Legislature(2015 - 2016)HOUSE FINANCE 519
10/31/2015 10:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB3001 | |
| Transcanada and Pre-feed Supplemental Appropriations Summary | |
| 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 31, 2015
10:06 a.m.
10:06:15 AM
CALL TO ORDER
Co-Chair Neuman called the House Finance Committee meeting
to order at 10:06 a.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
Pat Pitney, Director, Office of Management and Budget,
Office of the Governor; Marty Rutherford, Deputy
Commissioner, Department of Natural Resources; Mark Myers,
Commissioner, Department of Natural Resources;
Representative Dave Talerico; Representative Shelley
Hughes; Representative Paul Seaton; Representative Andy
Josephson; Representative Dan Ortiz; Representative Geran
Tarr.
SUMMARY
HB 3001 APPROP: LNG PROJECT & FUND/AGDC/SUPP.
HB 3001 was HEARD and HELD in committee for
further consideration.
TRANSCANADA AND PRE-FEED SUPPLEMENTAL APPROPRIATIONS
SUMMARY
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.
10:07:24 AM
^TRANSCANADA AND PRE-FEED SUPPLEMENTAL APPROPRIATIONS
SUMMARY
10:07:38 AM
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, provided a PowerPoint presentation
titled "TransCanada and Pre-FEED Supplemental
Appropriations Summary" dated October 2015 (copy on file).
She explained that the presentation covered five major
topics (slide 2):
· How much funding for AKLNG has the state provided to
date?
· What is included in the supplemental appropriation
request?
· Why is the supplemental request $157.6M versus $108M?
· What changes have occurred in the Pre-FEED phase
resulting in cost increases?
· How much will it cost to complete the future gasline
phases?
Ms. Pitney advanced to slide 3: "SOA AKLNG Appropriations
to Date."
Funding to Date $90.5 M
SB 138 General Fund to LNG Fund (FY14-FY15) $69,835.0
· Capitalized the LNG Fund
· AGDC, AKLNG downstream cash calls, contractual
service with agencies
Ms. Pitney noted that some of the SB 138 [legislation
passed in 2014 related to a gas pipeline, AGDC, and oil and
gas production tax] general funds were allocated to
different departments via RSA [reimbursable services
agreement] for service to Alaska Gasline Development
Corporation (AGDC). She continued to address slide 3:
General Fund Appropriations (FY15) $11,762.0
· AEA in-state affordable energy study
· DNR North Slope Gas Commercialization
· DOR Tax Division
Ms. Pitney expounded that the Alaska Energy Authority (AEA)
energy study was conducted to look at energy requirements
and needs outside of the area that would be available on
the gasline (i.e. rural and other areas within Alaska that
would not be directly serviced by the pipeline). She
continued to address slide 3:
Appropriations (FY16) $8,987.0
· DNR North Slope Gas Commercialization (in-state
gas line fund)
Ms. Pitney elaborated that the funding request had been
just over $13 million, but only $9 million had been funded.
The current request was to fund the additional amount. She
concluded with the final points on slide 3:
Authorization from LNG Fund (FY16)
· Within original $69,835.0 capitalization
· AGDC, DNR, DOTPF $3,023.0
Ms. Pitney explained that because of available capacity
within the original $69 million, authorization of $3
million from the LNG Fund had been given to cover the
operating costs primarily of AGDC. She noted that the cost
was within the original $69 million capitalization. Of the
$3 million increment, $150,000 would go to the Department
of Natural Resources (DNR) and $71,000 would go to the
Department of Transportation and Public Facilities (DOT).
10:12:00 AM
Ms. Pitney moved to slide 4 titled "State Gas Team FY2016
Supplemental Summary":
Supplemental Request $157.6 million plus $5 million
AGDC Statutorily Designated Program Receipts (SDPR):
Agency Operating Budgets $13,607.0
DNR: $2,126.0
DOR: $1,381.0
DOL: $10,100.0
AGDC: Capital Budget $144,045.0
Reimburse TransCanada: $68,445.0
Fund State's remaining Pre-FEED share: $75,600.0
AGDC: Receipt Authority $5,000.0
AKLNG reimbursement for work performed
Ms. Pitney elaborated on the $5 million in receipt
authority to AGDC. She explained that AGDC had done work on
behalf of all of the partners within the AKLNG project; the
funds provided the corporation the ability to receive the
money and to essentially reimburse itself for the work.
Ms. Pitney addressed why the supplemental request had
increased from $108 million to $157 million (slide 5). She
explained that the $108 million had been limited to the
AGDC portion of the request, which meant the request had
really only increased from $108 million to $144 million.
She furthered that the number had changed because there had
been a pre-FEED [Front End Engineering and Design] scope
and schedule increase of $182 million for all of the AKLNG
partners; the overall cost had increased from $511 million
to $694 million. She furthered that the state's share of
the new total was $173 million ($66 million for the
liquefaction plant and $107 million for the gas treatment
plant (GTP) and pipe). She noted that the difference
between the $173 million and the $182 million was based on
the number of months.
Representative Gattis asked Ms. Pitney to repeat the
information.
10:15:29 AM
Ms. Pitney addressed the question by turning to slide 6
titled "Pre-FEED Scope and Budget Changes." Prior to the
pre-FEED increase the administration had estimated the
supplemental request at $108 million. She noted that the
actual cost if no increase had occurred would have been
$106.8 million. The figure included funds TransCanada had
already spent, the remaining cash calls for the midstream
area the state would pick up. She addressed the increase
from $511 million to $694 million. There had been no change
to the following figures: $68.4 million for the buyout of
TransCanada's portion of the project and $29.6 million on
the midstream cash calls. Under the budget change the
allowance for midstream scope changes had increased to $31
million [from $8.8 million] and another $15 million for
downstream costs (liquefaction plant).
Ms. Pitney returned to slide 5 and explained that the
state's share of the $66 million for the liquefaction plant
was $15 million and its share of the $107 million for the
GTP and pipe was $31 million.
10:17:12 AM
Co-Chair Neuman asked if the increase in the request was
because the gasline development team moved some of the
projects from FEED into the pre-FEED stage. He asked for
the reason of the increase.
Ms. Pitney agreed. She directed attention to the bottom of
slide 5 and relayed that there were four pieces of the
change. The first piece was related to component level
optimization to lower costs and increase efficiencies,
which had been moved from FEED back to pre-FEED. The second
component was related to accelerating regulatory and pre-
bid work on FEED contracting. She elaborated that the
intent was to be ready to put contracts "on the street" in
a very short timeframe if a FEED decision was made.
Co-Chair Neuman asked who made the change to the scope.
MARTY RUTHERFORD, DEPUTY COMMISSIONER, DEPARTMENT OF
NATURAL RESOURCES, replied that it was the AKLNG project
scope change, which was managed by a team comprised of
representatives from the three producers, TransCanada, and
AGDC. The scope change had added additional costs to
complete the pre-FEED work.
Co-Chair Neuman asked for verification that the changes had
been requested by the project development team. Ms.
Rutherford replied in the affirmative.
Ms. Pitney continued to explain the scope changes on slide
5. The third and fourth components were to increase the
scope of geohazard work and to bring the 48-inch pipe
concept design up to the 42-inch pipe level of development.
She relayed that DNR would address the agency operating
requests.
Ms. Rutherford advanced to slide 7 titled "Department of
Natural Resources State Gas Team." Relayed that there were
certain aspects of SB 138 that were DNR's responsibility.
The most important were the negotiating of the upstream
commercial agreements associated with gas supply and gas
balancing, upstream cost allowance, and disposal costs. The
issues were important to ensure that there was a reasonable
sharing of cost among all of the project interest owners.
The department also had a role in negotiating the midstream
issues to ensure that expansion and third-party access was
accommodated by the project. She communicated that it would
have a huge effect on the state's future lease sales, in
addition to existing and future exploration and development
companies with interest in exploring for and monetizing gas
supplies. The department had an incredibly important role
associated with marketing the gas, which was also part of
the commercial negotiations. She furthered that joint
venture marketing and equity marketing were both under
consideration. Additionally, SB 138 specified that each of
the three producers were to provide the DNR commissioner
with an offer to purchase and market the state's gas. She
noted that all of those alternatives were under
consideration by DNR.
Ms. Rutherford relayed that there were three pieces of the
department's request. She noted that for FY 15 DNR had
requested approximately $13 million and received just under
$9 million, which represented a $4 million shortfall of
DNR's expected expenditures. The department had been told
that if the shortfall became a problem it could submit a
supplemental request; therefore, it had decided to take
advantage of the special session to make the request. She
explained that DNR would be expending money fairly
intensively between the present day and the second quarter
of 2016 as it worked to finalize the commercial agreements.
10:22:25 AM
Co-Chair Neuman asked Ms. Rutherford to provide the costs
associated with each item she discussed. For example, there
was $70 million to cover the costs that TransCanada had
incurred on behalf of the state within the AKLNG project
management team. He asked her to specify whether a request
was for supplemental funds or for additional work to be
required due to the change in scope.
Ms. Rutherford clarified that she was currently only
speaking to the DNR supplemental request for the remainder
of FY 16.
Representative Gara remarked that under the current
structure each of the project partners were looking to
obtain their own gas marketer. He referred to a provision
in SB 138 that provided the option to let the producers
sell the gas for themselves and the state at the best terms
they could achieve. He asked why there had to be more than
one gas marketing person. He wondered if it was not
possible for all of the partners to rely on one another to
only have one marketer.
10:25:38 AM
MARK MYERS, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
replied that one of the challenges with marketing natural
gas to overseas markets was the lack of transparency in the
structure combined with the warrantying required to deliver
the gas, and the coordination it took because it was not
sold on the spot market. He elaborated that very little was
sold on the spot; therefore it was necessary to make long-
term commitments and guarantees. He explained that a seller
had to assure supply and needed a trusting relationship
with the buyers. Additionally, the prices and contracts
were indexed. A project the size of AKLNG would have many
contracts; there was no single party that would purchase
all of the state's gas unless it was sold to an aggregator
in which case the price would be heavily discounted. He
continued that the scenario described by Representative
Gara where producers sold the gas was fundamentally what
would be done under the royalty in value (RIV) methodology
- where the producer would be the seller and the state
would receive the higher value in the field of any of the
producers. Throughout the process one of the known
challenges was transparency. He detailed that when selling
multiple contracts gas moved very complexly; tracking the
molecules and ensuring a seller received their actual price
was difficult. He explained that most of the time when
producers offered to sell gas for an entity to market, they
offered a specific price. He furthered that it was the
producers' job to make money on all aspects of the
business, including the sales piece. Under the scenario,
the state would be guaranteed a price for its gas, but he
believed the producers would try to exceed the price in the
market. He relayed that producers could not go that route
under an RIV scenario, but the state would have to be able
to trace the molecules or have some mechanism to its
reopener processes.
Commissioner Myers explained that realistically a joint
venture marketing process was preferable if the state was
going to market with the producers; that way the state
would have employees seconded into the project and it would
be an equal partner with equal information flow. He
stressed that joint venture marketing was an important
mechanism to market. He relayed that some producers
preferred joint venture marketing whereas others preferred
equity marketing; it varied by region and by partner. He
expounded that it was a complex deal that had to be
negotiated. For example, one company may advocate for joint
venture marketing in the AKLNG project, which was DNR's
choice as the cleanest, easiest, lowest cost, and highest
fidelity option. However, all of the producers would have
to agree on the option, which they may or may not choose to
do. He noted the issue was under negotiation.
10:28:33 AM
Ms. Rutherford expounded on Commissioner Myers's answer to
the question posed by Representative Gara. She explained
that there was one particularly good reason why it was not
possible for more than one party to work on marketing gas;
there were serious antitrust issues. She detailed that the
negotiations had to be conducted in a bilateral way.
Co-Chair Neuman interjected that he believed each owner of
the gas pipeline would be responsible for selling their own
gas.
Ms. Rutherford agreed and added that there were legal
limitations to the project partners marketing gas together.
There were commercial negotiations underway that would
determine what the state's recommendations would be on the
marketing structure. She continued that if the state
recommended a joint venture marketing structure with one or
more of the parties, the structure would have to be set up
very specifically in order to avoid triggering antitrust
issues. She relayed that joint venture marketing, equity
marketing, and selling the gas directly to each company
were all under discussion. The reason the state currently
needed a gas marketer was because the structure had not
been determined and the state was limited to bilateral
conversations with potential purchasers. Additionally, the
state needed advice on the appropriate structure or
combination of structures it should begin to develop
internally in order to present a full package to the
legislature when it came forward with the commercial
agreements.
Co-Chair Neuman asked committee members to keep their
questions to the budget and presentation before the
committee.
Representative Kawasaki asked if the agency budget requests
were specifically due to the change in scope that AGDC
made. Ms. Pitney replied that the costs would exist without
the scope change; the costs were related to the state's
representation in the project. She furthered that had the
scope not changed, the acceleration of the project and the
state's role in moving the project more urgently required
the costs.
Ms. Rutherford elaborated that the funding requests
associated with the Department of Revenue (DOR), DNR, and
the Department of Law (DOL) were all related to the
project's commercial negotiations. The project piece would
be held by AGDC going forward [instead of TransCanada] and
the work plan and budget numbers, which was where the
accelerated pre-FEED impact resided.
10:32:41 AM
Representative Kawasaki asked if there was a need to move
the commercialization forward faster because of the new
pre-FEED and scope changes.
Ms. Rutherford responded that in order to keep the project
on schedule with the intended operational timeframe of the
end of 2024 to 2025, it was necessary to backup to finish
pre-FEED in 2016/early 2017. In order to complete the
commercial agreements the state needed the ability to have
a constitutional vote by the next general election on
November 8, 2016. The timeline required that the
administration would have the commercial agreements to the
legislature in the late second quarter of 2016. She
stressed that the end of 2015 and the following two
calendar quarters would be incredibly intense negotiations
on all of the commercial agreements, which was driving the
additional appropriations to the agencies.
Representative Gattis remarked on the $840,000 gas
marketing position. She did not know what the industry pay
standards were for the position. She inquired about the
going rate and wondered if the state knew other companies
that paid the going rate.
Commissioner Myers responded that the state had looked at
and benchmarked the costs; it had used Human Capital
Management for Oil and Gas and Black and Veatch.
Additionally, the department had conferred with its
colleague Audie Setters who had retired from Chevron as a
gas marketer. The prices hopefully represented the upper
end of the range. He stressed that it was critical for the
state to hire the best marketer due to the swing in value
associated with how the state marketed, how it negotiated
the markets, and how it assured that the state was
effective and credible during negotiations (both internally
and with the markets). He stressed that the contracts had
to be aligned by the end of FEED otherwise the project
would not be financed. He continued that the presented cost
represented the appropriate cost for the career field. One
of the challenges was that typically gas marketer positions
were paid a large bonus, which could be equal to or greater
than their salary. He elaborated that the base salaries
were not that high, but with bonuses and factoring in
incentivizing a person to move to Alaska for the job added
cost. He reiterated that the cost represented a benchmarked
range. He believed enalytica had testified to the range as
well.
10:36:43 AM
Representative Gattis summarized that the $850 million was
the going rate and a bonus was paid if the marketer
produced results. She asked if the position would have a
long-term contract for the next 20-plus years.
Commissioner Myers responded that that the department
foresaw the need for a larger marketing group. The single
marketer was to help the state structure, build, and
negotiate the early contracts. Depending on the style of
marketing it would be more or less labor intensive.
Representative Wilson recapped some fiscal numbers. She
asked for verification that the [pre-FEED] cost had
increased from $511 million to $694 million. Ms. Pitney
replied in the affirmative.
Representative Wilson remarked that it was a difference of
$183 million. She asked if the state was required to pay 25
percent of the amount. Ms. Pitney answered in the
affirmative.
Representative Wilson surmised that the state's portion
would include a $48 million difference. Ms. Pitney answered
in the affirmative.
Representative Wilson thought that based on the
administration's numbers, the difference was $37 million
instead of $48 million.
Ms. Pitney referred to slide 6. She explained that the
funding estimated by the administration had included an
allowance for midstream scope changes of $8.8 million,
which was available to cover the additional costs. The
increase was $31 million. There had been a contingency
built in for scope changes. The past spring/summer, the
$108 had included an allowance for scope changes in the
midstream area. She furthered that because the scope
changes for the midstream had been determined, the $8.8
million could be applied and came off of the $48 million.
10:39:48 AM
Representative Wilson had used the numbers on slide 6 in
her calculation. She explained that she had subtracted $8.8
million from the $31 million (under the new pre-FEED scope
column), which equaled $22.2 million. She had added the $15
million allowance for AGDC [downstream scope changes},
which brought the amount to $37.2 million. She had
multiplied the figure by 4 to account for the four
partners, which brought the total to a change of $148.8
million. She thought the figure should match the $183
million, but it did not.
Ms. Pitney explained that the reason the $8.8 million
Representative Wilson had subtracted from her calculation
actually counted towards the scope change.
Representative Wilson asked for verification that the state
had not yet paid the $8.8 million. Ms. Pitney replied in
the affirmative. The figure could be applied to the scope
change. Representative Wilson asked for verification that
it was only the $8.8 million that had not been paid. Ms.
Pitney replied in the affirmative.
Ms. Rutherford continued to address the most important
responsibilities DNR had under SB 138. She moved to the
bottom of slide 7. She explained that the department was
requesting funds to cover personal services in the amount
of $646,000 and additional contractual money in the amount
of $1.5 million. She elaborated on the personal services
request, which included funds to hire the high-level
marketing lead that would begin to represent the state as
it moved into a gas marketer in whatever structure the
state determined was appropriate. She furthered that the
state would need a lead marketing person even if it became
an equity marketer. The state would also need a lead
marketing person if the state became a member of a joint
venture market structure in order to ensure that the state
had an equal representative at the table when gas purchase
agreements were developed. She relayed that it was the
beginning of developing the structure that ultimately would
be in place for the state. The position would also help the
state analyze the appropriate structure or combination of
structures the administration would recommend to the
legislature in the spring of 2016.
Ms. Rutherford continued to address the personal services
increment on slide 7. The administration was requesting an
additional $480,000 added to an existing $360,000 to hire
the existing gas marketing lead position; the additional
money was for the remainder of the current fiscal year. The
administration would include a total request as part of the
regular budget request in the coming year. The
administration was also requesting a new marketing analyst
position to assist with negotiations and pre-marketing
work.
Ms. Rutherford addressed the contractual request on slide
7. She communicated that DNR had been requesting $580,000
to reimburse the department for supporting the AKLNG
commercial negotiations going forward; it had revised the
request to $303,500 because it had eliminated some of the
backfill positions that supported the project at a level of
50 percent or less. However, there were two positions the
department needed to replace within the Division of Oil and
Gas. The positions were commercial analyst positions within
the division; to date the positions had provided 80 to 90
percent of their work in the past year to the AKLNG
commercial negotiations on issues associated with RIK,
upstream reservoir information to protect the state's
interest as a gas transporter and marketer. She explained
that the individuals were no longer available to provide
their regular work to the division. She expounded that the
division was engaged in commercial negotiations on a daily
basis. There were six positions within the division: two
had not been filled due to budget cuts, two were available,
and two had been committed to AKLNG work. The $303,500
request would enable the division to hire two additional
commercial analysts for the remainder of the current fiscal
year to prevent it from sliding further behind on its
ongoing oil and gas commercial management responsibilities.
10:45:50 AM
Ms. Rutherford continued with slide 7 and explained that
DNR was requesting $900,000 for its contractual services
related to the additional time spent by subject matter
experts who were mostly under contract and were assisting
with every aspect of the commercial negotiations and the
package that would be brought to the legislature in the
spring of 2016. The total $1.8 million request had been
reduced from the original request of $2.125 million [note:
the slide showed a total contractual request of $1.48
million].
Vice-Chair Saddler asked for verification that DNR was
requesting AKLNG funds for AKLNG work done by two of its
Division of Oil and Gas employees. Ms. Rutherford replied
in the affirmative.
Vice-Chair Saddler believed there should be a corresponding
reduction in the General Fund money that had already been
appropriated to pay for the services as regular
departmental employees.
Ms. Rutherford answered in the negative. She explained that
the department was asking to be reimbursed by AKLNG funds
for AKLNG work performed by two Division of Oil and Gas
employees. Thereby freeing up the General Fund money within
the division to backfill the two positions in order to do
the original oil and gas work.
Commissioner Myers added that the commercial analysts are
worth their weight in gold. He elaborated that the analysts
were responsible for the state's RIK sales. There were
currently three proposals for RIK oil sales, which would be
delayed without commercial analysts. The analysts also
developed the department's lease sale terms and evaluated
commercial terms on the state's unitization issues. He
noted that there were many new units coming in.
10:48:22 AM
Co-Chair Neuman spoke to the issue of who would vote on the
work plan and budget on the state's behalf on December 4.
He shared that the committee had received an email the
previous day from the governor related to the topic. He
asked which state organization would be casting the state's
vote on the work plan and budget assuming an appropriation
was made and TransCanada was no longer involved.
Commissioner Myers responded that if the buyout [of
TransCanada's portion of the project] happened AGDC would
vote on behalf of the state.
Co-Chair Neuman asked who would direct the way AGDC
employees should vote (i.e. the AGCD Board of Directors or
other). Commissioner Myers replied that the AGDC vote would
be the vote of the state. He relayed that the state would
advise in the process from the perspective of the necessary
commercial terms. The vote would be to move an established
work plan and budget forward; therefore, he did not foresee
any issues with the vote. He explained that the only
options would be to vote for or against the work plan and
budget; if the state voted against the items the project
would be terminated. He believed the process was straight
forward.
Ms. Rutherford clarified that the state had been working
with AGDC on many of the commercial agreements that affect
the project (i.e. on the GTP, pipeline, and the
liquefaction plant). She explained that if the legislature
made the appropriation to terminate the Precedent Agreement
with TransCanada, the interest that TransCanada currently
holds in the pipeline and GTP would be transferred to AGDC.
She continued that AGDC would continue to work with the
state agencies for input on the work plan and budget;
however, the AGDC board would direct the vote by the
representative to the project management team.
Co-Chair Neuman referred to Ms. Rutherford's testimony that
AGDC would work with DNR on the work plan. He asked if it
would only work with DNR on requests made by AGDC related
to project permitting.
Ms. Rutherford responded that as the state moved through
the phase of developing commercial agreements that affect
the state's interest, there were portions of the agreements
that were led by AGDC, such as the governance of the
project. The governance of the project would be the actual
interest owners of the project. Assuming AGDC would hold
all of the state's interest in all three elements of the
project, the parties would be AGDC, ExxonMobil, BP, and
ConocoPhillips. She furthered that AGDC had representatives
on the management team and would be the ones to vote;
however, the commercial agreements had elements that were
of great importance to the sovereign, such as expansion,
third-party access, withdrawal, to what degree the state
received information and had a vote, and whether a vote
required all four parties to agree or a majority vote. She
explained that all of those questions would be embedded in
some of the various agreements. She elaborated that the
various state entities all had input and had been
discussing what the state's interests were and what the
agreements would look like. She stressed that the input
from the state would continue before the project structure
and governance became fully solidified. She stated that at
the end of the day AGDC would hold the state's interest and
its vote and the board of directors would direct the vote.
10:52:52 AM
Co-Chair Neuman remarked that according to the state's
AKLNG gas team organizational chart, Commissioner Myers was
listed as the decision maker for DNR. He asked Commissioner
Myers if he had signed a confidentiality agreement that
allowed him to see information considered confidential by
the AKLNG project.
Commissioner Myers replied in the negative.
Co-Chair Neuman asked how the commissioner could make key
decisions to negotiate agreements concerning the project
[without having access to the confidential documents]. He
referred to a hypothetical scenario where someone developed
a compressor and specific information about their
components was confidential. He stated that the committee
had been told that members of Alaska's team had to leave
the room in order to have certain discussions and that it
had been disruptive. He wondered if the fact that
Commissioner Myers was not privy to some of the
confidential information had slowed the process down.
Commissioner Myers replied that Attorney General Richards
and the governor had produced a letter stating that the
attorney general believed that commissioners were not
required as senior decision makers to sign confidentiality
agreements to see the data (similar to a CEO or senior and
vice president at a corporation). Additionally, the state
had been working with the producers on an agreement that
was clear and concise. He continued that when he went to a
sponsors meeting he would email the group to let them know
he would hold the information confidential; the process
allowed them to successfully move information back and
forth. Additionally, there were data sets that were
critical to the project and were held confidential under
other means in state government. For instance, the upstream
data and supply issues and balancing lease equity related
to net profit sharing was all done under DNR's existing
authority and confidentiality. The subset of data specific
to AKLNG was not as large as one may think; however,
certain issues were. The state had worked with the
producers and had seen adequate confidential data.
Ms. Rutherford added that the provided confidential AKLNG
information had been provided by the producers to
administration executives. She furthered that there had
been sponsors meetings that included that attorney general
and commissioners where the producers had rolled out
confidential information. The producers had accepted to
some degree, the ability of the executives to participate
in the discussion without having signed confidentiality
agreements.
Co-Chair Neuman asked if Ms. Rutherford had stated that
there had been faux meetings. Ms. Rutherford answered in
the negative. She explained that the sponsors group was
made up of the highest level representatives of the parties
with interest in the project. When the sponsors met there
had been times when the state's attorney general or
commissioners had been invited to the meetings where the
producers had shared confidential AKLNG information. She
added that it was the primary method by which the
commissioners had been receiving confidential information
from AKLNG
10:57:03 AM
Co-Chair Thompson stated he was confused about the by DNR's
statements that AGDC would make decisions and vote on the
state's behalf at the management team level, but it had not
been allowed to sign a confidentiality agreement. He
surmised that when confidential information was discussed
at meetings, AGDC would be required to leave and the
attorney general or department commissioners would step in
for the state. He stressed that the situation would leave
AGDC out of the loop. He was unclear on why there was a
problem with confidentiality agreements. He furthered that
confidentiality agreements were common in every industry
especially in the oil and gas industry. He wondered how the
state was supposed to make an informed decision. He
emphasized that HB 4 [legislation passed in 2013 related to
AGDC and the Regulatory Commission of Alaska] and SB 138
provided specific authority for AGDC to sign robust
confidentiality agreements. He asked why it was an issue.
Ms. Rutherford clarified that there was a huge distinction
between the AKLNG project management team and the
commercial discussions. The project management committee
currently represented the state's interests through Joe
Dubler [AGDC vice president and chief financial officer]
with AGDC and TransCanada. She elaborated that if the
TransCanada Precedent Agreement was terminated AGDC
(probably through Mr. Dubler) would continue to make the
project decisions. She relayed that Mr. Dubler had signed
an AKLNG confidentiality agreement. The only people
involved in the AKLNG commercial discussions who had not
signed confidentiality agreements were at the highest
levels (i.e. the governor, DNR and DOR commissioners, and
attorney general). She relayed that it had been the opinion
of the administration that just like producer executives,
the aforementioned individuals were not required to sign
the confidentiality agreement. She stated that functionally
it had been working. She emphasized the importance of
making the distinction between the project and the
commercial discussions clear. She believed that all of the
staff at AGDC working on the AKLNG project had signed the
confidentiality agreement, as had the agency staff.
Co-Chair Thompson referred to proposed regulations related
to changing the confidentiality requirements by AGDC. He
noted that some individuals within AGDC had signed
confidentiality agreements; however, he wondered if the
proposed regulation would change confidentiality agreement
requirements for future people.
Ms. Rutherford answered that she had heard there were new
confidentiality regulations that had been proposed by AGDC,
but she was not familiar with them. She stated that
questions about the regulations would best be directed to
AGDC.
11:01:13 AM
Commissioner Myers echoed the response given by Ms.
Rutherford. He stated that the discussion about regulations
and AGDC did not pertain to DNR, DOR, or DOL (which was not
working directly with AGDC). He could not speak to the
internal matter related to AGDC because he was not privy to
the information. He understood the need for confidentiality
within a project and it was his hope that AGDC would second
people into the project in the future. The corporation did
not currently have anyone seconded into the project. He
believed having people fully seconded into the project at
all levels was critical to represent the state's 25 percent
ownership.
Co-Chair Thompson asked if secondees would be required to
sign a confidentiality agreement. Commissioner Myers
responded that that an agreement was needed, but he did not
know what the agreement would look like because the issue
was between AGDC and its attorneys.
Co-Chair Neuman believed that SB 138 gave AGDC the ability
to "have a blanket over them" as far as the Freedom of
Information Act or the Public Information Act in order to
enter into discussions with companies that had proprietary
information. He also understood that the request for a
change in regulation by AGDC to alter the specific scope
required in SB 138 was causing the entire project to slow.
He stated that it had been an issue with numerous parties
if a regulation change allowed AGDC to enter into the
negotiations and have discussions without being covered
under a confidentiality authority. He asked who had
requested the regulation change that AGDC had proposed.
Commissioner Myers replied that the department did not
know. He stated that AGDC reported to an independent board
and did not report to "our structure." He noted that Dan
Fauske [AGDC president] was on lateral line to the
commissioner of DNR and reported to a board and governor.
11:04:45 AM
Co-Chair Neuman noted that AGDC would speak to the
committee during a meeting the following day. He asserted
that the confidentiality agreement question was key to the
commercial negotiations that were currently underway. He
stated that the DNR commissioner was responsible for the
negotiations. He asked if the partners were reluctant to
enter into commercial agreements unless they were
confident.
Commissioner Myers replied he had not seen that occur. The
department had recognized the challenges early on
associated with the DNR commissioner not signing a
confidentiality agreement. He believed the information he
was receiving from the companies was adequate. He
elaborated that there was a long history of working with
DNR and confidential data and to his knowledge DNR had
never breached a confidential agreement in the 30 years he
had been involved. He stated that there was a fair amount
of trust in the relationship and he would not divulge
confidential information.
Co-Chair Neuman asked if Commissioner Myers had requested
to see the confidentiality agreement in order to start
reviewing it.
Commissioner Myers answered that he had spoken with the
governor and the attorney general about whether they should
sign the agreement; the conclusion had been that they
should not sign them. He respected his boss and the
decision. They had found a way to work through the
solution, which was based on the advice that senior
executives were not required to be under the
confidentiality in order to receive the information.
Co-Chair Neuman believed Commissioner Myers had stated that
the governor and attorney general suggested that the DNR
commissioner not sign confidentiality agreements.
Ms. Rutherford disagreed with Co-Chair Neuman's assessment.
Commissioner Myers clarified that he had not asked to sign
or not sign a confidential agreement. He had been aware
that if he could not see confidential information there was
an issue with the responsibility he had as the commissioner
of DNR and as a decision maker. He relayed that the
governor's statement and a memorandum to the producers
specifying that senior executives (who were not under the
agreements) needed to see confidential data, had been
adequate and had worked. He noted that it had made some
individuals uncomfortable, but it had been working. He
stated that he had worked with a significant amount of
industry and confidential data and had not seen a blockage
of information. He had also been very respectful of keeping
information confidential.
Co-Chair Neuman did not see how the issue would not slow
the project down. He remarked that the state's
organizational chart specified Commissioner Myers as a key
decision maker. Additionally, the other department
commissioners had not signed a confidentiality agreement.
He commented on the December 4th deadline.
11:07:38 AM
Co-Chair Neuman stated that he had asked if the issue would
slow down the project and that Commissioner Myers had
answered that it would not. He was concerned about the
issue and intended to address it further at a subsequent
meeting. He discussed that the committee was scheduled to
have a hearing about SB 138 and AKLNG project
specifications in the bill. He elaborated that under the
legislation, DNR with consultation with DOR, was to
negotiate commercial agreements, market royalty in kind and
tax as gas, and modify leases. He referred to a letter from
the governor from the previous day affirming that AS
38.05.02 gave DNR and DOR the authorities and obligations
to negotiate the associated commercial agreements and
dispose of the gas from the AKLNG export project. He wanted
to discuss who was negotiating the commercial agreements
for the state. He remarked on the $10 million supplemental
request from DOL for drafting, negotiating, and reviewing
LNG contracts. He asked if the $10 million worth of
attorneys would be negotiating commercial agreements.
Commissioner Myers answered that DOL's direct support to
its attorneys and the contracted attorneys (Millbank,
Tweed, Hadley, and McCloy and Greenberg Traurig LLP) were
critical to the negotiating success because the assistant
attorney generals really understood Alaska law and the
external lawyers had a long history of working on complex
LNG projects. He explained that the organizational chart
was not the chart of the operational organization, but the
chart of the structure to negotiate on commercial
agreements. The chart showed the various functions and
positions and what the attorneys were working on. He stated
that the fund was crucial. He elaborated that it was the
third version of a gasline he had participated in; he
remarked that the companies would be spending significantly
more than that [$10 million] on negotiations. The funds
were to create a parity in the negotiations of the team;
the specified experts on LNG were very important to
calibrate the agreement versus others they had negotiated
worldwide. There were many complex issues, a short time
period, and multiple teams working on multiple issues in
order to make things work. The legal support was absolutely
necessary to the negotiating teams and commercial people.
Ultimately, his responsibility to sign the agreements - he
had to be sure the state had done all of its due diligence
and had negotiated an acceptable deal; without that the
department could not come to the legislature for approval
of the structure and agreement in good faith. He reiterated
that the attorneys were core to having a professional team
in an LNG project, where the state was not experienced. He
remarked that the state was experienced in oil and gas, but
not LNG.
11:11:02 AM
Ms. Rutherford emphasized that the legal team was assisting
with the commercial discussions (at the bottom of the
organizational chart). She detailed that it was a team
approach; the legal team was not making the decisions, but
were participating in the discussion as part of the team.
Co-Chair Neuman requested a list of individuals on the
organizational chart who had signed confidentiality
agreements.
Co-Chair Neuman stated that according to the State of
Alaska AKLNG gas team organizational chart, Audie Setters
was the gas marketing lead. He remarked that DNR had
requested an additional $480,000 for [a total of] over
$800,000 to add to the existing vacant marketing position.
He furthered that the committee had requested additional
details on the roles and responsibilities envisioned for
the position and how it compared with industry standards.
He noted that the committee was awaiting the answer.
Ms. Rutherford responded that she had believed the
information had been provided to the committee the prior
evening or before the meeting. She relayed that it should
be to the committee shortly. She clarified that Mr. Setters
was a contractor and had been assisting the state to date.
The department firmly believed it was time to begin to
institutionalize the state's capacity on gas marketing in
order to get up to speed and be a full participant as it
moved into the actual project.
11:13:06 AM
Co-Chair Neuman asked why a marketing position was needed
at the present time. He remarked that the state did not
know how much gas it would have, no RIK or tax as gas
decisions had been made yet, the transportation costs of
the state's gas or whether the state would market its gas
independently was not yet known.
Commissioner Myers replied that SB 138 had established a
structure for commercial negotiations on the broadest
scale. The legislature had given the department and
commissioner strict instructions that the state had to
receive RIK value that was equal to or higher than RIV.
There were many ways to achieve a project, but limited ways
to achieve a project that would maximize value at the
wellhead for the state. He furthered that the state's work
on the project - with assumptions on value to the state -
assumed a certain wellhead value. The wellhead value was
determined by the cost the state paid upstream, the surety
of gas supply, transportation costs, and what the state
would get in the market.
Commissioner Myers continued that it was all about selling
a commodity at a price that maximized the benefit to Alaska
in addition to other advantages of jobs, in-state gas, and
the construction of infrastructure. The legislature had
charged the department with analyzing all of the elements
he had listed, which the agreements summarized. He detailed
that a surety of gas supply and balancing meant it would be
necessary to get gas out of two fields in predictable
quantities and when one field went down a bit, the other
field could make it up (balancing). He elaborated that the
state would lose a substantial amount of money if the
pipeline was not full for the first 15 years of operations.
He furthered that if the state marketed to customers and
could not guarantee supply, the state would have to sell
the supply at a heavy discount. He stressed that if the
state paid too much for transportation fees it would lose
money. In order to preserve the upstream value, the state
had to negotiate agreements that were fair. He stated that
it was necessary to be able to calculate the fees for
comparison against an RIV structure (as required in the
finding he had to deliver for approval by the legislature),
which was very different. He explained that it meant the
state had to know how it would market going into the
discussions early.
Commissioner Myers continued to address Co-Chair Neuman's
questions. He explained that the state would have to know
how it was going to market and had to negotiate agreements
with the other producers. He spoke to a joint venture
marketing scenario where the state would be a partner with
the producers, which would require the state to have people
of equal caliber embedded in the structure. Under equity
marketing, the state would need a whole team of people,
(independent of the producers) that could preserve value in
the markets where the gas was sold (e.g. Korea, Japan, and
etcetera). He stressed that the state would be one of the
largest gas marketers in the world under the project. He
stated that under SB 138, the legislature had changed the
game from being passive to being an active investor. Being
an active investor meant that the state had to build to
technical capacity in the organization in all phases moving
forward. He stated that each one of the phases involved
commercial negotiations at a more finite level where more
value is exchanged. He spoke to the importance of having a
lead that was a state employee and accountable to the state
and could build the capacity. He remarked that consultants
were skilled, but they only lasted with the organization
for a period of time and could be hired away. He explained
that the knowledge base needed to be institutionalized and
the team needed to be trained. He reiterated the need for a
leader who would build the structure. He stated that the
position was currently needed because the state was
actively negotiating the marketing structure with the
producers and the RIK finding determining what the
approximate values would be as the project moved towards
FEED. Once the project entered FEED the state would have to
be marketing and making the contracts necessary to finance
post-FEED into the final investment decision (FID).
Commissioner Myers further explained that the state would
have to sell its gas before getting to FEED. He remarked
that three or four years was not a very long time. He
relayed that there was one contractor currently in place
with expertise in the subject matter. He added that the
contractor was very good, but was building a retirement
home out of state. He furthered that the reality was
building the continuity required the investment in people
at present. He stated that the issue had been established
by SB 138, which the department was trying to honor.
Professionalizing and building a corporate structure for
marketing was a large piece of the value stream for the
project. The department wanted to do things professionally,
which meant bringing in the right people at the right time.
The department also wanted to minimize the number of people
the department had in the structure. He remarked that AGDC
would have many more individuals in the structure than DNR
would have, even though DNR was doing the upstream and
marketing. The department would need fewer than 6 people;
the number of individuals seconded and embedded into the
pipeline structure would be much higher. He clarified that
most of the department's boxes on organizational chart
would go away once the project entered the construction and
operational phase. He reiterated that the negotiations were
complex and took full teams of people to negotiate; it was
necessary for the state to have the people in place. He
stated that the project was one of the largest in the
world; the state had signed on in an active role as part of
the business structure. He added that if the state could
not honor the business structure with the right people and
budget, it would fail.
11:19:42 AM
Co-Chair Neuman referred to page one of the supplemental
backup detail and referenced a sentence: "a gas marketing
organization within DNR is an important step in preparing
the state for successful gas under the Alaska AKLNG or
alternative project." He asked if an alternative project
was being considered.
Commissioner Myers answered that he was not aware of an
alternative project. He believed that the governor had
stated that if AKLNG failed he would still make efforts to
monetize the gas on the North Slope; it would depend on why
the failure occurred. Ultimately, the state was building a
specific marketing structure for AKLNG, but the structure
would depend on equity versus venture marketing; if venture
marketing was chosen it would depend how many partners were
involved. The state had created a flexible environment
where the first people would be hired and as the project
evolved, DNR may or may not request another position here
or there; the situation was evolutionary.
11:21:41 AM
Co-Chair Neuman asked if it was the intent of the
administration to terminate the contract with TransCanada
prior to December 4 [2015].
Ms. Rutherford answered that the administration was intent
upon purchasing TransCanada's interest in order to vote at
the December 4, 2015 meeting (assuming legislative
appropriation by the legislature). The administration was
committed to having AGDC in place to cast the state's vote.
She relayed that Commissioner Myers would provide a
presentation at the next committee meeting that would
provide additional detail. There would be a document the
administration hoped to have ready for execution by the
last week in November in order for everything to transition
smoothly (with interest transferred to AGDC, a check cut to
TransCanada, and the state moving forward as equity owner
on all three elements of the project).
Co-Chair Neuman asked for verification that it would be the
document that ensured legislators that AGDC would have a
voting seat.
Ms. Rutherford answered that there may end up being three
documents, which the administration was in the process of
determining. She relayed that they did not know whether one
document could accommodate terminating the Precedent
Agreement between TransCanada and DNR or whether it could
terminate the relationship between TransCanada and DNR and
convey the assets simultaneously to AGDC. She affirmed that
the department would be executing all of the necessary
documents to accomplish both.
Commissioner Myers added that in the House Resources
Committee there had been concern about DNR's intent, given
that the transfer could be to DNR prior to going to AGDC.
He assured the committee that it had always been his intent
that the facilities should be owned and integrated by the
state's interest in AGDC. He stated that it was necessary
to have a vehicle because he wanted to see smooth
operations between the treating plant on the North Slope,
the pipeline, and the liquefaction plant; they all had to
operate together in unity. He elaborated that it would be
problematic if each of the components became a competed
against each other as separate profit centers. He furthered
that there would not be a smooth, integrated organization.
He stated that it had always been his belief that it was
the best answer and the department had never contemplated
any other structure. He remarked that if the committee was
hearing rumors he did not know their origin. He stated that
the rumors were not coming from the intent; the letter he
had written to the committee verified that. He reiterated
that it was the only logical structure for the state to be
in; it was structured similar to the rest of the project.
He expounded that creating an integrated infrastructure and
smoother communications was one of the reasons that had
been discussed structurally for buying out TransCanada. He
saw DNR as the customer for AGDC. The department's ability
to work with AGDC to ensure the customer's happiness was
important. He would be a tough customer and wanted low
tariffs and inexpensive transportation, which would
increase wellhead value and revenue going into the General
and Permanent Funds.
Commissioner Myers continued that pipeline companies did
not always want the lowest tariff structure. He pointed to
the history of Trans-Alaska Pipeline System (TAPS) and
remarked that the companies clearly had not preferred it
[the lowest tariff structure]. He wanted expansion in the
pipeline because the department managed a lot of other gas
on the North Slope. The department also wanted
opportunities for its partners in the Arctic Slope Regional
Corporation and Doyon to put their gas in the system. He
emphasized that the department was very insistent on
expansion, which could be achieved commercially or with a
larger pipe. He explained that as AGDC communicated back to
the project it was important to have good communications
and for AGDC to understand that its customer really wanted
these things. There was a natural tension that existed, but
communicating the need of the customer to the pipeline
needed to be crucial. He stressed that the customer wanted
a high quality product at a cheap price because it raised
the wellhead value and the ultimate profitability to the
state. The state would make very little money on the
pipeline; the money would be made by selling its gas.
11:26:09 AM
Co-Chair Neuman expressed concern about the autonomy of the
AGDC board and its ability to make decisions. He elaborated
on the concern that the board would receive pressure from
the administration on how to vote and conduct its work. For
example, the Board of Fish was also supposed to be an
autonomous entity, absent of political decisions; however,
he believed that Governor Walker had contacted members of
the board to ask them for a venue change for next year's
meetings. He believed it was unheard of for boards that
were supposed to be completely autonomous of politics. He
continued that the boards were not supposed to have
legislators or members of the administration putting
pressure on them to make decisions. He asked what
assurances Commissioner Myers could provide that AGDC would
be completely autonomous in its decisions.
Commissioner Myers replied that he could not warranty what
administration influences had affected AGDC and what had
not. He stated that it was an awkward situation whereby he
provided formal information requests to AGDC, which made
requests to the management committee; information then
flowed from the management committee to AGDC and back to
DNR. He respected that AGDC had an independent board and he
believed it was import that the board talk to the
legislature if it had challenges. He detailed that the
board needed to have the discussion with the legislature to
explain how it was or was not working. He stated that he
had never been invited to a board meeting and could not
tell the committee what was happening within AGDC (he
believed Ms. Rutherford had attended one meeting, but he
had never had a conversation with Chairman Mike Burns or
the board) other than from information received at a
sponsors meeting or in other meetings where there was a
process for AGDC to get project information.
11:29:03 AM
Co-Chair Neuman stated that Commissioner Myers had told the
committee that he had been instructed by the attorney
general and governor's office not to sign confidentiality
agreements. He had spoken with producers and other members
of the gas negotiating team who were concerned that they
could not enter into some of the confidential agreements
because of proprietary information that may be provided by
producers or others. He stated that it slowed down the
process and he was concerned.
Commissioner Myers replied that any discussion of
confidentiality agreements within AGDC were between the
attorneys of AGDC and their client. He relayed that there
was a relationship between DOL and AGDC, which DNR was not
and should not be a party to because DNR was not the
client. He did not know what the issues were between AGDC
and its internal confidentiality agreement to work with the
project.
Vice-Chair Saddler remarked that many of the committee's
questions had been answered with conditions and were
difficult to follow. He believed both testifiers were
"straight shooters," but did not know if he could rely on
the answers unless he took very careful notes. He heard a
desire for things to happen and that a mechanism was in
place, but he did not hear a clear yes or no or commitment.
He asked if it was the administration's intent to terminate
the structure going forward (to vote no on the work plan
and budget).
Ms. Rutherford answered that the administration had every
intention to move the project forward, which would be done
in the form of commercial agreements as part of the work
plan and budget. She stressed that it was not possible to
ever be sure if commercial agreements would materialize in
an agreement that was acceptable to all parties. She
reiterated that it was absolutely the intent of the
administration to move the project forward under the SB 138
framework.
Vice-Chair Saddler asked for verification that the
administration did not intend to terminate the project. He
had heard references to an alternative project. Ms.
Rutherford responded that the administration had absolutely
no intention of terminating the project.
Vice-Chair Saddler asked for verification that the
department had stated that Joe Dubler [vice president and
chief financial officer, AGDC] would cast AGDC's vote on
the work plan and budget on December 4.
Ms. Rutherford replied that to the best of her knowledge
Mr. Dubler would cast the vote for AGDC. She detailed that
Mr. Dubler was the current AGDC representative on the AKLNG
project management team. She communicated that she did not
know whether Mr. Dubler would continue to be AGDC's choice
once all three elements of the project were integrated;
however, she assumed AGDC would choose him. She stressed
that it would be AGDC voting the management committee
decision on behalf of the state.
Commissioner Myers added that DNR had read about the
subsidiary corporation in the AGDC minutes; the department
had not been a party to any discussions about how
internally AGDC would structure its pipeline organization
or the gas treatment plant component. He hoped from the
outside as a customer that it would be an integrated
organization because the desire was to see a smooth flow of
gas through a balanced and efficient system. He was not
aware of how AGDC actually planned to do it; it had been an
assumption on his part. He continued that AGDC's "structure
would be determined by their board, not by me as their
customer." As a customer, he would want to make sure he was
receiving the lowest possible tariff structure and an
efficient pipeline that was operational and expandable to
take the other gas managed by DNR.
Vice-Chair Saddler stated that the silos were surprising to
the committee - that Commissioner Myers was surprised by
the development of some of the potentially very significant
developments in the structure.
Commissioner Myers reiterated that it was a separate board
structure. He reported directly to the governor; the
processes in DNR including its confidentiality standards
and its requirement to report findings to the legislature
were clearly spelled out within SB 138. He furthered that
DNR had a very established public structure in the project
and traditionally with its oil and gas management. For
example, the department could not do a long-term royalty
oil contract without coming back to the legislature for
approval. He stated that the legislature had included the
checks and balances in SB 138 for a reason. Similar checks
and balances were not included in the AGDC structure - the
legislature had designed the agency as a separate
corporation with a separate board of directors; because the
structures were very different, the level of internal and
external information flow was also very different.
11:34:55 AM
Vice-Chair Saddler referred to an earlier question about
the following language on page 1 of the supplemental
request ["FY2016 Supplemental Request for State Agencies -
$13.6 Million" from Governor Bill Walker (copy on file)]:
The need for a marketing organization within DNR is an
important step in preparing for successful sale of gas
under the Alaska LNG Project or an alternative
project.
Vice-Chair Saddler remarked that Commissioner Myers had
stated he did not know of any plans for an alternative
project. He stated that the document had come from the
Office of Management and Budget. He asked Ms. Pitney if an
alternative project was being considered in any way, shape,
or form and to what degree.
Ms. Pitney answered that there was no other project
currently being considered. There was intent to still move
the state's gas to market if the current project did not
succeed. She communicated that the administration wanted
the project to succeed; they were as far down the road as
possible and were on the cusp of making things work. Absent
of that she questioned whether the state did not want to
move its gas to market. She did not believe it was a good
alternative for the state.
Vice-Chair Saddler agreed. He wondered to what degree the
administration was looking past the potential termination
to any alternative. He asked for verification that Ms.
Pitney was saying there was no such consideration.
Ms. Pitney responded affirmatively.
Vice-Chair Saddler asked why it was not premature to be
working on marketing currently. He pointed to the first
page of the supplemental request document that included a
bulleted list of projects including commercial agreements,
marketing plan, lease modification, payment in lieu of
taxes (PILT), and other. He thought the schedule had
envisioned that the legislature would look at and approve
the negotiated agreements sometime during the fall (2015).
He wondered why that was not the case.
Ms. Rutherford stated that the parties had not reached
agreement at present. The issues were not only between the
state and the producer parties; some of the issues were
between the producers themselves. Agreements on some key
issues had not yet been obtained - once they were agreed to
it would open up negotiations on other issues. It was the
intention to have commercial agreements to the legislature
by the second quarter of 2016. It was something that could
only be attained if all four parties were equally committed
to finding middle ground and acceptable arrangements.
Vice-Chair Saddler stated that his comfort in proceeding
with TransCanada's involvement was that the information
would be available to the legislature in order to make the
decision to terminate TransCanada's involvement. He stated
that the information in the document in front of the
committee was going to be what he would have relied on to
make the decision. He would have more comfort if he knew
the status of the agreements and the likely outcome of the
processes prior to committing the state to pursuing an
alternative.
Ms. Rutherford replied that the administration had hoped
that the commercial arrangements would have been completed
as well. However, she disagreed with Vice-Chair Saddler
about why the commercial agreements were absolutely
necessary. She referred to a presentation given to the
committee by Deepa Poduval (principal consultant, Black and
Veatch) and stated that at the end of the day the issue was
primarily a financial analysis on where the state should
wear its risk and where it should make its payments. The
state would pay TransCanada no matter what, but the choice
was whether the state would pay the costs up front to
become the complete equity holder or to bear the costs as
part of the tariff structure. She remarked that there had
been a pretty exhaustive discussion on the topic. She was
not sure what tremendous additional value the commercial
agreements provided to the decision on terminating
TransCanada's Precedent Agreement.
11:39:33 AM
AT EASE
11:39:46 AM
RECONVENED
Commissioner Myers elaborated on Ms. Rutherford's answer to
Vice-Chair Saddler. He noted that TransCanada had testified
before the committee; he discussed that there were multiple
reasons for the company to support the buyout. He explained
that under the agreement structure any of the five parties
could terminate at any time all the way up to the FID
decision at a certain cost. He furthered that TransCanada
could opt to exit the project and the state would have to
pay the costs. He continued that if the state bought out
TransCanada's portion of the project there would only be
four parties remaining; the state wanted to move the
project forward and the administration hoped and believed
that the producers also wanted to move the project forward.
Parties that were fully aligned and commercially advantaged
would help to move the project forward. He stated that
TransCanada is a great company but it had serious
commercial challenges with the governance pieces if they
were not operators of the project - it would be difficult
for the company to stay in given its business model.
Commissioner Myers communicated that buying out
TransCanada's portion of the project would provide much
more assurance of the project moving forward. Also, it
would move forward in a way where the economics of the
project were shown to the legislature including the voting
rights to AGDC. He believed that buying out TransCanada's
portion pointed to advantaging the state and moving the
project forward. The fact that the other framework
agreements had not been done was a challenge of the
immensity of the agreements and the lack of alignment and
commercial differences between the companies. He noted that
the state was not a producer and had to effectively be like
a producer in order for the deal to work. The supply
assurance agreements would be number one; if the state
could not assure supply, it had no business being in the
project. He furthered that under that scenario the state
would be better off staying in an RIV world and would
hopefully gain equity and the producers would ship on the
state's pipeline; it was the alternative model that had
been proposed in SB 138. For the project to work the state
had to have the fundamental agreements to secure its supply
to match its capacity in the project. He stated that
without the fundamental agreements the other agreements
were not "worth the paper they were written on." There was
a critical sequencing to the agreements.
11:42:13 AM
Vice-Chair Saddler asked why it was not premature to go to
marketing if the necessary commercial agreements had not
been negotiated.
Commissioner Myers answered that the necessary team could
not be built overnight; it took years to build a competent
team. He stated that the contracts would have to be in
place to market at the FID decision, which was not many
years down the road based on the project timeframe.
Additionally, the state has to negotiate a marketing
position with the producers as a part of the RIK process;
they needed to decide whether to go with equity of venture
marketing. The state wanted the best professionals
available in the field to help it make the best decision.
He continued that each step of the way there were important
marketing decisions the state needed to make; some of the
positions were negotiated positions with the producers in
each step along the way. The negotiations were part of the
whole process of getting the baseline information the
legislature wanted to have by December 31 [2015]. He
furthered that it accelerated after that time and putting
people in place at present was critical.
Vice-Chair Saddler understood there had been $360,000 in
the budget for marketing positions and the request had been
made for an additional $480,000 for a total of $840,000. He
asked if there had been recruitment efforts to fill the
position at the $360,000 level and what the results had
been.
Commissioner Myers replied that the state had not yet begun
recruiting because it did not currently have funding for
the position. He did not want to do any recruiting without
some assurance the funding would be available. He furthered
that the state would hire a highly qualified person for
less if possible.
Vice-Chair Saddler had heard someone say that the $360,000
was already available, but the state had not tried to fill
the position at that amount.
Ms. Rutherford explained that the department had received
the $360,000 on July 1. The state had been in the midst of
determining what it could buy as a marketing lead and
everyone involved had been shocked at the price tag
associated with marketing leads in the industry both
nationally and internationally. The department had realized
quickly that the amount provided [$360,000] would not
suffice. How the state would deal with the issue had been
part of the discussions; as the discussions evolved around
the special session, the state hoped it would be an
opportunity to adequately fund the position to ensure
successful recruiting.
11:45:26 AM
Vice-Chair Saddler thought he had heard that there was not
really recruitment or an open post and that Audie Setters
had just communicated that he did not believe the amount
[$360,000] would be enough.
Commissioner Myers replied that they had gone to Human
Capital and Black and Veatch to get further input. He
explained that when he had heard the prices discussed by
the state's team he had requested much more due diligence
on the cost. He knew it would be an issue and had stressed
the importance to the team about the need to benchmark the
cost. Human Capital had looked at the market costs and the
legislature's consultant enalytica had also testified that
the figures were in the ballpark.
Ms. Rutherford elaborated that Black and Veatch had not
only relied on its own expertise; it had done outreach to
multiple parties before providing feedback to the
administration. She detailed that it had been a relatively
broad effort, which included soliciting information from
parties. She furthered that the consultant had not always
received the information, but they had obtained sufficient
consistent information to reach its determination. She had
been relieved to hear that enalytica believed the figures
were consistent with its analysis as well.
Representative Gattis believed the state should want access
to all of the information possible in order to make the
best decision. She was concerned as an Alaskan citizen that
the state would not do its best to obtain all of the
information possible. She believed the department was
remiss in not getting all of the information possible.
Co-Chair Neuman believed that the entire committee shared
the concern.
11:48:16 AM
Representative Munoz noted that the previous day Mr. Butt
had spoken to the importance of alignment. She detailed
that a key element of the goal was the ability to have
protection of intellectual property through confidentiality
agreements. She wondered why Attorney General Richards -
who was involved in commercial aspects of the project and
was chief counsel to AGDC - was unwilling to enter
confidentiality agreements related to the project.
Commissioner Myers deferred the question to Attorney
General Richards. One of the concerns was that it would be
necessary to revisit the issue if the confidentiality
prevented providing enough information to the public. He
referred to federal issues that percolated up over actions
and the inability to explain. For example, military
confidentiality created doubts in people's minds. He stated
that on a commercial side there was concern about having
confidentiality overly broad. He fully respected and agreed
with the need to have the best information. He noted that
he was a scientist by background and he believed in getting
all of the information. He noted that the state needed to
find a way to get all of the information, while having the
ability to explain to the public with adequate granularity
why the decisions were being made. He understood that
balance was an issue, but for a further explanation he
deferred to the Attorney General Richards or his designee.
11:50:13 AM
Representative Munoz asked if Attorney General Richards
would be available for questions.
Co-Chair Neuman believed Attorney General Richards would be
available for questions the following Monday.
Representative Munoz thanked the department for providing
clarity on where the TransCanada shares would go if the
state decided to buy them. She relayed that earlier in the
day the legislature had received a letter from the
commissioner and governor clarifying the intent.
Representative Wilson referred to slide 6 titled "Pre-FEED
Scope and Budget Changes." She asked about the term
"allowance for" and asked if it was the amount the
administration thought the state would have to pay. She
wondered why the $8.8 million was in the left column
instead of the right column.
Ms. Pitney responded that in the spring and summer when the
state had the estimate of $108 million it had assumed
roughly $70 million in the TransCanada buyout plus the
$38.4 million for remaining cash calls for the midstream
through the end of the year. Had the scope not changed, the
remaining cash calls would have only been $29.6 million.
The actual was the original estimate plus the $31 million
for the scope changes and $15 million [allowance for AGDC
downstream scope changes]. She explained that when the
administration had initially estimated the cost of buying
out TransCanada's portion of the project and taking over
the cash calls at $38.4 million (the combination of the
$29.6 million and the $8.4 million). She furthered that
without the changes the amount would have been $29.6
million, which made the administration's original estimate
a little off. She reiterated the costs including the scope
changes.
Representative Wilson asked for verification that the
figures on slide 6 represented actual amounts owed by the
state that would make it current through the end of the
year. Ms. Pitney responded in the affirmative.
Representative Wilson stated that the previous day the
committee had learned that the state would be required to
pay an additional $60 million at the December 4th meeting.
She asked for verification that the administration was
asking for $204 million.
Ms. Pitney responded that the $29.6 million plus the $31
million was the $60 million that would be required.
Representative Wilson asked for verification that the total
was $144 million and the $60 million did not need to be
added. Ms. Pitney agreed. She detailed that $144 million
was the total amount required for the state's full
participation on midstream and downstream through the pre-
FEED cash calls.
11:54:41 AM
Representative Wilson thought the administration may have
the money in a part of its budget that was not accessible
because the funds had been designated to come out of oil
and gas but not permitting. She wondered whether the money
could be adjusted within the existing budget versus
allocating new funds.
Ms. Rutherford responded that the state did not have the
money. She detailed that the request that was just under $2
million included $300,000 that would go to the Division of
Oil and Gas to backfill two commercial analysts. She
explained that everything else money that was money that
was unavailable. If the department did not receive the
additional $1.8 million it would not have the ability to
backfill the two positions and the people assisting the
department with commercial contract negotiations would not
be able to continue forward at the rate to achieve the
contracts by April 2016.
Representative Wilson requested the amount of the total DNR
budget for the current year.
11:57:06 AM
Ms. Pitney replied that she did not have the figure on
hand; however, the department's budget had been reduced by
18 percent the previous year (one of the largest reductions
to a department). She expounded that the Oil and Gas
Division had received a reduction and had not received a
requested increase associated with the AKLNG project. She
stated that there was tremendous stress on the department's
overall budget. She could follow up with the total FY 15
and FY 16 budgets. She explained that new money was
required to allow the division to progress on the project.
Representative Wilson understood that the department may
not have the funds within the Division of Oil and Gas. She
was not convinced that other funds could not be shifted
within the department's overall budget to meet the AKLNG
needs. She requested to hear from the DNR subcommittee
chair on the budgetary decisions that had been made. She
remarked that the following year would bring more budget
decreases.
Co-Chair Neuman stated that Representative Wilson was
correct. He relayed that at the end the last legislative
session there had been an unallocated $30 million cut to
the departments in order to work out a compromise. He
believed DNR's portion of the cut had been about $480,000.
He wondered if the administration was just trying to
backfill reductions within departments that the legislature
had requested.
Mark Myers answered that DNR generated $35.00 of General
Fund revenue for every $1.00 allocated by the legislature.
He stressed that cuts to the department would have severe
consequences on the revenue generation side or could result
in closing a major agriculture or forestry operation. He
relayed that the economy started and finished with the 160
million acres of state land. He stated the decision could
be made to not manage the lands in order to maximize
economic benefit for the state's citizens. He relayed that
he had run many organizations and had run an organization
that was eight times larger than DNR; he had individuals
internally and externally review the department and the
consensus was that the department was very strapped. For
example, in the past ten years DNR had a General Fund
budget increase of 8 percent; inflation had been 16
percent. He asked the committee to consider revenue
generation and loss of revenue generation as a result of
cuts versus the ability to take funds from someplace else.
12:00:27 PM
Representative Wilson remarked that Ms. Rutherford had
testified that because special session was taking place the
administration had chosen to make the funding request at
present instead of waiting until regular session. The
statement lead her to believe that the funds would not have
been requested until February [2016] if special session had
not taken place. She reiterated her request to hear from
the House Finance Committee member who chaired the DNR
budget.
Co-Chair Neuman replied that Representative Pruitt had the
DNR budget.
Representative Edgmon pointed out that Ms. Rutherford had
made statements that the buyout of TransCanada's portion of
the project would occur if the legislature approved the
transaction. He clarified that the administration had
already made the decision to buyout TransCanada's portion
of the project. He stated that the legislature was merely
approving the funds for the transaction. He wanted the
record to be clear that the legislature was not making the
decision to terminate the contract with TransCanada; it was
making the decision to approve the funds. He stressed that
the distinction between the two was significant.
12:02:16 PM
Commissioner Myers replied that the decision was his to
make as the DNR commissioner; however, he would not make
the decision [to terminate the contract with TransCanada]
unless the legislature allocated the funds. He stated that
it was possible - albeit unlikely - that the project would
continue without the buyout. He detailed that he had the
ability to negotiate a contract with TransCanada and that
the company may stay. He furthered that the state would not
have the ability to vote positively on the work plan and
budget and the project would stop if he terminated the
contract early without funds. In order to avoid the
situation he wanted to wait to make sure the funding had
been allocated.
Co-Chair Neuman noted that the legislature had heard from
TransCanada that its intention was to terminate with the
state.
Representative Edgmon stated that TransCanada was exiting
the project. He continued that it was technically correct
to say that a formal decision was yet to be made, but it
was a matter of semantics. He furthered that "we know that
they are exiting the stage" and that they would not be
present to vote on December 4. He believed the legislature
would approve the buyout provision. He remarked that in
fairness it was important to keep in mind that there was a
new administration in place and a governor with some
beliefs that differed dramatically from those of the
previous administration. He expounded that with a new
governor and team in place there were alignment issues by
virtue of just organizational challenges. He continued that
there would be some wrinkles that maybe over time the
Walker Administration would smooth out and that some of the
challenges would be met as the project moved forward. He
stated that in the meantime he had the right to uphold the
[Ronald] Reagan mantra of "trust but verify." He asked why
Audie Setters was listed as Alaska Gas Team general manager
in the governor's September 18 press statement and as the
marketing lead in the organizational chart provided by the
administration. He stated that it added to the blurriness
about who was really in charge. He remarked that the
presentation the previous day by Mr. Butt left no doubt
about who was in charge of the project. However, he heard
in the news that Mr. Butt's counterpart on the state side
was the governor (instead of someone in a similar
position). He surmised that it was the governor who could
provide the equivalent of the perspective provided by Mr.
Butt. He stated that he certainly would not presume to
demand that the committee hear from the governor. He did
not believe they were going to receive full organizational
clarity. He asked for a description of Mr. Setters' true
role.
Ms. Rutherford replied that Mr. Setters had been hired by
DNR as a marketing consultant. She furthered that he was
still under contract with DNR as a marketing contractor and
was considered a subject matter expert by the department.
There had been a period in May and June when the
administration chose to have Mr. Setters leading the
commercial negotiations, but it had not continued for any
significant length in time. She stated that Mr. Setters was
the marketing contractor for DNR, but was working as part
of the teams that were discussed as part of the bottom of
the organizational chart. She detailed that the teams were
matched by company representatives at approximately the
same levels in each company. There was not any one
particular head for BP, ConocoPhillips, or ExxonMobil
across all commercial negotiations. There were teams that
functioned for each issue and agreement that would
eventually roll up into commercial agreements that were
hopefully finalized. She stated that the BP teams answered
up to Janet Weiss, the ConocoPhillips teams answered up to
Joe Marushack, and the ExxonMobil teams answered up to Jim
Flood. She stated that the project was different than and
not part of the commercial negotiations. She expounded that
the state's equity holder in the liquefaction - in the form
of TransCanada - had been part of the commercial
negotiation. She explained that Mr. Butt was not part of
the commercial negotiations. She contended that the state's
executive officer was equal to the positions held by Ms.
Weiss, Mr. Marushack, and Mr. Flood. She stressed that the
teams that were supported by legal, commercial, and subject
matter experts that answered up to the head structure, were
not dissimilar to the other equity owners in the project.
12:09:11 PM
Representative Edgmon restated his question about Mr.
Setters' role in the project.
Commissioner Myers answered that the governor had made some
changes. He elaborated that when the governor had placed
Mr. Setters in charge he had replaced Ms. Rutherford who
had been serving as the state's chief negotiator and
coordinator of the structure. He elaborated that as the
state's chief executive, the governor had the prerogative.
He noted that the governor had replaced Mr. Setters with
Rigdon Boykin at a later date. He continued that as the
chief executive, the governor was simply exercising his
prerogative to change leadership over time.
Representative Edgmon stated he still had questions about
AGDC's true authority, the role envisioned by SB 138, and
the command structure that had been developed. He was not
saying that it was wrong and was not trying to impugn
anyone's motives, but the information had not been
demonstrated to him. He saw overlapping responsibilities
and policy decisions being made in different entities. He
did not see the organizational clarity that he believed was
necessary.
Co-Chair Neuman believed it had been the overwhelming theme
of the committee meeting.
12:11:30 PM
Representative Guttenberg stated that he had been around
the building for a long time and had never seen an issue
generate so much conflicting outside buzz from all
different parties and he was unclear about their motives.
He stated that the administration had done a good job
answering questions and trying to delineate its role in a
shifting project. He noted that the project was changing
and evolving and Mr. Butt had indicated that things in the
organizational chart were changing too. He spoke about SB
138, which had passed the legislature before the new
administration had come into office. He recalled that
Commissioner Myers had communicated that the state had gone
from a passive to an active player. He asked how the shift
had changed the state's role in the process.
Commissioner Myers replied that it was a very significant
change - the state had traded security for commercial
viability in terms of its role. He had been told by
consultants to the prior administration that when the
previous administration and legislature had approved SB
138, it had been designed to bring in approximately the
same revenue as the passive role would bring (assuming an
SB 21 structure [legislation passed in 2013 related to oil
and gas production tax legislation]). The state became less
of a sovereign and more as a commercial party to the
agreement. He furthered that the shift in roles meant that
the state went from a passive RIV structure. He noted that
the state always had the ability to do RIK, but practically
that would not happen in an LNG project because the gas
would be locked up in long-term contracts. He continued
that the commercial structure the state had used would not
have worked for the current project. He furthered that
stability had been needed from the Stranded Gas Development
Act, AGIA, and other - the tax systems had all contemplated
the need to fix some of the structural issues for long-term
gas sales contracts and maximizing the use of capacities.
He stressed that the state had to make direct investment.
He discussed that the state would not normally directly
invest billions of dollars into a project and would not
take out loans to purchase infrastructure.
Commissioner Myers emphasized that the state would not
typically take project failure risk like it was in the
current project. He detailed that if the project failed the
state would lose its money; it represented a significant
change. In the current scenario the state would receive a
project that would unlock the gas that had not been
unlocked by previous structures. He reiterated that the
state was taking more risk, a larger commercial role, was
surrendering sovereignty in terms of severance tax for a
set amount of gas, and flattening royalty rates. The state
was doing numerous things to look like an oil company;
however, in the end the state was not quite an oil company
because it could not get a drill rig and go explore for
more gas. He detailed that the state did not have its own
drilling company, exploration agency, and did not drill its
own leases; the state was passive; therefore, the complex
commercial agreements were necessary. The upfront costs of
converting to an active investor meant the state had to
create a new commercial structure, had to do a huge amount
of direct investment, and had to accept a huge amount of
project risk. He furthered that it had been done on one of
the biggest projects in the world, with numerous partners,
and with a requirement to make commitments that would last
for more than two decades. He remarked that they were
locking it down. He continued that it was change in the way
the state had operated - the model could not be found
anywhere else in North America and Alaska was blazing new
territories. He remarked that other companies had state oil
companies including Norway and Nigeria. He noted that it
was not an easy decision, particularly for a state without
a huge surplus. He explained it was the reason commercial
expertise was paramount.
12:17:06 PM
Representative Guttenberg thought the state should have
been more active for a long time, but he also believed it
should be more passive in some areas. He reasoned that to
play both sides was very difficult. He discussed that the
previous day Mr. Butt had testified that it could be
problematic that the DNR commissioner had not signed a
confidentiality agreement. He asked if Commissioner Myers
had ever felt that he had not had the information necessary
to make a decision. He asked what would happen if that
point arrived.
Commissioner Myers replied that he had told the governor
that if that point arrived he would sign a confidentiality
agreement, but that point had not yet arrived. He was
comfortable with the working relationships and respective
data flow. He explained that it was not necessary to have
all of the details to know where the issues stood on the
concepts under negotiation. He noted that getting the data
back from producers contained the granularity he needed. He
furthered that as a key decision maker his primary job was
to run a department with very broad interests including
managing 160 million acres of land, forestry, agriculture,
oil, and gas. He stressed that the project was very
important, but there was no way a commissioner should be
the project lead. He stated that he would drill down on
specific issues and relied on the team, which was the
reason he wanted the very best team of people and the
necessary resources. He relayed that it would be foolish to
believe that he could manage all of the components on his
own. He furthered that the information flowed very
effectively within the team because everyone else was under
the confidentiality issues and the department had been able
to work to provide the information the commissioner needed.
He was comfortable with the structure and he would sign the
confidentiality agreement if a point arrived where he was
not comfortable.
12:19:32 PM
Representative Gara was trying to determine if there was as
much disagreement on the issues under discussion as it
sounded like. He had heard some concern about AGDC creating
a new entity for the AKLNG project. He stressed that
statute specified that there had to be one entity within
AGDC for the in-state line and one entity for the large
line. He asked for verification that his understanding was
accurate.
Commissioner Myers replied that the entities needed to be
separated, but he was unsure about the requirement related
to the precise corporate structure. He stated that there
were limited liability issues, but he did not know the
details. He deferred to DOL for further information.
Representative Gara stated that the statute was clear that
separate entities were required for the in-state and large
lines.
Co-Chair Neuman indicated that there would be a review of
SB 138 the following Monday.
Representative Gara remarked that the confidentiality issue
had taken up a significant portion of the meeting. He asked
for verification that the commissioner would sign a
confidentiality agreement if there was something he needed
to know. He believed the commissioner was allowed to speak
with the governor about the issue even though the governor
had not signed a confidentiality agreement. He asked if his
understanding was accurate.
Commissioner Myers answered that the administration
believed that as senior executives he and the governor
really had access to all of the confidential information,
similar to that of corporations; they were assuming they
had full access in the current structure. He stated that
because of concerns he had specified in a sponsors meeting
that he would keep the information confidential, which he
would have done no matter what.
Representative Gara commented that AGDC had signed a
confidentiality agreement. He spoke to whether the
confidentiality agreement issues were slowing down the
project. Based on testimony he surmised that the
administration believed everything was on schedule. He
remarked that unfortunately there was not yet a binding
commitment from the three major oil companies to sell their
gas. He asked if the project was on or behind schedule.
Commissioner Myers replied that the project was behind
where the administration wanted to be, which was largely
because some of the framework commercial agreements had not
yet been fully secured. He stated that the project work was
on time, but the commercial negotiations were lagging. He
noted that the lag could not be attributed to any single
party. He added that the next negotiations needed to be
completed in time to have the ability to do a
constitutional amendment. There was a framework to make
everything work, but it would be aggressive.
12:23:36 PM
Representative Gara mentioned the high salary slated for
the marketing position. He remarked that the committee had
heard from enalytica on the issue - the consultants had
advised against being penny wise and pound foolish. He
noted that the state was acting like a private company - it
was a 25 percent owner of one of the largest projects in
the world if it chose the RIK method. He asked if
ExxonMobil or the other companies had a similar position on
their teams.
Commissioner Myers responded that ExxonMobil had an entire
marketing structure and very sophisticated teams of people
- they operated worldwide and were one of the top gas
marketers. He relayed that BP was very sophisticated in its
gas marketing and ConocoPhillips had started in the 1960s
out of Cook Inlet. He postulated that the state was a bit
behind and was clearly significantly under capacity
compared to the companies.
Ms. Rutherford agreed. She relayed that the department was
meeting with each of the companies' marketing teams - as
established in SB 138. She affirmed that the state was
lagging behind the companies.
Representative Gara remarked that the commissioner had not
signed the overall confidentiality agreement and sometimes
he signed an agreement to be in on a particular meeting. He
asked if Commissioner Myers believed that as a consequence
of not signing the overall confidentiality agreement he had
missed out on any information that he needed to do his job.
Commissioner Myers replied in the negative. He relayed that
he would have signed the agreement if he believed he had
not received the necessary information. He felt that he had
and continued to receive the necessary information through
a collaborative process.
12:25:52 PM
Co-Chair Neuman referred to the $10 million request for
outside legal counsel under DOL. He asked if the outside
counsel worked under the direction of the attorney general
or the DNR commissioner. He asked if Commissioner Myers
made legal requests.
Commissioner Myers answered that there had been good
discussions between DNR and the Attorney General Richards
on the issue. He detailed that the outside counsel would
work for the attorney general, but at the request of DNR.
The department had laid out its needed capacity and the
attorney general had made some suggestions. He communicated
that there was total alignment in the decision making. He
stated that they were world-class LNG attorneys and had
been critical to the department to date.
Ms. Rutherford further explained that the genesis of the
bulk of the work provided by Greenberg Traurig LLP and
Millbank, Tweed, Hadley, and McCloy was at the team level.
She elaborated that the work evolved as the negotiations
occurred; it was not driven externally, but from the team
working on particular issues or agreements.
12:27:09 PM
Vice-Chair Saddler remarked on Commissioner Myers'
testimony about when he would sign a confidentiality
agreement. He stated that the committee had been told
multiple times that DNR did not receive its total FY 16
budget request. He remarked that there had been budget cuts
due to the deficit; part of the cuts to DNR were associated
with the unallocated reduction. He asked how much FY 17
funding the department would require for marketing, the
geologist, and half of Ms. Rutherford's salary.
Ms. Pitney stated that the information was in the last
slide of the presentation but would have to get to that at
another time. The administration was estimating between $25
million and $35 million of capacity, which took into
account that DNR had $8 million; therefore, it may not be
entirely additional funding. In order for the state to act
as a project owner, it would need the capacity across DNR,
DOR, and DOL to take on the scale of the project. The final
schedule included $100 million through the FEED stage of
the project, which was a three to four-year process.
Additionally, there was an estimated $100 million for AGDC.
She explained that the state was essentially becoming a
producer company to move its gas to market. It was a
significant investment - the costs would be narrowed down
by the time it submitted its FY 17 request.
Commissioner Myers added that there was a construction
period. For example, he remarked on the huge number of
employees involved in building the oil pipeline - the
number had decreased to a much smaller operational staff.
He spoke to DNR's role in the current project including the
early stages of building up the commercial capacity and
getting the marketing agency underway. He explained that
the role would decrease down to that of a marketing agency
- the department envisioned that the marketing agency would
fall under a separate organization similar to the Alaska
Permanent Fund Corporation board structure. He elaborated
that it would be a relatively small operation if the joint
venture marketing plan was utilized. At that point the
consultants would no longer be required.
Co-Chair Neuman encouraged members to provide any
additional questions to his office. He asked if the
commissioners would be available for further questions.
Commissioner Myers replied that he would be available at
least through the coming Wednesday.
Co-Chair reviewed the agenda for the following day.
HB 3001 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
12:32:01 PM
The meeting was adjourned at 12:32 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 10.25.15 HB 3001 FY2016 Supplemental Request for State Agencies.pdf |
HFIN 10/31/2015 10:00:00 AM |
HB3001 |
| HB 3001 102515 Pitney - FY16 Supplemental Budget Presentation.pdf |
HFIN 10/31/2015 10:00:00 AM |
HB3001 |
| HB 3001 10.29.15 Rep. Neuman Question - Answer.pdf |
HFIN 10/31/2015 10:00:00 AM |
HB3001 |