Legislature(2013 - 2014)HOUSE FINANCE 519
04/15/2014 08:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB316 | |
| SB138 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 138 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 316 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 15, 2014
8:35 a.m.
8:35:38 AM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 8:35 a.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
Anna Latham, Staff, Representative Kurt Olson; Joe Balash,
Commissioner, Department of Natural Resources; Michael
Pawlowski, Deputy Commissioner, Strategic Finance,
Department of Revenue; Angela Rodell, Commissioner,
Department of Revenue.
SUMMARY
HB 316 WORKERS' COMPENSATION MEDICAL FEES
CSHB 316(FIN) was REPORTED out of committee with
"no recommendation" and with one new fiscal
impact note from the Department of Labor and
Workforce Development and one new indeterminate
note from the Department of Administration.
CSSB 138(FIN) am
GAS PIPELINE; AGDC; OIL & GAS PROD. TAX
CSSB 138(FIN) am was HEARD and HELD in committee
for further consideration.
HOUSE BILL NO. 136
"An Act requiring the governor's fiscal plan to
include certain information."
8:36:18 AM
Co-Chair Stoltze referred to two amendments.
Representative Thompson MOVED to ADOPT Amendment 2, 28-
LS1362\P.1, Wallace, 4/8/14 (copy on file):
Page 1, line 11:
Delete "board and adopted by reference"
Insert "medical services review committee [BOARD] and
adopted by the board [REFERENCE]"
Page 2, line 21:
Delete "(1)"
Delete "board"
Insert "medical services review committee"
Page 2, line 22:
Delete "board"
Insert "medical services review committee"
Page 2, line 23, following "adopted":
Insert "by the board"
Page 2, line 23:
Delete ";"
Insert "."
Page 2, lines 24 - 29:
Delete all material.
Page 3, following line 23:
Insert a new subsection to read:
"(p) The medical services review committee shall
formulate a conversion factor and submit the
conversion factor to the commissioner of labor and
workforce development. If the commissioner does not
approve the conversion factor, the medical services
review committee shall revise the conversion factor
and submit the revised conversion factor to the
commissioner for approval."
Page 4, following line 15:
Insert a new bill section to read:
"* Sec. 4. AS 23.30.395 is amended by adding a new
paragraph to read:
(42) "medical services review committee" means the
committee established under AS 23.30.0950)."
Renumber the following bill sections accordingly.
Page 4, line 16:
Delete "AS 23.30.097(j) - (o)"
Insert "AS 23.30.097(j) - (p)"
Page 4, line 18:
Delete "sec. 4"
Insert "sec. 5"
Co-Chair Stoltze OBJECTED for discussion.
Representative Thompson explained that Amendment 2 would
allow the medical services review committee to directly set
the conversion rates for the new fee schedule.
Subsequently, the schedule would be submitted to the
Department of Labor and Workforce Development commissioner
for approval. In the current bill version the conversion
factors were set by the 18 member workers' compensation
board. The medical services review committee was made up of
9 people including members of the state medical
association, chiropractic society, nursing home
association, a healthcare provider, four non-healthcare
providers, and the commissioner's designee. He communicated
that the amendment streamlined the process and had come at
the bill sponsor's request.
Co-Chair Stoltze reiterated that the amendment language had
been brought to the committee by the sponsor.
ANNA LATHAM, STAFF, REPRESENTATIVE KURT OLSON, confirmed
the sponsor's support of Amendment 2.
Co-Chair Stoltze asked for verification that the amendment
language had originated from the sponsor. Ms. Latham
replied in the affirmative.
Co-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION, Amendment 2 was ADOPTED.
Representative Gara MOVED to ADOPT replacement Amendment 1:
Page 2, line 19:
Insert "(4) The fee schedules of (A) - (C) of this
subsection shall not be used for any procedure or
service unless they satisfy the service charge of
providers in an area so that patient access to quality
medical care is not compromised."
Co-Chair Stoltze OBJECTED for discussion.
Representative Gara pointed to a concern that the workers'
compensation rate would be the Medicare or Medicaid rate.
He understood that it was not the sponsor's intention;
therefore, replacement Amendment 1 clarified that the
workers' compensation rate would not be the Medicare or
Medicaid rates unless they were adequate to ensure patient
access to quality medical care. He stated that the sponsor
intended that there would be a multiplier at some point in
time.
Ms. Latham believed the amendment had good intention;
however, she believed it was unnecessary for two reasons.
First, it created confusion in the interpretation that
Medicare or Medicaid rates would be used. Second, currently
32 states used the methodology with a conversion factor set
by the state. The bill had been referred to the House
Finance Committee because of its $62,000 fiscal note
associated with the medical services review committee
setting the conversion factors.
Representative Gara asked for verification that the
Medicare and Medicaid language in the bill did not mean
that the state would adopt those rates if they were
inadequate to provide quality medical services and access.
Ms. Latham replied in the affirmative and pointed out that
the conversion factor was a large component of the
legislation for that reason.
Representative Gara was satisfied with the information put
on record by the sponsor's staff. He WITHDREW Amendment 1.
8:42:16 AM
Vice-Chair Neuman referred to the unique nature of
widespread costs in Alaska due to availability of medical
services statewide. He imagined that cost differentials in
rural Alaska could be quite varied. He wondered about
alignment with Medicaid values. He asked if comparisons had
been done statewide to determine how costs would average
out.
Ms. Latham replied that the geographical differential had
been included specifically for rural areas. She added that
the bill included an exemption for rural (critical access)
hospitals.
Representative Wilson asked if there was a place on the
board for physical therapists. Ms. Latham replied that
there was one open seat for a healthcare provider on the
medical services review committee. She relayed that based
on testimony, physical therapists did not account for the
application of a conversion factor. The testifiers had
discussed their experiences using Medicare rates, which was
not the intent of the legislation. She believed some
confusion existed related to the testimony.
Representative Wilson pointed out that there was an
opportunity for physical therapists to apply for a medical
services review committee seat if they were interested.
Representative Costello discussed the fiscal notes
including one fiscal impact note from the Department of
Labor and Workforce Development totaling $62,000 in FY 15
and $54,000 in FY 16 through FY 20; and one indeterminate
note from the Department of Administration.
Vice-Chair Neuman MOVED to REPORT CSHB 316(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes.
CSHB 316(FIN) was REPORTED out of committee with "no
recommendation" and with one new fiscal impact note from
the Department of Labor and Workforce Development and one
new indeterminate note from the Department of
Administration.
8:45:42 AM
AT EASE
8:47:53 AM
RECONVENED
CS FOR SENATE BILL NO. 138(FIN) am
"An Act relating to the purposes, powers, and duties
of the Alaska Gasline Development Corporation;
relating to an in-state natural gas pipeline, an
Alaska liquefied natural gas project, and associated
funds; requiring state agencies and other entities to
expedite reviews and actions related to natural gas
pipelines and projects; relating to the authorities
and duties of the commissioner of natural resources
relating to a North Slope natural gas project, oil and
gas and gas only leases, and royalty gas and other gas
received by the state including gas received as
payment for the production tax on gas; relating to the
tax on oil and gas production, on oil production, and
on gas production; relating to the duties of the
commissioner of revenue relating to a North Slope
natural gas project and gas received as payment for
tax; relating to confidential information and public
record status of information provided to or in the
custody of the Department of Natural Resources and the
Department of Revenue; relating to apportionment
factors of the Alaska Net Income Tax Act; amending the
definition of gross value at the 'point of production'
for gas for purposes of the oil and gas production
tax; clarifying that the exploration incentive credit,
the oil or gas producer education credit, and the film
production tax credit may not be taken against the gas
production tax paid in gas; relating to the oil or gas
producer education credit; requesting the governor to
establish an interim advisory board to advise the
governor on municipal involvement in a North Slope
natural gas project; relating to the development of a
plan by the Alaska Energy Authority for developing
infrastructure to deliver affordable energy to areas
of the state that will not have direct access to a
North Slope natural gas pipeline and a recommendation
of a funding source for energy infrastructure
development; establishing the Alaska affordable energy
fund; requiring the commissioner of revenue to develop
a plan and suggest legislation for municipalities,
regional corporations, and residents of the state to
acquire ownership interests in a North Slope natural
gas pipeline project; making conforming amendments;
and providing for an effective date."
8:47:58 AM
Co-Chair Austerman requested an explanation as to why the
Department of Transportation (DOT) had not been involved in
conversations about the infrastructure needs. He pointed
out to the committee that the HOA states that the state was
going to be responsible for the infrastructure liability.
JOE BALASH, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
answered that the understanding was that the gasline was
going to work like any other commercial entity or project
approaching DOT for transportation and infrastructure
services. He relayed that the HOA contemplated that the
state would take actions to facilitate and support, but
whenever a commercial party approached DOT looking for
infrastructure, funds were provided by the party but there
would still be an underlying appropriation required. He
said that the actions that had been committed to in Article
10 were ministerial. He though that it was important to
highlight language in Article 9, which would give
assurances that the state would not be "on the hook" for
all of the costs. He referred to Article 9.3.1, part b:
The Parties would establish a series of impact
payments to be paid by the Alaska LNG Parties to help
offset increased service and other costs borne by the
State and local governments during construction of the
Alaska LNG Project.
Commissioner Balash said that he had every expectation the
project would pay for the things that were solely
attributable to the project. He expected that DOT would be
making the decisions as to what things were 100 percent of
the project and what things were partially attributable to
the project.
MICHAEL PAWLOWSKI, DEPUTY COMMISSIONER, STRATEGIC FINANCE,
DEPARTMENT OF REVENUE, pointed to the Page 15 of the HOA.
He said that the provision recognized the principle of
impact payments to the state to offset some of the impacts
at the state and community level. He said that the
development of an impact payment schedule was part of the
negotiations to be determined. He relayed that the decision
in the announcement that Nikiski was the terminus for the
project, and the preferred direction, had come in October
2013. He stated that part of the point of the state
participating early was to get the state in at the ground
floor of the project as it was being developed, and that
the state would be fully aware of the needs of the project,
and that the state would be influential of the decisions
made on the project; for example, the size of pipe. He said
that the size of the pipe had a material impact on the
compressor stations and the amount of work that would need
to be done on infrastructure.
Representative Thompson spoke of Stranded Gas Act
discussions. He warned of the large impact on the City of
Fairbanks once construction began on the pipeline. He
mentioned the impact on police departments, emergency
services, and residents quitting their current jobs to work
on the pipeline for increased pay. He believed that there
should preconstruction dollars in order to address
preconstruction concerns, and that those concerns should be
addressed at least a year before construction began.
8:56:44 AM
ANGELA RODELL, COMMISSIONER, DEPARTMENT OF REVENUE,
answered that the concern that had been discussed but not
in great detail. She said that in working on the
Administrative Order it had been recognized that social
impacts would need to be considered. She thought that much
could be learned from the TAPS construction.
Vice-Chair Neuman referred to Page 15 of the HOA. He
requested a list of the impacts of the infrastructure
within the state.
Commissioner Balash answered that he would provide a
description of all the required reports for the Federal
Energy Regulatory Commission (FERC) process. He informed
that committee that there was one report in particular that
spoke to the socioeconomic impacts of the project
construction.
Vice-Chair Neuman declared that he was interested in the
infrastructure impact.
Commissioner Balash understood. He believed there was a
specific component that spoke to transportation
infrastructure.
Vice-Chair Neuman queried the differentiation between tax
deductions for the gas pipeline and those used against the
oil taxes on the upstream side of point of production, pre
flow.
9:01:18 AM
Mr. Pawlowski answered that the expenditures would be
deducted against the production tax value for oil. He
stated that there was no need to differentiate whether a
certain piece of equipment would be used for oil and
another for gas, the deductions occurred against the
production tax value of oil. He said that the upstream
investments that had been modeled included a revenue impact
primarily from the build out at Point Thomson and some at
Prudhoe Bay. He relayed that Point Thomson carried
additional oil production when more gas was being produced
and that those revenue were included in the models. He
shared that the way that the bill was structured there
would be no separation of the deductions.
Vice-Chair Neuman expressed concern with the issue. He felt
that the oil company should be putting as much
infrastructure as was necessary to handle the gas, and the
upstream costs, in order to deduct if off of the taxes that
would be paid on the oil. He wondered what protected the
state from being charged hundreds of millions in
deductions.
Mr. Pawlowski directed committee attention to Page 57 of
the bill. He spoke to the deleted language on the page:
(C) FOR GAS RUN THROUGH AN INTEGRATED GAS PROCESSING PLANT
AND GAS TREATMENT FACILITY THAT DOES NOT ACCURATELY METER
THE GAS AFTER THE GAS PROCESSING AND BEFORE THE GAS
TREATMENT, THE FIRST POINT WHERE GAS PROCESSING IS
COMPLETED OR WHERE GAS TREATMENT BEGINS, WHICHEVER IS
FURTHER UPSTREAM];
Mr. Pawlowski explained that the language had been deleted
for clarity; the point of production was of the utmost
importance. He said that the point of production was moved
to the inlet of the pipeline leaving the fields in order to
move it up and away from the gas related process and
treatment facility. He recognized that there were impacts
upstream, particularly in the Point Thomson field. He
stated that the Point Thomson settlement provided two
opportunities for the development of the Point Thomson
unit: a major gas sale and a cycling project. He said that
if the cycling project were to occur under existing law,
only producing liquids and re-injecting the gas, all of the
expenditures would be deductible. He stressed that the
natures of the fields were interconnected and that the
point of production had been pushed as far upstream as
possible in the legislation.
9:07:19 AM
Vice-Chair Neuman argued that Point Thomson was a different
unit. He wanted to discuss standard, typical processing
units for gas. He wondered where the point of production
changed other than the Point Thomson field.
Mr. Pawlowski answered that the gas treatment plant would
be within the Prudhoe Bay unit. He said that was excluded
from the point production; it was downstream of the
pipeline, leaving the central gas facility to the gas
treatment plant, and the costs were not included in
upstream costs for the purposes of lease expenditures.
Vice-Chair Neuman said he understood. He asked where the
point of production was. He asked where the point of
production would be 100 miles west of Prudhoe Bay.
Mr. Pawlowski replied that the point of production would be
the point where the gas was after mechanical separation
leaving the field to go to the inlet of a pipeline to
transport the gas to market. He stated that the point was
to take out the point of production the pipelines that were
moving the gas from the fields to the treatment plant and
make them downstream expenditures.
Mr. Pawlowski pointed to Page 57 of the bill:
(i) not subjected to or recovered by mechanical
separation or run through a gas processing plant, the
farthest upstream of the first point where the gas is
accurately metered, the inlet of any pipeline
transporting the gas to a gas treatment plant, or the
inlet of any gas pipeline system transporting the gas
to a market;
(ii) subjected to or recovered by mechanical
separation but not run through a gas processing plant,
the farthest upstream of the first point where the gas
is accurately metered after completion of mechanical
separation, the inlet of any pipeline transporting the
gas after completion of mechanical separation to a gas
treatment plant, or the inlet of any gas pipeline
system transporting the gas after mechanical
separation to a market;
(iii) run through a gas processing plant, the farthest
upstream of the first point where the gas is
accurately metered downstream of the gas processing
plant, the inlet of any pipeline downstream of the gas
processing plant transporting the gas to a gas
treatment plant, or the inlet of any gas pipeline
system downstream of the gas processing plant
transporting the gas to a market
[;
Vice-Chair Neuman asked if all of the equipment used prior
would be the same that would be used in oil production.
Commissioner Balash replied in the affirmative. The
equipment was needed to initially separate gas from oil;
the equipment was associated with oil production. The
recognition was that the facility was needed onsite in
order to get the oil; therefore, it was appropriate to
deduct the expense.
Vice-Chair Neuman replied that that was his point. He asked
how the state would differentiate deductions taken under SB
21 for work done primarily for SB 138. He reiterated that
the state could lose millions of dollars.
9:11:12 AM
Commissioner Balash asserted that the installation of new
oil facilities would be a good thing for the state. He
pointed out to the committee that when it came to gas the
state would receive 13 percent of the gross profit, which
was an excellent position for the state even if the
upstream costs were allowed to be deducted as lease
expenditures.
Vice-Chair Neuman asked where the point of production would
change in the differentials of Point Thomson when gas was
moving as opposed to solely moving oil.
Mr. Pawlowski replied that for Point Thomson the point of
production would be similar because there would be a new
pipeline built to move the gas from Point Thomson to the
treatment plant at Prudhoe Bay; the liquids line that was
being built would move 70,000 barrels per day to allow for
the additional oil production that would come from the
expanded build-out of the Point Thomson unit. He relayed
that the point of production would be where the gas was
leaving the field and going into the new pipeline to move
it from Point Thomson to the gas treatment plant.
Vice-Chair Neuman asked whether the point of production
would be at the inlet or outlet well.
9:13:40 AM
Vice-Chair Neuman asked if they would be upstream.
Mr. Pawlowski answered in the affirmative. He relayed that
the point of production would be where the liquids
separated from the gas and went into a meter or the line to
move the gas from Point Thomson to the treatment plant. He
said that the gas that would come out of Point Thomson
would contain impurities and would need to be cleaned.
Vice-Chair Neuman asked if there was anything in the HOA
that specifically stated where the point of production was
and which equipment would be covered as upstream cost and
which would not.
Mr. Pawlowski replied that there were specific definitions
of the Alaska LNG project, which was where the point of
production was defined. He said that there was a side issue
concerning the agreement in the Point Thomson settlement
about the treatment of upstream costs and the implications
that had for royalty or other parts of the fiscal system.
Vice-Chair Neuman wondered if the upstream wells would be
allowable deductions.
Mr. Pawlowski replied yes because they would be producing
both oil and gas.
Vice-Chair Neuman understood that deductions under SB21
would be allowed.
Mr. Pawlowski said that was correct.
9:16:04 AM
Representative Guttenberg pointed to Page 11 of the bill
which defined the Natural Gas Act using flanges, which was
something that could move. He expressed concern for
possible shenanigans.
Mr. Pawlowski answered that the difference was where and
why the definitions were found in the legislation. He said
that the reference Representative Guttenberg referred to
appeared in Section 16, page 11, line 25 through page 12,
line 27, and was a specific definition of the Alaska LNG
project only for the purposes of authorizing and specifying
AGDC's participation in the project. He furthered that the
definition had been taken from the MOU and had no
relationship to state tax or royalty law, but was in the
authorizing statute for AGDC to participate in a project.
He stated that the AGDC's power to participate in
liquefaction was limited to its participation in the Alaska
LNG project, therefore the specific and available
definition of the Alaska LNG project had been used. He said
that the other sections were consistent with state language
used to build on all of the regulatory body of support that
had been developed.
Representative Guttenberg asked about the point of
production for oil. He pointed to Pages 56 and 57 of the
bill, which related to oil. He believed that the
definitions in the bill for oil and gas point of production
were ambiguous.
9:20:52 AM
Mr. Pawlowski replied that the department implemented the
regulations that provided the specificity. He said he would
research whether there was an upgrade that would support
clarity on the point of production.
Representative Guttenberg asked about infrastructure and
highway maintenance. He requested the proposed cost to
maintain highways during construction and operation.
Commissioner Balash replied that DOT planned carefully to
distinguish how money would be spend and where. He said
with regard to the condition of the Dalton Highway, and the
need to add to the material in the road base, the
department would work with DOT on the issue. He relayed
that the list of projects on the highway identified in 2005
had led to substantial improvements on the Dalton Highway.
He stated that he would attempt to get additional
information from DOT on the definition and specificity of
deferred maintenance versus heavy maintenance versus
possible road height and clearance issues.
Representative Guttenberg asked about settlement
surrounding the Yukon River Bridge.
9:26:07 AM
Commissioner Balash was familiar with a slide that had
occurred and was a concern for settlement and stability. He
believed that the Division of Geologic and Geophysical
Survey was doing work to understand the geo-hazards in the
region. He admitted that what exactly needed to be done
with the bridge was a big question.
Co-Chair Austerman asked for clarification on the project
titles: Alaska LNG Project and the North Slope Natural Gas
Pipeline Project. He felt that the two titles indicated two
different projects.
Mr. Pawlowski shared that the legislation was enabling
legislation for the Alaska LNG Project as described in the
HOA, and was also general law, applicable and important to
advance any natural gas project. He said that the state was
currently looking at two natural gas projects and that the
reference to the North Slope Natural Gas pipeline was
necessitated by building off of the architecture of HB 4.
He explained that the terms and powers, the need for the
Department of Natural Resources to facilitate gas moving
through a project, would be needed for any project with
which the state went forward. He asserted that the law in
SB 138 would support all forms of gas development on the
North Slope.
9:29:15 AM
Representative Wilson understood that the under the
legislation the state would take all earning in gas.
Commissioner Balash replied that there would be much taken
in gas but that there would be fairly significant streams
taken in cash; specifically, the corporate income tax and
property tax.
Representative Wilson asked how the state could guarantee
that credit given would be seen as revenue.
Mr. Pawlowski replied that the arrangements would be long-
term contracts and would have a moving price mechanism. One
of the reasons why the state could want to be hesitant
about only using the producers to sell the gas would be
because the producers would had a different risk tolerance
than the state. He said that sometimes LNG projects were
designed with an "s" curve, one of many terms that were
negotiated in the contracts and each contract would be
different. The contract would specify how money changed
hands for the gas.
9:32:19 AM
Representative Wilson understood that Mr. Pawlowski spoke
of the terms to sell the gas and not the gas that the state
would take in lieu of taxes. She expressed concern for
fluctuating gas prices and the state not receiving full
payment.
Mr. Pawlowski believed it was important to remember that
under the in-value circumstance, the producer would take
the gas and sell it for a price with was in constant flux;
the difference in in-kind was that the state was taking and
selling the gas. He said that the price change would occur
with both an in-value of an in-kind scenario. He stated
that unless the state was directly holding the gas it
risked losing control over the appropriate deductions being
in place at the LNG plant. He stressed that the state had
more control in an in-kind situation for the project.
Representative Wilson maintained her disconnect.
Commissioner Balash pointed out to the committee that with
a project with such a large price tag, property tax would
be a significant cash flow element.
9:36:31 AM
Representative Wilson asserted that the state needed
affordable natural gas. She probed the definition of
"direct access."
Commissioner Balash admitted that there were many unknowns.
He referred to page 60, Section 67 of the legislation,
which required DNR to identify the various scenarios and
methods of getting gas from the North Slope to market and
within the state. He said that the issue of who was
responsible to satisfy in-state demand would be discussed.
He believed that part of the answer would be driven by
market factors and part would be driven by which players
were engaged. He shared that one of the reasons the
administration liked that each party would be responsible
of its share of the gas, infrastructure and capacity was
because then everything would be even along the way. He
said if the state alone was responsible for satisfying in-
state demand then the state's share of the project at the
liquefaction plant would be altered. He noted that MOU with
TransCanada contained provisions for backhaul service,
which would allow the same low prices for gas to be allowed
throughout the state.
9:40:10 AM
Representative Wilson remarked that the Interior had access
to heating oil but that it was not affordable.
Representative Munoz noted that the bill allowed AGDC to be
involved in 2 projects. She wondered at what point the
efforts would come together to focus on one project.
Commissioner Balash answered that the work that would be
done during the pre-FEED phase would include and assessment
and efforts to initiate marketing of the LNG by each of the
parties. He said that the key question was: would any of
the parties be able to sell the LNG from this project at a
price that warranted the required investment. He said that
the cost of continuing into the FEED phase would rise to
approximately $2 billion, which was a large amount of money
even when spread across the parties involved. He said that
if the decision to go forward was a positive one, the
project would go forward. He stated that AGDC and the
Alaska Stand Alone Project (ASAP) project would assure that
if Alaska LNG did not go forward there was an alternative
project in place. He could not speak to which project would
move forward more quickly and believed it should be left to
the AGDC board of directors. He said that the changes made
to the AGDC statues in the legislation would give them the
flexibility to decide how and when to advance the ASAP
project. He believed that the decision as to which project
would move forward would be made in 2015.
9:46:37 AM
Co-Chair Austerman asked for further explanation of ASAP.
Commissioner Balash replied that with the passage of HB 4
the legislature gave AGDC a mission to develop the in-state
natural gas pipeline project. He relayed that ASAP referred
to The Alaska Stand Alone Project.
Commissioner Balash said that the ASAP project remained
available to pursue in the years to come if the Alaska LNG
project failed to move forward.
Co-Chair Stoltze spoke to the potential for a special
session.
Representative Holmes referred to talk about the financial
risk the state would bear during the early years. She asked
about sideboards and protections for the state's interest.
Commissioner Balash replied that the state was seeking
allies. He said that the alliances shifted from topic to
topic. He thought that the balance of interest and the
tension between the parties would ultimately work in the
state's favor. He explained that the state was aligned with
producers in terms of wanting to keep overall project costs
down while seeking the highest value for the resource
itself. He opined that where alignment broke down was in
the development of gas that did not belong to the
producers. He said that the state had a financial interest
through either royalty, production tax, or both, in
hundreds of trillions of cubic feet below ground in the
North Slope region. He stated that he was encouraged in the
alignment of interest with TransCanada to optimize
expansions in the future. He furthered that having a
company that was looking out for its own financial
interests was something that the administration saw as
valuable. He spoke to provisions that were built into the
MOU requiring TransCanada to check with the state on work
plan and budget. He said that if a matter arose that the
state was dissatisfied with and opposed to, TransCanada was
required to vote against it per the governance structure of
the joint venture. He asserted that the state would be
aware of the goings on of the project, while relying on
TransCanada's specific expertise day-to-day for the
ultimate execution of the project. He reported that there
was a provision in the HOA that was intended to support the
conveyance of information by TransCanada and AGDC during
the development phase, which gave them the ability to share
information with state agencies.
9:54:02 AM
Representative Holmes wondered whether the obligation for
TransCanada to vote down elements that were unattractive to
the state was legally binding.
Mr. Pawlowski replied that the provision could be found on
Page 6, exhibit C, the term sheet to the MOU. He said that
the MOU had a different threshold of whether it was legally
binding and the terms would be incorporated into the
agreement. He said that the language would be binding in
the interim agreement executed by the Commissioner of
Natural Resources. He concluded that it would ultimately
have to come before the legislature for approval.
Representative Holmes asked for the administration's
position on the 20 versus 25 percent, and when and how the
number would get locked in.
Mr. Pawlowski replied that the 25 percent was the
combination of the state's royalty share plus the
production tax; the production tax was levied after
royalty, so the 13 percent production tax, when combined
with the royalty share equated to approximately 25 percent.
He furthered that the administration's decision surrounding
the appropriate tax rate was part of the work that DOR and
DNR had undertaken during the royalty study. The question
of when terms would be locked in remained open.
9:59:02 AM
Representative Holmes assumed that the state's ownership
share of the infrastructure would come before the
legislature, she queried whether the administration had any
recommendations.
Commissioner Balash replied that in reviewing the project
the administration had estimated that being an equity
participant in the project made sense as long as the
state's share of the project was 20 percent or greater. He
said that if the number were to fall below 20, the
administration would likely recommend a different course of
action. He shared that the agreements that would be
developed over the next 18 months would deal with the long-
term equity shares in the infrastructure and the offtake
and balancing agreements. He said that the agreements
needed to "sync up." He stated that time would be spent to
identify the details around net profit share leases and
sliding scale royalties. He asserted that SB 138 would
assure that the state's production tax interest was "x",
and would allow the state to go forward and develop the
remainder of the agreements to bring back to the
legislature.
10:02:08 AM
Co-Chair Stoltze contested that TransCanada had not been
the state's first choice for a partner in the venture. He
suggested that the state had been coerced into the
partnership.
Representative Costello asked whether the state should be
attempting to pay down its debt over the next decade.
Commissioner Rodell answered that the state currently had
commitments and liabilities to consider before entering
into the FEED stage of the project in 2016. She thought
that the state should be set up in the position where
current liabilities were managed and within the
legislature's control and the state's rating was maintained
in order to receive credit from investors and partners.
10:07:08 AM
Representative Costello understood that because of the
involvement with TransCanada, when the gas started flowing
the state would see $300 million less coming into the state
annually. She wondered whether the administration had
conducted a risk reward analysis. She felt that the number
was significant.
Commissioner Rodell replied that the department had looked
at issue as a cost/benefit analysis, rather than a
risk/reward analysis. She felt that the forgone revenue was
a cost of participation that would yield greater benefits
to the state. She estimated that going forward alone was
not an option because of the burden and cost it would place
on the state was too significant.
10:09:49 AM
Co-Chair Austerman believed the committee needed to spend
more time on the issue. He requested that the department
research the issue and bring more information at the next
bill hearing.
Representative Costello queried the issue of rolled-in
rates.
Commissioner Balash responded that terms were driven by the
tariff design. He said that the capital structure, the debt
to equity ratio for the tariff, was huge. He stated that
the state would get further by having a larger debt
component than squeezing down on the return on equity
component. He divulged that lowest tariffs possible were
the goal. He stated that the partners in the venture did
not have the same desire for low tariffs because they were
involved in the entirety of the value chain. He said that
access to the pipeline and pipeline facilities as well as
the liquefaction plant had been taken into consideration.
He relayed that FERC would have exclusive jurisdiction on
the regulation of the liquefaction plant, which was
centered on health, safety and the environment. He
furthered that FERC did not regulate for access or rates,
so the state had nothing to rely on from a regulatory
perspective to assure that those things happen. He asserted
that the solution to the problem was for the state to step
into the participation role where each party would be
responsible for their share of the project. He said that
there would be four pipes in the pipeline and not one
tariff; in the suggested proprietary arrangement each party
would be responsible for the financing of its share of the
project and therefore able to set its own commercial
arrangements for use of the capacity built with the capital
expenditure, extending all the way down to the liquefaction
plant. He said that the question about rates became
obsolete because there would not be a rate that all of the
parties would pay and contribute to, each would be
responsible for their own share. He pointed to Appendix A
in the HOA, which listed the ability for any of the parties
to expand any component to the project as long as the other
parties were held harmless, others could participate but
did not have to. He thought that this would result in a
situation where third parties would be confident in their
ability to access capacity on the share of the pipe for
which the state and TransCanada were responsible.
10:16:58 AM
Commissioner Balash furthered that an agreement had been
secured in the MOU on the capital structure for any
expansions, even though it was unknown what the cost of
debt or equity would be in the future. He stated that the
amount of spare capacity present in the line would depend
on the specific size of the pipe. He shared that the
initial plan was for the pipeline to be 42 inches, the
initial throughput was expected to be in the 2.8 billion
cubic feet per day range. He understood that there was to
be upwards of a billion cubic feet per day of capacity
available through compression until looping was necessary.
He relayed that looping increased costs and heightened the
need for a rolled-in rate approach. He said that the
department would confirm during the pre-FEED phase what the
capacity of the project ultimately was and what the
increments looked like. He remarked that the pipe would
have flexibility in size, but that the liquefaction plant
was not as flexible. He said that an expansion to support
another liquefaction train would need to be very large and
would require a large discovery of gas. He believed that
the department had been successful in achieving access and
a capital structure resulting on low tariffs. He did not
believe that rolled-in rates would be necessary, it would
depend on the size and capacity of the project from day one
to what it was expandable to without looping.
Representative Costello understood that the nature of the
project being unregulated would be a hinge-point for other
decisions.
Co-Chair Austerman discussed the direction he hoped to take
during the upcoming 1:30 pm meeting. He hoped to focus on
the state shifting from a tax based to a profit based
structure. He discussed further housekeeping.
Representative Gara asked if the administration would
address a provision in the contract concerning who paid the
full cost of future expansion.
Co-Chair Austerman reiterated his desire to concentrate on
the tax portion of the issue.
CSSB 138(FIN)am was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
10:24:33 AM
The meeting was adjourned at 10:24 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 316 MSRC 4-15-14.docx |
HFIN 4/15/2014 8:30:00 AM |
HB 316 |
| SB 138 Letter from Legislators.pdf |
HFIN 4/15/2014 8:30:00 AM |
SB 138 |
| SB 138 4.16.14 Presentation HFIN Edgmon Question.pdf |
HFIN 4/15/2014 8:30:00 AM |
SB 138 |
| SB 138 4.16.14 Resource Reports Required by Appendix A to Part 380 of FERC Regulations.pdf |
HFIN 4/15/2014 8:30:00 AM |
SB 138 |
| SB 138 Public Testimony.pdf |
HFIN 4/15/2014 8:30:00 AM |
SB 138 |