Legislature(2013 - 2014)HOUSE FINANCE 519
03/21/2013 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB4 | |
| SB23 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 4 | TELECONFERENCED | |
| + | HB 74 | TELECONFERENCED | |
| + | SB 23 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 21, 2013
1:37 p.m.
1:37:44 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:37 p.m.
MEMBERS PRESENT
Representative Alan Austerman, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Lindsey Holmes
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Representative Mike Chenault; Representative Mike Hawker;
Rena Delbridge, Staff, Representative Hawker; Sarah Fisher-
Goad, Executive Director, Alaska Energy Authority,
Department of Commerce, Community and Economic Development;
Ted Leonard, Executive director of Alaska Industrial
Development and Export Authority; Representative Isaacson;
Nick Szymoniak, Project Economist, Alaska Energy Authority.
PRESENT VIA TELECONFERENCE
SUMMARY
HB 4 IN-STATE GASLINE DEVELOPMENT CORP
HB 4 was HEARD and HELD in committee for further
consideration.
SB 23 AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
SB 23 was HEARD and HELD in committee for further
consideration.
1:38:01 PM
HOUSE BILL NO. 4
"An Act relating to the Alaska Gasline Development
Corporation; making the Alaska Gasline Development
Corporation, a subsidiary of the Alaska Housing
Finance Corporation, an independent public corporation
of the state; establishing and relating to the in-
state natural gas pipeline fund; making certain
information provided to or by the Alaska Gasline
Development Corporation exempt from inspection as a
public record; relating to the Joint In-State Gasline
Development Team; relating to the Alaska Housing
Finance Corporation; relating to judicial review of a
right-of-way lease or an action or decision related to
the development or construction of an oil or gas
pipeline on state land; relating to the lease of a
right-of-way for a gas pipeline transportation
corridor, including a corridor for a natural gas
pipeline that is a contract carrier; relating to the
cost of natural resources, permits, and leases
provided to the Alaska Gasline Development
Corporation; relating to procurement by the Alaska
Gasline Development Corporation; relating to the
review by the Regulatory Commission of Alaska of
natural gas transportation contracts; relating to the
regulation by the Regulatory Commission of Alaska of
an in-state natural gas pipeline project developed by
the Alaska Gasline Development Corporation; relating
to the regulation by the Regulatory Commission of
Alaska of an in-state natural gas pipeline that
provides transportation by contract carriage; relating
to the Alaska Natural Gas Development Authority;
relating to the procurement of certain services by the
Alaska Natural Gas Development Authority; exempting
property of a project developed by the Alaska Gasline
Development Corporation from property taxes before the
commencement of commercial operations; and providing
for an effective date."
1:40:20 PM
REPRESENTATIVE MIKE CHENAULT testified that HB 4 would move
Alaska forward by utilizing the state's natural gas
resource for Alaskans. He mentioned HB 369, which formed
Alaska Gasline Development Corporation (AGDC). He noted
that AGDC had been tasked with revisiting the idea of an
instate gasline. The project would allow gas for all
Alaskans, at a reasonable price, under the constraints of
Alaska Gasline Inducement Act (AGIA). He stated that AGDC
recommended the components written into HB 4 that would
allow for an open season to gather buyers and sellers.
Representative Chenault spoke to the need to increase
revenue for Alaska. He noted that Alaskans had waited for
more than 30 years for an instate gasline. He mentioned
some arguments against the gasline, including the need to
retain the gas cap pressure at Prudhoe Bay and Kuparuk in
an effort to produce more oil and revenue for Alaska. He
stated that Alaska had opportunities to move the gas off of
the North Slope without disturbing oil production. He
shared that the original design for the gasline was a high
pressure, 24 inch pipeline, which would carry liquids from
Prudhoe Bay to South Central Alaska and was termed the
"bullet line."
Representative Chenault continued that further
conversations yielded a new proposal for a 36 inch, 1440
PSI line traversing 800 miles to South Central Alaska. He
contended that the pipe was not small when compared to
other gaslines in the world. He stressed that the market,
and not the legislature, would determine the size of the
pipe and the location of gas delivery. He argued that the
legislature could continue to hold up the only gasline
project moving forward because of the belief that it did
not fit particular criteria, or the legislature could leave
it up to the people who "know what they are doing." He
noted the complexity of the legislation and its proposal.
He explained that HB 4 allowed AGDC the ability to hire the
best and brightest consultants to compose the management
team required to bring the multiple billion dollar project
to the state. He added that HB 4 was the only project that
had current state and federal permits with the intention to
move the projects forward.
1:47:37 PM
Speaker Chenault stated that an expensive ad campaign had
arisen to stop the project proposed in HB 4. He said that
he understood the concerns raised by the community behind
the ad campaign. He stated that their main argument was
that the gasline was not big enough. He stated that the
project was constrained by AGIA, and at some point
combining the projects could be in order. He referred to a
letter from the big 3 oil producers to the governor
suggesting a different diameter pipeline. He said that the
argument rested on the difference between a 36 and 42 inch
pipeline. He said if Alaska wanted to build a 48 pipeline,
it could, but someone would have to pay for it. He warned
that the shippers and the buyers would not pay for space in
a pipeline that they were not going to use. He advocated
for providing the proper tools to corporations in an effort
to move the project forward. He said that it was time for
the legislature to get out of the way and allow for the
project to advance. He stressed that he wanted the most
powerful corporation in the market doing the states
bidding. He relayed that under AGDC the project was shovel
ready and all that they needed were the tools to go to
work.
1:51:05 PM
REPRESENTATIVE MIKE HAWKER echoed the concerns of the
previous testifier. He lamented that the greatest problem
across the state was the cost and availability of energy.
He asserted that HB 4 was about solutions; short, medium
and long-term solutions to Alaska's energy challenges. He
shared that in the short-term the Cook Inlet Recovery Act
had provided heat and lights in that area for several
years. He provided the example of gas trucking as a medium-
term solution for the interior. He asserted that HB 4 was a
bill that made long-range solutions possible for all
Alaskans. He expressed his frustration regarding the lack
of progress on a natural gas pipeline. He noted that the
legislature had addressed the lack of progress with the
creation of AGDC in order to move forward with a
legislatively sanctioned process, and that process was
embodied in HB 4. He emphasized that HB 4 was not an
alternative to other needed solutions; particularly, the
Fairbanks Trucking Proposal. He noted that the first policy
objective of the bill was to deliver gas to Alaskans, as
soon as possible, and at the least possible cost. He said
that the policy objective of the bill was to reduce the
project and financing risk, reduce the cost, and ultimately
reduce consumer rates. He stressed that HB 4 was about
taking care of Alaskans first.
1:55:35 PM
Representative Hawker highlighted the six policy principles
that had been incorporated into the bill:
· to minimize political influence
· to base any pipeline project going forward on a
viable, commercial transaction; a market based
solution in the private sector
· to make AGDC as efficient and flexible as possible
· to provide a strong and comprehensive regulatory
framework
· to provide a strong governance framework with the
creation of a state agency that can efficiently and
effectively operate, while holding AGDC responsible
under clear statutory mission and statutory
responsibilities.
· to allow and support the development of future Alaska
oil and gas basins
He stressed that the bill had been carefully crafted so as
not to violate the terms of AGIA. He recapped that HB 4 was
a balanced approach to moving a project forward and
equipped AGDC for success in the endeavor. He noted that
the bill would empower AGDC to shift gears and participate
in any other project, to an appropriate degree, in order to
help the state meet the primary objective of delivering gas
to Alaskans. He noted the institutional controls written
into the legislation in order to ensure that any project
going forward had a commercially viable transaction
underwriting the project. He explained that the legislative
appropriative authority over the state was not compromised
in the legislation. He emphasized that AGDC was mandated
under statute to weigh the needs and interests of the
residents of the state when making decisions that they must
be working to deliver gas to Alaskan's at a competitive
price.
2:00:29 PM
RENA DELBRIDGE, STAFF, REPRESENTATIVE HAWKER, provided a
power point presentation, "An Alaska Natural Gas Future for
Alaskans." She spoke to Slide 2, "Legislature in 2010
charged AGDC with the mission of getting Alaska gas to
Alaskans":
-Clean, reliable, reasonably priced in state energy
-Electric and home heating costs
-Economic development for communities
-Industrial development opportunities
2:02:16 PM
Ms. Delbridge continued to Slide 3, "House Bill 369 of 2012
goals":
1. Build a team under AHFC leadership
2. Consolidate state's gas pipeline work to date
3. Fill in data gaps; decide optimal route
4. Report back to the Legislature with a project plan
2:03:04 PM
Ms. Delbridge turned to Slide 4, "AGDC delivered with the
July 211 Project Plan":
-A pipeline for Alaskans is possible
-An in-state line could deliver competitively priced
gas to major population centers
-Project will require firm, long-term contracts for
pipeline capacity in order to support financing
-Legislative action required
2:03:53 PM
Ms. Delbridge discussed Slide 5:
AGDC recommended legislation for the authority to:
-Determine pipeline ownership structure
-Work confidentially with private sector partners
-Operate as a contract carrier
-Decide rates and tariff terms
AGDC further needs the state to:
-Waive property taxes and state land lease fees
-Provide sufficient funding and create a pipeline
fund
-Limit judicial review
2:04:39 PM
Ms. Delbridge continued to Slide 6, "Now, House Bill 4":
-Provides further direction for AGDC
-Transfers existing statute from HB 369/38.34
from Joint Instate Gasline Development Team/AHFC
subsidiary to AGDC
-Incorporates HB 9, from 2012
-Provides the framework for AGDC to serve as Alaska's
natural gas pipeline corporation
-Maximizes state's efforts in gas pipeline development
-Resolves regulatory uncertainties while supporting
future development of Alaska resources
-Includes AGDC recommendations
-Maintains momentum - delays hurt!
-AGDC estimates $200 million per year inflation
-South-central gas supply (and costs)
increasingly uncertain
-Fairbanks energy costs and air quality - no end
in sight
-Continuing expectation for state to offset high
cost
2:07:01 PM
Ms. Delbridge continued to Slide7, "Under House Bill 4,
AGDC will":
1. Continue work on the in-state pipeline
-Requires sufficient shipper support to finance a
pipeline
-Target date: Gas flowing 2019
2. Work with TransCanada and producers to align two
projects
-Uncertain: no development commitment to date
3. Be prepared to participate in other frameworks
-For example, spur line
4. Once a main line is complete, evaluate other
pipeline opportunities
-Lines off the main line connecting communities,
industrial development
-Other stand-alone Alaska gas pipelines
2:08:28 PM
Ms. Delbridge transitioned to Slide 8, "Establishes AGDC as
Alaska's gas pipeline entity":
-Section 3; transition language in Section 1, Section
25
-HB 4 moves AGDC from its present location as a
subsidiary of Alaska Housing Finance, to a stand-alone
state corporation
-Locates AGDC under Department of Commerce, Community
and Economic Development for administrative purposes
only
-AGDC will be governed by a 5-member board with
expertise in relevant fields, appointed by the
governor, confirmed by the legislature
-Provides clear transition language
2:10:20 PM
Ms. Delbridge continued to Slide 9, "Clearly states AGDC's
purpose (Section 3)":
-To advance an instate gas pipeline as described in
the July 2011 project plan, with modifications as
appropriate, making gas available to Fairbanks, South-
central, and other communities in the state at the
lowest rates possible;
-To develop pipelines serving utility and industrial
customers, at commercial reasonable rates;
-To develop pipelines offering commercial rates to
shippers and that offer access for shippers producing
gas in Alaska
-Once a mainline is complete, to consider additional
pipelines to extend the reach of gas to other
communities, industrial users
2:11:46 PM
Ms. Delbridge continued to Slide 10, "Provides clear
statutory abilities to AGDC to function as a corporation
and to accomplish its purpose (Sec.3)":
-Enter into ownership and operating partnerships
-Create subsidiaries, including a subsidiary to market
gas
-Issue revenue bonds limited to AGDC's own backing to
finance a pipeline
-Enter into confidentiality agreements necessary to
participate with private sector shippers, partners,
financiers
-Keep confidential information like field studies and
tariff models that are assets AGDC is developing for
the state
-Exercise the state's existing power of eminent domain
2:14:56 PM
Ms. Delbridge spoke to Slide 11, "House Bill 4 also":
-Exempts AGDC from the state procurement code and
state personnel act (Section 3; and Sections 4 and 14)
* (AGDC is currently exempt from the procurement code
as an AHFC subsidiary (per HB 369 of 2010)
-Exempts AGDC from the Executive Budget Act (Section
3)
-Applies public official disclosure rules to AGDC
board members (Section 15)
Ms. Delbridge turned to Slides 12 and 13, "Maximizes
state's efforts in gas pipeline development":
•Additional state support for a project in the
public's interest will help reduce delays and keep
costs as low as possible
House Bill 4:
-Limits judicial review of state permitting decisions
and authorizations to avoid delays (Section 13)
-Directs DNR to waive annual fees on a state right-of-
way lease for AGDC (Section 3; Section 12)
-Waives state and local property taxes during pipeline
construction (Section 22)
-Sunsets the Alaska Natural Gas Development Authority,
per a 2010 Leg Audit recommendation
-Requires state entities to cooperate and share
information with AGDC (Section 3)
-AGDC requests receive priority (except for AGIA
requests)
-AGDC and state entities can enter into
confidentiality agreements if necessary to protect
third-party information in the state's possession
-Calls on the state to provide water, sand, gravel,
and other non-hydrocarbon natural resources to AGDC
(Section 3)
-AGDC will pay usual prices; cost cannot be included
in tariff base and passed on to pipeline shippers
2:18:26 PM
Ms. Delbridge continued to Slide 14, "Resolves Regulatory
uncertainties":
•Regulatory uncertainties add risk, which adds costs
and can deter private sector participation. AGDC needs
to know how a pipeline will be regulated before
soliciting private sector partners
House Bill 4:
-Allows natural gas pipelines to operate as contract
carriers through changes to the Right-of-Way Leasing
Act and through Regulatory Commission of Alaska
oversight
-Reinforces state policy that pipelines should be
fair; offer reasonable access to new/future shippers;
and encourage future development of Alaska's oil and
gas resources
2:19:34 PM
Ms. Delbridge discussed Slide 15, "Why a contract
carrier?":
-Shippers need to know that the space they are
'reserving' by signing long-term commitments will be
available
-Those firm, uninterruptible contracts are the way gas
pipelines are financed
-The future income promised through those contracts
secures revenue bonds
-House Bill 4 establishes contract carrier status
while providing for expansions in the future
2:21:07 PM
Ms. Delbridge continued to Slide 16, "Right of Way Leasing
Act":
•Section 11: Sections 6, 8, 9 and 10 are conforming
•Includes a set of covenants a lessee must agree to
•HB 4 modifies covenants reflecting common carrier
principles, to allow for contract carriage
•'Nuts and bolts' of covenants remain the same
•Contract carrier covenants still require a pipeline,
per contractual terms, to provide connections with
other pipelines and facilities
•Contract carrier covenants still require expansions
on commercially reasonable terms
•Contract carrier covenants still require a pipeline
to ship without discrimination
2:22:57 PM
Ms. Delbridge spoke to Slide 17, "Regulatory Commission of
Alaska oversight for a contract carrier gas pipeline":
•Section 21 is new regulatory chapter; Section18 is
related. Sections 19, 20, 5 are conforming)
•Mandates a baseline package of rates and terms
(recourse tariff) available to all interested parties,
and allows negotiations of final rates
•Requires an RCA-approved initial recourse tariff
•Requires RCA to decide if precedent agreements are
'just and reasonable'
•Premise is contracts entered into willingly by two
parties are just and reasonable - with checks and
balances
•Provides certainty and protection for public
utilities
2:25:43 PM
Ms. Delbridge continued to Slide 18, "Recourse tariff
review":
-Supported by full cost study
-Terms and conditions are 'not unduly discriminatory
-Rate elements are reasonable - return on equity,
capital structure, depreciation
-Revisions required - post construction, pre-open
seasons
-Triennial rate review and operating reserve fund for
excess ROR
Precedent agreement review:
-Are contracts just and reasonable as evidenced by
arm's length transaction?
-Heightened scrutiny for affiliate relationships
2:30:05 PM
Ms. Delbridge discussed the RCA section of the legislation
on Slide 19:
•Allows confidential filing of precedent agreements;
requires public filing of final contracts
•Requires a CPCN (building permit) from the RCA, with
special terms for an AGDC pipeline reflecting the
state-sanctioned mission
•Directs RCA to intervene when a dispute threatens the
public health and safety
•Allows contracts to include dispute resolution
methods that give all shippers notice and opportunity
to protect their interests
•Sets standards for fair, accessible open seasons;
requires open seasons for new capacity/expansions
•Directs RCA to oversee open seasons and field
complaints
•Sets timelines that should not interfere with
commercial processes
2:33:15 PM
Co-Chair Stoltze requested a sectional analysis.
Ms. Delbridge presented the sectional beginning with
Section 1:
Section 1 - Findings and Intent
Corporation (AGDC) natural gas pipeline is in the
best interests of the state, and required for
public convenience and necessity.
The Regulatory Commission of Alaska (RCA) uses
these standards in issuing a building permit to a
project. Through this section, the legislature is
making these findings on behalf of the RCA.
of Commerce, Community and Economic Development,
for administrative purposes only, will advance
AGDC's mission.
Establishing AGDC as an independent state entity
with a clear purpose and the statutory
authority to meet its mission will make AGDC more
likely to succeed.
Alaska Housing Finance Corporation (AHFC)
subsidiary to a stand-alone corporation will be
treated as a repositioning and not as creating a
new entity.
This intent should prevent the need to dissolve
AGDC and re-create it as a new corporation; as a
transfer, AGDC will need to amend bylaws and
regulations.
services, labor, products and resources from
Alaska businesses, including Alaska Native
corporations and municipal organizations, when
prices are competitive.
hire Alaskans; establish hiring facilities in
Alaska; and use Department of Labor and Workforce
Development systems.
2:36:12 PM
Ms. Delbridge continued to Section 2:
Section 2 (conforming) deletes from AS 18.56.086,
Alaska Housing Finance Corp, Creation of subsidiaries,
the ability to create a pipeline subsidiary. HB 4,
Section 3, establishes AGDC as a stand-alone public
corporation of the state, so it is no longer necessary
for AHFC to have a subsidiary corporation related to
natural gas pipelines.
2:37:56 PM
Ms. Delbridge shared Section 3, which was the statutory
backbone of the new corporation:
Section 3 (new corporation) adds a new chapter, Alaska
Gasline Development Corporation, to AS 31, Oil and
Gas.
This section is the statutory authority for the stand-
alone corporation.
Sec. 31.25.010, Structure, establishes AGDC as an
independent public corporation of the state,
located for administrative purposes in DCCED, and
makes provisions for asset distribution upon
termination.
Sec. 31.25.020, Governing body, establishes a
five-member board of directors, serving
staggered, seven-year terms. Members are
appointed by the governor and must be confirmed
by the legislature. In making appointments, the
governor shall consider expertise in natural gas
pipeline construction, operation and marketing;
finance; and large project management. Members
may be removed only for cause; vacancies will be
filled in the same way as original appointments
are made. Board members receive $400 compensation
per day spent on official board business, in
addition to actual expenses.
Sec. 31.25.030, Meetings of board, directs the
board to annually elect officers; defines a
quorum as a majority of members; and requires
meetings at least once every three months.
Electronic meetings are allowed. For a meeting in
which the board authorizes a bond issuance, at
least 24 hours public notice is required. At
least three board members are required for major
votes, including bond sales; sale or disposition
of assets; determining a pipeline ownership
structure; and participation in a pipeline
project.
Sec 31.25.035, Minutes of meetings, requires the
board to keep minutes.
2:40:04 PM
Sec. 31.25.040, Administration of affairs, allows
the board to manage the assets and business of
the corporation; the board may adopt, amend, and
repeal bylaws and regulations; and the board will
delegate corporation administration to the
executive director. Requires the board to adopt
formal procedures for procurement processes;
requires a preference for Alaska veterans.
Sec. 31.25.045, Executive director, requires an
executive director who is appointed by and serves
at the pleasure of the board. The director may
not be a board member.
Sec. 31.25.050, Legal counsel, directs the
corporation to retain legal counsel.
Sec. 31.25.060, Employment of personnel, allows
the board to engage professional and technical
consultants, and allows the executive director to
hire corporation employees and contract with
consultants. The board sets duties and
compensation for corporation personnel.
Sec. 31.25.065, Personnel exempt from State
Personnel Act, exempts AGDC from the State
Personnel
Act.
Sec. 31.25.070, Purpose, directs AGDC to advance
an instate natural gas pipeline as described in
AGDC's July 2011 project plan, with modifications
as necessary, making gas available as soon as
practicable to Fairbanks, South-central, and
other communities where possible; and attempt to
develop projects that ship and deliver gas at
commercially reasonable rates.
Sec. 31.25.080, Powers and duties, lists 21
powers of the corporation, including the
abilities to determine pipeline ownership and
operating structures; plan, finance, construct
and operate a pipeline system; lease, rent,
acquire and manage property; exercise eminent
domain; transfer or dispose of all or part of a
pipeline system; operate as a contract carrier;
conduct hearings; sue and be sued; adopt bylaws;
borrow money; and invest funds. Directs AGDC to
analyze other connecting lines once the main
pipeline is under construction. Prohibits
development of a pipeline that competes under the
terms of the Alaska Gasline Inducement Act
(AGIA). Requires publication of open season
results.
Sec. 31.25.090, Confidentiality; interagency
cooperation, requires state agencies to share
information with AGDC; requires state agencies to
cooperate with AGDC and give priority to AGDC
requests, except for requests from the AGIA
coordinator; and directs AGDC to avoid
duplicating state work on a pipeline. State
entities must provide non-hydrocarbon resources
like water, sand and gravel to AGDC at usual
cost, but those costs may not be passed on to
pipeline customers. DNR will grant AGDC a right-
of-way lease at no appraisal or rental cost if
certain conditions are met; the fee waiver
carries with the lease in case of a transfer,
which must be approved by the commissioner. AGDC
may enter into confidential agreements as
necessary, including with other state entities;
information covered by a confidentiality
agreement is not subject to disclosure under the
Public Records Act. AGDC may also keep other
information confidential, including the results
of field studies; technical information; trade
secrets; and commercial negotiations. AGDC may
waive confidentiality of some information. Once a
gas pipeline is operational, AGDC must release
confidential information, providing doing so does
not hurt the state's economic interests and does
not violate confidentiality agreements.
Sec. 31.25.100, In-state natural gas pipeline
fund, establishes the instate-natural gas
pipeline fund within AGDC and directs fund use.
Sec. 31.25.120, Creation of subsidiaries; sale of
natural gas by a subsidiary, allows AGDC to
create subsidiary corporations to meet AGDC's
mission, including subsidiaries to acquire and
ship natural gas.
Sec. 31.25.130, Administrative procedure;
regulations, exempts AGDC from the Administrative
Procedure Act, except for the Open Meetings Act
portion. Provides board direction related to
bylaws, regulations, and public notice of
meetings.
Sec. 31.25.140, Exemption from the State
Procurement Code and the Executive Budget Act;
corporation finances, exempts AGDC and its
subsidiaries from the State Procurement Code and
the Executive Budget Act. Requires an annual
independent audit. AGDC is already exempt from
the procurement code as an AHFC subsidiary; this
transitions the exemption to AGDC as a stand-
alone corporation.
2:44:23 PM
Sec. 31.25.150, Federal taxation of interest on
bonds and bond anticipation notes, provides that,
if interest on bonds or notes becomes taxable
under federal income tax laws, the legislature
may pay off the principal and interest.
Sec. 31.25.160, Bonds and notes, allows the
corporation to issue bonds and notes in one or
more series, limited to the corporation's own
backing.
Sec. 31.25.170, Independent financial advisor,
allows the corporation to retain a financial
advisor in negotiating the private sale of bonds
or notes to an underwriter.
Sec. 31.25.180, Validity of pledge, declares as
valid and binding any pledge of assets or revenue
of the corporation to payment or interest.
Sec. 31.25.190, Capital reserve funds, allows
AGDC to establish capital reserve funds to secure
its obligations, and directs fund management.
Requires annual reports to the governor and
legislature.
Sec. 31.25.200, Remedies, permits enforcement of
rights by those holding AGDC obligations.
Sec. 31.25.210, Negotiable instruments, declares
that obligations are promises to pay an amount of
money.
Sec. 31.25.220, Obligations eligible for
investment, AGDC obligations as legitimate
investments.
Sec. 31.25.230, Refunding obligations, permits
the corporation to refund obligations and
provides direction for managing refunds.
Sec. 31.25.240, Credit of state not pledged,
prohibits AGDC from pledging the state's credit.
AGDC obligations are limited to AGDC's backing.
Sec. 31.25.250, Limitation on personal liability,
protects corporation officers from personal
liability.
Sec. 31.25.260, Tax exemption, exempts AGDC from
paying state and local taxes on corporation
property or property income.
Sec. 31.25.270, Annual report, requires an annual
report to the governor, legislature and public,
including an independent audited financial
statement.
Sec. 31.25.390, Definitions.
2:47:55 PM
Ms. Delbridge continued:
Section 4 (procurement code exemption), adds new
paragraphs to AS 36.30.850(b), Public Contracts, State
Procurement Code, Application of this chapter,
exempting AGDC and its subsidiaries from the state
procurement code. The exemption is reinforced in
AGDC's statutes (HB 4 Section 3, 31.25.140).
Section 5 (RCA accounting, conforming) amends AS
37.05.146(c)(22), Public Finance, Fiscal Procedures
Act, Definition of program receipts and non-general
fund program receipts.
Section 6 (gas or electric utilities, conforming)
amends AS 38.05.180 (bb)(1), Public Land, Alaska Land
Act, Oil and gas and gas only leasing, to conform with
Section 11 creating covenants specific to a contract
carrier pipeline.
Section 7 (definitions)repeals and reenacts AS
38.34.099, Public Land, In-State Natural Gas Pipeline,
Definitions, to refer to the definitions in the new
31.25 (HB 4, Section 3).
Section 8 (right-of-way leases, conforming) amends AS
38.35.100(d), Public Land, Right-of-Way Leasing Act,
Decision on application, to conform to Section 11,
right-of-way leasing for a contract carrier.
Section 9 (right-of-way leases, conforming) amends AS
38.35.120(a), Public Land, Right-of-Way Leasing Act,
Covenants required to be included in lease, to conform
to Section 11, right-of-way leasing for a contract
carrier.
2:50:08 PM
Ms. Delbridge continued with the sectional analysis:
Section 10 (right-of-way leases, conforming) amends AS
38.35.120(b), Public Land, Right-of-Way Leasing Act,
Covenants required to be included in lease, to conform
to Section 11, right-of-way leasing for a contract
carrier.
Section 11 (contract carrier covenants) adds a new
section to AS 38.35, Public Land, Right-of-Way Leasing
Act, to establish covenants for a contract carrier gas
pipeline. This section does not alter the existing
covenants in the Right-of-Way Leasing Act for a common
carrier. A carrier must agree to abide by the
covenants in order to receive a state right-of-way
lease. Of 14 existing covenants for common carriers,
11 also apply to a contract carrier. The others are
adapted to reflect contract carrier principles, while
retaining the policy that pipelines on state rights-
of-way should encourage broader development of oil and
gas resources by expanding when commercial
opportunities exist and shipping without unreasonable
discrimination.
Section 12 (right-of-way leases, costs) adds a new
subsection to AS 38.35.140, Public Land, Right-of-Way
Leasing Act, Payment of rental and costs, requiring a
right-of-way lease to be issued at no cost to AGDC.
This reinforces in the Right-of-Way Leasing Act the
provision in HB4, Section 3 (31.25.090, Interagency
cooperation; confidentiality) that leases should be
made at no rental fee/cost to AGDC.
Section 13 (judicial review) adds new subsections to
AS 38.35.200, Public Land, Right-of-Way Leasing Act,
Judicial review of decisions of commissioners on
application, limiting judicial review of state lease,
permit or other authorization decisions. Claims
challenging this provision must be brought within 60
days of the effective date of HB 4; future claims
alleging a constitutional violation must be brought
within 60 days of the action and must be filed in
superior court. The court may not grant injunctive
relief.
Section 14 (personnel act exemption) exempts AGDC and
subsidiaries from AS 39.25.110, Public Officers and
Employees, State Personnel Act, Exempt service. This
exemption is reinforced in AGDC's corporate statutes.
Section 15 (public officials disclosures) makes the
board of directors of AGDC and subsidiaries subject to
public official financial disclosure rules in AS
39.50.200, Public Officers and Employees, State
Personnel Act, Definitions.
Section 16 (confidentiality) amends AS 40.25.120(a),
Public Records and Recorders, Public Record
Disclosures, Public records; exemptions; certified
copies, to exempt eligible information and information
covered by an AGDC confidentiality agreement from
disclosure under the state Public Records Act. This
relates to HB 4, Section 3 (31.25.090) allowing AGDC
to keep certain information confidential.
Section 17 (RCA, conforming), amends AS 42.04.080(a),
Public Utilities and Carriers and Energy Programs,
Regulatory Commission of Alaska, Decision-making
procedures, to allow the RCA to appoint a panel for
hearing matters under the new 42.08. The RCA needs the
statutory authority to appoint a panel and hear a
matter that comes before them under one of two
existing regulatory statutes. This adds the new
regulatory chapter created in HB 4, Section 21, 42.08,
so the RCA will be able to act on matters that come up
under the new regulatory chapter.
Section 18 (RCA review of public utility contracts),
amends AS 42.05, Public Utilities and Carriers and
Energy Programs, Alaska Public Utilities Regulatory
Act, by adding a new section related to RCA review of
contracts entered into by a public utility with AGDC
for transportation or for contracts that public
utilities sign to purchase gas or store gas
transported on an instate natural gas pipeline
regulated under 42.08. Public utility contracts with
AGDC may include a covenant for public utilities to
collect rates sufficient to meet contractual
obligations. Contracts to buy or store gas to be
shipped on an instate natural gas pipeline regulated
under 42.08 must be submitted to the RCA before they
take effect. The RCA has 180 days to approve contracts
as presented or, if contracts are found not just or
reasonable, to disapprove the contracts. Contracts
approved are not subject to further RCA review. The
RCA may extend the 180 day review period if a public
utility fails to provide supplemental information that
is available to the public utility. This section
provides an interface between regulation of public
utilities, and regulation of a contract carrier
natural gas pipeline. If the RCA approves a contract
involving a utility and the pipeline carrier, the
utility has assurances it will be able to pass along
the costs in power rates.
2:51:46 PM
Ms. Delbridge continued:
Section 19 (RCA conforming) amends AS 42.05.711,
Public Utilities and Carriers and Energy Programs,
Alaska
Public Utilities Regulatory Act, Exemptions, to exempt
a pipeline subject to regulation under 42.08 from
regulation under 42.05.
Section 20 (RCA conforming) amends AS 42.06, Public
Utilities and Carriers and Energy Programs, Pipeline
Act, by adding a new section to article 7 exempting a
pipeline subject to regulation under 42.08 from
regulation under 42.06.
Ms. Delbridge stated that Section 21 would create the new
regulatory chapter for an in-state natural gas pipeline
carrier.
Representative Hawker understood that the sectional was
very technical. He relayed that the level of detail
provided in the presentation could be limited by the
committee.
2:52:09 PM
Co-Chair Stoltze requested that the presentation proceed
with full details.
Ms. Delbridge continued with Section 21:
Section 21 (RCA natural gas pipeline contract carrier)
adds a new chapter to AS 42, Public Utilities and
Carriers and Energy Programs, to create Chapter 08,
In-state Pipeline Contract Carrier. Chapter 08 applies
to an instate natural gas pipeline providing contract
carriage, and exempts an in-state natural gas pipeline
subject exclusively to federal jurisdiction. The new
42.08 is a shift from traditional cost-based
regulation, and directs the Regulatory Commission of
Alaska to instead evaluate whether negotiated
contracts are fair and reasonable. Checks and balances
are included to set basic rules ensuring fair and open
processes; to promote exploration and development of
Alaska's gas basins; to protect the public welfare; to
promote accountability to Alaska ratepayers; to
protect against rates of return in excess of those
allowed by the RCA; to ensure access for all affected
parties in pipeline disputes; and to heighten scrutiny
for contracts entered into by affiliated parties.
Sec. 42.08.010, Application of chapter;
exemption, applies this chapter to an instate
natural gas pipeline providing service as a
contract carrier. Exempts an instate natural gas
pipeline subject exclusively to federal
jurisdiction.
Sec. 42.08.020, Qualification of the Alaska
Gasline Development Corporation; findings,
determines that AGDC is financially and
managerially fit, willing and able to provide
service under 42.08. States that an AGDC pipeline
is required for the public convenience and
necessity. Directs the RCA to determine whether
any entity applying under 42.08 is technically
fit, willing and able. The findings made on
behalf of the Regulatory Commission of Alaska in
this section are findings that the RCA usually
needs to make in issuing a pipeline building
permit - a Certificate of Public Convenience and
Necessity. The advance findings are not valid for
an applicant other than AGDC. For AGDC and any
applicant, the RCA will need to determine whether
the entity is technically able to build the
project and provide the service proposed.
Sec. 42.08.220, General powers and duties,
provides enabling direction for the RCA under
42.08. Requires permits for construction,
interconnections, expansions and abandonment.
Enables the RCA to intervene in disputes that
where not accounted for in contractual dispute
resolution mechanisms and that threaten the
public safety and welfare. Prohibits the RCA from
requiring rates or tariff regulations, except as
provided in the chapter, and from conducting
further review of contracts approved under 42.08.
Provides RCA access to the accounts, financial
and property records, and other information held
by a carrier, in order for the RCA to carry out
the regulatory processes in 42.08.
Sec. 42.08.230, Commission decision-making
procedures, directs the RCA to appoint a panel to
consider and decide matters under 42.08, and to
expeditiously adjudicate matters.
Sec. 42.08.240, Publication of reports, orders,
decisions and regulations, is the standard RCA
direction for publishing reports, orders,
decisions and regulations.
Sec. 42.08.250, Application of Administrative
Procedure Act, is the standard RCA exemption from
Administrative Procedure Act adjudication
procedures. Instead, the RCA's adjudication
procedures would apply. The rest of the
Administrative Procedures Act still applies to
regulations adopted by the RCA.
Sec. 42.08.260, Annual report, requires the RCA
to include in its annual report activities
related to 42.08.
Sec. 42.08.300, Open seasons, sets rules a
carrier must follow when holding an open season.
Requires a carrier include open season procedures
in the carrier's approved recourse tariff.
Provides parameters for holding an open season to
ensure fairness and openness for all interested
potential shippers, including advance notice.
Requires a carrier to hold an open season for
pipeline expansion when the carrier has received
requests for firm service from potential shippers
that would enable a commercially reasonable
expansion. Provides that expansions may not
violate the terms of AGIA. Allows a carrier to
make presubscription agreements before an open
season begins. Requires a carrier to award firm
transportation service without undue
discrimination or preference. Requires a carrier
to file revised recourse rates before conducting
an open season.
Sec. 42.08.310, Transportation service, provides
that firm service can only be made available
through presubscription agreements; in an open
season; or through the recourse tariff. Requires
a carrier to offer a recourse tariff with rates
determined on a cost-of-service basis; permits
levelized rates. Allows that negotiated firm
transportation rates may be different from
recourse rates. Requires a carrier to provide
interruptible service in capacity not used in
firm service.
Sec. 42.08.320, Review of certain contracts by
the commission, requires a carrier to submit all
precedent agreements and substantial amendments
to the RCA; precedent agreements with other than
a public utility may be kept under seal. The RCA
has 180 days to approve or disapprove precedent
agreements as just and reasonable. Sets the
standard for determining if a contract is made at
arm's length and allows additional RCA scrutiny
of contracts made between affiliated parties that
are not substantially similar to transactions
made between unaffiliated parties. Approved
contracts are not subject to further review.
Sec. 42.08.330, Contract carriage certificate,
requires a certificate of public convenience and
necessity (CPCN) for a carrier to construct a
pipeline and to transport gas. The RCA has 180
days to issue a CPCN once application is made,
providing that the applicant is found fit,
willing and able to perform the services
proposed. The RCA may attach conditions to and
amend, suspend or revoke a CPCN. Operating
authority may not be transferred and service may
not be abandoned without RCA approval.
Sec. 42.08.340, Filing requirements; recourse
tariffs, requires an instate natural gas pipeline
carrier to file a complete recourse tariff,
including rules, regulations, terms and
conditions pertaining to service, and all
contracts with shippers.
Sec. 42.08.350, Initial or revised rates,
establishes the RCA review process of recourse
tariffs. The commission must verify that the
terms and conditions of services are not unduly
discriminatory. The commission shall review the
supporting cost model and, weighing the pipeline
project risks, verify that the return on equity
is within a range of recent decisions by the
Federal Energy Regulatory Commission (FERC); that
the cost model uses a reasonable depreciation
method and economic life; and that the cost model
uses a reasonable capital structure. Defines
reasonable as commonly accepted or used by the
Regulatory Commission of Alaska or by FERC.
Provides 30 days for the RCA to issue a decision
on an initial recourse tariff, and 90 days for
revised recourse tariffs. Sets standards for
evaluating revised recourse rates. Requires the
pipeline to provide for separate rates for
multiple classes of service, and allows a
reservation fee.
Sec. 42.08.360, Uniform system of accounts,
requires a carrier regulated under 42.08 to
maintain records and accounts in accordance with
the uniform system of accounts.
Sec. 42.08.370, Expansion; dispute resolution,
enables contracts to provide for expansion,
unless an expansion would violate the terms of
the Alaska Gasline Inducement Act. Allows
contracts to include procedures for resolving
disputes; requires those procedures provide
notice and opportunity to participate to all
shippers and creditworthy potential shippers.
2:57:20 PM
Sec. 42.08.380, Regulatory cost charge,
implements the standard RCA assessment of a user
fee on regulated entities; includes a cap and
directs administration of the user fee.
Sec. 42.08.390, Effect of chapter on taxes and
royalties, declares that nothing in 42.08 will
change the calculation of production taxes or of
royalties due the state.
Sec. 42.08.400, Public records, requires RCA
records be available to the public, except as
provided by law. Precedent agreements will be
kept confidential. Firm transportation and other
contracts will be public, except for information
that the carrier and the RCA agree could cause
competitive harm.
Sec. 42.08.410, Investigations, allows the RCA to
investigate matters in 42.08, and maintains the
role of the Department of Law's Regulatory
Affairs and Public Advocacy section.
Sec. 42.08.450, Accounts; records; triennial
reports, provides the RCA tools to carry out its
regulatory duties, including requiring a carrier
to maintain certain property records. Requires a
carrier to keep pipeline accounts located in
Alaska. Requires the carrier to file a triennial
report with updated cost study and a calculation
of a three-year average actual return on equity.
Directs the commission to review the cost study
and verify the rate elements previously reviewed
(depreciation, capital structure, return on
equity) are the same as previously approved. If
rates of return are higher than allowed, the
carrier must place the excess in an operating
reserve fund, to be capped at 20 percent of
average annual operating costs; the carrier may
draw on this account in times of lower returns in
the future. If excess continues once the fund
hits the cap, the excess must be used to reduce
the pipeline's rates.
Sec. 42.08.510, Designation of service agents,
requires an instate natural gas pipeline carrier
to file a named, permanent resident as its agent
(standard RCA provision).
Sec. 42.08.520, Effect of regulations, states
that regulations adopted by the RCA under 42.08
have the effect of law (standard RCA provision).
Sec. 42.08.530, Judicial review and enforcement,
makes RCA final orders subject to standard RCA
judicial review, except in the circumstances set
forth in HB 4, Section 13, addressing the
development, construction and initial operation
of a natural gas pipeline by AGDC.
Sec. 42.08.540, Joinder of actions, allows
appeals to be joined under applicable court rules
(standard Regulatory Commission of Alaska
provision).
Sec. 42.08.900, Definitions, defines terms
standard to the RCA (commission, commissioner,
record) and includes HB 4 terms (instate natural
gas pipeline, instate natural gas pipeline
carrier).
2:59:08 PM
Ms. Delbridge continued with the sectional analysis:
Section 22 (property tax exemption) adds a new
subsection to AS 43.56.020, Revenue and Taxation, Oil
and Gas Exploration, Production and Pipeline
Transportation Property Tax, Exemptions, exempting an
AGDC-owned or financed project from state and local
property taxes during construction.
Section 23 (repealer) repeals 39 sections of statute.
State Procurement Code, Application of this
chapter, a prior exemption that applied to an
AHFC pipeline.
Natural Gas Pipeline, Joint In-State Gasline
Development Team; 38.34.040, Duties of the
Development Team; 38.34.050, Cooperation and
access to information; and 38.34.060, Conflicts
of interest, all of which were part of HB 369 in
2010 and relate to the Joint Instate Gasline
Development Team.
and Employees, State Personnel Act, Exempt
Service, related to ANGDA; and AS
39.50.200(b)(57), Public Officers and Employees,
Public Official Financial Disclosure,
Definitions, related to ANGDA.
Development Authority: AS 41.41.010 through AS
41.41.990.
Section 24 (repealer) repeals Sections 1 and 5 of 2002
Ballot Measure No. 3, the findings of which are no
longer
necessary with the sunset of ANGDA.
Section 25 (transition and intent) expresses the
legislative intent that the existing state right-of-
way lease between AGDC and DNR is amended to reflect
the contract carrier covenants in HB 4 (the Alaska
Constitution bars the Legislature from passing laws
that apply retroactively to contracts in place). Also
expresses intent for a smooth transition for AGDC from
its status as a subsidiary of AHFC, to an independent
corporation.
Specifically, this section includes:
interfere with, delay or disrupt AGDC's work.
new AGDC board within 90 days of the effective
date.
board is appointed; and will cooperate with the
new board in a smooth transition.
in placement only, and will not require
dissolving AGDC and creating a new corporation.
and directors, continue in-place while the boards
are transitioning. This is not explicitly stated
but rather is implied.
Section 26 includes revisor's instructions.
Section 27 sets an immediate effective date.
3:00:43 PM
Co-Chair Stoltze interjected that the bill spoke to the
real intent of the legislation.
Representative Hawker offered to provide further
information if necessary.
HB 4 was HEARD and HELD in committee for further
consideration.
3:02:07 PM
AT EASE
3:13:11 PM
RECONVENED
CS FOR SENATE BILL NO. 23(FIN)
"An Act relating to development project financing by
the Alaska Industrial Development and Export
Authority; relating to the dividends from the Alaska
Industrial Development and Export Authority;
authorizing the Alaska Industrial Development and
Export Authority to provide financing and issue bonds
for a liquefied natural gas production system and
natural gas distribution system; and providing for an
effective date."
3:13:30 PM
SARAH FISHER-GOAD, EXECUTIVE DIRECTOR, ALASKA ENERGY
AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, stated that the interior energy plan proposed
in SB 23 would provide low cost, North Slope natural gas
and propane. She testified that the bill was a finance
package that offered by the governor to act as a catalyst
to bring the liquefied natural gas (LNG) and propane
customers together with the private entities that would
construct and operate an LNG delivery system. She relayed
that the partnership and project would be good for the
Alaska Industrial Development and Export Authority, (AIDEA)
and the Alaska Energy Authority (AEA). She shared that SB
23 would provide AIDEA with the opportunity to invest in
the project. She stated that AIDEA was currently
investigating full project feasibility and would only
utilize the authorized tools written into the legislation
if the project proved to make economic sense. She said that
the intention was that AIDEA would take an equity stake in
the project, but would not outright operate or build an LNG
plant or distribution system. She relayed that the project
was typical of other public/private partnerships that AIDEA
had been involved in for decades. She furthered that the
governor's finance package was intended to fund the initial
capacity of the project with future expansion to be funded
by private and community investment.
Co-Chair Stoltze hoped that an explanation of HB 74 could
be integrated into the presentation.
Ms. Fisher-Goad began the presentation, SB 23 AIDEA
Development Project Financing for a Liquefied Natural Gas
Production and Distribution System." She discussed Slide 3,
"Project Goals":
• Provide lowest-cost energy to Interior Alaska
consumers as soon as possible
• Get gas first to the Interior while assuring long-
term access to gas and propane from liquefaction plant
for all Alaskans
• Utilize private sector mechanisms as much as
possible
Ms. Fisher-Goad continued to Slide 4, "Project
Description":
• Natural gas will be liquefied on the North Slope and
trucked to Interior Alaska
• Propane will be produced and delivered to Interior
and Rural Alaskans
• Primary LNG demand anticipated to be Fairbanks and
North Pole
• LNG will be temporarily stored and re-gasified in
Interior Alaska
• Natural gas distribution system with storage to
supply natural gas for heating
3:20:12 PM
TED LEONARD, EXECUTIVE DIRECTOR OF AIDEA, discussed Slide
5, AIDEA Project Analysis Process: Due Diligence." He said
that the funding under SB 23 would come from the
Sustainable Energy Transmission and Supply Plan (SETS)
created by the legislature. He spoke to the chart on the
slide which included 4 phases of the project:
Phase 1 - Project Suitability Assessment
Project Sponsor Submittals
· Proposed information
· Sponsor information
· Estimated costs and timeline
AIDEA Process
· Is project consistent with AIDEA initiatives?
· What is project feasibility?
· What is the proponent's experience and
Capability?
· Is AIDEA right source for financing?
Output
· Project Information Form
· Suitability Report
AIDEA Decision Making
· Project Evaluation Committee
o Authorization to go to Feasibility Analysis
Mr. Leonard relayed that AIDEA had completed Phase 1. He
shared that in December 2012 AIDEA issued a request for
information (RFI) for working on the project, and had
received 16 responses. He said that the project was
suitable for AIDEA. He shared that the mission of AIDEA was
to promote economic development through investment and
financing, and the project would do both for interior
Alaska. He believed that the project would provide for
statewide development as the benefits of LNG rippled across
the state.
3:24:17 PM
Mr. Leonard relayed that AIDEA was in Phase 2 of the
process:
Phase 2 - Feasibility Analysis
Project Sponsor Submittals
Business and financing plan
Preliminary schedule
Execution/development plan
AIDEA Process
Is there a complete and attainable business and financing
plan?
Is there public support?
What is the timing and status on project?
What are the risks?
Output
Reimbursement Agreement
Term Sheet
Risk Analysis
AIDEA Decision Making
Investment Committee
Authorization to go to Deal Structuring and Due Diligence
AIDEA Board
Approve Reimbursement Agreement
Mr. Leonard said that AIDEA had comprised a team of experts
on permitting and site assessment from engineering firms,
as well as MEI Technologies, experts in building
liquefication facilities. He stated that financial advisors
had been brought in to determine the financing of the
project facility and to examine the distribution system.
He believed that AIDEA and ADA's ability to offer a finance
package for the project was the reason they were asked to
participate. He said that the demand would be ready that
would support a production facility, and that the
production facility would guarantee that gas would be there
once it was time to finance the distribution system. He
reiterated that AIDEA was in Phase 2 and that Feasibility
and Due Diligence stage would take approximately two to
three more months. He noted the additional phases on Slide
5, which illustrated that the board would have the final
approval to move the project forward based on the due
diligence that AIDEA and AEA would present. He shared that
the slide was intended to illustrate how important the due
diligence process is to AIDEA and AEA.
Co-Chair Stoltze recognized that Representative Isaacson
had joined the gallery.
3:27:10 PM
Mr. Leonard discussed Slide 6, "Governor's Finance
Package": He noted that the appropriation to the fund
included three separate legs: $150 million in AIDEA bonds,
$50 million in capital appropriation from the General Fund
and $125 million in SETS capitalization.
3:28:01 PM
Mr. Leonard discussed slide 7, "$50 Million General Fund
Appropriation":
•Purpose
•Give AIDEA the needed equity ownership share in
the North Slope LNG plant to ensure project is
executed
•Directly reduce the price of natural gas to
utility customers
•How it Works
•AIDEA owns $50 million share of the plant. This
ownership stake will be an AIDEA asset
•AIDEA will not charge a return on its owned
share from LNG sales to utility customers
•AIDEA can earn a return from LNG sales to non-
utility customers or a sale of the asset
3:29:25 PM
Mr. Leonard discussed Slide 8, "$150 Million AIDEA Bond
Authorization":
•Purpose
•Provide low cost capital for the build out of
the natural gas distribution system
•Make sure the utility demand for LNG is created
in order to ensure the North Slope plant is fully
utilized
•How it Works
•AIDEA floats $150 million in bonds as the
distribution system is built out
•The bond payments are incorporated in the
natural gas utility's rates
•The State of Alaska's moral obligation and the
capital reserve fund reduces the bond's interest
rate, directly lowering the utility price of
natural gas
•3% to 4.5% interest rate (depending on tax-
exempt status of component financed and market
rates)
3:31:40 PM
Mr. Leonard discussed Slide 9, "$125 Million SETS
Capitalization":
•Purpose
•Provide flexible, low cost financing for the
North Slope LNG plant and/or the natural gas
distribution system
•The SETS fund provides flexible repayment terms,
allowing AIDEA to pursue the best business
structure for utility customers
•How it Works
•The existing SETS fund is capitalized with an
additional $125 million
•The non-AIDEA owner(s) of the infrastructure are
directly loaned the funds with an agreed upon
payment plan
•The cost of repaying the SETS loan is included
in the price of the LNG
•3% interest rate (set by SB23)
3:32:34 PM
Mr. Leonard discussed Slide 10, "$30 Million Storage
Credit":
•Purpose
•Reduce the cost to build natural gas/LNG storage
•Directly reduce the price utility customers pay
for natural gas
•How it Works
•$15 million tax credit for each qualifying
storage tank
•The project is expected to have two qualifying
tanks totaling $30 million
•The storage credit was created through previous
legislative action
3:33:33 PM
Mr. Leonard discussed Slide 11, "Potential Finance Options
for Initial Buildout." The slide presented a pie-chart that
broke down potential finance options for initial buildout.
He noted that the capital structure was similar to other
projects. He pointed out that there were two sections to
the project; the first was the LNG plant and would require
$220 million, the second portion would be $205 million and
would cover regasification, storage and distribution.
3:36:37 PM
Ms. Fisher-Goad presented Slide 12, "LNG Lowers Energy
Costs":
Expected Utility Price per Mcf
•Wholesale LNG: $10.15
•Natural Gas to home: $13.42-$17.00 per Mcf
•Delivered price is equal to $1.79 - $2.27 per gallon of
fuel oil
Key Assumptions
•Initial costs associated with a 9 Bcf plant at start up
•Snapshot in time, costs change with expansion
•LNG plant bifurcated into two sections (industry and
utility)
•$50 million capital cost reduction applied to 6.5 Bcf
utility section
Ms. Fisher-Goad explained that AEA had worked with the
Fairbanks community and various stakeholders in order to
determine the best targeted rate for bringing gas to
Fairbanks. She said that some of the assumptions provided
by private partners had been considered as well. She noted
that the slide showed that the anticipation was that the
LNG would lower energy costs. She stated that the plan
would be bifurcated into two sections; industry and
utility, with the assumption that the equity investment
that was in the capital budget would be applied to the 6.5
Bcf utility section of the plant, which would savings to
residential heating customers. She clarified that although
AEA was working through the cost assumptions and as the
engineering teams continued to refine their work, there was
the slight chance that the cost margin could go up, but
actual costs would not increase and there would still be a
50 percent decrease in the cost of heating homes in the
community.
3:40:17 PM
Ms. Fisher-Goad discussed slide 13, "Heating Energy Supply
Comparison." She believed that the slide helped to
demonstrate the cost structure of using different resources
for home heating. She pointed out that electricity would
need to cheaper in Fairbanks in order to be considered a
heating source:
Trucked LNG is the lowest-cost option for Interior
Alaska heating
•Electricity would need to be $0.04 - $0.06 per
kWh to compete with trucked LNG
•Electricity would need to be much cheaper to
compete with fuel oil
Co-Chair Stoltze requested further details on the possible
savings to public utility costs for state and local
agencies.
Ms. Fisher-Goad replied that she would provide the
information.
3:41:59 PM
Ms. Fisher-Goad mentioned slide 14, "Household Heating
Savings":
Typical Home Heating Savings
• $2,900 - $3,750 annually
•43% - 55% reduction in cost
Key Assumptions
•Typical Interior Alaska household will use 225
Mcf of gas per year (equivalent to 1,700 gallons
of fuel oil)
•Does not account for expected improvement in
heating efficiency with natural gas
3:42:48 PM
Ms. Fisher-Goad discussed slide 15: "Air Quality":
Conversion to natural gas should reduce air pollutant
emissions in Fairbanks and North Pole
•Will reduce overall emissions of PM 2.5
•Fairbanks is presently a non-attainment area for
PM 2.5
•Potential public health benefits of natural gas
is substantial
Impact on Federal funding and economic development
•The non-attainment area risks losing Department
of Transportation and Public Facilities funding
if State fails to submit an attainment plan to
EPA
•Federal projects in the area face funding
hurdles while area is non-attainment
•Cleaner, healthier air in Fairbanks will promote
economic development
Ms. Fisher-Goad relayed that the project would help reduce
air pollutant emission in Fairbanks and the North Pole
area. Currently, Fairbanks was in a non-attainment area,
which put federal funding at risk. She stated that the
dollars that had been gathered from the northern region DOT
included $8-10 million in FMATS that could be lost and an
additional $6-8 million of funding in the non-attainment
area that was not in the FMATS area.
Ms. Fisher-Goad continued to slide 16, "Savings for Public
Buildings":
•Fairbanks North Star Borough School District expects
immediate and significant school heating cost savings
•Expect schools to pay back cost of converting in
less than two years
•8 schools will have immediate access to natural
gas, with more switching as the distribution
system builds out
•The first 8 schools will immediately save $25-
$60 thousand dollars a year in heating costs
•Other State and municipal buildings should experience
similar heating cost reductions
3:44:53 PM
Ms. Fisher-Goad turned to slide 17, "Long Term Use of LNG
Plant":
LNG Plant will be used after gas pipeline
•Plant can serve Rural Alaska before gas pipeline
is constructed
•Expect opportunity to sell LNG to new industrial
users both before and after pipeline
•Information in chart is for demonstration only
She explained that the users on the left of the graph would
be served by the pipeline; however, additional users could
have gas trucked or provided on the river system, new
industrial development was also anticipated. She noted that
the facility was modular and could be re-located in a more
convenient location. She noted that AEA was working through
the rural energy program to determine micro-LNG
possibilities. She hoped that the fuel source could be
expanded to serve as many communities as possible.
3:47:05 PM
Ms. Fisher-Goad discussed slide 18, "Project Timeline and
Milestones." She believed that first gas could be delivered
by then end of the calendar year 2015. She mentioned that
HB 74 included a direct financing program of AIDEAs,
unrelated to the interior energy plan.
Co-Chair Stoltze requested further detail about the linking
of the two bills: SB 23 and HB 74.
Mr. Leonard stated that there was no true linkage between
the direct financing portion of HB 74 and the interior gas
project in SB 23. He said that the direct financing was one
of the final tools that could be used by AIDEA.
3:49:04 PM
Co-Chair Stoltze asked if SB 23 contained the tools
necessary to deliver gas by 2015.
Mr. Leonard replied in the affirmative.
3:49:34 PM
Co-Chair Austerman understood that there would be a storage
tank on the North Slope and another in Fairbanks.
Mr. Leonard replied yes. He furthered that the Fairbanks
storage would be more costly because it would allowed the
production from the plant to be stable throughout the
seasons.
Co-Chair Austerman queried the cost of building the two
tanks.
NICK SZYMONIAK, PROJECT ECONOMIST WITH AEA, replied that
the requested $15 million per tank would cover only a
portion of the overall cost.
Co-Chair Austerman asked for the total cost of building the
tanks.
Mr. Szymoniak responded that the tank in Fairbanks could be
approximately $30 million at start up, and could go up to
$70-$100 million, depending on the size of storage needed.
3:52:04 PM
Vice-Chair Neuman asked whether SETS financing could be
used to expand gas availability in the Mat-Su area.
Mr. Leonard stated that SETS funds included transmission
lines for natural gas and other facilities. He said that
under the SETS fund AIDEA was limited to providing
financing for 35 percent of a project. He relayed that the
authorization in the bill allowed AIDEA to provide more
than 35 percent financing for this specific project.
3:54:20 PM
Representative Thompson requested further clarification
regarding the cash grant; the $50 million that AIDEA would
have had as an asset would be reimbursed, and the rest of
the funding was through loans.
Mr. Leonard responded that the $275 million was to provide
AIDEA with the ability to provide direct financing, which
would all be paid back through the purchase of the gas. He
added that the $50 million was an equity investment and
that return on the equity investment would occur through
the industrial side of the stream.
3:56:31 PM
Representative Gara testified in support of the
legislation. He wondered what might prevent the subsidizing
of another gasline through the legislation.
Mr. Leonard stated that the intention of the bill was to
create a production facility to provide LNG for interior
Alaska with the ability to extend the resource to all
Alaskans. He stressed that the pipeline would never be at
the size needed for an in-state pipeline.
Representative Gara understood the intended limitations of
the project in the bill, but wondered where the bill spoke
to the limitation of the plant size.
3:59:11 PM
Mr. Leonard stated that the bill authorized AIDEA to invest
up to $275 million into the LNG project. He said that
existing statute allowed for AIDEA to provide up to one-
third of the financing for a project, with a limited
amount. He stressed that the bill was only a catalyst for
the 9 Bcf plant, and if AIDEA wanted to be involved in a
larger project it could not be funded through the SETS. He
believed the intent of the legislation was clear.
4:01:23 PM
Representative Gara thought that limitations could be
written into the title in order to clarify intent.
Mr. Leonard replied that AIDEA did not have the debt
capacity to build a project the size of HB 4.
4:02:49 PM
Co-Chair Austerman understood that $50 million was a
capital appropriation for AIDEA to invest in the project.
Mr. Leonard said yes.
4:03:32 PM
Ms. Fisher-Goad pointed out that the fiscal notes included
all of the funding pieces. She turned attention to the
summary sheet attached to the fiscal notes, which would
provide committee members with a clearer understanding of
the fiscal impact of the legislation.
Representative Edgmon was pleased with the rural element of
the legislation. He queried the 30 year payback period for
the funding.
4:05:06 PM
Mr. Leonard clarified that the 30 year payback period was
intended for the SETS loan and would be paid off over the
estimated life of the plant.
Representative Edgmon asked about the process of connecting
gas to residential homes.
Ms. Fisher-Goad replied that estimates had been made that
had promised savings to homeowners.
Representative Edgmon understood that the numbers for
residential hook-up had not been considered in the 30 year
model.
Mr. Leonard replied no. He added that the funding would
provide for the production and the pipe for the
neighborhood, but not for conversion.
4:07:58 PM
Representative Wilson asked about the commercial aspect and
how the university would fit in to the project.
Ms. Fisher-Goad replied that the university was looking
into replacing their existing coal fueled, combined heat
and power plant. She said that AEA would continue to work
closely with the university as that project advanced. She
noted that staying with coal would be cheaper for the
university rather than LNG. She said that the 9 Bcf plant
would not be particularly beneficial to people that were
already able to enjoy lower cost fuel.
4:10:39 PM
Co-Chair Stoltze noted that the public testimony would be
taken during Monday's 1:30pm meeting.
Co-Chair Stoltze discussed further housekeeping.
SB 23 was HEARD and HELD in committee for further
consideration.
4:12:25 PM
ADJOURNMENT
The meeting was adjourned at 4:13 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB4 Support letters.PDF |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| HB4 Sponsor Statement - CS for SSHB4(RES) VersP.pdf |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| HB4 Sectional CS for SSHB4 (RES) P.pdf |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| HB4 Fact Sheet-CS for SSHB4 (RES) Vers. P.pdf |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| HB4 Explanation of Changes - CS for SSHB4 (RES) P.pdf |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| HB4 Support letters #2.PDF |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| SB 23 Supporting Documents - AIDEAAEA Policy Presentation 3-21-2013.pdf |
HFIN 3/21/2013 1:30:00 PM |
SB 23 |
| SB 23 Supporting Documents - AIDEA Project Analysis Process 2-26-2013.pdf |
HFIN 3/21/2013 1:30:00 PM |
SB 23 |
| SB 23 Supporting Document - Interior Energy Plan.pdf |
HFIN 3/21/2013 1:30:00 PM |
SB 23 |
| SB 23 Assorted Letters of Support - 031413.pdf |
HFIN 3/21/2013 1:30:00 PM |
SB 23 |
| HB 4 Overview for H FIN March 21.pdf |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| SB 23 Teamster Letter 3.21.13.pdf |
HFIN 3/21/2013 1:30:00 PM |
SB 23 |