Legislature(2003 - 2004)
02/06/2003 01:29 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 06, 2003
1:29 PM
TAPE HFC 03 - 14, Side A
TAPE HFC 03 - 14, Side B
CALL TO ORDER
Vice Chair Meyer called the House Finance Committee meeting
to order at 1:29 PM.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Eric Croft
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Carl Moses
Representative Gary Stevens
Representative Bill Stoltze
Representative Jim Whitaker
MEMBERS ABSENT
Representative Bill Williams, Co-Chair
ALSO PRESENT
Edgar Blatchford, Commissioner, Department of Community and
Economic Development; Tom Lawson, Director, Administrative
Services, Department of Community and Economic Development;
Sally Saddler, Legislative Liaison, Department of Community
and Economic Development;Ron Miller, Executive Director,
Alaska Industrial Development and Export Authority; Daniel
T. Seamount, Jr., Commissioner, Alaska Oil and Gas
Conservation Commission, Department of Administration; Cammy
Oechsli Taylor, Chair, Alaska Oil and Gas Conservation
Commission; Valerie Walker, Deputy-Director, Finance, Alaska
Industrial Development and Export Authority;Sarah Fisher-
Goad, Alaska Industrial Development and Export Authority.
PRESENT VIA TELECONFERENCE
None
GENERAL SUBJECT(S):
DEPARTMENT OF COMMUNITY AND ECONOMIC DEVELOPMENT
ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY
(AIDEA)
ALASKA ENERGY AUTHORITY (AEA)
ALASKA OIL AND GAS CONSERVATION COMMISSION
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 23rd Legislative Session, contact 465-
2156. After the 23rd Legislative Session they will be
available through the Legislative Library at 465-3808.
LOG SPEAKER DISCUSSION
TAPE HFC 03 - 14
SIDE A
000 Vice-Chair Meyer Convened the meeting at 1:29 p.m.
DEPARTMENT OF COMMUNITY AND ECONOMIC
DEVELOPMENT (DCED)
032 EDGAR BLATCHFORD, Introduced himself and Tom Lawson,
COMMISSIONER, Director, Administrative Services,
DEPARTMENT OF Department of Community and Economic
COMMUNITY AND Development, as well as Sally Sadler,
ECONOMIC DEVELOPMENT Legislative Liaison. He referred to the
mission statement as outlined in the
overview (copy on file). The general
mission of DCED is to promote strong
communities and healthy economies. They
provide consumer protection, promote
economic development, administer loan
programs and foster development of local
government.
311 Representative Noted his past experience with the
Foster Commissioner during his tenure with
Community and Regional Affairs and
commended his knowledge and
professionalism.
338 Representative Referenced Alaska Seafood Marketing
Stevens Institute (ASMI) and raised a concern
about the lack of general funds for the
organization. Asked how the legislature
could assist ASMI in marketing and other
methods of averting crises.
430 Commissioner Noted that the salmon industry must be
Blatchford continued. He explained that the
Department of Community and Economic
Development (DCED) services sometimes
included lending to ensure a healthy
seafood industry. He stated that the
2003 season necessitated major decisions
to develop solutions to the current
problem. He emphasized that the current
Administration encouraged flexibility
from other cabinet members to offer
suggestions.
559 Representative Joule Referenced municipal revenue sharing.
Asked whether revenue sharing was
foreseen in the face of five or ten
percent departmental reductions.
650 Commissioner Stressed the Department's intent to
Blatchford search for solutions to assist the rural
community. He stated that a large part
of the Department's mission was to
advocate for the unorganized boroughs.
He stated that DCED did not have any
concrete numbers and was seeking
solutions.
744 Representative Joule Asked for the Department's action plans.
808 Commissioner Noted the premise that each person living
Blatchford in Alaska should have the opportunity for
a fruitful life in his or her home
community. He stressed that development
of natural resources should first be to
local residents. He mentioned that, in
rural areas, the largest landowners were
the regional Native or village
corporations. The Administration has
asked not to impose any agenda on local
areas without cooperation of local
residents.
936 Representative Welcomed the Commissioner and expressed
Stoltze appreciation for his commitment. Asked
regarding administrative action to change
the name of the Department.
1006 Commissioner Responded that the Administration had
Blatchford asked to change the name to Commerce and
Economic Development. He noted that the
mission of the department was based on a
premise that the best social program is a
job, and that encouraging a strong
economy addresses social ills.
1100 Representative Asked about the impact of dividend
Stoltze payments to rural Alaskans and speculated
that not receiving a dividend could prove
more disastrous than a lack of revenue
sharing.
1143 Representative Questioned the policy of the Department
Hawker regarding the public ownership of the
Alaska Railroad Corporation. He noted
that the Corporation's tax-exempt status
competed against private enterprise,
resulting in sometimes a net cost to
local community. He referenced his own
community of Whittier.
1304 Commissioner Noted that the intent of statute was to
Blatchford promote a healthy Alaska and that this
included communities along the railway.
He acknowledged the feelings of these
communities and vowed to keep them in
mind when serving on the Railroad Board.
1412 Representative Endorsed Commissioner Blatchford's
Hawker support of those issues. He thanked him
for his support of private enterprise.
1446 Representative Joule Referred to the merger of two
departments, which resulted in the
current Department (previously Community
and Regional Affairs [DCRA] and Commerce
and Economic Development [DCED]). He
commented that rural Alaska might feel
alienated under the current organization
and name.
1607 Commissioner Responded that, while working with DCRA,
Blatchford he believed deeply in its mission. He
stated that, in the current process, he
would keep the interests of rural Alaska
at the forefront of DCED's mission to
provide for unorganized boroughs. He
added that the Governor requested that
unorganized boroughs have a say in public
policy decisions.
1707 Representative Croft Referred to last week's presentation by
Director Cheryl Frasca, Director,
Division of Management & Budget, Office
of the Governor (OMB), and questioned the
affects of a five or ten percent
reduction.
1743 Commissioner Responded that, while working ideas were
Blatchford presented to the Director of Office of
Management and Budget, the Department
remained in the process of discussion
regarding the budget. He stated that his
Department would soon present numbers for
consideration.
1809 Representative Croft Asked for rough ideas of potential
impacts of a five or ten percent
reduction to the Department.
1828 Commissioner Stated that he planned to shore up any
Blatchford reductions with spirit and enthusiasm.
1849 Representative Croft Referred to AS 37.07.060, and stated his
beliefs that documents sent to OMB are
public information. He quoted Section G,
which says that all goals and objectives,
plans programs, and estimated budgets
forwarded to OMB by a state agency are
public information.
1942 Representative Asked regarding the Salmon Task Force, in
Stevens the area of quality, and the mandatory
chilling of fish at time of capture.
Pointed out that requiring fishermen to
install icing equipment was difficult, in
times of financial difficulties. Asked
what assistance might be available in
terms of loans. Also asked about the
Governor's Fish Plan.
2059 Commissioner Stated that he does not have specifics,
Blatchford but stated that they would work with
local communities to address the crisis.
His Department has been asked to be
flexible and look for governmental
barriers that impede the industry. They
are looking at loan programs in the
Division of Investments and reviewing
regulations and criteria. Regarding
transportation, the Governor has
clarified that roads are essential. If
transportation was improved, natural
resources might be easier to transport.
2245 Representative Asked whether organic labeling to promote
Stoltze agriculture was also a federal problem.
2315 Commissioner Noted that organic labels applied to
Blatchford seafood as well as agriculture. He
agreed to provide further answers later
in the afternoon.
2411 Representative Asked about aquaculture in the State, in
Hawker particular for shellfish. He noted the
involvement in Seward.
2438 Commissioner Explained that shellfish farming was
Blatchford introduced in the 1990s. The idea was to
revitalize local opportunities through
shellfish farming. He mentioned his
involvement in the Native Tribal Council
Board, which had discussed shellfish
farming. He noted the tremendous
potential to revive the industry in
coastal areas. He pointed out that this
requires cooperation of the Legislature.
2544 Representative Asked to hear more proposals on that
Hawker subject. He also asked regarding
promoting salmon aquaculture programs in
western Alaska.
2615 Commissioner Mentioned the need to be equitable in
Blatchford distribution of state resources and
stated he would respond later in the
month.
2643 Vice-Chair Meyer Mentioned the National Petroleum Reserve-
Alaska impact on the North Slope and
referenced a report issued in late
January. Noted that $18.6 million had
been appropriated through the Impact
Mitigation Program. He clarified that
this funding was generated through 50
percent federal royalties, and could be
redistributed to communities through the
impact fee. He asked about the program's
success, and whether any remaining funds
went into the General Fund. He also
asked how further development might
affect the program.
2806 Commissioner Referred to Mr. Tom Lawson, Director,
Blatchford Administrative Services, Department of
Community and Economic Development.
2826 TOM LAWSON, Explained that funds came from lease
DIRECTOR, sales and payments to the federal
ADMINISTRATIVE government, half of which was passed on
SERVICES, DEPARTMENT to the State. The State has received
OF COMMUNITY AND payments over a ten-year period. The $18
ECONOMIC DEVELOPMENT million represents the annual lease
payments. In 2004, they expected $36
million. He summarized that the concept
of the program was to provide money to
rural areas impacted by leasing
exploration and development of oil and
gas. He conceded that the program's
effectiveness had come into question. He
stated the Department's openness to
working with legislature. Annually, only
$1.7 million was paid into the General
Fund, most of which went into grants.
Additional money could go to the General
Fund in the next year. Statute directs
that, if money remains after grants, 25
percent of the balance goes to the
General Fund, .5 Percent to schools, and
the remainder for legislative
appropriation to the Power Cost
Equalization program.
3107 Vice-Chair Meyer Noted that as more exploration occurred,
he foresaw the fund would grow, and
wanted to explore this source of revenue.
3144 Representative Noted that his career was spent in
Hawker villages that benefited from this impact
program. Funds have gone to develop
fundamental infrastructures, such as boat
launching, community airports, etc. This
is a beneficial program for isolated
areas of state. He agreed for the need
of judicious and fair allocation of
resources.
3251 Representative Joule Referred to a previous discussion as to
the intent for the use of these funds.
He believes in the funds are intended for
impacted communities to provide basic
infrastructure.
3357 Vice-Chair Meyer Voiced his support of the program.
3418 Commissioner Expressed his appreciation for the
Blatchford opportunity to serve state government.
The discussion was concluded.
ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT
AUTHORITY (AIDEA)
3447 RON MILLER, Noted that he had been hired as Executive
EXECUTIVE DIRECTOR, Director and introduced Mike Barry,
ALASKA INDUSTRIAL Chairman of AIDEA and AEA, and Valerie
DEVELOPMENT AND Walker, Deputy-Director, Finance, Alaska
EXPORT AUTHORITY Industrial Development and Export
Authority. He explained that AIDA had
been created by the legislature in 1967,
and began issuing general obligation
bonds in 1980. In 1981, the Authority
was capitalized with $23 million in cash
and a loan portfolio of $166 million.
Assets today are over $1.1 billion. In
1993, the legislature placed the Alaska
Energy Authority (AEA) under the overview
of AIDEA; the AIDEA board serves as AEA
board, and AIDEA staff oversees AEA
operations. The programs, however, are
separate.
3638 Mr. Miller Referred to the printed overview (copy on
file) outlining programs and mission of
organization. He discussed AIDEA's
programs: participations, business and
export assistance, a Conduit Revenue
Bond, Rural Development Initiative Fund
(RDIF), and development finance programs.
He noted some of their larger projects,
such as involvement in the Red Dog mining
system, as well as the DeLong Mountain
Transportation System. He referred to
page 7, which lists recent AIDEA
accomplishments, including the Federal
Express Aircraft Maintenance Facility,
and the Four Dam Pool Project. He also
referred to pages 8 and 9, which
illustrate the diversity and performance
of AIDEA's loan portfolio. Page 10 is a
list of finance projects, including
shipyards and coal facilities. He also
noted AIDEA's investment portfolio of
conservative instruments totaling $370
million. In 1996 a dividend program was
created to provide agency stability. The
dividend consists of between 25 to 50
percent of the company's net income for
the year, two years prior to dividend
payment. Since the policy was enacted,
the Authority has paid $129 million in
dividends to the State.
3913 Mr. Miller Explained that AIDEA provides staff to
AEA, which includes oversight of
operations and maintenance of all AEA
owned power projects and management and
staffing of the AEA rural and alternative
energy programs. The Energy Authority
mission is to assist in the development
of safe reliable and efficient energy
systems throughout Alaska. This is
accomplished through various programs,
including revolving loan funds, power
project fund, rural energy programs,
alternative energy program, and power
cost equalization. He also mentioned
training programs, circuit rider program
to assist village electric utilities, and
various electric programs operated by the
Energy Authority. He noted its
affiliation with the Denali Commission
and private business. He concluded his
presentation and invited questions.
4127 Vice-Chair Meyer Referred to the Alaska Seafood Processing
Plant that had closed, and asked whether
jobs had been transferred to another
country.
4149 Mr. Miller Noted that this job transfer may have
been a one-time occurrence. They have
been trying to determine whether any of
the product remained on the market.
4215 Representative Asked about the new president of ASI
Stevens (Alaska Seafood International).
4230 Mr. Miller Stated that John Lowrance, from Leader
Creek Fisheries, had been hired as a
consultant to decide what to do with the
plant and determine product development.
He was hired by ASI as an interim
replacement for the outgoing CEO.
4300 Representative Expressed his support of this
Stevens appointment.
4318 Representative Referred to page 10 of the handout that
Stoltze lists development finance projects. He
asked regarding the DeLong Mountain
Transportation System, and also referred
to the Red Dog mining project, and asked
about Mr. Miller's satisfaction with
project success.
4408 Mr. Barry Responded that in his experience, the
programs were providing a large number of
jobs and great economic diversification
throughout the State. He referred to the
list, and acknowledged that the success
rates have been varied. He commented on
the general success of the Red Dog Mine,
as well as the Federal Express Aircraft
Facility. He explained that the
Authority had saved a great deal of money
through refinancing the bonds. He noted
that when the bonds are paid off, future
revenues will remain in the state of
Alaska. He noted that the Healy Clean
Coal had a very unclear future, and would
be examined in terms of the overall State
energy policy. He also mentioned that
the Alaska Seafood Center was not a
successful investment.
TAPE HFC 03 - 14, Side B
Continued that these investments operated
at a net loss. Goals of new Board at a
work meeting will review all projects and
programs to ensure that programs will
allow for future dividends.
4542 Mr. Barry Explained that the programs intended for
AIDEA when it was established by the
legislature do not impact the State's
credit. Out of all AIDEA's total assets,
only $10 million is funded by obligations
to the State of Alaska.
4442 Mr. Barry Noted the Suneel coal facility was
operational and viable. Discussions are
underway on how to save employment, since
coal was no longer being shipped to the
facility.
4351 Mr. Barry Observed that the bulk of the non-
performing assets was Healy Clean Coal.
They comprise less than eight percent of
total assets. AIDEA maintains four times
their non-performing assets in liquid
securities. Mr. Barry stated that AIEDA
is sound financially.
4255 Mr. Barry Noted that a portion of the Skagway Ore
Terminal was being demolished. Skagway
still wants to keep options for minerals
activities in the Yukon to create
potential jobs. The Ketchikan shipyard
is operational, and AIDEA was negotiating
with the local community for them to
acquire ownership.
4203 Representative Asked about the construction of new power
Stoltze facilities, and what role AIDEA would
play in terms of guidance.
4131 Mr. Miller Noted that the current role of AIDEA for
guidance was conflicting. He pointed out
that his agency administered facilities
which generate energy. He suggested that
another, more objective entity should
provide guidance statewide, and that
AIDEA would follow that plan.
4037 Representative Asked about the ASI facility, in term of
Stoltze relocating the DEC inspection facility
from Palmer to Anchorage. He asked
whether this was a wise decision.
4005 Mr. Miller Was unable to answer this question at
this time.
3931 Representative Referenced the 2002 Annual Report, and
Hawker noted that of the $355 million in cash,
cash equivalents and investments
securities, none were listed as
restricted assets. He asked if these
were these truly unrestricted and
available for investment at this time.
3849 VALERIE WALKER, Responded that the investments were
DEPUTY-DIRECTOR, generally unrestricted. She mentioned a
FINANCE, ALASKA bond covenant requiring AIDEA to maintain
INDUSTRIAL $50 million in US Treasury securities
DEVELOPMENT AND maturing in one year or less, or cash.
EXPORT AUTHORITY She termed this as a liquidity covenant.
She also noted commitments of $29 million
to fund loans, and $20 million to fund a
dividend as of June 30. She summarized
that, from the $357 million, one would
deduct $100 million that must be
maintained. Ongoing responsibilities
include $20 million in loan commitments.
She noted that, depending on interest
rates and loan demands, payoffs could
either exceed loan commitments, or not
equal that amount. She maintained that
the funds were unrestricted, while at the
same time the most secure investment held
by the Authority.
3642 Representative Observed that, with the $100 million
Hawker needed in short-term liquid assets, this
reduced the aggregate of unrestricted
assets to $250 million. He asked
whether, if the legislature altered the
dividend formula, the $250 million would
be the dividend source.
3537 Ms. Walker Confirmed that this was true.
3523 Representative Estimated that if the formula were
Hawker changed, the dividend would be
approximately $17 million.
3507 Ms. Walker Clarified that, if you deduct $91 million
in development projects losses, the
dividend would be in the range of $9 to
$18 million.
3449 Co-Chair Harris Concluded the discussion on this subject.
ALASKA OIL & GAS CONSERVATION COMMISSION
3404 CAMMY OECHSLI Introduced Commissioner Daniel Seamount.
TAYLOR, CHAIR,
ALASKA OIL AND GAS
CONSERVATION
COMMISSION (AOGCC)
3330 DANIEL T. SEAMOUNT, Referred to handouts outlining their
JR., COMMISSIONER, power point presentation (copy on file).
ALASKA OIL AND GAS He pointed out that the first photograph
CONSERVATION showed an alpine field being developed by
COMMISSION, the Phillips Corporations, using new
DEPARTMENT OF industry technologies.
ADMINISTRATION
3048 Mr. Seamount He referred to Page 2 of the handout, and
discussed the history of the agency. He
also addressed the function and oversight
of the agency, as compared to a private
oil company and other state agencies.
2941 Mr. Seamount Discussed the mission statement: to
protect the public interest in oil and
gas resources.
2832 Mr. Seamount Observed that the AOGCC regulates
operations affecting subsurface oil & gas
resources, ensures the reliability of oil
and gas flow measurements, and ensures
that under-ground sources of drinking
water are protected by permitting,
inspecting, field studies and
investigations.
2711 Mr. Seamount Noted that the home office is in
Anchorage. There are field offices in the
North Slope, Cook Inlet and the Mat-Su
valley. AOGC has oversight over oil and
gas project everywhere in the state
except Denali National Park.
2613 Mr. Seamount Referred the Commission's customers,
including Alaskans, oil and gas
companies, Alaska Department of Natural
Resources, Department of Environmental
Conservation, U.S. Environmental
Protection Agency and other interested
parties.
2454 Mr. Seamount Outlined the Commission's primary
services.
2435 Mr. Seamount Discussed the Commission's goals and
strategies: prevent physical waste,
ensure greater ultimate recovery, assess
oil and gas development, evaluate and
inspect drilling to protect water
resources, and evaluate proposals for
reservoir development.
2252 Mr. Seamount Maintained that Alaska will not suffer
from the same mistakes made in Texas and
other states. He explained that this
would be implemented through protecting
correlative rights and adjudicating
disputes between owners.
2216 Mr. Seamount Discussed drilling wells. He observed
that current technologies enabled
extended reach wells, and two well bores
to surface location, as well as side
tracking.
2132 Mr. Seamount Referred to the underground injection
program. Inspections ensure greater
recovery and accurate volume
measurements. This means more revenue for
the state of Alaska.
2046 Mr. Seamount Showed a map of the North Slope base. He
explained the time required to complete
inspections. He also noted that, if ANWR
is opened, the area of oversight would be
greatly increased.
1956 Mr. Seamount Referred to the Cook Inlet base.
1932 Mr. Seamount Observed that filed studies review
proposed plans of development, evaluate
monthly production and injection reports
and evaluate reservoir performances.
1853 Mr. Seamount Discussed key issues and initiatives:
permitting - streamline; regulation
modification; North Slop Gas Pipeline;
Electronic data; UIC program; mature and
aging oil fields; audit and compliance
capability; and business process review.
1605 Mr. Seamount Discussed oil and gas activity as it
pertained to permitting. He noted that
since 1990 there had been a steady
increase in the number of permits due to
the exploration of satellite development.
He stated that the number of wells had
risen from less than 500 in 1975, to
nearly 4000.
1414 Mr. Seamount Expressed a commitment to improving the
time to process permits. In the recent
quarter, the time has decreased to ten
days.
1323 Mr. Seamount Referred to the contact information on
the final page of the handout (on file)
1306 Co-Chair Harris Asked how the agency was funded.
1247 Cammy Oechsli Noted that they were funded through a
Taylor, Chair, regulatory cost charge and a federal
Alaska Oil & Gas grant. They receive no General Fund
Conservation money.
Commission
1230 Vice-Chair Meyer Asked why exploration activity was
declining, even though the number of
companies was increasing.
1147 Mr. Seamount Maintained that their agency had not yet
observed a decrease in activity. He
mentioned re-drilling and side-drilling
of existing wells, which carry an
increase, as well as the development of
satellite discoveries. He cited
aggressive development at this time.
1046 Vice-Chair Meyer Asked whether development was in area of
producing the satellite field, rather
than exploration drilling. He referred to
a previous presentation by Philips.
0956 Co-Chair Harris Asked whether new techniques were being
employed to develop old fields.
0932 Mr. Seamount Stated that the ability to extend well
reaches had been improved by technology.
909 Representative Referred to his chairmanship of
Stevens Department of Administration and
Department of Natural Resources
subcommittees. He asked about the
placement of AOGC.
846 Ms. Oechsli Taylor Explained that the Commission had been
created before statehood, and modeled
after a national model act for
conservation practices. It was then
moved to the Department of Natural
Resources. At development of Purdue Bay,
the Legislature wanted to separate the
two functions, since the State of Alaska
is a significant landowner. The
potential appearance of conflict of
interest led the Legislature to move the
department elsewhere.
717 Co-Chair Harris ADJOURNMENT
The meeting was adjourned at 3:11 PM
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