Legislature(2009 - 2010)HOUSE FINANCE 519
02/25/2010 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB300 || HB302 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 300 | TELECONFERENCED | |
| += | HB 302 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
February 25, 2010
1:37 p.m.
1:37:21 PM
CALL TO ORDER
Co-Chair Hawker called the House Finance Committee meeting
to order at 1:37 p.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Vice-Chair
Representative Mike Doogan
Representative Anna Fairclough
Representative Allan Austerman
Representative Neal Foster
Representative Mike Kelly
MEMBERS ABSENT
Representative Reggie Joule
Representative Woodie Salmon
ALSO PRESENT
Pat Galvin, Commissioner, Department of Revenue; Craig
Tillery, Deputy Attorney General, Department of Law; Marty
Rutherford, Deputy Commissioner, Department of Natural
Resources; Mark Meyers, Alaska Gasline Inducement Act (AGIA)
Project Coordinator; Leta Simons, Support Services Division
Director, Department of Natural Resources; Harold Heinze,
Chief Executive Officer, Alaska Natural Gas Development
Authority (ANGDA); Karen Rehfeld, Director, Office of
Management and Budget.
PRESENT VIA TELECONFERENCE
None.
SUMMARY
1:37:28 PM
HB 300 APPROP: OPERATING BUDGET/LOANS/FUNDS
HB 300 was HEARD and HELD in committee for further
consideration.
HB 302 APPROP: MENTAL HEALTH BUDGET
HB 302 was HEARD and HELD in committee for further
consideration.
1:37:38 PM
HOUSE BILL NO. 300
"An Act making appropriations for the operating and
loan program expenses of state government, for certain
programs, and to capitalize funds; making supplemental
appropriations; making appropriations under art. IX,
sec. 17(c), Constitution of the State of Alaska; and
providing for an effective date."
HOUSE BILL NO. 302
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
1:39:17 PM
Co-Chair Hawker discussed housekeeping.
Briefing on Governor's FY 11 Oil and Gas Requests:
PAT GALVIN, COMMISSIONER, DEPARTMENT OF REVENUE, stated that
prompted by the issuing of the Alaska Gasline Inducement Act
(AGIA), a portion of the budget had been set aside to
fulfill the state's obligation to the AGIA reimbursement
fund, and to ensure that the department managed the
responsibility of reviewing the reimbursement requests on
order to determine what qualified as a reimbursable
expenditure. The request would also fund the auditing of the
reimbursement fund.
1:40:14 PM
Commissioner Galvin stressed that in order for the gasline
project to become a reality, discussions regarding the
state's fiscal system, in relation to gas commercialization,
would need to continue. He pointed out to the committee the
two primary budget items located on the "Governor's FY 11
Gasline Appropriation Requests" (copy on file). Line 7
illustrated the departmental request of $1.1 million to form
an "AGIA Reporting System and Fiscal Systems Analysis to
Support Negotiations of Gasline Fiscal Reimbursement Fund"
and Line 8 listed the $1,550,000 request to form the "Fiscal
Systems Analysis to Support Negotiations of Gasline Fiscal
Terms and Audit of AGIA Reimbursement Fund". The creation of
the positions would allow the department to retain the
knowledge gained in relation to understanding the state's
fiscal system, and it's involvement in the commercial
operations of a gasline. He believed that having commercial
analysts within the department was a critical function for
making informed policy decisions.
1:43:39 PM
Co-Chair Hawker referred to the handout "Department of
Revenue Status of FY 10 Gasline Appropriations" (copy on
file). Chapter 6 of the Statutory Law of Alaska (SLA), or SB
82, was an original appropriation of $3 million, a
significant portion of which was spent before FY 10. The
multi-year appropriation was outstanding thorough FY 12. He
queried the spending hiatus taken by the department in FY
10. Commissioner Galvin replied that the funds listed were
in anticipation of the escalating fiscal discussions. The
department could not predict when the discussions would
occur. The money was retained in reserve under the
assumption that the discussions may not follow a budgetary
cycle. The availability of the funds had been factored into
FY 11 request. The combination of the two appropriations
would be considered the funds available moving in the FY 11
timeframe.
Co-Chair Hawker understood that the money would be needed in
FY 11, in combination with the additional requests.
Commissioner Galvin replied in the affirmative.
Co-Chair Hawker asked if the contractor services to finalize
the department's AGIA regulations were under the commercial
rules required by statute to be completed before the
commencement of the open season. Commissioner Galvin
answered yes. He stated that the regulations dealing with
the value of the gas for the purpose of taxes needed to be
established. The department had worked with the Department
of Natural Resources (DNR) to utilize the same contractor to
provide the commercial framework for determining the
methodology for valuing the gas on the royalty side, and the
tax side. In the interest of the tax payer, work had been
done to keep the taxes and royalties equal. The expectation
for the remaining funds was to retain a contractor to
respond to the comments that were received during the public
comment period.
1:47:01 PM
Co-Chair Hawker queried the source of the $550,000,000
adjustment from the Office of Management and Budget (OMB).
Commissioner Galvin believed that the funds had been
released by the Department of Law (LAW) to OMB; OMB then
turned the funds over to the Department of Revenue (DOR). He
gave assurances that the money had been with LAW at the end
of FY 09, but was unclear of its origins.
Co-Chair Hawker understood that with the position requested
on Line 7 of the governor's request, the department intended
to manage the account of the reimbursement requests of the
licensee. Commissioner Galvin stated that that was correct.
Co-Chair Hawker expounded that the $140 million request
seemed an excessive salary to be paid for tracking the
reimbursement expenditures on the development for one year.
He pointed out to the commissioner that the department had
$3 million of unspent funds, allocated for information
technology (IT) improvements that had sat unused for 2
years.
Commissioner Galvin clarified that the request was intended
to be a one-time request in order to establish the
information system needed. He furthered that the information
requirements of the system listed on Line 7, were
independent of what would be necessary for running the rest
of the tax programs operated by the department. The unused
$3 million was part of separate on-going projects, both
related to the eventual development of a comprehensive
information system for all tax programs, and utilization to
upgrade equipment within the department. He reiterated that
the line item in the current budget was to create a system
that would be unique to the reimbursement request, and was
not intended to be an on-going budget item.
Co-Chair Hawker wondered what kind of information system was
being developed. Commissioner Galvin said he would need to
refer to an IT technician on the matter. Co-Chair Hawker
maintained that the complexity of the position requirements,
that would garner such a large salary, eluded him. He
requested further explanation as to why it was going to cost
the state $1 million to track the expenditures. Commissioner
Galvin clarified that the line item was a combination of 2
different things; $300,000 was for the information system,
and $800,000 was for the commercial analyst position. He
noted that the figures were wrongly merged into one on the
spreadsheet.
1:53:55 PM
Co-Chair Hawker clarified that the request was for $800,000
to fund 4 commercial analyst positions at $200,000 per
analyst, per year. Commissioner Galvin replied in the
affirmative. He explained that the intent was to hire people
with extensive industry experience in order to provide a
greater understanding within the department. He likened the
positions to the audit master positions within the
department. He felt that it would add to the knowledge base
and was worth funding. He believed that the salary would
attract the caliber of employee that the department was
seeking. Co-Chair Hawker noted that there had been
controversy over whether the audit masters had been utilized
as they were intended. He maintained his concern with the
request. Commissioner Galvin communicated that
representatives from the department could further explain
the work done by the analysts and its value to the state.
1:55:16 PM
Representative Austerman asked if the "Governor's FY 11
Gasline Appropriation Request" handout tracked with the
"Historical Summary Gasline Related Appropriations FY 04-FY
10"(copy on file).
Co-Chair Hawker apologized that the current and historical
requests had not been presented clearly and for comparison.
Commissioner Galvin added that yes, the sheets were
comparable to the extent that they described the same
information. The historical summary listed budget
appropriations that were connected to expenditures that were
made during FY 09, and were detailed in the "Alaska In-State
Gas Pipeline Project Budget Summary" packet. He stated that
Line 16 of the historical Summary tracked to the numbers
under "Ch6 SLA 07 (SB82) Commercialization North Slope Gas"
(CAP) illustrated on the status of FY 10 gasline
appropriations sheet.
Co-Chair Hawker identified that the "Ch27 SLA 09, (HB177)
North Slope Gas to Market (OP) could be tracked to Line 16,
Page 2 of the historical summary.
Commissioner Galvin interjected that Lines 17 and 18 of the
historical summary pertained to ANGDA, and would be
discussed later in the meeting.
1:57:57 PM
Co-Chair Hawker stated that there was $353,000 left from the
FY 09 appropriation which he could not track on the
historical summary. Commissioner Galvin relayed that he
would get back to the committee with the information. He
believed that there had been no FY 09 expenditures made from
the appropriation that would fall into the categories listed
on the historical summary.
Co-Chair Hawker reminded the commissioner that the committee
had requested information for all money and appropriations
that were active and available. He apologized again to the
committee that the information was incomplete.
Co-Chair Hawker wondered if the department had the legal
authority to make Exxon Mobile Corporation (Exxon) and
TransCanada pay for the incurred cost to the state as a
result of the project. He argued that Exxon could more than
afford to pay the cost to the administration. Commissioner
Galvin replied that the expenses for the hiring of
commercial analysts, and consultants to oversee the fiscal
system were not items that would be reimbursed by the
industry.
Co-Chair Hawker contended that industry was directly
benefiting from the half billion dollars that the state was
spending on the project.
Commissioner Galvin thought that two different issues were
being unclearly combined. He said that the state would not
charge the industry for the cost of implementing the system
necessary for determining if the industry expenditures
qualified for reimbursement. He understood that the question
was whether or not state had the right to ask the industry
for reimbursement for the cost of the creation of the
information system. He felt that the creation costs should
be separated from the expenditures that were associated with
developing a fiscal system that related to the development
of the gas project. In the instance of the development of a
gas project, the funds were not exclusive to one project or
the other, if the state made a change in the fiscal system
it would apply to any project that moved forward. The
implication that the development of the fiscal system was
for the sole benefit of the AGIA licensee was a misguided
notion. The fiscal system was being developed to protect the
state's interest with any gasline project that went forward.
2:03:20 PM
Co-Chair Hawker maintained that the costs that had been
specifically identified with the AGIA pipeline should be
charged to the company that agrees to the project. He
thought that the company that was causing the state to incur
the cost should be responsible for reimbursement of the
cost. Commissioner Galvin rebutted that the department did
not believe that it would be beneficial to entities
operating in the state, whereas a permitting expenditure was
for the purpose of providing a particular applicant with a
particular response. He expressed concern with billing the
industry for the cost of developing state tax policy in the
expectation of a tax discussion. He wondered how the state
would determine who to send the bill to.
Commissioner Galvin understood that the suggestion was that
the state should find a way to limit the amount of general
fund spending for consultants and commercial analysts by
passing the cost onto the industry. He claimed that he did
not know a methodology in which that could be done. He
wondered if it was wise to pass on the cost of the state's
decision making about tax policy, to the companies that
would be paying the tax.
2:06:20 PM
Co-Chair Hawker repeated that a charge back system for the
cost of building a fiscal structure to audit the companies
was not unreasonable. Commissioner Galvin felt that the
question would depend on how extensive the review needed to
be. If the cost were going to be passed on to the licensee,
the licensee could suggest that the state be less rigorous
in its evaluation.
Co-Chair Hawker agreed to disagree.
Representative Kelly attempted to examine the question from
a different perspective. He asked if there was a possibility
state could request some reimbursement. Commissioner Galvin
explained that with a permit, the applicant was looking to
do something that they do not have a right to do, which
obligated the applicant under state law to get permission
through the permit to do it. In the context of the
reimbursement requirements, that applicant had a contractual
right to reimbursement. The state then had the opportunity
to evaluate the reimbursement request to determine how much
should be paid. The applicant had the contractual right to
the full amount. The effort that the state put into the
evaluation would be commensurate with the amount of scrutiny
put into determining if the full amount of the request would
be paid. He felt that passing the cost of the evaluation
onto the licensee was different that passing the cost onto a
permit applicant.
Representative Kelly asked if the department had been
careful to clearly identify the non-reimbursable items for
all parties involved. He assumed that the department had
considered the question of cost reimbursement and had
determined that it was not sound policy. Commissioner Galvin
clarified of the $2.6 million illustrated on Lines 7 and 8
of the gasline appropriation request, $350,000 was
attributable to the AGIA reimbursement account. The
remaining $2.3 million was unrelated to the AGIA
reimbursement account, and would fund analysts not specific
to AGIA.
2:13:27 PM
Commissioner Galvin said the amounts requested were for
viable and necessary projects. He felt the information would
be beneficial in future legislative cycle discussions. He
believed that the reference to the remaining balance was an
example of funds being available when they were needed.
2:15:06 PM
Representative Doogan requested an explanation of Line Items
7 and 8 of the "Governor's FY 11 Gasline Appropriations
Request". He understood that $350,000 of the aggregate
amount of $2.65 million was the AGIA reimbursement account,
but was unclear about what the rest of the request was for.
Commissioner Galvin explained that line 7 was comprised of
$800,000 for the 4 commercial analyst positions, and
$300,000 for the AGIA information system development. Line 8
represented $1.5 million for contractual support for the
fiscal system analysis; $50,000 was for the outside audit of
the AGIA reimbursement fund.
Representative Doogan asked what the $1.5 million left over
would be used for. Commissioner Galvin responded that the
funds were for the fiscal analysis contractual support.
Representative Doogan asked what that the support entailed.
Commissioner Galvin relayed that the support meant bringing
in outside services to provide contractual support as to how
the fiscal system worked; both with, and without the gas
project.
2:19:10 PM
Representative Doogan asked if "fiscal system" meant "tax
policies". Commissioner Galvin replied yes.
Vice-Chair Thomas inquired about Line Item 11, the request
for $10,000,000 for the Municipality of Anchorage: Port of
Anchorage Expansion.
KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
responded that the decision to include the Port of Anchorage
in the governor's capital budget was based on the port being
a central port that brought in goods and services related to
pipeline infrastructure development.
Vice-Chair Thomas asked if any other ports that had been
identified similarly, had been given the same amount. Ms.
Rehfeld replied that there were a number of potential port
and road improvement projects that would be important for
the gasline. At this point the entire list of projects had
not been identified.
2:21:23 PM
Vice-Chair Thomas expressed concern that only one port was
chosen for funding. He believed that ports in Haines and
Skagway were equally important. Ms. Rehfeld responded that
the Department of Transportation and Public Works (DOT/PW)
was working to identify port needs around the state.
Co-Chair Hawker added that the house and the senate had
agreed that the governor's request to use funds held by the
Alaska Housing Finance Corporation (AHFC) for future capital
projects was inappropriate. He reminded the committee that
the source of the funding for projects should be considered
in budget discussions.
Vice-Chair Thomas understood that under AGIA, the oil
companies would be fiscally responsible for improvements to
any of the ports involved in the gasline.
Representative Doogan pointed out that a number of
appropriations had been made to the Port of Anchorage over
the past few years. He asked whether the port expansion was
related to the gasline. Ms. Rehfeld replied that the
administration felt that the AHFC fund source was
appropriate for the gasline and gasline related projects.
Co-Chair Hawker categorized the request as another general
expansion of the port, not related to the gasline. Ms.
Rehfeld concurred that it was another installment into the
Anchorage port. Ports throughout the state would need
improvements in preparation for a gasline.
2:26:02 PM
CRAIG TILLERY, DEPUTY ATTORNEY GENERAL, DEPARTMENT OF LAW,
introduced his support staff. He directed the attention of
the committee to Page 8, Line 55 of the historical summary.
The original appropriation had been for $2,950,000, of which
$3.5 million had been allocated to the Department of Law. At
the end of the fiscal year it became apparent that the
department did not need the entire appropriation, so the
remaining funds were reallocated back to the governor's
office.
Mr. Tillery stated that of the $2,950,000, the department
expended $1,250,000. The remaining $1.7 million would be
approximately what the department would need for FY 10; the
entire amount was to be spent on one contract. Under the
administrative manual, the department encumbered the $1.7
million for the contract, and did not have an appropriation
this past year. It was anticipated that the department would
spent the full $1.7 million this fiscal year.
Co-Chair Hawker asked what the department was spending the
money on.
Mr. Tillery explained that in the past, the funds had been
expended on outside counsel. The majority of the funds had
gone to the law firm of Greenberg-Traurig. The firm had
assisted the department with an analysis of Federal Energy
Regulatory Commission (FERC) rate making practices, the
federal open season requirements, use of precedent
agreements for firm transportation capacity, an analysis of
the AGIA licensee's project plans, and the successful
request for a waiver of FERC capacity provisions to reduce
risk to potential shippers. A small amount had gone to the
firm of Bennett-Williams in order to handle some of the
Canadian aspects of the gasline.
2:31:19 PM
Mr. Tillery stated that the department anticipated using the
$2.5 million appropriation request of the coming fiscal year
to pay Greenberg-Traurig. The funds would be used for
continued monitoring of the pre-filing process, various FERC
issues, transportation agreements, and FERC filings related
to the certificate of public convenience and necessity, and
certain activities related to the Canadian regulatory
issues.
Co-Chair Hawker asked if the department anticipated using
the full 2.5 million in the next fiscal year, or would it be
a multi-year utilization. Mr. Tillery replied that the
department anticipated fully using the funds in the coming
fiscal year.
Representative Doogan referred to the gasline funding
history handout distributed by the department (copy on
file). In FY 09, $3.5 million was transferred from the
governor's office to the department. Then, at the end of
2009, $1,697.2 was encumbered for an existing contract with
Greenberg-Trauig. He asked if the remainder of the $3.5
million had been spent. Mr. Tillery responded that the rest
of the money had been spent, or had been returned to the
governor's office for reallocation. Representative Doogan
clarified that the $550,000 was coming from the funds. Mr.
Tillery replied in the affirmative.
2:35:00 PM
MARTY RUTHERFORD, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, introduced her support staff. She stated that
there were several components associated with the gasline
that were currently being explored by the department. Work
was expected in the area of license compliance, which was an
obligation associated with AGIA statute AS. 43.90. This was
the technical and engineering design timeline of the gasline
project. Part of the plan involved what was going to be done
in terms of expenditures. Commercial aspects included
ensuring that open season filing was responsive to the
requirements of AGIA and making certain that the net present
value did not negatively affect the state. There were AGIA
incentives associated with royalty tax and license
regulations. Then there were the regulatory and
environmental aspects of overseeing the project as it
progressed. She relayed that the AGIA project was
responsible for ensuring that gas was available for in-state
use, and that there were adequate off-takes located in
appropriate locations. There were at least 5 off-takes
expected.
Co-Chair Hawker understood that the department was
optimistic about the project.
Ms. Rutherford said that the department believed in the
viability of the project. She stressed that the department
wanted to begin preliminary work as soon as possible.
MARK MEYERS, ALASKA GASLINE INDUCEMENT ACT (AGIA) PROJECT
COORDINATOR, all aspects of energy resources and interest
should be considered in competitive benchmarking. The AGIA
project was a gateway that would open the entire North Slope
to natural gas possibilities. Various things need to be
examined and monitored to make the project a success.
Ms. Rutherford said that the state was moving into a new
generation of oil and gas development. She believed that
natural gas was going to become a very important part of the
state's economy. She urged that many models and aspects
needed to be examined.
2:44:29 PM
LETA SIMONS, SUPPORT SERVICES DIVISION DIRECTOR, DEPARTMENT
OF NATURAL RESOURCES, referred to the handout prepared by
the department (copy on file). The department drew funding
from four different areas related to the gasline; most of
which had carried over from prior years as far back as FY
05. A multi-year operating appropriation for right-of-way
permitting had an available balance of $2,996,700, which had
been reappropritaed, and would be used by June 30, 2011.
2:46:24 PM
Ms. Rutherford interjected that the money had been
appropriated for use associated with right-of-way activity,
and was not specific to the AGIA licensee. The most recent
expenditure of the funds had been for a part-time employee
with the joint pipeline office, who would be responsible for
gathering general information and doing pre-application
work. Some of the remaining balance would also be used for
the purpose of public access to Light Detection and Ranging
(LIDAR) of the mainline pipe from the North Slope to the
Canadian border.
2:47:54 PM
Mr. Myers added that LIDAR was necessary because there was a
section of route near the Canadian border that contained
large geologic faults. The corridors for the pipeline were
narrow, and a wider one was needed in order to understand
any possible geologic hazards. Locating and identifying any
active faults was a priority to alleviate litigation and
project delay.
Ms. Rutherford continued. She stated that work had begun
with DOT/PW and DNR to identify additional raw material
sites. Existing material sites were contaminated and gravel
would need to be found elsewhere. She stressed that the
department would only use the funds when appropriate.
2:50:37 PM
Co-Chair Hawker highlighted the line item found on Page 9,
Line 69, of the historical summary. He noted that the
appropriation on Line 69 had been originally appropriated in
2008, and was then re-appropriated in the 2009 budget. He
understood that the short description of the project
requested funds for the permitting and application
processing for the right-of-way work related to bringing
North Slope gas to market. He said that entering into the FY
10 budget year the department had $2.9 million, of which
only $22,000 had been expended. This meant that the
department was still sitting on nearly the entire
appropriation. He asked if all the work the department
needed to do in FY 09 was accomplished with only $22,000.
Ms. Rutherford replied that the $22,000 was only associated
with the employee that had been assisting in the joint
pipeline office. The LIDAR purchase was estimated at
$500,000 and would be paid for out of the original balance.
Co-Chair Hawker wondered if the money spent on the
permitting and application processing should be billed back
to the applicant. Ms. Rutherford replied that the department
had worked diligently to clarify in the agreement what the
state would be reimbursed for. The licensee was entitled
access to a coordinators office by statute, and general
funds were being requested for that. Beyond that, RSAs were
in place to reimburse the state. The money associated with
the appropriation went beyond the normal pre-application and
application for a right-of-way. It explored where additional
material sites, for any project, were located, and how the
state as a sovereign held companies responsible for
contaminated sites. She stated that the responsibilities
covered in the request were sovereign responsibilities and
not things that could be directly billed to an applicant.
Mr. Myers added that the environmental cost of putting up a
project of this scale was 100's of millions of dollars. The
department understood that changes in the National
Environmental Policy Act (NEPA), Environmental Site
Assessment (ESA), fish and stream crossings, and air and
water quality laws had created a challenge to accelerating
development projects in the state. The detail permitting
work was reimbursable, but prior to that time, the best way
to get the project going was help assure environmental
regulatory certainty for the industry. He furthered that the
concept of using general funds in the AGIA license was based
on the premise that the state could help to assure the
certainty of a gasline by getting agencies working together
to fill in data gaps prior to application.
2:58:40 PM
Representative Doogan referred to Page 9, Line 69 of the
historical summary, which illustrated the balance amount
$2,940,100. He compared the figure of $2,981,000 detailed on
the department's handout. He queried why the numbers were
different. Ms. Simons explained that there were several
multi-year appropriations, which resulted in more than one
balance on the spreadsheet. There was the $2,940,100, plus
$5,700 left over from another appropriation (Page 1, Line
11), and a balance of $900 found on Page 9, Line 67. She
concluded that the total was made up of many small balances.
3:01:50 PM
Ms. Simons continued. She said the request from FY 10 for
$3.2 million was on track with the FY 11 request. The funds
were used for consultants in support of the AGIA contract. A
list of consultants and the different contracts they worked
on could be made available.
Ms. Rutherford explained what had been done with current
year appropriations. Of the $3.2 million, $1.3 million had
been spent; $1.5 million had been encumbered. The estimation
was that the balance of approximately $272,000 would lapse.
The department was using $690,000 in association with a
company called PINGO International for project plan
monitoring of the AGIA licensee's pipeline project. The
department had also allotted $364,325 to be paid to Black
and Veatch for economic risk modeling, which was the primary
instrument used to calculate net present value and examine
the risks associated with the commercial aspect of the
project. The company had also been working on AGIA royalty
reduction regulations. Energy Capital Advisors/Energy
Project Consultants had been paid $197,876 for a commercial
advisor to monitor and review the licensee's commercial and
overall project plan, and provide assistance to state policy
makers regarding various commercial measures the state may
take to increase the likelihood of project success. The
department had paid Blaskovich Services, Inc. $138,746 for
an oil and gas planning model and gathering large volumes of
relevant data and meeting with state policy makers to
determine the framework needed for an Alaska Oil and Gas
Energy plan model.
3:05:42 PM
Representative Gara expressed that the consulting process
was seemingly unending. Ms. Rutherford explained that Black
and Veatch and Energy Capital Advisors had been involved
during the analysis of the proposed partnership between the
AGIA licensee TransCanada and Exxon. The relationship was
commercial and the department wanted to ensure that nothing
in the partnership would obviate the responsibilities to the
state under AGIA. Outside experts helped to question and
analyze the complex commercial documents that were part of
the process and were not on retainer, but hired for specific
projects.
Mr. Myer added that Exxon and TransCanada had varying
business practices and expectations in terms of contingency.
The state needed to know if the legitimate rates the
companies charged were fair and reasoned rates for the
reimbursable components. The department had a responsibility
of due diligence to examine the dynamics as the companies
changed and integrated.
3:08:02 PM
Mr. Myer said that the efforts being made to create the
gasline were complex and experts were necessary. The geo-
technical aspects of the pipeline would also require
expertise. Huge cost variations could occur depending on the
modeling of the physical pipeline. He asserted that the
state should have a deep understanding of the economic
factors involved in the project. He assured the committee
there were many constant elements that came into play within
the project's viability.
3:10:14 PM
Ms. Rutherford furthered that project changes that were
significant enough to negatively affect the state's net
present value needed to be recognized early on. The outside
consultants were assisting in providing up-to-date
information necessary for the state to make knowledgeable
decisions moving forward.
Representative Gara asked if the administration would
provide a status report of the continuing viability of a
gasline.
Mr. Myer responded that the updates were being presented
incrementally. He cited a talk on shale gas presented to the
committee in the past. He believed that it was an advantage
to have capacity built with shale gas, 90 percent of new
electrical generations came from natural gas. A trend which
would likely continue if the EIA forecast was correct. The
growth in natural gas demand would force an examination of
the supply balance and cost structure of the product. He
stressed the importance that the state understood current
commercial information in order to comprehend the economic
fluctuations that were expected. He stated that how the
state's product would compete with Shell Gas was a
legitimate question and should be explored by experts.
3:14:00 PM
Mr. Myer asserted that the administration did not anticipate
a fundamental loss in the financial viability of the
project.
Ms. Simons continued to discuss the FY 10 base budget
illustrated on Page 2:
FY 10 Base budget for AGIA Coordinator's Office -
$681,700, AR 37093
Current expenditures are $360,725 in personal services,
$64,576 in travel, $49,724 for services, and $6,775 for
commodities: Total of $481,800 which is 72 percent of
the FY 10 budget. An additional amount of $35,100 had
been encumbered.
Capital Improvement Projects (CIP) - $4,785,160 for two
projects:
Gasline Corridor Hazards Evaluation, $785,160 available
from FY 08 and FY 09 CIPs, AR 40774 & AR 40841 -
Division of Geological and Geophysical Surveys:
· $267,827 had been used to pay contractors
including Costal Helicopters, Inc., Michael Smith,
University of Alaska Fairbanks, Carver Geologic,
and Alaska Aerofuel.
· $79,333 has been used for in-house expense in the
Division of Geological and Geophysical Surveys for
personal services, travel, services and
commodities for the project manager.
Reservoir Modeling Studies, North Slope - $4.0 million
available from FY09 CIP, AR 40852 - Division of Oil and
Gas:
· $657,400 was used to pay contractor PetroTel for
completion of a study in the NorthStar unit.
Ms. Simons stated that another $2.9 million in contracts had
been written against the $4.0 million, but that the
department encumbered task orders and not contracts. As the
task orders were lined up the department would begin
encumbering the balance.
Co-Chair Hawker clarified that that explained why little of
the FY08 authority appeared to have had been spent.
3:17:21 PM
Ms. Simons continued on to the FY 11 budget request. She
broke down the Governor's FY 11 Gasline Appropriation
Request for $4,217,500. For FY 11 the department was
requesting $2.3 million to pay for consultants.
Ms. Rutherford added that the request was $1 million less
than FY 10 because the department would not be doing the
AGIA regulations; the funds were a continuation for the
requirements associated with overseeing the AGIA activities.
3:18:27 PM
Representative Austerman asked what the FY 10 one-time
appropriation was. Ms. Rutherford explained that the request
had been for $3.2 million for FY 10, and was $2.3 for FY 11.
Co-Chair Hawker understood that the $2.3 was encompassed in
the $4.2. Ms. Rutherford replied in the affirmative.
3:18:50 PM
Ms. Simons said that also encompassed in the $4.2, was a
$1,444,000 increment for the base budget for the AGIA
coordinators office. The increment would add 4 new positions
and would cover travel expenses and office space; lease
space and telephone activity had not yet been written into
the budget. The final item was $477,500 for AGIA outreach
geared to provide information to stakeholders.
Co-Chair Hawker noted that the governor's request would be
discussed in future supplemental request hearings. In that
context he wondered if the department had asked for an after
the fact reimbursement from the industry, or was approval
from the legislature being sought before action was taken.
Mr. Myers said the department had money to pay salaries for
approximately two months, and no travel money left. The hope
was that the supplemental request would be approved. The
department was not yet in deficit spending, but at the
current rate of spending, in order to continue the necessary
work, more money was needed. He referred to a subcommittee
document that explained the level of detailed work going
forward. He stressed that because the state passed the law,
and the legislature approved the license, the licensee was
obligated until 2014 to acquire the FERC certificate which
required an EIS. The limited timeframe of the EIS required
the regulatory work to continue regardless of the commercial
results of the open season. The environmental regulatory
work, the engineering, and the outreach to acquire permits,
would be mandatory per the obligation under the AGIA
license.
3:21:33 PM
Co-Chair Hawker revealed that the committee had not received
the sub-committee document mentioned by Mr. Myers. Mr. Myers
offered to provide the document to the committee.
Mr. Myers relayed that FERC was anxious to begin the work.
Under federal law they had 18 months to complete the EIS
once the application was submitted. The permitting work to
complete the field work was currently happening. The agency
planned on engaging in coordination on the GIS system. Both
the federal and state government was working to gather as
much public data as possible. The four new positions;
pipeline coordinator, habitat biologist, administrative
office support, and project assistance for website and GIS
work, were required. Communication with the public on the
progress of the project was also a priority.
3:24:24 PM
Ms. Rutherford interjected that public outreach needed to be
improved and not maintained.
Co-Chair Hawker estimated that the department was constantly
aware of concerns over the viability of the project. He
perceived that it was the responsibility of the legislature
to consider the question. He wondered if the project were to
be assessed with a purely objective eye, would it appear to
be a viable and successful project. Ms. Rutherford believed
that project was still in good shape. The differential
between the price of oil and gas was a change from past
practices. Based upon the information received from outside
experts, she was 65-70 percent sure. She admitted that
various concerns existed, but felt that the project needed
to be moved forward. She asserted that oil was on the
decline and an alternative source was greatly needed.
3:28:09 PM
Vice-Chair Thomas declared that had he known that the state
was going into the joint venture with Exxon, he would have
voted against AGIA. He asserted that what the corporation
had done to the commercial fishing industry in the state,
and Alaska as a whole, was disastrous. He asked if AGIA or
DNR was responsible for the recommendation of putting aside
$10 million for the Port of Anchorage. Ms. Rutherford
believed that the decision had been made by OMB. The
Department of Natural Resources was working with DOT/PW to
examine all infrastructure needs throughout the state. She
emphasized that DOT had lead discussions concerning where
infrastructure improvements should occur. She could not
elaborate on the $10 million dollars for the port.
Ms. Rutherford clarified for Representative Thomas that
TransCanada was the AGIA licensee and not Exxon. TransCanada
was the entity responsible for ensuring that the project
moved forward under the rules of AGIA, if Exxon reneged,
TransCanada would still be responsible. She stated that the
issue had been closely scrutinized.
Vice-Chair Thomas maintained that Exxon's involvement in the
project, in any way, made him uncomfortable. He said that
the people he represented, mainly fishermen, were still
unnerved by the idea of having Exxon involved at all.
3:31:35 PM
Mr. Myers added that Exxon was a challenging company in
their devotion to the bottom line. However, in order to move
a large project forward, all the major producers would need
to be involved. He asserted that Exxon had the expertise
needed to make the gasline a success. The company was
capable and engaged, and their products were world-class. He
shared that when the energy mix for the country was
examined, and what the project could deliver to North
America was assessed, the natural gas pipeline was
environmentally acceptable. He said that natural gas was
supported in the environmental community, and the state
could open up a 50 to 100 year supply for the country. He
contended that the increase in energy demand could not be
ignored. He alleged that as the population in the country
grew, particularly in the lower 48 states, access to
exploration would be restricted. Alaska natural gas was the
future, and was a very valuable resource. The policy
implications of the pipeline were huge for the nation.
Strategically, from many perspectives, the project makes a
lot of sense.
3:36:06 PM
Mr. Myer acknowledged that there were many aspects of the
plan that were still out of alignment, but queried the
alternative for the nation of not moving forward with the
project.
3:36:46 PM
Co-Chair Stoltze called for the administration to follow up
on the questions raised about the Port of Anchorage request.
Representative Doogan ascertained that the state was engaged
in a $500,000 endeavor to build the gasline. He understood
that the state needed to be up-to-date with information
concerning the project, but expressed concern of using tax
payer money to satisfy passing concerns about the pipeline.
He expressed concern about wasting funds on research that
could prove unrelated or irrelevant to the state's interest.
Ms. Rutherford replied that the money spent to date had been
spent on necessary research. As a sidebar, some of the
information learned would be important for the future
management of gas activity, and was learned in response to
AGIA demands.
3:42:09 PM
Mr. Myer explained that the number of state bodies that had
been added to state government to manage the project should
be examined. He shared that DNR had added 3 positions, but
that all the other departments were doing the gasline work
part-time. The lack of positions had had an effect on the
state's ability to deliver final product, and had added to
problems with workload continuity. The project was a 10 year
project which was long term and continuity of staff. He
maintained that the expertise of the added positions would
be beneficial, and that building structure into the process
was critical. The state's ability to understand the issues
and react with expertise was, and would be, necessary. He
concluded that change needed be made to handle the magnitude
of the project, and that the financial burden for the change
should not rest solely on the licensee.
3:46:47 PM
Representative Kelly voiced appreciation for the discovery
process Co-Chair Hawker had orchestrated by requesting
presentations from all the state departments involved in the
gasline project. He expressed excitement for the project and
the industry players that were involved. He suggested that
the public should be better informed.
3:50:22 PM
Representative Kelly thought that the $500,000 request
should be revisited. He expressed that TransCanada was
excited about the project and should be trusted as a
partner. He concluded that there were issues that needed to
be examined but that the project would pay out steadily for
at least 10 years.
HAROLD HEINZE, CHIEF EXECUTIVE OFFICER, ALASKA NATURAL GAS
DEVELOPMENT AUTHORITY (ANGDA), briefly answered questions
concerning past expenditures. He said that there had been
appropriations in the capital budget in FY 05, FY 07, and FY
08, to ANGDA. At the beginning of FY 10 there was $7 million
of the appropriations that was unexpended. Of that, $1.7
million had been spent in FY 10. There was $2.6 million in
contracts, $1.9 million of which was in three large
contracts. Approximately $300 thousand was unspent. The
encumbered money would be spent within the fourth quarter of
the calendar year, bringing that chapter of ANGDA to a
close. At that point the EIS for the Beluga to Fairbanks
project should be completed, and would be ready to hand over
to a private sector company. The request for $300 thousand
in the operating budget was intended to pay for salaries and
office space, and was consistent with past budget requests.
He pointed out the several bills had recently surfaced that
implied future work for ANGDA and that hopefully funding
provisions would be reflected in the fiscal notes.
Co-Chair Hawker asked how well ANGDA got along with the
railroad. Mr. Heinze replied that the railroad and ANGDA
could become the best of friends.
3:57:02 PM
Co-Chair Hawker assured Mr. Heinze that if further work was
requested of ANGDA it would certainly be addressed in a
fiscal note.
Mr. Heinze said that ANGDA would work with any party in
order to have a successful outcome. He hoped there would be
other opportunities for discussion.
3:58:13 PM
Co-Chair Hawker discussed housekeeping.
ADJOURNMENT
The meeting was adjourned at 3:58 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB300HB302MEDICAID SPENDING Report cover.docx |
HFIN 2/25/2010 1:30:00 PM SFIN 3/23/2010 9:00:00 AM SFIN 3/24/2010 9:00:00 AM |
HB 300 HB 302 |
| Medicaid-Special Report House Finance Feb 2010 HB300 HB302.docx |
HFIN 2/25/2010 1:30:00 PM SFIN 3/23/2010 9:00:00 AM SFIN 3/24/2010 9:00:00 AM |
HB 300 HB 302 |
| Medicade Ependitures & Projections PowerPoint HB300-302.pdf |
HFIN 2/25/2010 1:30:00 PM SFIN 3/23/2010 9:00:00 AM SFIN 3/24/2010 9:00:00 AM |
HB 300 |
| DNR HF Gasline Hearing REVISED.doc |
HFIN 2/25/2010 1:30:00 PM |