Legislature(2015 - 2016)HOUSE FINANCE 519
10/28/2015 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB3001 | |
| Presentation: Transcanada | |
| 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 28, 2015
1:34 p.m.
1:34:17 PM
CALL TO ORDER
Co-Chair Neuman called the House Finance Committee meeting
to order at 1:34 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
Vincent Lee, Director, Major Projects Development, TC;
Representative Benjamin Nageak, Representative Dave
Talerico, Representative Andy Josephson, Representative Bob
Herron, Representative Shelley Hughes, Representative Sam
Kito III, Representative Liz Vazquez, Representative Adam
Wool, Representative Neil Foster, Representative Geran
Tarr, Representative Jim Colver, Representative Kurt Olson,
Representative Dan Ortiz, Speaker Mike Chenault,
Representative Gabriel LeDoux, Representative Matt Claman,
Representative Lora Reinbold, Representative Louise Stutes,
Senator Peter Micciche, Senator Pete Kelly.
SUMMARY
HB 3001 APPROP: LNG PROJECT & FUND/AGDC/SUPP.
HB 3001 was HEARD and HELD in committee for
further consideration.
PRESENTATION: TRANSCANADA
Co-Chair Neuman reviewed the agenda for the day. He
relayed that the Director of the major projects of TC
1:35:36 PM
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.
1:35:36 PM
^PRESENTATION: TRANSCANADA
1:35:36 PM
VINCENT LEE, DIRECTOR, MAJOR PROJECTS DEVELOPMENT,
TRANSCANADA (TC), explained that the Memorandum of
Understanding (MOU) was established in 2013, and the
materials were formalized in June 2014. He shared that TC
agreed with the recommendation of termination of the
agreement between the state and TC. He announced that TC no
longer felt the project was feasible for the company. He
stated that TC wanted to work with the state to transition
smoothly as possible. He believed the buyout of TC was in
the best interest of all participants.
Vice-Chair Saddler queried further detail of TC's
involvement in the project.
Mr. Lee explained that the relationship between TC and the
state began in the late 1970s to develop a transportation
system to monetize Alaska gas. He stated that there were a
number of North American pipeline companies who had
partnered with the state and TC at that time to develop a
gas transportation system. That effort ended in the mid-
1980s, because of the fundamental market changes in North
America. He shared that there had been evaluations of
different configurations, such as liquid natural gas (LNG).
As recent as 2004, TC actively reengaged in the project. He
stated that TC had negotiated a term sheet with the state
administration, and had evolved over time under the Alaska
Gasline Inducement Act (AGIA). He shared that TC was
granted the license in late 2008, and were the AGIA
licensee. He shared that TC had worked jointly on the
project until 2003 [at 1:41:48, he clarified that he meant
2013], as a result of the significant derailment in the
Lower 48. He stated that TC had partnered with
ConocoPhilips and BP on the current LNG effort.
1:41:48 PM
Vice-Chair Saddler wonder if he meant 2013. Mr. Lee replied
in the affirmative.
Vice-Chair Saddler asked when the administration had
indicated that TC be released.
Mr. Lee responded that TC had heard of late May or early
June. It was expressed that the administration's desire was
to buyout TC.
Vice-Chair Saddler wondered if the reference was the
"amended plan."
Mr. Lee indicated that he referred to the amended plan, the
idea was that it incorporated an exit plan with the
smoothest transition and exit plan.
Co-Chair Neuman asked why December 4, 2015 was the date of
departure.
Mr. Lee indicated that the date had to do with budgeting
for the following year.
Vice-Chair Saddler wondered whether the state was operating
on the amended plan.
Mr. Lee responded that the amended plan had not been
executed. He stated that TC was operating under the
existing plan. He stressed that there was a plan to
continue to work with the administration to develop a
purchase and sales agreement, which would provide the
framework for TC to convey its interest the project to the
administration; in return, the state would pay the TC
incurred costs to date.
1:47:26 PM
Co-Chair Neuman wondered if TC would opt out of the
project, should the state decide to no buy out the portion.
Mr. Lee suggested that the TC had that right to opt out of
the project, and would consider it an option.
Co-Chair Thompson asked if state had the right to vote on
December 4, should the legislature adopt the legislation.
Mr. Lee replied that the state must pay TC in full, then TC
would waive its full interest to the state.
Co-Chair Thompson announced that TC must be paid in full,
in order for the state to receive its voting right.
Mr. Lee replied in the affirmative.
Representative Pruitt asked Mr. Lee to remind the committee
of TC's experience and investments.
Mr. Lee indicated that the majority of TC's investments
were within North America. He stated that TC had three
major businesses: natural gas pipeline business; liquids
pipeline business; and an energy business specifically
related to primary power generation facilities in the
United States, Canada, and Mexico. He stated that TC had
some investments in South America, as a result of the
involvement in international investment. A significant
portion of those investments had been divested in the early
2000s. He announced that TC had approximately 68,000
kilometers of pipe across North America. He shared that TC
had approximately 11,000 megawatts in power generation
facilities. He stressed that TC had substantial expertise
in developing pipeline and energy projects. The market
capitalization was in the range of roughly $35 billion.
Representative Pruitt wondered if the AKLNG was a viable
project.
Mr. Lee replied that TC's involvement in AKLNG was in the
midstream portion, which was the gas treatment plant and
the pipeline. He stated that TC had significant expertise
in the pipeline and gas treatment plant.
1:53:28 PM
Representative Pruitt wondered if the project was
considered viable.
Mr. Lee answered in the affirmative, and stated that TC
believed the project had a significant amount of potential.
He shared that TC was removing itself in order not to
impede the project.
Representative Pruitt wondered whether TC could profit from
the project. He expressed concern about the state's ability
to create an environment to push TC aside. He queried
Alaska's expertise to fill the void left by TC.
Mr. Lee replied that the project was fundamentally good. He
stated that the current administration had a different take
on the state's role in the project. He opined that the
administration thought the state would have more influence
on the project without TC. He claimed he was not as
knowledgeable about some of the people involved in the
project and state's ability to manage the project.
1:58:21 PM
Representative Pruitt relayed that Mr. Lee had explained
that TC had a layer of expertise in building a gas line. He
wanted to know if TC believed the state had the expertise
to step into the role TC had played thus far.
Mr. Lee informed the committee that TC was not a pipeline
builder. The state of Alaska will gain experience over
time. Meanwhile, there were some voids that must be filled,
and encouraged the state to fill those positions
accordingly.
Co-Chair Neuman relayed there would be future testimony and
presentations that would outline the state's qualifications
further. He wondered how the project development team would
work together to ensure that the lowest prices for the cost
of development would result in the best decisions.
Mr. Lee responded that the project management team was a
collection of experts from the various participants in the
project. He shared that the technical team provided key
participants. He remarked that the key to profit
maximization included ensuring that the costs were as low
as possible. He stressed that the stopgap between the three
producers would likely relate to ensuring that the cost of
the project was as low and reasonable as possible. He
shared that the project team was adequate ensuring proper
cost management. The project team had evaluated different
risks for various elements of the project, but remarked
that there would be continued refinements as the project
moved forward into the FEED and construction phases.
2:04:36 PM
Representative Kawasaki wondered if the "break up" with TC
was a mutual decision.
Mr. Lee suggested it was closer to a mutual resolution. He
noted the importance of having an alignment. He indicated
that the two entities were less aligned than before.
Representative Kawasaki wondered if commissioner would not
sign off on the buyout should the conditions not be
favorable to the state.
Mr. Lee was trying to better understand Representative
Kawasaki's question. He relayed that TC would consider
seriously terminating if the state did not.
Representative Kawasaki remarked that TC had supported the
governor's decision to buyout TC's portion of the project.
He asked for further information about that position.
Mr. Lee replied that it was not commercially reasonable for
TC to remain in the project.
Co-Chair Neuman wondered if TC would rejoin the project,
should the producers decide to not participate in the
project while allowing their gas to be sold at commercially
reasonable rates.
Mr. Lee responded that TC must be given all the facts at
that time, before any decision could be made. He felt that
it was premature to offer a response to that inquiry.
2:10:12 PM
Representative Gara understood that TC's main objective was
to make a profit. He believed TC's people were always
"straight shooters." He spoke of many legislators to buy
out TC's interest. He asked that if the state opted to
buyout TC it would have to pay an additional interest of 7
percent.
Representative Gara clarified that TC was not a builder but
an owner and developer.
Mr. Lee indicated that he was correct.
Representative Gara asked if TC would choose to stay with
the project under different circumstances.
Mr. Lee felt that more information and research would be
required before he could respond to that question.
Representative Gara wondered if the project was feasible.
Mr. Lee agreed that if TC owned 100 percent interest in the
project the project would be viable.
Representative Gara noted that 95 percent of the project
costs would be in the construction phase. He noted that the
cost would not be spent until there was a seller of gas, a
committed buyer of the gas, and a facts that ensured that
the price of gas makes the project feasible.
Mr. Lee replied that a pipeline service provider required,
first, a firm transportation service agreement from a
credit worthy party. He stressed that the pipeline did not
own nor sell the gas.
Representative Gara wondered if TC would invest in the
construction without the three listed requirements.
Mr. Lee replied in the affirmative.
2:16:58 PM
Representative Munoz asked about the FTSA, and whether DNR
had indicated a firm transportation agreement was about two
weeks out. She wondered if Mr. Lee agreed with that
schedule.
Mr. Lee thought that two weeks was an aggressive timeframe.
He stressed that the FTSA was significant, and required
completed areas. He stressed that it would probably take
longer than two weeks to complete.
Representative Munoz asked if TC's ability and goals were
encroached upon and at what point TC was aware of the
buyout.
Mr. Lee indicated TC became aware of a potential buyout in
May or June of 2015. He did feel that communication began
to inhibit TC's ability to operate fully on future
agreement negotiations.
Representative Munoz wondered where TC's interest would
lie, specifically in AGDC or DNR.
Mr. Lee relayed that his impression would most likely go to
AGDC, however DNR would have to designate that authority.
2:21:29 PM
Representative Munoz queried the next steps and TC's exit
strategy.
Mr. Lee mentioned putting in to place a purchase and sales
agreement. He believed that the termination agreement could
be executed within a short period of time.
Representative Munoz queried any advice to the state with
the full 25 percent interest.
Mr. Lee He discussed that all such projects took time and
focusing on the long-term goal was very important, and
stressed that TC believed the project was a good project.
Co-Chair Neuman wondered how the world would see Alaska as
a player in resource development, should the project not
move forward.
Mr. Lee responded that the project was very important to
the state, because it would monetize the available gas. The
project would also signal a positive business environment
in Alaska. He opined that more people would look for
resources in the state.
2:26:35 PM
Representative Edgmon wondered whether the decision had
been made that TC would exit the project.
Mr. Lee responded in the affirmative.
Representative Edgmon asked if there was a chance that the
line did not get built based on commodity prices of oil.
Mr. Lee stated that he thought it was a typical cycle. He
recommended staying focused on the long term due to price
equilibrium.
2:28:43 PM
Representative Edgmon asked how the rest of the world would
treat the exit of TC in the project versus TC voluntarily
exiting down the road.
Mr. Lee responded that he could not offer an opinion as to
how the other companies would respond to the exit. He
stressed that TC's exit from the project was a mutual
decision with the state. He remarked that TC understood the
concern and the position of the administration.
Representative Edgmon asked about his thoughts about the
state of Alaska being a general partner rather than a
limited partner. He queried the value of the voting rights.
Mr. Lee believed voting rights should be commiserate with
one's investment. The arrangement of the previous
administration was viable. He felt the necessary to have
the voting rights to be able to invest. The current
administration wanted a direct say in the vote. He stressed
that if TC was the party with the money it should have the
vote.
Representative Edgmon felt that the committee was operating
in the context of the aftermath.
2:34:42 PM
Representative Gattis mentioned exit strategies and plans.
She stated that the purchase and sales agreement that would
define the exit.
Co-Chair Thompson interjected, "amended plan."
Representative Gattis wondered how the state should move
forward to protect itself, and ensure that the proper
employees were in place in the process.
Mr. Lee reported that the amended precedent agreement was
"shelved." He reported that TC had worked with the
administration on the agreement for the previous few
months. The draft agreement did not work out between the
state and TC, assuming that the legislation would get
passed. The amended precedent agreement was an outline of
how the exit would happen. A sales and purchase agreement
would still have to be executed.
Representative Gattis summarized that the amended agreement
was no longer necessary because it would be replaced with a
purchase and sales agreement.
Mr. Lee agreed.
Co-Chair Thompson wondered if TC would allow its project
secondees to stay with the project during the transition
process.
Mr. Lee replied in the affirmative, and explained that the
seconded employees would stay with the project until the
end of May 2016
Co-Chair Thompson asked how many employees would be
seconded.
Mr. Lee replied that there would be 15 seconded employees.
2:40:04 PM
Representative Guttenberg noted that TC had assumed that
they would be terminated from the project since around May
2015. He noted that the FTSA would take longer than two
weeks, so he wondered what the meeting in December would be
like if the voting was not clear.
Mr. Lee stated that it would be a very difficult meeting.
He felt that it would put the project at risk, and would
have a significant impact of the project. There would be
now authorization for work, and a significant set-back to
the project. He stressed that there would be no
authorization for spending beyond December 31, 2015. He
announced that TC had been trying to emphasize the
importance of finalizing a buyout prior to December 4th so
that the state could have its full vote.
Co-Chair Thompson asked if TC to approve the budget without
the buyout taking place.
Mr. Lee replied that TC would likely not approve a budget
in that circumstance.
Representative Guttenberg expressed frustration that the
state may not be able to defend itself.
2:45:02 PM
Representative Wilson wondered if TC would have been
responsible for any of Alaska's share of gas in the
pipeline.
Mr. Lee responded that it was the state's responsibility to
locate a buyer for the gas.
Representative Wilson wondered why TC did not exit the
project on its own.
Mr. Lee stated that in May or June of 2015 the state had
indicated its desire to buyout TC, so TC wanted to work
cooperatively in transitioning with a buyout.
Representative Wilson asked if he felt the project was
slowed down due to the recent events.
Mr. Lee relayed that he did not believe the project was
slowed down in Pre-FEED.
Representative Wilson commented about the significance of
TC moving the project forward even though TC knew about its
probable exit.
Co-Chair Neuman noted that there would be secondees from TC
that would assist in the transition. He queried the process
for the transition with the seconded employees.
Mr. Lee replied that 15 secondees would remain on the
project, in order to ensure a smoother transition project.
2:50:42 PM
Vice-Chair Saddler wondered who had made the decision to
"shelf" the amended precedent agreement, and whether there
a related policy decision that affected the agreement.
Mr. Lee replied that the amended precedent agreement was an
attempt to map out the process for TC's exit from the
project. He stated that it was not the same as a purchase
and sales agreement, which would still be required for the
transaction. The amended precedent agreement evolved with
the communication from the state to terminate the
relationship with TC, followed by an appropriation request
to the legislature. He shared that, toward the end of those
discussions the administration had determined that the
proper process would be to "shelf" the draft agreement.
Vice-Chair Saddler did not see the difference between a
pursued process and an abandoned process.
Mr. Lee explained that the difference between the APS was
that the administration would issue the termination.
Vice-Chair Saddler commented that he had become aware of
the formation of two subsidiaries within AGDC, and queried
the effect of them on TC.
Mr. Lee had no idea of the subsidiaries and had nothing to
do with them.
2:54:32 PM
Vice-Chair Saddler wondered why TC wanted to keep the
precedent agreement confidential.
Mr. Lee replied that the precedent agreement was
traditionally confidential in the commercial world. He
remarked that TC did not want to overly expose what was
included in the precedent agreement before the negotiations
were complete on the firm transportations services
agreement. He understood that there would not be a firm
transportation agreement in the near future.
Vice-Chair Saddler surmised that TC was removed from the
terms of operation, therefore the precedent agreement had
less effect.
Mr. Lee agreed.
Vice-Chair Saddler queried the lines of authority on the
state's side of the project.
Mr. Lee replied that TC was currently working with the
commissioner of DNR in the termination project. The
commissioner had the authority to terminate the
relationship with TC.
2:57:54 PM
Co-Chair Neuman queried the lead negotiator between the
state and TC. Mr. Lee clarified that the point of contact
had changed. He expressed that they had worked with the
deputy commissioner of DOR on a variety of issues, and
furthered that it was dependent upon the topic that was
being discussed.
Vice-Chair Saddler asked if there had been votes taken to
date in which the state and TC had aligned interests. Mr.
Lee replied that there were votes at the management
committee, and asserted that TC and the state always voted
with the interest of the state.
Vice-Chair Saddler referred to governance agreements, and
inquired about the status of the development of the
agreements. Mr. Lee relayed that the development was going
well but was not yet finalized. He stated that TC had some
significant issues with the current model.
Vice-Chair Saddler queried the parties negotiating the
governing agreements. Mr. Lee replied that all three
producers, TC, AGDC, and the state administration were
negotiating the governing agreements.
Vice-Chair Saddler asked who had taken the state's
negotiating position. Mr. Lee replied that Mr. Boykin was
the chief negotiator.
3:02:07 PM
Representative Gara expressed concern regarding Alaska
assuming a great level of risk by selling the gas.
Co-Chair Neuman shared that there was an updated version of
SB 138, and the expectation of some changes to that former
legislation.
Representative Gara discussed known quantities of gas on
the North Slope and wondered if Mr. Lee could comment on
how to factor known and unknown reserves into the goal of
selling the greatest amount of gas.
Mr. Lee referred to the discussed the additional risk
involved in moving forward with a 48-inch pipe. He
considered that there was much information yet to discover
in order to formulate a decision.
3:07:00 PM
Co-Chair Neuman asked if the state was at the point at
which it could make an informed decision as to the pipe
size, and whether there enough information to make the
decision. Mr. Lee did not believe that there was not enough
current information to make that decision.
Representative Munoz queried the practicality of the
withdrawal agreements, and whether those agreements helped
or hindered the progress on a project. Mr. Lee reminded the
committee that TC was not an oil and gas company. He
suggested that the experts may be better equipped to
respond to the query.
3:09:51 PM
Vice-Chair Saddler queried who would replace TC's role as a
financier for the midstream.
Mr. Lee replied that he did not know who would replace the
financier. He suggested that there was person to stand as
the financier.
Vice-Chair Saddler wondered if there were changes in the
market that the state should keep in mind in the future
market place.
Mr. Lee relayed felt supply and demand was most important.
Co-Chair Neuman asked if Alaska's gas was different that
globally.
Mr. Lee suggested that as a commodity gas it was the same.
He explained that Alaska gas had an advantage, because it
was closer to the Asian market. He furthered that that the
AKLNG project had strong sponsors in the three major oil
and gas producers.
Co-Chair Neuman discussed committee business.
HB 3001 was HEARD and HELD in committee for further
consideration.
Co-Chair Neuman reviewed the agenda for the following day.
ADJOURNMENT
3:15:36 PM
The meeting was adjourned at 3:15 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 3001 10.28.15 Rigdon Boykin MSA Amendment 02 EXECUTED (1).PDF |
HFIN 10/28/2015 1:30:00 PM |
HB3001 |
| HB 3001 10.28.15 Rigdon Boykin MSA Amendment 02 EXECUTED (2).pdf |
HFIN 10/28/2015 1:30:00 PM |
HB3001 |
| HB 3001 10.28.15 Rigdon Boykin MSA Amendment 02 EXECUTED (3).PDF |
HFIN 10/28/2015 1:30:00 PM |
HB3001 |
| HB 3001 10.28.15 Rigdon Boykin MSA Amendment 02 EXECUTED (4).pdf |
HFIN 10/28/2015 1:30:00 PM |
HB3001 |
| HB 3001 Responses 10.28.15 Rep. Neuman Questions - Answers.pdf |
HFIN 10/28/2015 1:30:00 PM |
HB3001 |