something needed to be done about the expensive
heating costs facing families. He referred to a quote "it's
better to do something that may not be perfect than to do
nothing and do so flawlessly."
Representative Wilson asked whether people were moving out
of Fairbanks due to high energy costs. Mr. Cook replied in
the affirmative. He told a story about a friend with a used
car business who had reported that many people were selling
their cars and moving. His house had used a high amount of
fuel during the month of February when he had been out of
town. He opined that people could not continue to pay the
high costs.
5:23:12 PM
BILL WALKER, OWNER, WALKER LEVESQUE, LLC, ANCHORAGE, spoke
against the bill. He listed several of his clients
including the Alaska Gasline Port Authority, City of
Valdez, and other. He testified that HB 9 was not the
problem or the solution. He believed control of the
decision making process for bringing oil off of the North
Slope had been lost. The world had changed since the AGIA
contract had been granted. He was frustrated about talk
related to a change in the oil and gas tax structure, but
people were leaving the state because the cost of energy
was too high; the state needed to focus on providing
cheaper energy to its residents through a large volume
gasline. He relayed that his background was in building. He
believed that credence was given to the faulty footing and
that the state needed to move away from AGIA; without
action the state would be destined to argue about a series
of bad options. He believed it was possible to do much
better than HB 9. He stressed that the state should work to
peel away layers of confidentiality, not to increase it.
Mr. Walker opined that the bill did not bring economical
gas to Alaskans or put any more oil in the pipeline. He
pointed to an analysis that showed a large line would
reduce the cost of energy in Fairbanks by 80 percent. He
stressed that the bill should not be used as the answer and
that it would not result in a gas pipeline. He believed the
bill took the state's eyes off of the ball, which should be
a large gasline for cheap energy and increased revenues to
the state. He pointed to a Wood MacKenzie estimate of as
much as $419 billion to Alaska for export to Asia. He
emphasized the world market was filling up by projects with
lesser economics. He stressed the importance of fixing the
problem; the state needed to take control of its future.
Mr. Walker explained why he believed the problem would not
be solved under AGIA; it was not in TransCanada's best
interest to take a gasline to tidewater. TransCanada and
Foothills Pipelines were co-owners of the license and had
tried to stop an export license for Yukon Pacific
Corporation. He stressed that the companies wanted gas to
go to Canada and not to tidewater. The Port Authority
partners had tried without success to get a letter from
TransCanada stating that it would build a line to
tidewater. He opined that $60 million in the current
operating budget was being spent to study a line into
Canada; he wondered why. He discussed national terminals
that had become export terminals as a result of shale gas
and others in British Columbia that were export terminals
of LNG to Asia. He emphasized that Alaska was the only
place that had not changed and that a gasline would not
result from the current structure. He asked "how do we get
out of AGIA?" He pointed to an abandonment clause in the
contract that would allow either side to claim that it was
not working. He opined that the state should take the
action. He surmised that if the state did not get out there
would continue to be an open season every two years and
that all of the open seasons were focused on a market with
100-plus years of gas at $2.00 or $3.00.
Mr. Walker accentuated that the problem needed to be fixed;
a mistake had not been made, but the world had changed. He
highlighted that the economics were there and that the
focus should be on the Asian market and on the upstream
side. He listed various reasons that the response in the
market place had been rewarding. A relevant question was
whether Alaska had time to get into the market; if the
state waited too long its gas would be stranded. He had
taken many offers to Houston to buy gas at the wellhead
from the Asian market that had been turned down. He
predicted that Point Thompson would be returned to
ExxonMobil and that it would do an LNG study. He stated
that numerous gas studies in the state had resulted in
nothing. He believed that gas in Alaska was being used by
companies as negotiation material for lower oil taxes;
people were moving either to urban areas with gas or out of
state as a result. He reiterated that HB 9 was not what was
best for Alaska; he was concerned that the bill gave
credence to an AGIA process. He opined that the economy of
scale on large project was what the state needed. He stated
the federal government had described North Slope as a gas
deal with some oil left. He urged the importance of
extracting the gas in a way that would bring low cost
energy.
5:37:05 PM
Mr. Walker stressed that if the state did not react to
changes in the marketplace that its future would not be
productive for later generations. He discussed that for
$250 million and in 36 months it would be possible to have
trucked gas to Fairbanks for approximately $7.00. He
reiterated that if the problem was not acknowledged there
would never be a solution.
Co-Chair Stoltze believed Mr. Walker and the bill sponsors
shared many opinions about problems with AGIA. Mr. Walker
reiterated that he did not support HB 9. He believed the
problem was the AGIA contract.
Representative Wilson did not believe that the bill set the
size of the pipeline. She queried whether Mr. Walker's
strongest concern was that the line would not be large
enough. Mr. Walker replied that the volume of the line was
set by AGIA and could not be over 0.5 billion cubic feet.
Representative Wilson explained that the legislature had
the ability to determine that AGIA was no longer economical
in the future. Mr. Walker answered it would be more
difficult down the road if the problem was not fixed at
present.
5:40:45 PM
Representative Neuman stated that the larger line would
cost $30 billion to $40 billion. He believed an analysis of
the project's economic and viability plan was lacking
including timelines, work plans, budgets, in-field work
assessments, environmental impact statements, right-of-
ways, LNG components, and other. He wondered where the
project plan was.
Mr. Walker replied that the project plan was that Alaska
needed to own the infrastructure. He had provided detail on
a financial analysis and a document generated by Wood
MacKenzie had been provided to legislators. He explained
that if state owned the pipeline its equity would be from
$4 billion to $6 billion with a return of 12 percent. He
emphasized that a small volume line would require the same
cost input, but would have no financial return. He was not
coming forward to ask for money for a gasline; his message
was related to what had been learned and what the state
should do. He believed Alaska needed to take care of
itself, not necessarily through the Alaska Gasline Port
Authority. He expressed his frustration about items
happening in the state. He pointed to dramatic population
declines in areas due to the high cost of energy. He
discussed contracts the port authority had lost because of
industry influence; he stressed that the situation was not
right and should not happen. The group was a not for profit
made up of Fairbanks-born individuals who were trying to do
the right thing.
Representative Gara asked for an explanation of the
difference in price of energy to consumers between a large
line versus (i.e. 3 billion cubic feet) versus a smaller
line under HB 9 line (i.e. 500 or 250 million cubic feet).
Mr. Walker replied that a large line would reduce the price
of energy in Fairbanks down to the $3.00 to $4.00 range
versus the $10.00 to $14.00 range.
Representative Gara asked for Mr. Walker's take on the
argument that the state would run out of gas if it waited
for a big line. Mr. Walker did not believe the state would
run out of gas; he was impressed by gas estimates for Cook
Inlet and stated that even if the estimates were wrong by
three-quarters there would still be a significant amount of
gas in the area. He discussed that more economical and
quicker options existed including bringing gas down by
truck or train to Fairbanks; the options would be labor
intensive, which would not be a bad thing; however, he
reiterated his belief that Cook Inlet would not run out of
gas.
5:46:51 PM
Representative Guttenberg thanked Mr. Walker for his work
over the years. He asked for an expansion of detail related
to the transparency and confidentiality issue.
Mr. Walker was concerned that the structure under HB 9
could be handed off to anyone. He opined that it was the
wrong direction for the state to put money into a project
and not know what was being done or negotiated to ensure
that Alaska was getting the best deal. He believed that a
considerable amount items related to oil and gas in Alaska
was not disclosed to the state. He stressed that an
additional layer of confidentiality was "absolutely the
wrong direction."
Vice-chair Fairclough thanked Mr. Walker for being an
advocate of natural gas for the people of Alaska. She
relayed that there were many rural communities that had
been screaming for a fuel source for decades. The goal of
HB 9 was to have a window of opportunity open to the state.
She believed that AGIA could not go forward and agreed that
TransCanada was not motivated; however, the state was in a
predicament and HB 9 was a step forward and allowed a big
diameter pipeline. She wondered why HB 9 was a barrier to
Mr. Walker's ideas. She stated that the bill did not
specify anything related to the size of the pipeline;
numbers thrown against it were for a different route. She
did not understand the opposition to an opportunity to move
forward. She opined that it would take something along the
lines of a special act from Congress (as with the Trans-
Alaska Pipeline) to get a natural gas pipeline in Alaska
regardless of the size. She believed that if the state
failed to do something exceptional it would never see a
pipeline.
Mr. Walker responded that the act of Congress had been used
to bypass an environmental process in order to expedite the
project. A right-of-way from Prudhoe Bay to Valdez had
already been issued for a natural gas pipeline and a
federal environmental impact statement in addition to
approval from 23 state and federal agencies; therefore, he
did not see the necessity of an act of Congress related to
the project. He stressed that HB 9 was the wrong path
because it did not solve the problem; additionally, as long
as AGIA was in place it did have a volume limitation. His
largest concern was that it did not do "anything good for
the State of Alaska." He pointed to a Harris report showing
that the cost of energy would drop by 65 percent in Bethel
with a large volume line to Valdez. He agreed that the
problem of high energy costs worsened in rural areas. He
wondered what a small volume line would do for places like
Bethel and other areas of the state. He believed the bill
sold the state short.
Vice-chair Fairclough replied that the legislature was
playing by the existing rules; until the governor triggered
the abandonment clause (the legislature could pass a law,
but the governor could veto it) the state could not move
forward. She emphasized that the bill did not specify a
small diameter gasline; it said that the state would be in
compliance with AGIA to move the process forward. She
believed that using personal beliefs related to the
legislation did not provide Alaskans the opportunity to see
that the goal was to shed light on a path forward and the
only path forward currently available to the legislature.
She accentuated that the goal was to respond to Alaskans'
need for reduced energy costs. She agreed that the desired
outcome was the lowest energy cost, but she believed it was
not possible under the scenario Mr. Walker had provided.
She understood that a large diameter line was the right way
to go, but that it was not currently an option. She
supported efforts made for an all-Alaska gasline and stated
that the bill also guaranteed an all-Alaska line.
5:54:22 PM
Co-Chair Stoltze referred to concerns about constraints of
the AGIA process and of the bill. He surmised that Mr.
Walker had provided his opinion about the myth of AGIA
yielding anything and asked whether the assessment was
fair. Mr. Walker agreed.
Co-Chair Stoltze did not believe that the big line used for
comparison existed through the AGIA process.
Mr. Walker concurred. He did not believe anyone in the
current legislature would vote for AGIA at present. He
believed the legislature could send a message to the
governor about requesting him to exercise the abandonment
clause [in the AGIA contract]. He stressed that HB 9 was
not the answer. He concluded that AGIA would inhibit the
state's ability to be the state that it should be.
5:56:27 PM
DOUG SMITH, PRESIDENT and CEO, LITTLE RED SERVICES and
CHAIR, THE ALLIANCE, supported the legislation. He relayed
that high energy costs were inhibiting Fairbanks businesses
from being competitive in the marketplace. He believed the
playing field needed to be leveled; a home run would be a
large gasline, but a base hit would be affordable utilities
for all residents. The Alliance recognized that the bill
did not solve everyone's problems; however, he thought
affordable energy may not reach those in need if the state
waited for a large diameter gasline for the lowest possible
price. He shared that he had worked on a gasline fee study
in 2000; the project was large and would take certain
economics to support an LNG line to tidewater. He stated
that a primary objective was more affordable utilities to
Alaskans.
Representative Gara discussed that a smaller gasline could
set prices between $10 and $16 that consumers would be
obligated to for 20 to 30 years. He asked whether Mr. Smith
would remain supportive of the line if a large line came
along, but the small line prevented consumers from having
access to the cheaper gas. Mr. Smith answered that options
needed to be kept open. He would take the price over some
prices offered currently, especially if the price was
predictable.
6:00:03 PM
RICHARD FINEBERG, SELF, FAIRBANKS (via teleconference),
spoke in opposition to the bill. He believed the bill had
been misguided from its inception. He stated that the major
North Slope producers were the only ones who would benefit.
He believed that confidentiality created a political
circumstance in which bad things happened; if system
safeguards were in place, the state would lose. He referred
to TAPS and stated that the state lost $3.4 billion due to
tariff overcharges in 1985. He stressed that part of the
reason the loss took place was because of confidentiality.
He referred to documentation of the incident that he had
provided the legislature in 1990. He continued to discuss
the loss and referenced a U.S. Supreme Court decision that
gave up refunds. He emphasized that history showed that the
state did not get the low tariffs. He discussed that
industry had stonewalled the state related to the tariffs.
He asserted that the bill was a recipe for disaster because
of increasing confidentiality, eliminating transparency,
eroding checks and balances, eviscerating judicial review,
and its failure to solve fundamental policy problems.
6:05:39 PM
JAMES MERY, VICE PRESIDENT, LANDS AND NATURAL RESOURCES,
DOYON LIMITED, spoke in favor of the bill. He noted the
need for affordable energy in rural and smaller
communities. The company believed in options and that HB 9
had a significant amount of momentum; he believed it needed
to keep moving. He spoke to the pursuit of oil and natural
gas along the corridor. He urged the committee to support
the legislation.
Representative Guttenberg asked whether an imminent domain
issue was a concern to Doyon. Mr. Mery answered that the
state exercised imminent domain on a regular basis. He
noted that generally state law was an extension of imminent
domain to a promoter of a project; he believed it had been
obtained during the building of the TAPS line as well. The
organization was not crazy about imminent domain issues but
there was a process to sort out the value of property in
state law that he believed Doyon could work with.
6:08:53 PM
LYNN WILLIS, SELF, EAGLE RIVER (via teleconference), shared
that he supported the bill if it served to support the
alignment of pipeline projects; however, he did not support
the bill if it would focus on advancing a single project
that would be built without regard to other projects. He
thought all Alaskans cringed at the thought of having a
large pipeline built with a duplicate smaller line running
along next to it. He believed that it was time to define
the various viable scenarios that would result in the
necessary infrastructure to utilize the state's natural gas
resources. He stressed that HB 9 must contribute to the
goal of maximum use of the resource consistent with public
interest and for the maximum benefit of Alaskans. He
discussed several concerns. He wondered whether the bill
provided the mechanism to allow construction of the Cook
Inlet to Fairbanks segment independently from the segment
to tidewater. He wondered whether the bill would allow a
small diameter line from Fairbanks to Cook Inlet and a
large line from North Slope to Fairbanks that could be used
later as the first phase of a large line to tidewater,
Canada, or the Lower 48. He wondered whether a line between
Fairbanks and Cook Inlet would preclude the Glenn Allen
spur line. He queried whether the bill provided for the
possibility that the line could be used to transport gas
from Cook Inlet to the major export line. He wondered
whether the bill's mandate that corporations shall analyze
additional natural gas pipelines connecting to customers in
other regions of the state included other connections such
as surface transport of gas or gas products by rail, truck,
and barge. He summarized that his support was contingent on
the legislation's application to its total effort to
exploit the natural resource for the benefit of Alaskans.
RICHARD PETERSON, SELF, ANCHORAGE (via teleconference),
communicated that he had provided written testimony to the
committee. He saw two issues with the bill that derived
from HB 369. He stated that the legislature was evaluating
a pipeline based upon conditions that AGIA placed on it; if
there was going to be an AGIA line, the bills supported a
line from Fairbanks or Glennallen to Southcentral. He
questioned why the bill asked AGDC to look at a gasline
from the North Slope past Fairbanks to South Central, but
placed constraints that would only occur if an AGIA gasline
was built. He recommended that the legislature ask AGDC to
present two options to the people of Alaska: (1) the best
spur line option if an AGIA line was built and (2) the best
option from the North Slope through the Railbelt to
Southcentral if an AGIA line was not built. He questioned
why AGDC was evaluating a high pressure line that would
transport liquids. He thought the idea may have made sense
if the line was built to Canada where there was an existing
market for liquids, but it did not make sense for Alaska
instate use.
6:14:30 PM
Vice-chair Fairclough thanked Glenn Allen residents for
their involvement and their testimony on the previous day.
BRAD HENSPETER, SELF, COPPER RIVER (via teleconference),
spoke in opposition to the bill. He shared that the average
homeowner needed affordable energy and believed that the
gasline was the way to accomplish the goal to help people
in Glenn Allen, Fairbanks, Delta Junction, Copper Center,
Valdez, and other. He stressed that Copper River residents
paid higher costs for goods and services due to high energy
costs; the same was true for the state when it heated
school buildings, transportation buildings, the legislative
information office, and more. He relayed that it required
more energy to heat a home in the Copper Basin than it did
in Fairbanks. He recommended that committee members look at
the scientific heating degree tables for Interior Alaska
communities showing that 55 percent to 60 percent of the
coldest days happened from November to February; during the
time it was not possible to use wind, solar, or hydro
power. He discussed that biomass was a good option, but a
vehicle would have to drive to each of the trees in the
forest to harvest the energy; he opined that there would
need to be many new roads to reach harvestable timber; the
option may be cheaper than oil, but it would significantly
change the landscape and it was very labor intensive. He
encouraged a pipeline to Valdez with access for communities
along the way; gas could be sold from the Port of Valdez to
help pay for the line. He stressed that a large supply of
fuel was needed to reduce costs.
LISA HERBERT, EXECUTIVE DIRECTOR, GREATER FAIRBANKS CHAMBER
OF COMMERCE (via teleconference), vocalized support for the
bill. She informed the committee that the chamber's board
of directors had specified the high cost of energy as its
top priority for the current year; the board's membership
represented a diverse group of businesses, all of which
were impacted by "staggering" energy costs in the Interior.
She discussed a priority list that included the support of
HB 9. The chamber would work diligently to ensure that
issues such as fair tariffs would be addressed. She stated
that natural gas to the community would allow for economic
growth and lower costs for residents and businesses. Her
energy costs were as much as her mortgage payment
(approximately $1,400 per month). She remained hopeful that
the energy costs would be solved soon. She believed that
the rest of Alaska would be hurting if the state's second
largest city was hurting; she was fearful that the chamber
would be handing out relocation packets to business members
instead of welcoming new businesses. She urged the
committee to pass the legislation.
6:22:18 PM
GEORGE PIERCE, SELF, KASILOF (via teleconference), voiced
his strong opposition to the bill. He stressed that voters
wanted a large instate pipeline. He was tired of producers
holding the gas hostage. He believed the legislature could
tell the governor no.
6:23:55 PM
CLAI PORTER, SELF, ANCHORAGE (via teleconference), strongly
supported HB 9. He had spoken to builders and members of
the real estate community and believed that if the state
did not solve its problem and make progress it would lose
energy and population. He supported steady economic growth
and he felt the bill was a move in the right direction. He
did not believe the federal government would solve the
problem. He believed the state should take the opportunity
and that it could afford the project; the line would create
jobs, provide needed fuels, and would serve all of the
communities across the state. He added that the state could
not wait 10 or 15 years to solve the problem.
6:25:58 PM
GENE THERRIAULT, VICE PRESIDENT, RESOURCE DEVELOPMENT and
EXTERNAL AFFAIRS, GOLDEN VALLEY ELECTRIC (GVE), FAIRBANKS
(via teleconference), voiced his support for HB 9. He
discussed that the company provided electric needs for the
Interior. He relayed that GVE had participated in the open
season that AGDC had held in June 2011. The company hoped
that resources would reach Interior Alaska at a price that
would help to relieve the burden of current energy costs.
The company supported state participation in the
development of an AGDC pipeline and the associated
development of an affordable tariff structure for
residents. He understood that there was concern about the
cost of spur line that would be needed to get gas to the
greater Fairbanks and North Pole area off of the AGDC line;
he trusted that their efforts would produce a commercially
reasonable result. The company believed that a large volume
line may still be constructed for export, but that it was
prudent to continue the AGDC effort focused on instate
needs. The work AGDC had done would still be very helpful
if the governor requested that North Slope producers
aligned under a new effort to build a large line to
tidewater. He opined that the environmental design and
right-of-way work of the agency would be beneficial if the
recent exploration success in Cook Inlet resulted in new
gas resources.
CHUCK WIEGERS, SELF, FAIRBANKS (via teleconference),
supported HB 9. He believed that clean gas and inexpensive
natural gas was the obvious replacement for diesel; the
replacement would not happen overnight or without a plan.
Efforts to truck gas from the North Slope would begin a
process; the bill facilitated the next step and brought
AGDC to an open season in 2013. Once the open season was
conducted the agency could determine the best way to
deliver gas to the Interior at the lowest price possible.
He expressed that the bill also provided AGDC the tools to
deliver a project to bring gas to the Interior and would
provide the flexibility to coordinate with the producers.
He urged support of the legislation.
6:30:38 PM
AT EASE
6:51:38 PM
RECONVENED
DEBORAH BROLLINI, SELF, ANCHORAGE (via teleconference),
testified in support of HB 9. She had wondered why
Anchorage had to plan for brownouts in 2009. She referred
to a recent earthquake and explained that she was not
prepared to keep her family warm in an emergency or if
there was a shortage of natural gas. She emphasized the
need for additional energy infrastructure to assure utility
services would not be interrupted. She expressed
appreciation to the legislature for looking for solutions
to the problem.
JULIE DUQUETTE, SELF, FAIRBANKS (via teleconference),
testified in support of HB 9. She stated that the bill
provided the framework to get gas to Fairbanks; the
community was currently feeling the impact of high energy
costs. She relayed that residents with fixed and low income
were hit the hardest. She explained that money once spent
on goods was now spent on fuel and electricity. She
believed natural gas was the obvious replacement for much
of the fuel used currently. She believed a trucking project
that was underway by Flint Hills and Golden Valley Electric
was a good start and an instate pipeline was the next
logical step. She opined that taking action would help
ensure residents' future while possible. The bill would
allow AGDC to hold an open season in 2013 and to provide
options for the construction of a pipeline to provide gas
at the lowest possible cost. She encouraged support of the
legislation.
6:55:26 PM
DAVID OWENS, OWENS INSPECTION SERVICES, PALMER (via
teleconference), spoke in favor of HB 9. He was in support
of recommendations by AGDC.
CHUCK RENFRO, HOME BUILDERS ASSOCIATION, ANCHORAGE (via
teleconference), testified in support of HB 9. He echoed
the prior speaker's testimony. He stressed the need for low
cost gas in the Willow area and for prompt action.
6:57:38 PM
AT EASE
7:07:06 PM
RECONVENED
LEIGH SKILES, SELF, HOMER (via teleconference), testified
in support of HB 9. She emphasized the need for affordable
gas and noted that the bill represented a first step. She
believed that the bill was about moving forward to obtain
more information to make the future possible related to gas
for Alaskans.
Representative Mike Hawker addressed the AGDC project plan
and corrected what he felt was a misrepresentation of the
facts. He noted that $17 a million cubic feet (mcf) could
be found in the AGDC plan (Commercial Analysis and
Findings, page 3-3); the section summarized options for
capacities and products. He explained that the tariff
estimate calculated to a $17 cubic foot delivery price was
option number 4 (a 250,000 mcf per day) and involved
conditioned natural gas and an enriched NGL [Natural Gas
Liquids] stream. He clarified that the option was described
as "unacceptable tariff," but was maintained as an option
for comparative purposes. He emphasized that the number was
included as a benchmark and not as the base scenario that
the project had been built on.
7:12:51 PM
Representative Gara responded that AGDC had produced a
report of options for a 250,000 mcf line and a 500,000 mcf
line; the 500 mcf line only worked if there was an export
component. He stated that the export component was
questionable because under the study terms the cost of gas
equaled approximately $15 to $16 when factoring in the cost
of conditioning at a natural gas plant, possible expansion
of the plant, shipping to Asia, and the cost of gas. He was
skeptical that the state would find a great market for the
price for the long-term in Asia. He observed that the
option would be the 250,000 mcf line if the larger option
did not work. He stressed that there was nothing in the
bill that said AGDC could not build a 250,000 mcf line. He
did not appreciate being "accused of misleading anybody."
He stated that smaller line would produce gas combined with
NGL, which would make the gas cheaper, at roughly $14 an
mcf plus the cost of local distribution. He opined that the
gas under the scenario was expensive. He thought that if
the intention was to build a line larger than the 250,000
mcf that it should be stated in the bill. He stressed that
the problem with the bill was that AGDC was given the power
to move forward with the project, but it did not seem like
the legislature would have the power to stop it. He
referred to his upcoming amendment that would provide the
legislature the power to stop the project if it looked like
a bad idea.
7:15:51 PM
Representative Gara MOVED to ADOPT Amendment 4, 27-
LS0075\K.4 (Bullock, 3/19/12):
Page 1, line 2, following "Corporation;":
Insert "requiring legislative approval before
construction of an in-state natural gas pipeline
developed by the Alaska Gasline Development
Corporation;"
Page 4, following line 4:
Insert a new subsection to read:
"(b) The Alaska Gasline Development Corporation
may not begin to construct an in-state natural
gas pipeline before project sanction and before
receiving authorization by law to proceed with
the construction. In this subsection, "sanction"
has the meaning given in AS 43.90.900."
Reletter the following subsections accordingly.
Page 5, line 15:
Delete "(c) and (d)"
Insert "(d) and (e)"
Co-Chair Stoltze OBJECTED.
Representative Gara explained that Amendment 4 would
provide the legislature with the chance to stop the project
if it produced gas that was too expensive. The amendment
would prevent construction of a pipeline before project
sanction and before receiving authorization by law to
proceed. He opined that the legislature did not want to
give away the power to stop the project.
Representative Hawker testified in opposition to the
amendment. He stated that the amendment said that AGDC
could not begin to construct an instate gasline before a
project was sanctioned and before receiving authorization
by law. He relayed that the definition of "sanction" fell
under AS 43.90.900, which was the AGIA statute; AGDC would
be linked to the AGIA sanctioning process. He relayed that
as defined in the statute, the term sanction was to make
financial commitments to go forward with the project as
evidenced by entering into financial commitments of at
least $1 billion with third parties. He stressed that the
only reference to sanctioning within AGIA was AS 43.90.200,
which required TransCanada (license holder under AGIA) to
sanction within certain times and parameters. He believed
the amendment would give TransCanada the ability to
sanction the project.
Representative Hawker emphasized that the amendment was
flawed and that AGDC was to provide the legislature with
options to move forward with once it deemed a project was
commercially reasonable. He stated that the bill contained
specific provisions that required AGDC to follow its
project plan. He accentuated that the project plan was not
the 250,000 mcf; the base plan was the 500,000 mcf line to
tidewater with an open season to determine its viability.
He furthered that the bill contained specific requirements
for AGDC to adhere to the principle of making gas available
at the lowest possible cost to Alaskans. He stressed that
AGDC would not be able to lock consumers into an
unreasonable rate of gas for 20 to 30 years. He explained
that state investment could not be made without express
approval of the legislature; however, if a project could be
developed by the private sector it would not require
legislative approval.
7:21:39 PM
Representative Guttenberg suggested that the amendment
addressed his concern that the state would have no say on
the tariffs or other nature of the gasline; there could be
a successor that took over the project in the future and
the state would have no input. He acknowledged that the
amendment was flawed but stressed that the intent was
clear.
7:23:45 PM
Representative Chenault testified in opposition to the
amendment and asserted that AGIA already provided action
without additional input from the legislature. He believed
the only way the legislature would have any input was if it
was asked for more sanctions or money to complete a
project. He opined that the legislature should not be in
the pipeline business because road blocks that it put up
either slowed or quashed projects. He stressed that there
were enough safe guards in the legislation as written and
echoed that the legislature had the power of the purse
strings.
Representative Gara surmised that there would be no
opportunity for legislative approval of the project if
additional money was not requested. He noted that
subsequently there would be no recourse to binding
consumers to high priced gas for 20 years or more. He
thought the idea was bad and that the legislature should
have a say in whether the project was good. He disputed
that the legislature's ability to weigh in on the project
would act as a road block and stressed that it would be the
public's opportunity to express its opinion. He suggested
that there could be better options down the road.
7:27:14 PM
Representative Gara stated that the amendment pertained to
the definition of sanction under Section 43.90.900. He
addressed that the definition of sanction had nothing to do
with providing TransCanada or AGIA with any power over
anything. He read the definition as follows:
Sec. 43.90.900. Definitions.
In this chapter, unless the context otherwise
requires,
(22) "sanction" means to make financial
commitments to go forward with the project as
evidenced by entering into financial commitments of at
least $1,000,000,000 with third parties;
Representative Gara did not believe the amendment was
flawed, but would accept an amendment with different
language on project sanction if the sponsors' supported
one.
7:29:16 PM
A roll call vote was taken on the motion to adopt Amendment
4.
IN FAVOR: Gara, Guttenberg
OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule,
Thomas, Stoltze
The MOTION FAILED (2-7).
Representative Gara MOVED to ADOPT Amendment 5, 27-
LS0075\K.5 (Bullock, 3/19/12):
Page 1, line 2, following "Corporation;":
Insert "requiring legislative approval before
certain expansion of an in-state natural gas
pipeline developed by the Alaska Gasline
Development Corporation;"
Page 4, following line 4:
Insert a new subsection to read:
"(b) The Alaska Gasline Development Corporation
may not expand the design capacity of an in-state
natural gas pipeline to accommodate throughput of
more than 500,000,000 cubic feet a day of North
Slope gas to market before receiving
authorization by law to proceed with the
expansion."
Reletter the following subsections accordingly.
Page 5, line 15:
Delete "(c) and (d)"
Insert "(d) and (e)"
Co-Chair Stoltze OBJECTED.
Representative Gara explained that Amendment 5 would ensure
that a violation of the AGIA statute would require the
responsible entity to come to the legislature to get the
law changed; it would prevent the state from being liable
for any trouble damages.
Representative Hawker communicated that the bill included
language requiring that the pipeline would not violate AGIA
covenants. He was concerned that the amendment would not
allow AGDC to expand the design capacity beyond the 0.5 bcf
per day before being authorized by law. He opined that the
constraint violated one of the bill's most important
concepts that would allow the alignment of an AGDC and AGIA
project and the ability to exceed the 0.5 bcf per day
limit. He maintained that the amendment could close out
options.
7:32:03 PM
Representative Guttenberg referred to comments by Mr.
Walker related to transparency. He referred to a court case
that due to a lack of transparency the state had had little
information to base decisions upon. The intent was to allow
for legislative and public input and an understanding of
the project.
7:33:16 PM
Representative Gara WITHDREW Amendment 5. He stated he was
unhappy with the drafting of the amendment.
Representative Gara MOVED to ADOPT Amendment 6, 27-
LS0075\K.16 (Bullock, 3/20/12):
Page 1, line 2, following "Corporation;":
Insert "requiring legislative approval for the
Alaska Gasline Development Corporation to
continue the development of an in-state natural
gas pipeline after a certain amount of money has
been spent to develop the project;"
Page 4, following line 4:
Insert a new subsection to read:
"(b) The Alaska Gasline Development Corporation
may not continue the development of an in-state
natural gas pipeline without legislative approval
after the Alaska Gasline Development Corporation
spends $100,000,000 for the development of the
in-state natural gas pipeline after the effective
date of this section. Legislative approval may be
in the form of an appropriation to the Alaska
Gasline Development Corporation for the purpose
of developing an in-state natural gas pipeline."
Reletter the following subsections accordingly.
Page 5, line 15:
Delete "(c) and (d)"
Insert "(d) and (e)"
Co-Chair Stoltze OBJECTED.
Representative Gara stated that the amendment would require
AGDC to report to the legislature to seek further approval
after spending $100 million; the legislature would have the
ability to determine whether money had been spent wisely.
7:34:11 PM
Representative Hawker testified in opposition to the
amendment. He stressed that the goal was to get government
and politics out of the way. The legislature had
appropriated $200 million the prior year. He stressed that
a project could only go as far as the legislature was
willing to fund. The bill required that the Regulatory
Commission of Alaska would review any proposed ownership
changes. He felt that HB 9 contained adequate provisions to
protect the public. He urged the committee not to lose
sight that the public wanted a pipeline to move forward.
7:36:07 PM
Representative Wilson testified in opposition to the
amendment and asserted that Fairbanks could not keep
waiting.
Representative Guttenberg emphasized that following a
deliberate and accurate path was due diligence, not slowing
down the process. He stressed that the goal was to avoid
mistakes.
7:38:17 PM
Representative Chenault referred to Mr. Walker and recalled
his statements that the road to cheaper gas in Alaska was
to retract AGIA, thereby removing restriction of the
project. He discussed that the prior year the legislature
had approved a $200 million appropriation for funding
AGDC's work to get them to the open season. He furthered
that including money already spent and the proposed fund,
the total was between $240 million to $260 million. The
entity had estimated that it would cost approximately $400
million to get to the open season in 2013. He opined that
the entity would be back the following year for an
additional appropriation and that the legislature could
have conversations on the project at that time. The AGIA
process did not provide the same option; TransCanada had
not disclosed the work done or the progress after $500
million dollars. He reiterated that the bill included
safeguards for the legislature to get more information on
the project in the future.
7:41:01 PM
Representative Gara concluded that the public wanted the
legislature to make sure that due diligence was done and
that the public did not end up with high prices. He
observed that Cook Inlet gas might better protect the
consumer. He believed the legislature should see how money
was spent and whether the project should go forward. He
stressed that the legislature should have the ability to
act if a better project with cheaper gas was identified;
private companies should not be relied upon to make the
decision.
A roll call vote was taken on the motion to adopt Amendment
6.
IN FAVOR: Gara, Guttenberg
OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule,
Thomas, Stoltze
The MOTION FAILED (2-7).
7:43:07 PM
Representative Guttenberg MOVED to ADOPT Amendment 7, 27-
LS0075\K.6 (Bullock, 3/19/12):
Page 1, line 2, following "Corporation;":
Insert "relating to the tariff for transporting
natural gas liquids in an in-state natural gas
pipeline developed by the Alaska Gasline
Development Corporation;"
Page 6, following line 10:
Insert a new subsection to read:
"(h) If the Alaska Gasline Development
Corporation or a joint venture, partnership, or
other entity that includes the Alaska Gasline
Development Corporation elects to be subject to
regulation under AS 42.05 or AS 42.06, the Alaska
Gasline Development Corporation shall propose and
support separate rates for the transportation of
gas liquids to be paid by the shippers of gas
liquids."
Reletter the following subsection accordingly.
Co-Chair Stoltze OBJECTED.
Representative Guttenberg explained that the amendment took
the straddle plant off of the backs of Fairbanks and the
Interior rate payers and gas users. He discussed a flow
schematic that was divided into the North Slope facilities
(including conditioning and compressor plants and NGL
pumps), a compressor station north of the Yukon, and a
straddle plant in Fairbanks with a continuation to an NGL
extraction facility in Cook Inlet. The rate base in the
project plan placed the sole responsibility of the straddle
plant on Fairbanks. He maintained that Fairbanks would not
be taking any NGL; the NGL would be taken off in
Southcentral. The cost of the plant should be to the rate
payers or shippers, not just the Interior users of the gas.
The amendment would place the cost on the shippers that
would use the NGL.
7:45:55 PM
Representative Hawker testified in opposition to the
amendment and maintained that it was technically flawed. He
explained that the amendment provided a provision that its
consequences were effective if AGDC elected to be subject
to regulation under the Public Utilities Act or the Alaska
Pipeline Act. He stressed that the provision was not an
option based on a regulatory amendment that had passed the
prior day; the adopted amendment required that AGDC must
operate under the contract carriage statutes in HB 9. He
accentuated that the goal was to keep the legislature out
of rate decisions. He discussed that the concept of the
initial plan was for a wet gas pipeline and two straddle
plants that would be the financial responsibility of the
users; the concept created a burden due to the relatively
small population of Interior Alaska. He surmised that a dry
gas pipeline could increase costs to the Interior. He
reiterated the desire to keep the state out of anticipating
"single hypotheticals in a world of unlimited
hypotheticals."
7:48:47 PM
Representative Guttenberg noted that the amendment had been
drafted prior to other amendments. He asserted that the
plant would not benefit the people of Interior Alaska, but
those down the line who would take the NGL. There would be
no issue if there was dry gas down the road because there
would be no need for a straddle plant. He believed the
Interior would be subsidizing the rate payers at the end of
the line.
7:50:59 PM
A roll call vote was taken on the motion to adopt Amendment
7.
IN FAVOR: Gara, Guttenberg
OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule,
Thomas, Stoltze
The MOTION FAILED (2-7).
Representative Guttenberg MOVED to ADOPT Amendment 8, 27-
LS0075\K.7 (Bullock, 3/19/12):
Page 1, line 2, following "Corporation;":
Insert "relating to the tariff for transporting
natural gas in an in-state natural gas pipeline
developed by the Alaska Gasline Development
Corporation;"
Page 6, following line 10:
Insert a new subsection to read:
"(h) If the Alaska Gasline Development
Corporation or a joint venture, partnership, or
other entity that includes the Alaska Gasline
Development Corporation elects to be subject to
regulation under AS 42.05 or AS 42.06, the Alaska
Gasline Development Corporation shall propose and
support rates for the transportation of gas to
delivery points along the in-state natural gas
pipeline that are based on the costs to deliver
natural gas to each delivery point and that do
not include the costs to make deliveries
downstream from each delivery point for which a
separate rate is set."
Reletter the following subsection accordingly.
Co-Chair Stoltze OBJECTED.
Representative Guttenberg explained the amendment would
make tariffs distance sensitive. He was concerned that
there could be successors who did not agree that more
people had to be paying for tariffs or other. He furthered
that at some point there could be gas taken off at the
Yukon River. The amendment would mean that users would pay
tariffs based on the point where the gas was taken off of
the line.
7:53:32 PM
Representative Hawker testified in opposition to Amendment
8. He observed that the opportunity was not available in
the bill due to previously adopted amendment. He discussed
that related to the transportation of gas rates would be
proposed and supported that were based on the cost to
deliver natural gas to each delivery point (that did not
include the cost to make deliveries downstream from the
delivery point). He asserted that the amendment required
AGDC to pass costs onto Fairbanks if there was a straddle
plant constructed in the area; it would be the incremental
cost of making dry consumer ready gas available to
Fairbanks. The sponsors did not want to burden the Interior
with an inappropriate or unnecessary cost structure; they
believed in moving forward to an open season where the
market could determine the best project. He stressed that
cost checks were included in the legislation and felt the
amendment would be counterproductive.
7:55:59 PM
Representative Gara understood that the amendment sponsor
was working to protect his community from the high prices
of gas. He opined that the gas prices under the proposed
project were phenomenally high. He explained that he could
not support the amendment due to problems he had with the
legislation. He explained that the amendment would result
in higher prices for Anchorage and maintained that Interior
costs would be high and that other options would result in
cheaper prices.
7:57:25 PM
Representative Wilson asked for a clarification on the
costs to users related to the straddle plant.
Representative Chenault explained that under the current
plan the rates were tied to the straddle plant. Under a
distance sensitive plan rates would be tied to the costs to
deliver.
7:59:34 PM
Representative Guttenberg surmised that the lateral line
and the straddle plant would be borne by Fairbanks.
TOM WRIGHT, STAFF, REPRESENTATIVE MIKE CHENAULT, explained
that the bill included an additional tariff for the
straddle plant and the lateral line to Fairbanks.
A roll call vote was taken on the motion to adopt Amendment
8.
IN FAVOR: Wilson, Guttenberg
OPPOSED: Costello, Edgmon, Fairclough, Gara, Joule,
Thomas, Stoltze
The MOTION FAILED (2-7).
8:01:33 PM
Representative Gara MOVED to ADOPT Amendment 9, 27-
LS0075\K.14 (Bullock, 3/19/12):
Page 2, lines 1 -3:
Delete "relating to the Alaska Natural Gas
Development Authority; relating to the
procurement of certain services by the Alaska
Natural Gas Development Authority;"
Page 16, line 20, through page 19, line 16:
Delete all material
Renumber the following bill sections accordingly.
Page 21, lines 30-31:
Delete "38.34.060; AS 41.41.030, 41.41.040, AS
41.41.050, and 41.41.080"
Insert "and 38.34.060"
Co-Chair Stoltze OBJECTED.
Representative Gara explained that the amendment worked to
preserve the powers of Alaska Natural Gas Development
Authority (ANGDA) that had been established by statute. The
entity had been looking for the most cost effective options
to deliver gas on the road system and to rural Alaska. He
believed the entity served a valid purpose and did not want
to see its powers weakened.
Mr. Wright clarified that the legislation would not
eliminate AGNDA. The only duty that had been taken away
from the entity was the role of a builder. He detailed that
references (AS 41.41.030) related to the ANGDA board of
director's term of office had been deleted; Section 18
established that ANGDA would be governed by the AHFC board
of directors. He furthered that the bill removed redundant
information; 41.41.040 was the removal and vacancy of the
ANGDA board of directors, 41.41.050 was the board quorum
and voting, and 41.41.080 was legal counsel (Section 20
that allowed ANGDA to have legal counsel).
8:03:21 PM
Representative Gara believed that the bill removed ANGDA's
power to pursue a gas pipeline that would result in lower
costs to Alaskans. He opined that page 19 of the
legislation abolished the ANGDA board, which would become
the AHFC board. He did not believe the action was
consistent with voter initiative.
A roll call vote was taken on the motion to adopt Amendment
9.
IN FAVOR: Gara, Guttenberg
OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule,
Thomas, Stoltze
The MOTION FAILED (2-7).
8:04:25 PM
Representative Gara MOVED to ADOPT Amendment 11 [Amendment
10 was previously offered as an amendment to Amendment 3.]:
Page 2, line 27 through Page 3, line 2
Delete all material
Renumber the following subsection accordingly.
Co-Chair Stoltze OBJECTED.
Representative Gara explained that the amendment removed
two sentences from the bill that he believed were
inaccurate. First, it would remove "passage of this Act
constitutes a finding of public convenience and necessity,"
given his belief that the legislature should make the
finding. Second, it would delete that the project selected
by AHFC was in the best interest of the state. He did not
know how anyone on the committee could know that to be
true. He stressed that future pipelines could be more
attractive.
8:06:23 PM
Representative Hawker testified in opposition to the
amendment. He believed the amendment would reduce the
effectiveness of the legislation.
Vice-chair Fairclough noted that AGIA had passed in 2008;
the state had been waiting four years to find out whether
there was a valid project. She opined that the legislation
provided a window for the legislature to look forward as it
awaited information from AGIA.
Co-Chair Stoltze recalled from Mr. Walker's testimony that
AGIA had "put the nail" in ANGDA.
8:08:33 PM
Representative Gara pointed to subsection 6, page 3, line 1
of the legislation and explained that it said the pipeline
chosen by AHFC was in the state's best interest. He
maintained that the legislature did not know what the
pipeline would be and queried how anyone could know. He
guessed that it was an unconstitutional delegation of
authority.
A roll call vote was taken on the motion to adopt Amendment
11.
IN FAVOR: Gara, Guttenberg
OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule,
Thomas, Stoltze
The MOTION FAILED (2-7).
8:09:50 PM
Representative Guttenberg MOVED to ADOPT Amendment 12, 27-
LS0075\K.18 (Bullock, 3/20/12):
Page 4, line 5:
Delete "Upon commencement of construction of"
Insert "When designing"
Co-Chair Stoltze OBJECTED.
Representative Guttenberg explained the amendment. He read
from page 4, line 5 of the bill:
Upon commencement of construction of an in-state
natural gas pipeline, the Alaska Gasline Development
Corporation shall analyze additional gas pipelines
connecting to industrial, residential, or utility
customers in other regions of the state.
Representative Guttenberg removed the language "upon
commencement of construction" and replaced it with "when
designing." He stressed that the time to determine the
demand was during the design process.
8:11:02 PM
Representative Chenault opposed Amendment 12 and maintained
that it would add a huge cost to the legislation and was
not the right time in the process. He related that once
construction started the engineers responsible for the
design would have time to look at designs for other
possibilities and to bring them into alignment.
Representative Guttenberg asserted that the designers would
only need to look at the instate demand study that had been
done and to determine whether anyone else wanted something.
He discussed that there were infrastructure projects
farther out than the Railbelt. He stated that it was never
too early to understand what the project was prior to the
commencement of design or construction.
Representative Chenault observed that designing the project
included environmental impact studies, right-of-way
studies, and other. He believed the process was time
consuming. He opined that design of gas distribution
systems could occur during the construction process.
Representative Guttenberg clarified that the amendment
related to the commencement of design, not construction.
Representative Chenault responded that designing the
project had to do with the development of tariff rates from
one location to another. He stated that the state could
spend years designing different gas extension proposals to
serve every community instead of concentrating the project
at hand, which was the development of a pipeline project.
8:14:37 PM
A roll call vote was taken on the motion to adopt Amendment
12.
IN FAVOR: Gara, Guttenberg
OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule,
Thomas, Stoltze
The MOTION FAILED (2-7).
Representative Joule observed that he would have liked to
see a tax cap on some communities; however, it had not fit
within the legislation. The amendment would have resulted
in a net zero and would have allowed two boroughs to
function in a more fiscally responsible way.
Representative Hawker appreciated the concept brought
forward by Representative Joule and relayed his commitment
to help find an appropriate legislative vehicle for the
issue.
TOM LAKOSH, SELF, ANCHORAGE (via teleconference), spoke in
opposition to the bill. He felt that HB 9 may be premature
given the possibility of the development of a line with
natural gas. He was very concerned that there were not
sufficient checks and balances in the legislation. He urged
review of Cook Inlet development, the option to truck or
rail LNG to Fairbanks, or propane from the North Slope.
Based on the cost estimates he believed the legislation was
a "boondoggle" that would serve no one but the builders. He
hoped the committee would reconsider the legislation. He
pointed to a potential Susitna dam project that may benefit
from a superconductor; research showed that superconductors
were capable of being run by LNG instead of liquid
nitrogen. He believed the legislature should look at the
entire energy distribution systems throughout the Railbelt
in conjunction with other transmission schemes. He
reiterated that the bill was premature. He discussed other
energy resources including fossil fuels or electricity
generation form.
Representative Gara relayed that one amendment remained
that he had worked with the sponsor on. He asked for the
status.
Co-Chair Stoltze responded that the committee would take up
any remaining amendments the following morning.
8:20:23 PM
Representative Wilson noted that the North Star Borough met
during the evening and provided support for the
legislation.
Co-Chair Stoltze CLOSED public testimony.
HB 9 was HEARD and HELD in Committee for further
consideration.
ADJOURNMENT
8:21:34 PM
The meeting was adjourned at 8:21 PM.