Legislature(2015 - 2016)HOUSE FINANCE 519
10/27/2015 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB3001 | |
| Presentation: Transcanada Buyout Proposal: Agdc Current and Possible Future Role in the Aklng Project | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB3001 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
THIRD SPECIAL SESSION
October 27, 2015
1:33 p.m.
1:33:45 PM
CALL TO ORDER
Co-Chair Neuman called the House Finance Committee meeting
to order at 1:33 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Bryce Edgmon
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Frank Richards, Vice President, Engineering and Program
Management, Alaska Gasline Development Corporation; Joe
Dubler, Vice President and Chief Financial Officer, Alaska
Gasline Development Corporation; Representative Louise
Stutes; Representative Paul Seaton; Representative Cathy
Tilton; Representative Liz Vazquez; Representative Andy
Josephson; Representative Gabriel LeDoux; Representative
Shelley Hughes; Representative Lora Reinbold;
Representative Geran Tarr; Representative Dave Talerico.
PRESENT VIA TELECONFERENCE
Daniel Fauske, President, Alaska Gasline Development
Corporation.
SUMMARY
HB 3001 APPROP: LNG PROJECT & FUND/AGDC/SUPP.
HB 3001 was HEARD and HELD in committee for
further consideration.
PRESENTATION: TRANSCANADA BUYOUT PROPOSAl: AGDC CURRENT AND
POSSIBLE FUTURE ROLE IN THE AKLNG PROJECT
Co-Chair Neuman reviewed the agenda for the day.
House Bill No. 3001
"An Act making supplemental appropriations; making
appropriations to capitalize funds; making
appropriations to the general fund from the budget
reserve fund (art. IX, sec. 17, Constitution of the
State of Alaska) in accordance with sec. 12(c), ch. 1,
SSSLA 2015; and providing for an effective date."
1:35:17 PM
^PRESENTATION: TRANSCANADA BUYOUT PROPOSAL: AGDC CURRENT
AND POSSIBLE FUTURE ROLE IN THE AKLNG PROJECT
1:35:36 PM
FRANK RICHARDS, VICE PRESIDENT, ENGINEERING AND PROGRAM
MANAGEMENT, ALASKA GASLINE DEVELOPMENT CORPORATION (AGDC),
introduced himself.
DANIEL FAUSKE, PRESIDENT, ALASKA GASLINE DEVELOPMENT
CORPORATION (via teleconference), greeted the committee. He
apologized for not being able to attend in person. He
relayed that additional staff were available online.
JOE DUBLER, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
ALASKA GASLINE DEVELOPMENT CORPORATION, thanked the
committee for the opportunity to testify. He introduced a
PowerPoint presentation titled "Alaska LNG Project
Participation" dated October 27, 2015 (copy on file). He
began by addressing the statutory authority granted to AGDC
by SB 138 [legislation passed in 2014 related to a gas
pipeline, AGDC, and oil and gas production tax] permitting
its participation in the AKLNG project. He read from slide
2 titled "Authority Granted in SB 138":
· AGDC has primary responsibility for developing an
Alaska LNG project on the state's behalf [AS
31.25.005 (1)]
· AGDC may acquire a direct ownership interest in any
component of an Alaska LNG project [AS 31.25.080
(a)(23)]
· AGDC may enter into contracts related to treating,
transporting, liquefying or marketing gas - in
consultation with DNR & DOR [AS 31.25.080 (a)(24)]
· AGDC shall assist DNR & DOR to [AS 31.24.005 (2) &
(3)]:
· Maximize the value of the state's gas resources
· Provide economic benefits in the state
· Provide revenue to the state
Mr. Dubler noted that the attorney general had issued a
letter dated October 26 [2015] that was included in
members' packets (copy on file). He relayed that AGDC's
ability to enter into contracts related to treating,
transporting, liquefying, or marketing gas in consultation
with the Department of Natural Resources (DNR) and the
Department of Revenue (DOR) applied only to the marketing
portion of the project. He turned to slide 3 titled "AGDC's
Role in Alaska LNG":
· Signatory to the Joint Venture Agreement governing
the Alaska LNG project
· Hold the state's 25 percent equity interest in the
LNG facility (downstream component) of the
integrated project
· Member of the Sponsor Group, Management Committee
(ManCom) and the Project Steering Committee (PSC)
· Participate in integrated project decisions
· Participate in commercial negotiations related to
marketing, expansion, third-party access and
domestic gas supply
· Plan and develop off-takes for in-state gas
deliveries
Mr. Dubler elaborated that the joint venture agreement
(JVA) was an agreement between the five parties governing
the entire project; it included how the project worked, who
was in charge, how the withdrawal provisions work, and all
of the mechanisms supporting the project. He relayed that
the midstream component of the project was composed of the
pipeline, the gas treatment plant (GTP) on the North Slope,
and a transmission line from both Point Thomson and Prudhoe
Bay. He communicated that AGDC participated in voting and
determining the direction of the project. He addressed that
the upstream agreements related to gas supply were
negotiated primarily by DNR as the owner of the state's gas
(AGDC's participation was in an advisory capacity). He
discussed that his group had looked at potential
communities that could benefit from off-takes and Mr.
Richards' group had done some preliminary work on the cost
of off-takes. He remarked that he could provide the
committee with a presentation on the subject, which had
been recently given to the AGDC board.
1:41:14 PM
Mr. Dubler turned to slide 4 titled "Alaska LNG Project
Participation." He explained that the resource owners were
ConocoPhillips, BP, ExxonMobil, and the State of Alaska. He
relayed that the state would have a 25 percent interest in
the total project throughput if the state elected royalty
in kind (RIK) and the producers elected to pay their tax as
gas. He explained that the project interest was aligned
with the ownership of the gas. The state's 25 percent was
currently divided between TransCanada, which held the
state's interest in the midstream (pipeline and GTP); and
AGDC, which held the state's interest in the downstream
(LNG and marine facilities).
Mr. Dubler moved to slide 5 titled "Governance Related
Issues":
Equity Alignment: State's share of gas in the
project (25 percent) is not equal to its current
equity in the integrated project:
· State, through AGDC, holds 25 percent in the
downstream (LNG plant)
· TC holds 25 percent in the midstream (pipeline
& GTP)
· State's resulting equity in the integrated
project is 12.5 percent
Mr. Dubler elaborated that the above alignment issue would
be addressed by the current proposal to buy out
TransCanada. He continued to address slide 5:
Voting Rights: State doesn't have full voting
participation in all project decisions:
· State, through AGDC, votes on downstream issues
· TC votes on mid-stream issues
· If TC exits, AGDC would have full voting rights
on each project component and in all integrated
project
Mr. Dubler expounded that AGDC had no input on decisions
made on midstream issues and it was conceivable that
TransCanada could vote in a manner that was inconsistent
with the state's best interests. He explained that the
state was working to address the issue through the
TransCanada buyout.
1:43:16 PM
Mr. Dubler advanced to slide 6 titled "Project Governance."
He explained that the project was governed by many
different groups, which were represented by various
parties. The sponsors group shown on the left of the slide
was the high level group consisting of the presidents of
BP-Alaska, ConocoPhillips, ExxonMobil, and the TransCanada
subsidiary handling the AKLNG project. The group also
included Mr. Fauske, DNR Deputy Commissioner Marty
Rutherford, and DOR Deputy Commissioner Dona Keppers. He
detailed that when issues could not be resolved at the
management committee level they were elevated to the
sponsors group. The management committee (ManCom) consisted
midlevel managers of the five JVA partners (BP,
ConocoPhillips, ExxonMobil, TransCanada, and AGDC). He
noted that he participated on the committee on behalf of
AGDC. He relayed that the management committee approved the
work program and budget annually, in addition to overall
oversight and project management. He noted that the project
steering committee reported to the management committee on
technical issues.
Co-Chair Neuman asked Mr. Dubler to avoid the use of
acronyms.
Mr. Dubler agreed. He continued to discuss the project
steering committee on slide 6, which consisted of
representatives from the five JVA partners. The group
provided guidance and technical oversight of the project
management team (PMT). The PMT was the group of
professionals running the project and providing oversight
of the project contractors. He pointed out that the PMT
included different components for the pipeline, GTP, and
LNG.
1:46:56 PM
Mr. Dubler relayed that Mr. Steve Butt was the head of the
entire PMT and was responsible for the day to day execution
of the pre-FEED plan. Additionally, the team developed the
work plan, budget, and schedule for the management
committee to review and approve. The team was also
responsible for all of the technical aspects of the
project.
Mr. Richards advanced to the organizational chart on slide
7 titled "Project Management Team (PMT)." He reiterated
that Mr. Butt, an ExxonMobil employee, was the senior
project manager of the PMT. Direct reports included
functional leads on the major components of the project
(i.e. pipeline; GTP; LNG facility; environmental,
regulatory, and lands; safety, and business management). He
noted that an integration component was key to the project,
given the three large and distinct projects moving forward.
The slide also showed the representation of the TransCanada
PMT leadership team. He detailed that TransCanada was in
the pipeline project management position and a facilities
engineering manager position. He furthered that TransCanada
had nominated staff to the positions and the individuals
had subsequently been elected to fill the roles. He relayed
his intent to address other functions TransCanada staff
played within the overall PMT later in the presentation. He
discussed that the PMT was key to overseeing the technical
work by the army of contractors working to advance the
project (e.g. pipeline engineers, process engineers, and
liquefaction expertise).
1:49:11 PM
Mr. Richards discussed slide 8 titled "Project Management
Team (PMT)". He relayed that the co-venture partners (CoVs)
represented the project owners (BP, ExxonMobil,
ConocoPhillips, TransCanada, and AGDC). He explained that
employees of the owners were nominated to fill the roles in
in the organization. He elaborated that a nomination
process had been established through the JVA, which
identified that the most qualified person would be selected
for individual functions and once the person was selected
they became a seconded employee. He explained that
secondment is the temporary assignment of a person to a
project away from their regular organization. He furthered
that the project reimbursed the parent company for the
expenses of the employees. He discussed that AGDC was
active in the governance portion of the project with the
sponsors group, management committee, and steering
committee. TransCanada had been in the role of fulfilling
some of the functional lead responsibilities within the
PMT. He explained that at the outset of the venture, AGDC
did not have individuals staffed to fulfill the roles
because it had been working to continue to advance the
Alaska Stand Alone Pipeline (ASAP) project.
1:51:18 PM
Mr. Dubler reviewed the staffing principles of the project
on slide 9: "Project Management Team (PMT)". He detailed
that the goal had been to leverage existing company
strengths. He explained that secondees were utilized in
order to access existing expertise within the companies
involved and to avoid expending time and energy on
conducting a hiring search. He elaborated that the producer
parties and TransCanada had people on staff who moved from
project to project, which was much more efficient than
hiring for each new project.
Co-Chair Neuman asked if the co-venture partners were
members of the joint venture. Mr. Dubler replied that they
were one and the same; the five entities were the JVA
parties and the co-venture partners. He clarified that
different descriptions in different contexts. He furthered
that the sponsor group included DOR, DNR; whereas, the co-
ventures group did not.
Co-Chair Neuman relayed that examples would help the
committee to further understand some of the issues
discussed. He asked members to hold questions until after
the presentation.
1:53:15 PM
Mr. Dubler to address slide 9. He remarked that the
staffing principals were part of a confidential document
that he could not elaborate on. He explained that the PMT
had tried to develop a method for ensuring that each of the
co-venture parties had enough representation in the project
to ensure they had adequate oversight. One of the issues
had been about the location of the work to be done. He
relayed that the pipeline work was taking place in Calgary,
Alberta, Canada; the GTP work was taking place in Denver,
Colorado; and the LNG work was taking place in Houston,
Texas. Therefore, the project had either relocated
employees to the locations or utilized employees already in
the locations. He spoke to the appointment process, which
was very similar to the state hiring process (an open
position was posted, the co-venture parties provided
resumes, a recommendation was made, and the most qualified
person was hired). A chart on slide 9 showed the number of
seconded employees represented by each entity and in which
area. He spoke to the leadership team (senior project
manager and direct reports) breakdown: 5 ExxonMobil staff,
2 ConocoPhillips staff, 1 TransCanada staff, and 1 BP
staff. The key positions category included: 10 ExxonMobil
staff, 4 ConocoPhillips staff, 1 TransCanada staff, and 3
BP staff. The other positions category included: 73
ExxonMobil staff, 20 ConocoPhillips staff, 10 TransCanada
staff, and 5 BP staff. He summarized that there were a
total of 135 positions in the PMT.
Mr. Richards added that as the project progressed there
would be AGDC employees represented on the PMT as well.
1:56:13 PM
Mr. Richards advanced to slide 10 titled "TransCanada's
Role Alaska LNG":
· Hold the state's 25% interest in the project's mid-
stream: pipeline and gas treatment plant (GTP)
· Fund pre-FEED cash calls associated with the state's
midstream interest
· 12 secondees, primarily pipeline Subject Matter
Experts (SME), in the Project Management Team
o Leadership team, Pipeline Project Manager (1
of 9)
o Key role, Pipeline Facilities Engineering
Manager (1 of 18)
o Environmental, Regulatory, & Land (ERL) (1
of 32)
o Gas Treatment Plant sub-project (1 of 17)
o Pipeline sub-project (8 of 36)
Mr. Richards explained the GTP and pipeline made up the
midstream portion of the project. He added that the project
sub-group included pipeline engineers, hydraulics
engineers, and project control staff working to advance the
project and fill in staff positions.
Mr. Richards turned to slide 11 titled "TransCanada's Role
Alaska LNG":
· TransCanada (TC) is not expected to build the
pipeline, that will be managed by the PMT
· If TC exits the project, the PMT will seek
nominations for the vacated positions
· TC has offered to allow its PMT employees to remain
during a transition period
· All CoVs, including AGDC, can nominate employees to
fill those positions
· AGDC has individuals qualified to nominate for
Pipeline and GTP openings
Mr. Richards detailed that the pipeline would be built by
the AKLNG project as led by the PMT. He noted that if
TransCanada exited the project, AGDC would have the option
to nominate individuals for vacated positions and the PMT
would make the decisions. He relayed that TransCanada had
offered to allow its PMT employees to stay on the project
likely through May 2016, which would be significantly
through the pre-FEED [Front End Engineering and Design]
stage. He reiterated that AGDC had qualified individuals to
nominate for the positions within the midstream effort. He
discussed that over the last several years AGDC had worked
to develop the ASAP project (developing a GTP and 36-inch
pipeline).
1:59:07 PM
Mr. Richards discussed the senior staff of AGDC in slide 12
titled "AGDC Technical Team - Skills":
AGDC's technical staff:
· Senior credentialed professionals with industry and
mega-project backgrounds
· Arctic pipeline and facilities design, construction,
and operations experience
· Alaska-specific design and construction experience
· Major capital project management expertise
· Working knowledge of technical and regulatory assets
owned by AGDC
Mr. Richards elaborated that AGDC had been extremely
fortunate to attract employees who had worked on previous
iterations of the producer projects over the years. He
noted that a couple of the individuals had been present for
the original construction of the Trans-Alaska Pipeline
System (TAPS) project. He relayed that AGDC believed the
technical team employees had the expertise to help assist
the PMT to advance the AKLNG project; AGDC was confident it
could match up employees against the industry partners and
would be nominating the individuals through the previously
outlined hiring process.
Mr. Richards turned to slide 13 titled "AGDC Technical Team
- Results." He relayed that the legislature had created
AGDC to develop an industry natural gas pipeline in order
to meet the energy needs for Alaskans. Subsequently, AGDC
had worked over the past several years to develop the ASAP
project. The project was a 36-inch pipe, 1,480 psi pipeline
that would deliver utility-grade gas to Alaskans. He
continued to address slide 13:
AGDC completed development of the Alaska Stand Alone
Pipeline (ASAP) Project:
· Completed Pre-FEED and FEED for North Slope gas
treatment facility, 733-mile mainline, and 30-mile
Fairbanks lateral pipeline
· Completed Class 3 cost estimate and project
execution plan
· Delivered on time and under budget
· Core technical team still engaged on an interim
basis pending state policy decisions
Mr. Richards elaborated that AGDC had worked to bring the
ASAP project to a level where it could go to an open
season. He explained that an open season was a solicitation
for other parties to ship gas in the pipeline. He
communicated that AGDC had done its due diligence (i.e. it
had met the necessary industry practices of defining the
risk and cost in order to inform potential shippers what
the overall cost would be). The Class 3 cost estimate for
ASAP was approximately $10 billion, which included
approximately $1 billion worth of contingency. He relayed
that ASAP was a 25 to 30 percent design project that had
been delivered on time and under budget. He explained that
the state owned the project and accompanying technical
information that could be used as an asset for the state's
participation in any project.
2:02:08 PM
Co-Chair Neuman asked Mr. Richards to provide the numbers
associated with the different costs as he outlined the
plan.
Mr. Richards agreed to do so. He continued to discuss
AGDC's core technical team that had extremely skilled,
Alaskan-based individuals who were comparable to world-
class engineers and had the necessary Arctic experience to
help advance a project pipeline. The corporation was
confident that it was capable and able to meet the needs of
any potential vacancies that may be available to AGDC in
the future.
Mr. Richards advanced to slide 14 titled "AGDC Ability to
Assume TC's Role." He discussed that SB 138 had directed
AGDC to hold the state's interest in the LNG facility. He
outlined the three major components of the AKLNG project
including the GTP, a 42-inch high pressure pipeline
originating on the North Slope, and a LNG facility in
Nikiski. He explained that at present AGDC's role was to
represent the state's ownership in the LNG facility only.
TransCanada was currently holding the state's portion in
the midstream (GTP and pipeline). He communicated that with
TransCanada's potential departure from the project, AGDC
had already begun to assume some of the company's roles
including coordinating the Federal Environmental Regulatory
Commission (FERC) process under the National Environmental
Policy Act (NEPA). He relayed that AGDC was nominating
individuals into the PMT as vacancies became available to
help advance the AKLNG project through pre-FEED. He read
from slide 14:
Technical staff available to fill PMT positions as
necessary:
· Subject Matter Experts (SME) based in Alaska
· Key roles in prior Alaska pipeline projects,
including TAPS
· Dedicated professionals committed to SOA
interests
2:05:10 PM
Mr. Dubler turned to slide 15 titled "Alaska LNG
Appropriations to Date." He noted that they talked
significantly about TransCanada's role and the
administration's desire to move the role to AGDC. He
emphasized that he had worked with TransCanada for over two
years believed it was a great firm. He stressed that the
proposal to go forward without TransCanada was in no way a
condemnation of the company or its work. He noted that
Vincent Lee, his counterpart at TransCanada, had been a
pleasure to work with over the past couple of years. He
pointed to a chart on slide 15 and relayed that SB 138 had
appropriated $69,835,000 to the AKLNG fund, which had been
broken down into five pieces: $2.5 million to DOR for a
study; $70,000 to the Department of Transportation and
Public Facilities for a project liaison; $57,850,000 for
project cash calls; $3,406,000 for the AGDC operating
budget; and $6,008,000 for external contractual services.
Mr. Dubler referred to the external contractual services
line included most of the individuals hired for the project
were contractors. He relayed that the appropriation for FY
14 and FY 15 had been stretched through FY 16 because cash
calls had been lower than anticipated. He noted that the
DOR and DOT costs had remained the same in FY 14 to FY 15
and FY 14 to FY 16. He continued that projections for FY 14
to FY 16 were $51,382,000 for cash calls and $4,396,000 for
operating expenditures. He discussed that AGDC had
completed work for the ASAP project that was also needed
for the AKLNG project; therefore, AGDC had contracted with
the project to perform the work and had been reimbursed a
portion of the associated cost (approximately $3 million).
He remarked that the project was working to avoid double
spending. He noted that AGDC had spent the budgeted $3
million and would be reimbursed for the work, but it
required receipt authority to access the funds. He
addressed the estimated $5.9 million cost for the remainder
of the fiscal year into FY 17 associated with additional
contractual work for picking up TransCanada (i.e. legal,
engineering, and commercial work). Total funds for FY 14
through FY 16 were $66,733,000, which left $2.8 million
remaining in the fund for the beginning of FY 17.
2:09:07 PM
Mr. Dubler discussed slide 16 titled "AGDC Special Session
Appropriations."
Capital Appropriation ($144,045.0)
· $68,445.0 - Reimburse TransCanada and "buy-out"
their mid-stream interest
· $75,600.0 - Fund state's full 25 percent share of
remaining pre-FEED
Mr. Dubler elaborated that the of the total capital
appropriation, approximately $15 million for LNG and $61
million would go to midstream, which AGDC would take over
if TransCanada was no longer part of the project. He read
the remainder of slide 16:
Receipt Authority ($5,000.0): Statutory Designated
Program Receipts (SDPR)
· Allow AGDC to be reimbursed for Alaska LNG
related field work conducted on behalf of the
project
Mr. Dubler showed breakout and comparison of costs on slide
17 titled "AGDC Special Session Appropriations." He relayed
that DNR estimated it would take about $108 million [$106.8
million per the chart on slide 17] to pay off TransCanada.
The anticipated costs of the TransCanada buyout and the
remaining cash calls had not changed. However, there had
been an increase in the pre-FEED scope and budget [from
$8.8 million] to $31 million in the midstream section of
the project and to $15 million in the downstream section of
the project for a total appropriation request of $144
million.
2:11:01 PM
Mr. Richards turned to slide 18 titled "Pre-FEED Scope &
Budget Changes":
Pre-FEED scope and schedule will increase by $182
million to $694 million:
· State's total share is $173 million -- $66 million
liquefaction plant, $107 million mid-stream (GTP and
pipe)
· Advancing work into pre-FEED is important to have
the best information available to complete internal
review and make FEED decision
· Project is maturing through the stage-gate
development process
· Moving some activities from FEED to Pre-FEED to
facilitate better design and decision making
Mr. Richards moved to slide 19 titled "Pre-FEED Scope &
Budget Changes" and elaborated that the project was looking
at lowering costs and improving economics within the
various project components (i.e. the GTP, processes,
facilities, modules, liquefaction facility, and pipeline).
He noted that because the project was challenged with
economics, the goal was to ensure that the best economics
were obtained to proceed. He reported that there would be
some additional geotechnical and geohazard work at the two
main facilities: 1) the North Slope and Prudhoe Bay GTP;
and 2) at the LNG site in Nikiski. He elaborated that it
was important to know the underlying ground conditions
because assumptions could be very costly. He explained that
he had worked on the Red Dog Mine project and the team had
not elected to perform good geotechnical borings at the
mill site. Subsequently, when the mill site had been opened
it had been "ice rich" which meant that pipe, sand, gravel,
and cement had to be flown in for the foundation. He
relayed that the additional $100 million cost would have
been unnecessary if the proper geotechnical program had
been performed.
Mr. Richards spoke to increasing regulatory work to ensure
there was sufficient information to advance into the
environmental impact statement (slide 19 continued). He
addressed bringing the 48-inch pipe deliverables up to the
42-inch level of development to decide on the best option
moving forward.
2:14:13 PM
Co-Chair Neuman asked on behalf of Representative Reinbold
about the best method of evaluating whether the project
would be successful. Mr. Richards replied that in order to
make the project decision it was important to best define
the cost components of the project, which was the primary
emphasis of the current work. The processes would be coming
up with the individual platforms to make it the best
economic opportunity for the state, making sure the due
diligence was done to define what the costs would be, and
looking at the project economics and commercial realm.
Mr. Dubler added that the commercial realm developed a best
guess based on numbers developed by project engineers. The
idea behind a "stage gate" process was to examine the
project at each stage to determine whether it continued to
be economical. The project was currently in the pre-FEED
stage, which would provide better numbers than had been
available at the end of the concept selection stage. Once
the improved numbers were available, AGDC would use a
tariff model (developed for the ASAP project) that had also
been used for testing preliminary numbers on the AKLNG
project. He believed the tool would be very useful in
determining what the cost of service would be. He noted
that each of the firms involved would conduct their own
calculation. Part of the issue with a "proceed to FEED"
decision was that each company had to do its own analysis
to determine whether the project met their hurdle rates. He
noted that Mr. Radoslav Shipkoff [with Greengate LLC] would
do the calculations for the state and AGDC would do them as
well. He explained that the improved numbers were used in
the analysis along with estimates on the price the state
could get for its LNG. He noted that at that point it
became simple math. He stated that the producers were all
very aggressively pursuing the project, which he believed
was a good indication that the producers thought the
project had merit. He reiterated that AGDC also ran the
numbers and did not rely solely on external information.
2:18:00 PM
Co-Chair Thompson remarked on testimony that TransCanada
had offered to allow project management team employees to
remain during a transition period. He asked if there was a
transition map or plan that had been agreed to. He observed
that the December 4 [2015] deadline was approaching.
Mr. Dubler responded that he was unaware of a specific
transition plan. He communicated that TransCanada had been
very good to work with and he was certain the company would
ensure a smooth transition from its participation in the
project over to AGDC's participation.
Co-Chair Thompson asked if the transition of voting rights
for the state had been established to switch from
TransCanada to AGDC by December 4. Mr. Dubler replied in
the affirmative. He detailed that currently the five
parties voted on everything. He explained that instead of
voting half of the state's 25 percent share, AGCD would
begin voting the entire share.
Co-Chair Thompson asked if the state had to provide
TransCanada with a buyout payment prior to December 4. Mr.
Dubler replied that AGDC was not a party to the state's
agreement with TransCanada. He would follow up with an
answer.
Co-Chair Thompson remarked that he would ask the question
to other representatives of the administration at
subsequent finance meetings.
Representative Kawasaki referred to slides 18 and 19
related to the project scope changes. He wondered if the
decision to move some activities from FEED to pre-FEED had
been made internally by AGDC or by PMT. Mr. Richards
responded that the pre-FEED efforts were managed by PMT. He
elaborated that PMT looked at the status of the work plan
and budget and at the work activities that needed to be
accomplished. He relayed that PMT had come forward with the
increased cost and how it affected the project schedule.
2:21:23 PM
Mr. Dubler added that the process described by Mr. Richards
had not yet been approved and was still a proposal.
Representative Kawasaki referred to slide 17, which
outlined why proposed costs had increased. He believed the
state would want money for the allowance for midstream and
downstream scope changes even without a TransCanada buyout
since the PMT had supported it.
Mr. Dubler replied that if TransCanada remained in the
project representing the state's interest, the state would
not need to fund the $31 million; TransCanada would fund
the portion and the state would pay the cost off at a later
date. He explained that the $15 million for the downstream
portion would still need to be appropriated for AGDC to
remain in the project.
Representative Munoz referred to the PMT structure and
wondered why TransCanada's participation was not
commensurate with the other partners in the agreement and
why AGDC was not represented in the structure.
Mr. Dubler responded at the start of the AKLNG project AGDC
had been going full speed on the technical work on the ASAP
project; therefore, most of its resources had been in use.
Therefore, instead of ramping up staff on the technical
side for a second project, AGDC had decided to keep on the
leaner side and to hire commercial people for work on the
commercial documents. He elaborated that AGDC had decided
to let the technical work go until it was clear which
project would move forward; once the project had been
determined, AGDC would move staff to that project. He
communicated that AGDC had hired Fritz Krusen as its vice
president for AKLNG when it received an appropriation for
the AKLNG project. He detailed that Mr. Krusen had retired
from ConocoPhillips where he had run the Kenai LNG plant
and worldwide LNG group. He furthered that AGDC had left it
up to Mr. Krusen to determine the appropriate staffing;
however, Mr. Krusen felt that he was capable of managing
the process on his own. He noted that by taking on the
responsibility, Mr. Krusen had saved AGDC money. He
addressed that seconded employees were the equivalent of
the military's temporary duty assignment employees. He
explained that AGDC would have needed to hire engineers at
fairly high rates and propose them to the project; if the
project did not accept the employee, AGDC would have an
employee on staff who would not be able to perform the
functions they were hired for. He relayed that the
producers had large, worldwide organizations and could draw
employees from all over. He noted that AGDC did not have
the same luxury; it had elected to not go out to hire
individuals, but would probably do so down the road.
2:25:46 PM
Representative Munoz asked that if the state would maintain
its current level of participation on the management team
if the TransCanada buyout was approved.
Mr. Richards replied that AGDC would be nominating
individuals to the PMT. He stated that hopefully, the AGDC
candidate would be the best fit for the roles, but the
other partners would also nominate individuals. He
explained that it would be up to the project management
team to make the selection. He reiterated that AGDC
believed it had the individuals available and qualified to
take on the responsibilities.
Co-Chair Neuman asked Mr. Richards to explain the
nomination and hiring process for the PMT.
Mr. Richards provided a hypothetical example about a
geotechnical engineer position vacancy. He detailed that
the vacancy would be communicated to the co-venture owners
and each partner would determine whether they had a
qualified candidate to put forward for the specified
location. He furthered that AGDC would determine whether it
had an appropriate candidate and would then transmit the
resume to the project as a nomination. The PMT would then
review the applications, conduct due diligence and
interview if needed, and make a selection. He noted that if
the vacancy was a leadership position the selection would
be taken to the management committee (where Mr. Dubler
would step in); the management committee could then either
agree to or decline the selection.
Representative Munoz asked, in the event of a TransCanada
buyout, whether TransCanada's current interest would go to
DNR and then AGDC or directly to AGDC. She wondered when
the decision to designate AGDC would take place if the
interest first went to DNR. Mr. Dubler replied that he had
not seen any details of the agreement between TransCanada
and DNR and did not know what was included. He noted that
there were other relevant confidential documents and
believed the interest would go directly to AGDC.
2:29:53 PM
Co-Chair Neuman hoped DNR would provide answers to
questions asked throughout the meeting. He asked Mr. Dubler
to elaborate on the work plan budget process including who
developed and voted on the budget. He asked about costs
associated with the work plan.
Mr. Dubler answered that the work plan and budget was
developed by the PMT. He relayed that the document was a
very large spreadsheet. He detailed that it included every
single task the project would do, the cost estimate for
each task by month. He stressed that the PMT reviewed the
document many times and worked the numbers hard. He
continued that the PMT presented the budget to the project
steering committee (Mr. Krusen was currently on the
steering committee). He explained that the engineering was
not the expertise of the PMT; whereas, the steering
committee consisted of engineers. He furthered that by the
time the document reached the management committee for
review it had already been through two separate reviews.
Typically the management committee would discuss the
document with AGDC's president and Mr. Krusen before
compiling a presentation for the board to obtain approval.
At that point, AGDC would go to the legislature if an
additional appropriation was needed. He relayed that the
numbers would be taken to AGDC's next board meeting for
approval. He communicated that the initial document had
gone to the legislature, the governor, the AGDC board, and
on to the management committee for a vote.
2:33:31 PM
Co-Chair Thompson reminded members that other AGDC staff
were available via teleconference.
Representative Wilson thanked TransCanada for the
advancement of the project up to its current point. She
thought it sounded like the state was trading TransCanada
for employees within DNR, DOR, and DOL. She opined that it
seemed almost like the same partnership. She wondered why
the state would hire people at $800,000 in DNR when there
were currently similar employees on staff with expertise.
She noted there were already legal employees on staff.
Mr. Dubler replied that the question may be more
appropriate for DNR. He added that AGDC had only received
the organizational chart the previous day and he had not
had the chance to do a thorough review of the document.
Representative Wilson asked if the positions could be hired
within AGDC. Mr. Dubler responded that AGDC had prepared an
organizational chart for a project moving forward with
TransCanada and without TransCanada. He relayed that the
positions identified in the chart would address the
technical and commercial positions AGDC would need to
continue working on the project. He could not speak to the
needs of DNR, DOR, or DOL. He explained that there were
upstream issues that DNR had to address that AGDC was not
involved with. Additionally, there were tax issues DOR had
to address that AGDC was not a part of. He added that by
statute, the attorney general was AGDC's attorney. He
stated that it was up to DOL to determine if it would cost
$10 million per year for its staff and experts.
2:36:33 PM
Representative Wilson wondered why there was an attorney on
retainer for $100,000 per month if DOL provided legal
representation for AGDC. Mr. Dubler asked if Representative
Wilson was referring to Rigdon Boykin [South Carolina-based
attorney serving as the state's lead negotiator on the
AKLNG project]. Representative Wilson replied in the
affirmative. Mr. Dubler responded that Mr. Boykin was
serving as chief negotiator for AGDC and the state gas
team, but he was not acting in his capacity as an attorney.
Representative Wilson wanted to avoid the duplication of
positions. She wanted to hear a further explanation about
the positions asked if departments could provide the
committee with information.
Representative Gattis remarked that one of the things that
appealed to her about the project was the consistent
involvement of the producers. She referred to the lack of a
plan if the state bought out TransCanada. She wondered if
the companies, businesses, and people who did pipeline work
for a living had a plan if TransCanada was no longer
involved in the project.
Mr. Dubler apologized for misinterpreting the question
earlier. He clarified that there were provisions of the
joint venture agreement and other documents that included
provisions for withdrawal by parties. He detailed that a
TransCanada buyout would be handled similar to a withdrawal
and there were specific provisions that addressed the exact
situation. He noted that AGDC did not have a transition
plan to transition its staff in place of TransCanada. He
relayed that there would be vacancies if TransCanada was no
longer part of the project, but the vacancies would be
filled just like any other vacancy in the project. He
explained that there had been several vacancies since the
project had begun and those positions had been filled just
like vacant positions in any business. He added that all of
those procedures were currently in place.
2:40:02 PM
Vice-Chair Saddler asked if AGDC's team had the same level
of experience as TransCanada in building and designing
northern pipelines or just specifically on the liquefaction
portion of the project.
Mr. Richards explained that when he had referred to the
AGDC team, he had been talking about individuals who had
been working to develop a natural gas pipeline since 1978
(after completing TAPS). He relayed that AGDC's senior
project manager Dave Haugen had been a section manager for
Alyeska Pipeline, which constructed TAPS. Subsequently, Mr.
Haugen had worked on several iterations of the natural gas
pipeline including the Denali project. Additionally, one of
AGDC's key technical leads was Dr. Keith Meyer who had
worked as a structural engineer on TAPS and was an expert
in strain demand due to discontinuous permafrost. He
continued that Dr. Meyer had come to specifically work on
the ASAP project and was performing work on the AKLNG
project given his credentials. He relayed that there were
other employees who had previously worked for
ConocoPhillips on gasline projects in Alaska and worldwide.
Vice-Chair Saddler queried if AGDC's employees were as
qualified as those at TransCanada. Mr. Richards replied
that he had not done a side by side comparison.
Vice-Chair Saddler asked to what degree AGDC would need
supplemental expertise or additional personnel to meet the
same level of qualification currently offered by
TransCanada.
Mr. Richards responded that the legislature had tasked AGDC
with completing a project as expeditiously as possible,
while not creating a huge bureaucracy. He detailed that
AGDC had a staff of approximately 21 people and used highly
skilled contractors to meet subject matter expert needs.
Going forward, he believed AGDC would have the capabilities
to fulfill the roles with either AGDC employees or
contractors. He believed in certain instances AGDC would
likely have individuals who were more experienced [than
TransCanada], but he would need to see a side by side
comparison.
2:43:45 PM
Mr. Dubler added that it was a difference in what function
AGDC was providing on behalf of the state. He explained
that AGDC and TransCanada were not designing the pipeline,
conducting engineering work, or doing the physical
construction work. He stressed that AGDC was acting as the
owner's representative to ensure the work was done
correctly. The PMT was responsible for managing all of the
contractors and the owners representatives ensured that
everything was done correctly.
Representative Kawasaki referred to recent discussion
related to information on slide 2. He discussed the
relationship between the DNR and DOR commissioners and AGDC
and how the final decision was made. He wondered who was at
the table when the decision was made.
Mr. Dubler asked if Representative Kawasaki was referencing
the last bullet point on slide 2. Representative Kawasaki
replied in the affirmative. He was particularly interested
in the words "in consultation" and wondered if the
commissioners had veto power or if someone at AGDC made the
final decision in the governance agreements.
Mr. Dubler answered that a "decision tree" had not yet been
established. He relayed that AGDC had worked very well with
DOR and DNR. He referenced language on the slide "AGCD may
enter into contracts related to treating, transporting,
liquefying or marketing gas" and noted that they had not
yet gotten to the stage of entering contracts. He detailed
that the negotiations for the contracts were ongoing and
DOR, DNR, DOL, AGDC were all at the table with the producer
parties.
2:46:47 PM
Representative Kawasaki mentioned that the House Resources
Committee had included language in SB 138 prohibiting the
DNR and DOR commissioners from being on the AGDC board. He
asked for verification that his statement was accurate. Mr.
Dubler did not recall which committee had made the change
to SB 138. He believed it had been in the House.
Representative Kawasaki discussed that the AGDC board
appointments were confirmed by a legislative body. He
expressed concern about the possibility of misalignment
between AGDC (where appointees could be from one governor
or spread over a long period) and the state. He wondered if
it had been considered that AGDC and TransCanada would ever
work together under the project in a different capacity.
Mr. Dubler answered that he could not predict what would
happen down the road. He stated that TransCanada was a fine
pipeline company that could be considered if the state was
ever in need. He communicated that there were seven members
on the AGDC board, all serving at the pleasure of the
governor; therefore, if there was misalignment, the
governor would have the ability to fix it.
Representative Kawasaki asked for verification that there
was nothing to prevent TransCanada from being involved in
building a pipeline in the future. Mr. Dubler replied in
the negative.
2:49:19 PM
Representative Gara referred to the statement at the top of
slide 11 "TransCanada is not expected to build the
pipeline..." He believed that many legislators had been
convinced over the years that TransCanada was a good
pipeline building company. He suspected that TransCanada
would be more interested in building a pipeline if it was
an owner. He wondered why AGDC believed TransCanada was not
expected to build the pipeline.
Mr. Richards responded that the statement had been included
due to misunderstandings throughout the dialogue that had
occurred over the past year or so. He furthered that as on
operating company with tens of thousands of pipeline miles,
TransCanada had vast experience. However, TransCanada would
have to contract with a pipeline construction company to be
able to build a pipeline. He elaborated that TransCanada
had the expertise in the operation, design, project and
construction management, but not construction. He noted
that in a Senate Finance Committee the prior session, the
ExxonMobil lead project manager had clearly stated that the
PMT would make the decision on who would build the
pipeline. He added that it had not been defined as
TransCanada.
Mr. Dubler clarified that the testimony Mr. Richards had
referenced had been technically incorrect because the
decision would be made by someone above the PMT.
2:51:26 PM
Representative Gara opined that the state was probably
heading towards a recession and at some point it would
become necessary to find a way to build jobs in Alaska. He
wondered how many people the project may need to hire once
construction began (possibly in 2019).
Mr. Richards responded that there was a conference with the
Department of Labor and Workforce Development the following
day to discuss pipeline construction and craft jobs. He
believed the jobs for construction would be in excess of
10,000 people. He detailed that the jobs would start early
on the material site, access road, and pipeline storage
yard; the number of jobs would peak as the pipe was
delivered and the modules were built and delivered to
facility sites. Once facilities were constructed and work
winded down to operations, the number of jobs would be
closer to 1,000. He offered to follow up with additional
information.
Representative Gara was happy with the answer.
Mr. Dubler added that AGDC had been pushing for local-hire
since day one of the project planning. He relayed that AGDC
had asked for residency when looking at filling positions,
which he believed the producers were beginning to
recognize. He stressed the importance of jobs for Alaskans.
The corporation did not want to see a large number of the
jobs go to individuals from out of state. He believed it
had been a bad example in TAPS when workers from the Lower
48 had worked, trashed the place, and left.
2:55:24 PM
Representative Edgmon referred to slide 14 and observed
that AGDC was already taking on a role previously performed
by TransCanada in preparation for the termination of
TransCanada's interest in the project. He assumed the AGDC
board had made the decision. He wondered if the decision
was made in concert with, or subordinate to, the decision
making by the AKLNG integrated state gas team.
Mr. Richards asked for clarification. He wondered if the
question was about nominating AGDC employees into the PMT.
Representative Edgmon explained that DNR had told the
legislature that the decision to terminate TransCanada's
ownership was a decision that should be made with the
consent of the legislature. He pointed out that based on
the information on slide 14, the future termination of
TransCanada had already been set in motion. He wondered if
the decision to take on one of TransCanada's roles had been
made at the AGDC board level, by the governor, or the
integrated state gas team.
Mr. Richards answered that the purpose of the slide was to
demonstrate AGDC's ability to assume roles currently held
by TransCanada. He explained that the example used in the
presentation was related to assuming a role that
TransCanada held in discussions with the co-venture
(specifically in terms of the NEPA process). He clarified
that the decision to terminate TransCanada had not been
made by AGDC; the point was that if the decision was made
and executed, AGDC would have the ability to fulfill the
roles.
Mr. Dubler added that AGDC had been working to find the
right person to put into the project team. He noted that
AGDC and the co-venture partners would like AGDC to have
some employees on the project team. He explained that the
opportunity had arisen and AGDC had a qualified person for
the position; the action could have taken place with or
without TransCanada's involvement in the project.
2:58:54 PM
Representative Edgmon wanted to better understand the level
of command and how it flowed down from the governor. He
pointed to an organizational chart titled "State of Alaska
AKLNG Integrated State Gas Team" (copy on file), and
observed that the AKLNG integrated state gas management
team was represented by the AGDC CEO. He wondered if AGDC
was subservient or subordinate to the integrated gas team
in terms of decision making. He wondered how AGDC and the
integrated team interacted.
Mr. Dubler stated that the AGDC had regular meetings with
the state gas team. He explained that a decision to place
one of its employees in a role previously held by
TransCanada would not go to the state gas team. He
elaborated that AGDC was an independent corporation with an
independent board, which made decisions impacting the
corporation. He did not know whether the decisions were
influenced by the governor or other people and he did not
believe the governor and others held meetings on the
issues. He explained that the decision to place an AGDC
employee in the role [coordinating the FERC NEPA process
(slide 14)] did not go to the AGDC board; it had been
discussed with the AGDC president and CEO.
Representative Edgmon thought the AGDC CEO may be the
appropriate person to address his questions. He did not
understand how the state's AKLNG team interacted with AGDC
from a strategic, policy, or decision making perspective.
He was interested in the bigger picture perspective and did
not believe he was getting the response he was seeking.
Mr. Dubler noted that Mr. Fauske was available via
teleconference.
3:01:39 PM
Co-Chair Neuman referred to slide 6. He referenced
testimony that it would be beneficial for the state to have
a seat at the table to replace TransCanada. He wondered if
AGDC, DOR, or DNR would take the sponsors group voting
seat.
Mr. Dubler replied that the voting in the venture was
currently fairly complicated. He explained that the voting
in general was based on the ownership of each of the
partners. Currently the state's 25 percent partnership was
split in two between TransCanada and AGDC. He furthered
that determining how to treat the state's vote had been a
problem since the beginning (i.e. did the state get one
vote for its 25 percent; did TransCanada and AGDC each get
12.5 percent; or did AGDC and TransCanada each get 25
percent). He reiterated determining how the voting worked
had been difficult and had not yet been resolved. He
relayed that the issue would be resolved if TransCanada was
bought out of the venture.
Co-Chair Neuman asked wondered which party would be
responsible for engineering and commercial work behind any
future expansion if TransCanada was not involved in the
project. He asked who would accommodate the gas not owned
by the producers.
Mr. Dubler explained that the future expansions would take
place after the project had been sanctioned, built, and
reached full capacity and commercial production. At that
point there would be a company running the pipeline,
similar to the Alyeska Pipeline Service Company in charge
of TAPS. He furthered that the company running the pipeline
would do the expansion, which would include soliciting for
an engineering contract for the expansion design, a
procurement project to purchase the appropriate kit, and a
contractor to perform the expansion work. He relayed that
it would not be TransCanada, AGDC, or ExxonMobil. He
reiterated that it would be the company running the
pipeline.
3:04:19 PM
Co-Chair Neuman asked for verification that the company
would have complete autonomy from the state,
administration, and politics. Mr. Dubler agreed, but noted
the exception of AGDC's 25 percent ownership and any
potential involvement it would have as a result of its
ownership.
Co-Chair Neuman remarked that AGDC board members were
appointed by the governor. Mr. Dubler replied in the
affirmative.
Representative Edgmon restated his prior question about how
AGDC fit into the overall decision making hierarchy. He
observed that it appeared AGDC's role was somewhat
subordinate to the state gas team.
Mr. Dubler replied that AGDC had received the
organizational chart the prior day and he had not had a
chance to review the document in detail.
Representative Edgmon directed his prior question to Mr.
Fauske. Mr. Fauske answered that he had also just seen the
organizational chart for the first time. He believed the
chart may be somewhat misleading. He explained that the
AGDC board was an independent organization and the AKLNG
team had been good about coordinating with AGDC on issues
that were relevant to the board or that required a board
decision. He was careful to point out that any usurpation
of the board's authority had been questioned. He furthered
that how the issue would take place going forward. He
reiterated that the board was autonomous. He detailed that
the board met on a regular basis and received reports from
the state, Mr. Boykin and Mr. Krusen (some of the material
was confidential). Additionally, AGDC received updates at
an upper management level on how the projects were
proceeding and on how its roles were proceeding. He
explained that functions that fell under AGDC's domain and
how things were done currently, involved the state's 25
percent share in the liquefaction. He stressed that from a
managerial perspective AGDC's involvement in the midstream
had been minimal (the role was currently held by
TransCanada on the state's behalf). However, AGDC worked
with TransCanada constantly. He detailed that there were
frequent meetings with the parties including DNR.
Mr. Fauske relayed that he was quick to remind people that
he had a board of directors and that any issues involving
AGDC were required to go to the board. He informed the
board about on upcoming activities and discussions on votes
for the work plan and budget. He was quick to get the
board's vote on matters. He explained that AGDC worked to
coordinate with the state as well as possible; DNR had a
large function with many employees working primarily on the
midstream, upstream, gas balancing, and a variety of issues
under its regulatory domain that AGDC was not involved with
(the issues affected AGDC because of its desire for a
successful outcome). He noted that the decisions involving
DNR were outside of AGDC's jurisdiction. Likewise, AGDC was
not involved directly with issues pertaining to payments in
lieu of taxes (PILT) and other taxes and issues under DOR.
He addressed work requested through DOL to associate or
assist the project; there was a separate line item for AGDC
for legal work on its level. He detailed that information
about legal work pertaining to AGDC was supplied to the
board. He reiterated that AGDC functioned as an autonomous
unit. He agreed that there were difficulties at times
related to "who's on first," "who's jurisdiction are we
dealing with," and who was the best to take on a particular
function. He elaborated that the items were all a part of
the process of determining solutions to the best way to
move forward. He summarized that AGDC was autonomous,
created under state law, and had a board of directors that
was heavily engaged and active in the process.
3:10:34 PM
Representative Edgmon relayed that Mr. Fauske had answered
a large part of his question. He surmised that the
discussions to terminate TransCanada had taken place at the
state gas team level.
Mr. Fauske replied in the affirmative. He remarked that the
decision did affect AGDC, but it was the responsibility of
the state. He explained that the TransCanada contract was
with DNR, not AGDC. The corporation had been tasked with
analyzing and determining AGDC's ability to take on the
role [currently performed by TransCanada]. He furthered
that the intention of the legislation was for the
responsibilities to roll into AGDC based on legislative
approval and appropriation. He stressed that the final
determination would not be made by AGDC or its board. He
stated that the board could get active if budget hearings
determined that taking on the new role was or was not a
good thing for AGDC to take on. There would be careful
scrutiny and discussions with the board about how the
action would affect the board and the board's role going
forward. He reiterated that the final determination on the
contract would not be made by AGDC or its board.
Representative Edgmon asked in the absence of TransCanada,
which party would prevail in the event of a disagreement
between the AGDC board the state gas team. Mr. Fauske
replied that part of the problem with the governance is
that TransCanada was voting on part of the issues and the
state was voting on the other part. He deferred to Mr.
Dubler for further information.
Mr. Dubler replied that if the state gas team was in favor
of "x" and the AGDC board was in favor of "y," he would
vote "y" on the management committee. He elaborated that
the board of directors managed AGDC and its assets. He
reported to and took direction from the AGDC board. He
added that the statutory intent was very clear.
Mr. Fauske pointed out that there had been numerous
occasions on the sponsors' group level where he had
communicated the need to take the issue to the AGDC board
prior to taking action. He noted that many other
representatives on the sponsors group also had boards of
directors that governed decisions of the sponsors group,
steering committee, and the management committee.
3:15:45 PM
Co-Chair Neuman remarked on Mr. Fauske's testimony that
AGDC was supposed to be a completely autonomous
organization outside of state government. He asked if the
administration attempted or had any influence on the AGDC
board.
Mr. Fauske answered that the governor was responsible for
appointing the board members who were then approved by the
legislature. He relayed that there had not been any bad
influence. He added that sometimes it was necessary to
remind people of the board process especially when efforts
were being made to expedite something. He believed Governor
Walker had been up front and honest in his dealings with
the board. He did not believe outside interference had been
a problem to date. He shared that AGDC was coordinating
with the management to try to have a cohesive unit and team
concept going forward.
Co-Chair Neuman believed that many legislators wanted
assurances that AGDC's authority and power would be fully
autonomous from any administration. He provided examples of
other fully autonomous agencies such as the Alaska
Permanent Fund Corporation, Alaska Railroad Corporation,
and Alaska Industrial Development and Export Authority.
Mr. Fauske responded that the agencies were autonomous, but
they were state-owned; therefore, there was naturally some
interaction with the state. For example, two of the AGDC
board members were current state commissioners. He detailed
that by law the corporation was under the Executive Budget
Act; the Alaska Railroad Corporation was the only state
corporation that was not. He agreed that AGDC needed to act
independently, which was the intent of the legislature;
however, he did not want to misrepresent how the agency
worked by saying that it was fully independent. He
explained that there were certainly tie-ins to the
administration and to the legislators as the appropriating
body. To the best of AGDC's ability, it acted in an
independent and fiduciary responsible manner; it was the
duty of the board and the AGDC president to ensure that
AGDC did not become engaged in decisions that were harmful
to the board. He stressed that if AGDC got into issuing
debt in the future, the board activity and independence
would become particularly important.
3:19:55 PM
Co-Chair Neuman wanted some clarification on governance. He
referred to slide 6 and wondered who would take
TransCanada's seat at the table on the project steering
committee, management committee, and sponsors group.
Mr. Dubler answered that AGDC would absorb TransCanada's
former percentage, which would bring AGDC up to 25 percent.
He detailed that AGDC would not be replacing TransCanada;
the corporation already had representatives on each of the
committees and its vote would just be a bit larger.
Co-Chair Thompson relayed that he had received a question
via email from former Governor Frank Murkowski. The email
addressed that there were many Alaskans who were not aware
of everything that had been done by TransCanada and the
project. The constituents were interested to know what the
state got from the considerations for funding TransCanada.
Mr. Dubler responded that TransCanada had represented the
state in the project and had done a very good job
representing the state's interest and ensuring that the PMT
performed up to TransCanada's standards. Additionally,
TransCanada had loaned money to the state that the state
would repay with interest.
Co-Chair Thompson surmised that the legislation would
appropriate funds to repay TransCanada for completed work.
Mr. Dubler replied in the affirmative.
3:22:03 PM
Representative Guttenberg discussed that he was concerned
about the pipeline construction jobs, but he believed the
legacy jobs were the most important (jobs that would
provide 30 years of employment related to maintenance and
operations). He stressed that when the existing pipeline
had been built in Alaska there had not been people in place
for to fill the legacy jobs and the nature of the
transition had not been understood. He stated that Alaska
would clearly have the ability to train and put its people
in place if it stressed the importance. He referred to
slide 9 and was disappointed that AGDC had not hired people
with the intent of moving them into PMT positions. He
stressed that the state's representation based on employees
was not anywhere near 25 percent. He reasoned that if the
state did not have a significant say in everything that
happened, by the time completion or the next transition
arrived, it would not be where it should be. He noted that
the committee had recently seen a presentation related to
getting AGDC up to speed and hiring people for the project.
He stressed that the project would be the largest
construction project in the world and he assumed that AGDC
would have people who could have been nominated to be on
all of the governance committees (i.e. engineers and fiscal
staff). He was disappointed that either AGDC had not
nominated staff or that the state did not have qualified
candidates. He felt the state should have more significant
representation on the governance committees than 10 out of
108.
Representative Guttenberg relayed that Alyeska's management
team was made up of owners (BP owned 51 percent and Admiral
Tom Barrett worked as a BP employee). He reiterated his
disappointment that the state's representation on the
governance teams was not more substantial.
Mr. Richards explained when SB 138 had been signed into
law, AGDC had responsibility for the ASAP project and had
been "hard charging" to complete the effort. He detailed
that AGDC had been six months out from completing its Class
3 estimate and the nomination process had been undertaken
to fulfill the needs of the PMT for AKLNG. At the time,
AGDC did not have the LNG expertise internally to identify
and fill any vacant roles even for the LNG portion of the
project; therefore, AGDC had ramped up its capabilities.
Subsequently, AGDC had hired Mr. Krusen who had great LNG
expertise and who currently sat in a very key position on
the project steering committee, overseeing the work of the
PMT and budget decisions. He relayed that AGDC had found
itself with available resources to meet the AKLNG vacancy
needs given its completion of the work on ASAP. He
furthered that there had been no vacancies on the AKLNG PMT
and there had not been a tremendous number of vacancies for
AGDC to fill. He added that AGDC stood ready to serve if
TransCanada vacated the positions. He explained that what
the PMT would look like for the FEED stage of the project
had yet to be determined, but AGDC would be ready and able
to nominate employees to meet the need within the PMT.
Representative Guttenberg was glad to that the state was
still transitioning and hoped the argument would be made.
He referred to the sponsors group on slide 6. He remarked
that AGDC had made a reference to a decision made above the
management and steering committee levels. He wondered if
there was a sponsor or owner group acting as an overall
management of the project.
Mr. Dubler replied that the sponsors group shown on the
left of slide 6 was the overall group responsible for
overseeing the entire project.
Representative Guttenberg asked for verification that
voting was based on percentage of ownership. Mr. Dubler
answered in the affirmative.
3:28:06 PM
Vice-Chair Saddler had been troubled to hear Mr. Dubler's
remark that he may not be employed very long if AGDC voted
in opposition to the desire of the state's integrated gas
team. He thought that the remark spoke to the degree of
autonomy between AGDC and the administration and he had
noted that there had been changes in the AGDC board for far
less reasons. Additionally, he had been troubled that Mr.
Dubler had responded that he did not know who was really in
charge of AGDC because he had not yet seen the
organizational chart. He reasoned that he may have
misunderstood the response and asked for further
explanation. Separately, he had heard discussion about the
complexity of voting rights to the extent that it had been
impossible to have votes taken. He listed his undertanding
of the current ownership percentages and opined that it did
not seem that complicated. He wondered if votes had been
taken under the current voting structure.
Mr. Dubler stressed that the comment he had made about his
job had been a joke. He asked for clarification on Vice-
Chair Saddler's question about the organizational chart.
Vice-Chair Saddler replied that in response to a question
by Representative Edgmon about AGDC leadership, Mr. Dubler
had made a comment that he did not know and had not seen
the organizational chart.
Mr. Dubler answered that AGDC was governed by its seven-
member board of directors. He detailed that the members
were appointed by the governor (two were department
commissioners and five were members at large). He relayed
that Mr. Fauske was currently the AGDC president and all of
the corporation's vice presidents reported to Mr. Fauske.
He stressed that AGDC's organizational chart was very
clear. He noted that his reference to an organizational
chart had been one that he had received the previous day,
which he had not had an opportunity to review in detail. He
addressed the voting process and explained that the project
was basically split into two parts. He elaborated that
TransCanada had the midstream portion (GTP and pipeline)
and AGDC had the downstream portion (LNG, marine, and
terminal). He stated that issues would arise that affect
one or the other of the two project components. He detailed
that if a vote was strictly related to the pipeline, AGDC
would not have a right to vote as it had no ownership in
the pipeline. However, there were other issues that may
affect the entire project, which brought up the question
about who voted the state's 25 percent interest.
3:31:37 PM
Vice-Chair Saddler replied that he did not quite understand
because he believed the proportional voting power was
outlined fairly clearly. He believed the responsibility for
each of the parties was fairly clearly delineated. He asked
if Mr. Dubler had stated that no votes had been taken under
the current structure.
Mr. Dubler clarified that he had stated he did not believe
there had been any segment reports that only affect one
part. He explained that he may not see a vote that impacted
the midstream because AGDC was not involved with the
midstream. He relayed that the conversation was treading on
thin ice about how the joint venture agreement worked. He
noted that he had to be careful about what he said. He
stated that there had been votes that were along the entire
project. The only time a problem arose was if AGDC's
position was different than TransCanada's position on a
vote that impacted the entire project. He explained that
the project did not want to deal with the state fighting
amongst itself; the project viewed TransCanada and AGDC as
the state party. He agreed that it was the state's problem,
which the administration was working to fix with the
TransCanada buyout.
Co-Chair Neuman noted that the committee had to move on
from the conversation.
Vice-Chair Saddler clarified that he needed further
understanding of the voting structure, given it had been
specified as one of the important reasons why TransCanada
should be out of the project.
Mr. Dubler offered to discuss the questions further at a
later time.
3:33:28 PM
Representative Gattis asked about the LNG experience of Mr.
Boykin, Mr. Dubler, and Mr. Fauske. She wondered where the
state's attorney general fell within the organizational
chart. She asked if all members of the sponsors group were
up to speed or if some were lagging behind schedule.
Mr. Dubler responded that the sponsors group was comprised
of very high-level executives from large, successful
corporations. Based on his experience, none of the
individuals had been lagging whatsoever. He detailed that
the individuals were always on top of matters and
understood the project; the individuals had projects going
worldwide and the AKLNG project was not "their first
rodeo." He pointed to the attorney general's position as
the head of DOL shown on the top left portion of the
organizational chart. Lastly, he had not seen Mr. Boykin's
resume and could not speak to his LNG experience. He had
heard Mr. Boykin testify the previous day that he did not
have LNG experience, but Mr. Dubler specified that he did
not know that for a fact. He relayed that he personally had
no LNG experience. He elaborated that he had started with
AGDC when the organization had been formed in 2010 and had
worked on the ASAP project for five years and the AKLNG
project for two years. He communicated that Mr. Fauske had
worked for AGDC for the same time period.
3:36:18 PM
Co-Chair Neuman addressed the organizational chart that had
been provided by the administration. He observed that under
Governor Walker's position at the top of the chart there
was a solid line leading to the left [towards DNR, DOR, and
DOL] and a dotted line leading to the right [towards AGDC].
He wondered if the dotted line was meant to indicate a
separation of authorities. He asked for clarification.
Mr. Dubler replied that he would follow up with the
information.
Representative Pruitt noted that one argument for keeping
TransCanada in the project was due to its experience. He
asked about the breadth of experience of AGDC's employees.
He wondered if there were people within the corporation who
had experience with LNG.
Mr. Dubler replied in the affirmative. He detailed that
AGDC had hired Mr. Krusen, a 36-year veteran at
ConocoPhillips who had run its Kenai LNG plant and
worldwide LNG engineering effort.
Mr. Richards added that AGDC employed subject matter
experts with LNG experience. He detailed that industry
individuals had elected to work under contract with the
corporation and were available at any time.
Representative Pruitt asked if AGDC's experience was on par
with or greater than that of the current TransCanada team.
Mr. Richards stated that between the employees working for
AGDC the corporation had centuries of experience to draw
from related to Arctic-based large projects, pipeline-based
projects, gas treatment processing, and LNG.
Representative Pruitt asked for verification that AGDC felt
confident that the state had individuals who would
potentially make it through the nomination process to fill
vacancies in the current PMT and into FEED if TransCanada
left the project.
Mr. Dubler explained that the project team had approached
AGDC about Mr. Richards taking a position that had been
open because the team had been interested in getting AGDC
secondees into the project. He stated that the project team
was keen on having all of the parties represented (not
necessarily based on the exact percentage of ownership). To
the extent that AGDC had available and qualified employees,
he did not believe it would be a problem getting them
seconded into the project. He stressed that AGDC would not
nominate a sub-par person for a vacant position. He
emphasized that AGDC wanted the best people to build the
project.
3:40:22 PM
Representative Pruitt asked if the state would still be in
a good place to ensure that it would have a positive
outcome on the overall project if it only had a few
representatives on the PMT. Mr. Dubler answered that the
governance structure outlined on slide 6 would provide the
assurance. He explained that the state had decision makers
on every one of the governance committees overseeing the
entire project.
Co-Chair Neuman noted that the committee had received a DOL
memorandum stating that AGDC had the legal authority to
acquire TransCanada's interest [DOL memorandum dated
October 26, 2015 (copy on file)]. He asked if the
testifiers believed differently.
Mr. Dubler replied that neither he nor Mr. Richards were
attorneys and he recommended relying on the letter from the
attorney general that was very clear AGDC had the authority
to acquire TransCanada's interest.
HB 3001 was HEARD and HELD in committee for further
consideration.
Co-Chair Neuman discussed the agenda for the following day.
ADJOURNMENT
3:42:16 PM
The meeting was adjourned at 3:42 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AKLNG Integrated State Gas Team Org Chart.FINAL.pdf |
HFIN 10/27/2015 1:30:00 PM |
HB3001 |
| HB 3001 2015 10 27 AGDC H Finance Committee.pdf |
HFIN 10/27/2015 1:30:00 PM |
HB3001 |
| HB 3001 Memorandum on AGDC Authority 10 26 15.pdf |
HFIN 10/27/2015 1:30:00 PM |
HB3001 |
| HB 3001 TransCanada_Right to Terminate and Effect of Termination v2.pdf |
HFIN 10/27/2015 1:30:00 PM |
HB3001 |
| 10.25.15 HB 3001 FY2016 Supplemental Request for State Agencies.pdf |
HFIN 10/27/2015 1:30:00 PM |
HB3001 |