Legislature(2011 - 2012)HOUSE FINANCE 519
03/23/2012 09:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HJR16 | |
| HB9 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 9 | TELECONFERENCED | |
| += | HB 64 | TELECONFERENCED | |
| += | HJR 16 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
March 23, 2012
9:05 a.m.
9:05:08 AM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 9:05 a.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Co-Chair
Representative Anna Fairclough, Vice-Chair
Representative Mia Costello
Representative Mike Doogan
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Reggie Joule
Representative Mark Neuman
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Representative Wes Keller, Sponsor; Representative Mike
Hawker, Co-Sponsor; Rena Delbridge, Staff, Representative
Mike Hawker; Joe Dubler, Vice President and Chief Financial
Officer, Alaska Gasline Development Corporation and
Director of Finance, Alaska Housing Finance Corporation,
Department of Revenue.
PRESENT VIA TELECONFERENCE
Larry Persily, Federal Coordinator, Alaska Natural Gas
Projects, Federal Coordinator's Office, Washington D.C.
SUMMARY
HB 9 IN-STATE GASLINE DEVELOPMENT CORP
CSHB 9(FIN) was REPORTED out of committee with a
"do pass" recommendation and with one new fiscal
impact note from the Department of Revenue.
HJR 16 CONST. AM: EDUCATION FUNDING
HJR 16 was REPORTED out of committee with a "do
pass" recommendation and with one new fiscal
impact note from the Office of the Governor.
HB 64 PERMANENT MOTOR VEHICLE REGISTRATION
HB 64 was SCHEDULED but not HEARD.
HOUSE JOINT RESOLUTION NO. 16
Proposing amendments to the Constitution of the State
of Alaska relating to state aid for education.
9:06:04 AM
REPRESENTATIVE WES KELLER, SPONSOR, discussed that HJR 16
put before the voters the choice to allow indirect
assistance for students attending private schools. The bill
was directed at the Blaine Amendment; he noted that
constitutional delegate Vic Fischer called the amendment a
standard feature of all western state constitutions, which
had been implemented after a vote failed to include it in
the U.S. Constitution. He explained that the bill did not
institute any programs, but allowed the state to develop
programs that would provide indirect aid to students in
Alaska.
Vice-chair Fairclough moved the bill before the committee.
Representative Wilson OBJECTED for discussion.
Representative Doogan asked for detail related to a similar
amendment that had been voted down 2 to 1 at the Alaska
Constitutional Convention.
Representative Keller provided an excerpt from a book by
Vic Fischer related to the issue. He informed the committee
that after Blaine Amendments had been included in western
state constitutions a proposed amendment had been offered
to include the words "and indirect" in the language; the
updated language would have included a prohibition against
providing direct and indirect assistance. He read from the
excerpt:
Proponents of the proposed amendment stressed the
importance of protecting the integrity of public
education while the opponents argued for the provision
of services to the individual students if otherwise in
keeping with the constitution.
Representative Keller furthered that the amendment had
failed 34 to 19. He discussed that support for the issue
had been 64 percent and 55 percent in two recent polls in
Alaska. He believed the polls were consistent with the
objective proposed in HJR 16.
9:10:32 AM
Co-Chair Stoltze remarked that while the polls provided
useful information, the legislature was also guided by the
values of its members and other views.
Representative Wilson pointed out that HJR 16 would take
the issue to voters for a decision. She had received
letters from parents of special needs children and
explained that some children in public schools needed more
than the schools could provide. The bill would allow the
system to address their needs in a private school setting.
She stressed that the bill was not taking a "shot" at
public schools; she felt it allowed parents to choose a
school based on their child's needs and not on what they
could afford. She believed that the "sad thing" was that
the details would be determined (the parameters the
department would apply and how schools would qualify for
vouchers) if voters passed the issue. She stressed that a
significant number of single parents could not afford an
option outside of the public school system. She spoke in
support of providing voters with the choice.
Representative Gara provided information about the
constitutional history. He relayed that the Alaska
constitutional delegates [Jack] Coghill and Rivers
[Representative Gara subsequently clarified that he had
meant delegate Metcalf instead of Rivers] had both
expressed their desire for a free public education system
in the state. He read a statement from former
Representative Coghill:
I believe the way our government was set up 175 years
ago that the founders felt that public education was
necessary to bring about a form of educating the whole
child for the civic benefit through the division of
point of the home taking a certain part of the child,
the church taking a certain part of his education, and
the government or state through public schools taking
the other part. I feel that the intent of public
education is primarily a state function and does not
belong to any private or any one particular group.
Representative Gara read a statement from delegate [Irwin]
Metcalf:
There are 16 states that have sections in their
constitution preventing public tax dollars from being
spent for private schools in any way, shape, or form.
Representative Gara read from the constitution that had
been drawn in 1945:
No money shall ever be taken from the public treasury
directly or indirectly in aid of any church, sector,
denomination, or religion; or in aid of any priest,
preacher, minister, or teacher thereof as such.
Representative Gara expounded that delegate Metcalf had
been a "firm believer in the complete separation of church
and state, especially with the use of state money and state
property." He communicated that the delegates had chosen
not to fund private schools for a reason. He elaborated
that once there was state funding of private schools,
factions would develop in the legislature; there would be a
group that believed private school funding was very
important and there would be a group in favor of public
education. He opined that support for public education
funding would be lost because there would be a rift in the
legislature. He did not fault people for having differing
views on education; however, a public education system kept
people "all in the same boat" with the goal of having the
best public schools possible. He believed that the result
would be a worse and underfunded education system. He had
no problem with people attending private school; many
private schools offered scholarships. He stressed that the
state had done a phenomenal job offering alternative
schools within the public education system. He pointed to
publicly funded boarding schools and charter schools in
larger Alaskan communities.
9:17:50 AM
Representative Gara pointed out that public education had
been improving. Graduation rates and proficiency scores
were increasing because there had been a significant amount
of funds invested in public schools in recent years; the
formula had been adjusted that he felt had previously
discriminated against rural Alaska. He stressed that
funding parity had helped rural areas, children needing
special education, and with Teachers' Retirement System
(TRS) debt. He believed the improvements would be reversed
if state funding was extended to private education; he did
not support the legislation.
Representative Joule had attended a Catholic boarding
school in high school and had paid his own way. He believed
he had gotten the best education that he could have
received. He expressed frustration related to the
separation between church and state; he opined that
freedoms had become so far reaching that people forget or
prevent the items that are important to individuals from
entering the classroom. He understood respecting people's
rights and responsibilities, but asked "what about
respecting everybody else's." He understood the
opportunities that could arise out of the bill, but he had
not seen all of the detailed information. He wondered how
many students would be counted in the Base Student
Allocation (BSA), how much additional funding would be
necessary, how much the transportation costs would
increase, etc. He understood that people wanted to spend
money on education, but there were questions in his mind
that had been unanswered. He believed a debate on the bill
on the House floor would be healthy, but he would have to
be convinced that it was the right thing to do.
9:23:07 AM
Representative Neuman had spent time at a private school,
but attended a public high school. He believed his time at
the private Catholic school was very beneficial. He
discussed that the school had provided basic academic
courses in addition to religious studies; he had learned
things in Catholic middle school that were taught in his
senior year in public school. He discussed the home
schooling of his own children. He had chaired the education
committee during his first two years in office. He believed
the education system in Alaska was not a one-size-fits-all
system; he pointed to rural schools with 10 students where
the cost could be $40,000 or $50,000 per student per year
and urban schools that had up to 1,400 or 1,500 students.
He opined that regional learning centers were "fantastic"
and would probably be part of Alaska's future. He asked
what the funding to private or Catholic school would be. He
discussed the BSA; correspondence programs were 80 percent
of the base. He wondered whether private schools would
receive the base allocation if they were funded by the
state. He stated that schools currently were trying to grow
their student population in order to obtain more funds;
however, increased student numbers led to overcrowding in
the classrooms. He believed the bill would provide parents
with more opportunities and would put the decision in their
hands. He stressed that Alaska had many various educational
opportunities and led the nation in correspondence
programs.
9:28:09 AM
Representative Neuman believed that it was important to
give parents a choice about their children's education; he
spoke in support of the resolution because he felt that it
gave parents the choice. He opined that the public school
system was currently facing a significant number of issues.
He emphasized that the issue was about what was best for
the kids.
Representative Guttenberg recalled a past conversation with
constitutional delegate Jim Doogan who had explained why
the issue was a "no." Mr. Doogan had been a very active
member of the church and had explained that once there was
public money in a private school the door was opened to
control issues; he had wanted no part of the control and
firmly believed in keeping his church separate from the
state for that reason. He stated that parents currently had
a choice where their children were educated; the question
was related to who paid for the choices. He had gone to
Hebrew school, which had been paid for by his parents. He
pointed out that it was problematic that "when money
follows, control follows, and budget issues follow." He was
honored to have received the information from a delegate
who had been a part of the decision making process. He
relayed his opposition to the bill.
9:33:53 AM
Co-Chair Stoltze relayed that he would vote to move the
bill from committee. He discussed that government had a way
of "mucking things up" in school systems. He hated to risk
ruining private schools that were offered as an alternative
to public education, but he supported the bill because
philosophically he supported school choice.
Representative Doogan stressed that the issue should not be
taken lightly; even passing the bill from committee with
"no recommendation" gave people information about what the
course of the debate would be. He stressed that he would
not vote for the bill for reasons beyond his father telling
him not to and not only because his father was strong in
his support for private schools. He discussed that he had
gone to private school for 16 out of 18 years. He was
opposed to dividing people up based on their religious
beliefs. His father did not believe that the civil
institutions should use religion to make decisions; he
believed there should be a clear line between the two. He
furthered that the wording of the constitutional statement
on education read that "no money shall be paid from public
schools for the direct benefit of any religious or other
private educational institution." He opined that the
statement could not be any clearer.
Representative Doogan believed the bill would inevitably
damage the system; he was against allocating money based on
people's religious beliefs, economic situations, or other.
He did not agree with a statement made by Co-Chair Stoltze;
he did not believe that the obvious failures of the
education system should be the reason for the legislature
to contemplate its complete dismantling. He opined that
people in the rich districts would get together to improve
their educational system and the people in the poor
districts would have to deal with social, economic, and
other handicaps. He voiced strong opposition to the bill.
9:39:37 AM
Representative Doogan referenced the quote "I'm a man of
principle and my first principle is flexibility."
Co-Chair Stoltze interjected that the quote came from
former U.S. Senate Minority Leader Everett Dirksen of
Illinois.
Representative Doogan liked to think he was flexible, but
he was inflexible on the issue. He relayed that he would
vote against passing the bill from committee. He did not
see the sense in "inflaming the passions of people" on the
question. He believed that if the resolution passed the
outcome would be unknowable related to an election and what
would happen if the issue became law. He stressed that the
flaws of the current education system would be nothing
compared to the fight that would result if the issue went
to the voters; it was not possible to know what would
happen if state funds were stripped from the current
educational system and allocated out in "unequal ways."
Co-Chair Stoltze wanted the record to accurately reflect
his prior statement. He communicated that there was no
pressure to let the bill move forward. He understood that
it was a serious issue.
Representative Doogan clarified that he had not meant to
mischaracterize any prior statements made by Co-Chair
Stoltze. Co-Chair Stoltze was glad there was passion
related to the issue.
Co-Chair Thomas noted that 8 out of 55 constitutional
delegates had been born in Alaska; he wondered who could
have more passion than a person born and raised in the
state. He noted that the constitution had been amended in
the past and that the resolution was not the first attempt
to make an amendment. He stated that it was the state's
ordained right to change the constitution if it thought
something was wrong or flawed; the issue may fail, but he
believed people should have the option to vote on it. He
had spoken to family members about the past move from
Native schools to public schools; people had thought the
education system would fall apart. He had not been a big
proponent of the resolution at first, but he had reflected
on his own children's education. He wondered what was wrong
with letting parents choose where their children would be
educated. He opined that there was nothing wrong with
religious schools; he had been in church three or four days
a week during his youth.
9:45:48 AM
Co-Chair Thomas remembered that he had learned to pray in
Vietnam. He was in support of moving the bill out of
committee and would probably vote for it on the House
floor. He noted that the Alaska Federation of Natives
supported the concept because they wanted their children to
have the ability to receive a stellar education. He thought
the people should decide. He did not want to stifle the
voice of the people. He believed children should receive
the best education possible. He discussed his district and
the school options when he was a youth. He would vote for
what he thought was right for the children.
A roll call vote was taken to report the bill out of
committee.
IN FAVOR: Joule, Neuman, Wilson, Costello, Edgmon,
Fairclough, Stoltze, Thomas
OPPOSED: Guttenberg, Doogan, Gara
The MOTION PASSED (8-3). There being NO further OBJECTION,
it was so ordered.
HJR 16 was REPORTED out of committee with a "do pass"
recommendation and with one new fiscal impact note from the
Office of the Governor.
9:49:38 AM
AT EASE
9:50:05 AM
RECONVENED
HOUSE BILL NO. 9
"An Act requiring the Joint In-State Gasline
Development Team to report to the legislature
recommended changes to state law that are required to
enable or facilitate the design, financing, and
construction of an in-state natural gas pipeline so
that the in- state natural gas pipeline is operational
before 2016; and providing for an effective date."
9:55:27 AM
LARRY PERSILY, FEDERAL COORDINATOR, ALASKA NATURAL GAS
PROJECTS, FEDERAL COORDINATOR'S OFFICE, WASHINGTON D.C.
(via teleconference), clarified that he did not want to
tell state government what to do on any proposed
legislation. He provided a highlight of current market
conditions in Asia and the Lower 48 related to U.S. Liquid
Natural Gas (LNG) export project financing. He would
provide an overview of the potential for LNG exports,
whether LNG prices would remain high in Asia, whether
Alaska could compete on price, and whether the U.S. market
would ever recover. Cheniere Energy (Cheniere) was
currently the only company that had the U.S. Department of
Energy (DOE) approval to export U.S. gas to non-free trade
nations including China and Japan; 8 other projects were
pending while DOE awaited a study on natural gas export
that would look at how it would affect the U.S. Gross
Domestic Product (GDP), the economy, consumer prices, and
other. He relayed that Cheniere did not currently have the
Federal Energy Regulatory Commission (FERC) certificate;
however, it was expected to be granted shortly and the
company hoped to begin construction during the present
year.
Mr. Persily discussed that Cheniere opened as an LNG import
terminal in 2008/2009 when people believed that the U.S.
would be short of natural gas. The plant had a "huge"
import terminal that had the capacity to take in and
distribute 4 billion cubic feet per day; however, the
market had changed and the U.S. was not buying natural gas.
As a result the company's debt was downgraded to junk. The
company had looked at higher prices in Asia and decided to
convert to a dual-use facility by incorporating
liquefaction and shipping into its receiving and
regasification capabilities. He stressed that customers
were needed for the success of a project.
Mr. Persily shared that Cheniere had succeeded in signing
up four customers (BP Group, Gail India, Korea Gas
Corporation, and Spain's largest gas and power utility
company Gas Natural Fenosa) for 20 years at approximately 2
billion cubic feet per day. The first two production trains
were scheduled at Cheniere's Sabine Pass terminal by 2016;
the second two were scheduled for 2017. He elaborated that
all four companies had signed the equivalent of
shipper/taker pay contracts that were more appropriately
termed use-or-pay contracts. The companies had all agreed
to pay between $2.25 and $3.00 per million British Thermal
Unit (BTU) to reserve liquefaction capacity at the plant
for 20 years even if they did not use it; the contracts
represented binding commitments in the amount of $45
billion over the 20 year period. Cheniere had until the end
of 2012 to get its FERC certificate and financing in line
or the companies could bail out on the commitment. He
elaborated that the only way the company could get
financing was through contracts where another company would
pay the debt. The contracts called for the customers to buy
gas based on U.S. Henry Hub prices plus a 15 percent
upcharge for the gas that would be consumed during
liquefaction. He detailed that the costs of the
liquefaction charge, the price of gas, and the cost of a
tanker traveling to Asia would be used to determine the
cost in Asia; a Henry Hub gas price of $3.00 would mean an
LNG price in Asia of approximately $9.00; $6.00 gas in the
U.S. would mean a price of about $12.00 in Asia.
Historically LNG prices in Asia had been tied to global oil
prices, but the Cheniere contract was tied to U.S. natural
gas prices. The cost of the liquefaction plant and
improvements would be approximately $10 billion; the
company had obtained $2 billion in private equity financing
from Blackstone and would get the rest by issuing debt.
Cheniere would accrue interest at approximately 17 percent
on its construction financing.
Mr. Persily reiterated that there were eight other pending
projects in the U.S. and a few more out of British
Columbia. He stated that the market would decide the
projects that would move forward and that would obtain
financing; the market would not support 12 export projects.
Mr. Persily moved on to address the Asian market in
general. He detailed that Australia currently had eight LNG
export projects under development, which represented
approximately $180 billion.
10:02:43 AM
Mr. Persily detailed that the Australian projects would
quadruple the country's export capacity to more than 10
billion cubic feet per day; by 2017 the country would
overtake Qatar as the world's leader. Between the two
countries the total LNG export capacity would be
approximately 21 billion cubic feet per day. He detailed
that in 2010 about 29 billion cubic feet of LNG had been
exported/imported internationally. There were currently
expansions, new projects, and developments underway in
Indonesia, Papua New Guinea, Angola, and Russia. He
furthered that in Mozambique the companies Anadarko and ENI
had announced discoveries that totaled 60 trillion cubic
feet; the companies were looking towards Asia as an export
market. He pointed out that the projects all represented
competition, but he acknowledged that the price was very
good in Asia at present. Current spot market prices for
April delivery to Asia were close to $16 per million BTU,
but the market was waiting to see whether Japan would
restart some of its nuclear plants. He stressed that the
outcome could significantly impact long-term prices.
Mr. Persily continued that the high price of energy in
Japan was beginning to effect behavior and utilities were
pushing back looking for ways to cut costs; the executive
director of Tokyo Gas Company was quoted as saying "cutting
raw material costs is one of the major goals." The company
had signed a long-term contract to purchase LNG from a
group project in Australia that would turn coal-bed methane
into LNG; the company executive had reported that costs for
coal-bed methane were significantly lower. He pointed to
pushback in China and India; the Chinese government set the
natural gas price at about $5, which had worked okay until
importers began paying two to three times the amount. The
Chinese government was currently testing the raise of the
cap to $12 per million BTU in two provinces; the hope was
that it would spur increased domestic production. He
explained that at present China produced about 80 percent
of the gas it needs. The prior year it had imported about 3
billion cubic feet of gas per day; split roughly 50/50
between LNG and pipeline gas from Turkmekistan.
10:05:52 AM
Mr. Persily relayed that in January 2012 China buyers had
paid an average of $10 per million BTU of pipeline gas and
a range of $3.50 to $18 for LNG (the low end had been gas
taken on old contracts that had been signed at good prices
and the high end was on current higher prices). India also
set its price of gas and was instituting pricing reform in
order to spur domestic production. He posed the question -
would there be more domestic production in India and China
in the long-term and how would the markets react to higher
prices.
Mr. Persily discussed that current gas prices in the U.S.
were horrendous and were at 10-year lows; the situation was
ugly and was worsening and the country could run out of
storage capacity later in the year. Most industry analysts
believed that eventually supply and demand would regain
balance. He pointed to various forecasts for long-term U.S.
gas prices: Shell projected pricing at $6; Anadarko
expected gas to reach $5 to $7 by 2016; Goldman Sachs saw a
price recovery beginning in 2013; Deloitte predicted gas at
$6.50 in upcoming years. He stressed that the numbers only
represented projections. He believed it made sense for any
producer of oil and gas in Alaska to look at all markets,
but the private money would select the project that would
get built in the U.S. In closing he shared that the risk in
Alaska was great relating to the extensive timeline it took
to build in the state, the cost, and market volatility. He
opined that the state would have to help with the risk in
some way or another if Alaska ever had a sizable gas
project.
Representative Gara asked for verification that spot market
sales tended to be higher than long-term prices. Mr.
Persily responded that it depended on demand, but typically
a premium was paid for spot market sales because the
commodity was not under contract.
Representative Gara surmised that Alaska could not run a
pipeline on spot market prices. He did not believe the
state could routinely start and stop pipeline flow. Mr.
Persily replied that the liquefaction plant was the
problem; the plants did not run well "stop-and-go." A
revenue stream was necessary in order to obtain financing;
long-term financing was needed.
Representative Gara asked whether it was accurate that
Cheniere was aiming at a price of $9 to $12. He wondered
whether it was a fair benchmark for the other potential
U.S. export facilities. Mr. Persily responded that Cheniere
was not a producer; he likened it to a toll road. The
company did not really care what the price of gas was
because it would just make money as the gas moved through
the plant. He added that given the pricing structure it
looked like $3 U.S. gas could be delivered in Japan at
about $9. He remarked that it would be interesting to see
if DOE allowed another export project and if another
project could obtain contracts. He relayed that the whole
industry was watching to determine whether people would
want gas priced to Henry Hub, which was currently lower
than oil prices.
10:10:39 AM
Representative Gara asked whether it was possible to assume
that if any of the other eight companies working to get DOE
approval for export would send gas out at a similar price.
Mr. Persily believed that new export plants would have to
compete on Cheniere's pricing structure. He speculated that
it could be different for a producer; producers moving
their own gas would sell the gas for as much as they could.
He opined that presently many producers would probably be
happy to sell the gas at almost any price due to the
current over supply in the U.S. He shared that there would
be a significant amount of uncertainty around pricing until
a second round of contracts came forward in the U.S. and
commitments were made.
Representative Gara wondered how competitive gas through a
plant in Alaska would be on the Asian market. He referred
to the ASAP report [Alaska Stand Alone Gas Pipeline] that
showed the tariff to Big Lake for a 500 mcf line would be
$7.75. He surmised that the report assumed $2 for the cost
of gas on top of the $7.75.
Mr. Persily shared the same recollection, but noted that he
had not reviewed the report recently.
Representative Gara speculated that it would be another $2
in local gas distribution costs to get from Big Lake to
Nikiski or another tidewater facility. Mr. Persily did not
believe that the cost would be that high on the Enstar
system, but he had never priced the cost out.
Representative Gara asked whether Mr. Persily had a more
accurate number. Mr. Persily replied that someone in the
room or Enstar could probably provide a more accurate
number. He added that unless there was a liquefaction plant
the gas would have to be moved by pipe to tidewater.
Representative Gara asked what the cost of conditioning the
gas at a liquefaction plant would add to the total cost.
Mr. Persily answered that it was very difficult to
estimate. The price Cheniere was charging was public and it
was a fairly cost effective plant because the facility
already had the docks and storage tanks built. The
liquefaction costs would depend on the size of the plant
and how much infrastructure needed to be built. He believed
that when Wood MacKenzie had done its study for the Alaska
Gasline Port Authority the prior year for a very large
liquefaction plant at Valdez (capable of sending out 2.7
billion cubic feet per day) liquefaction costs had been
around $4; the study had acknowledged that the number was a
very rough estimate and that the plant was very expensive.
Any company looking to get into the LNG market in Alaska
would look at the cost and the size of the project to what
the market was willing to pay; if the liquefaction costs
were too high the company would have to figure out how to
reduce them.
10:14:50 AM
Co-Chair Thomas thought it would be cheaper to get gas from
Alaska compared to other locations from around the world
including British Columbia and Mexico. He surmised that
shipping costs would be less expensive from Alaska to Asia.
Mr. Persily agreed. He relayed that tanker charges from
Alaska to Japan would be significantly less than from Texas
or Louisiana to Japan even with the expanded Panama Canal
open in 2014. He had seen estimates that the tanker charge
could be $1.50 to $2.00 less per million BTU; however,
shippers/producers on the Gulf of Mexico coast had the gas
at tidewater. There would be a cost of several dollars to
move the gas from Prudhoe Bay to tidewater in Alaska, which
would wipe out the savings from the shorter tanker run.
From Prudhoe to port in tidewater plus the tanker charge
would have to compete with gulf coast facility tanker
charges and liquefaction costs.
Co-Chair Thomas remarked that that was his point.
Representative Gara asked for a tanker cost estimate from
Alaska to Asia. Mr. Persily had seen estimates for tanker
charges from Alaska of approximately $1 or slightly less
per million BTU. He reiterated that tanker charges were
cheaper, but the transportation cost from the North Slope
needed to be added to the total cost.
Representative Gara estimated that the multiple costs
involved equaled roughly $15.75: $7.75 tariff; $2.00 gas
price; Enstar distribution cost he estimated at $1; $4.00
liquefaction; and $1 tanker costs. He referenced that the
ASAP study acknowledged that its cost estimates could be
off by 30 percent. He wondered how easy it would be for
Alaska to get long-term contracts at roughly $16 gas.
Mr. Persily replied that the specific figures in the ASAP
report were not shown in current dollars; the numbers
assumed some inflation and were a levelized tariff in
dollars of the day over 20 years in the pipeline. He
furthered that it was possible that LNG prices in Asia
could also inflate over time; in the scenario the current
$13 to $15 would be higher over the next 20 years. Company
marketing departments gambled on the issues. He surmised
that Alaska gas would always tend to be on the high cost
side because an 800-mile pipeline with a tariff put the gas
at a cost disadvantage with others.
Representative Gara asked whether there was ample time to
determine if a large pipeline could be constructed that
would produce cheaper gas, given what was known about Cook
Inlet reserves. He noted that the way the legislation was
written the legislature could not stop the project unless
state funds were required.
10:20:37 AM
Mr. Persily could not speculate on the life expectancy or
exploration success in Cook Inlet. He remarked that
everyone would like to see the biggest possible project to
move the most gas because it would provide the cheapest
energy to Alaskans, but he could not say how much gas was
available in Cook Inlet or how long it would last. He was
hopeful that exploration work in the area would be
successful.
Representative Gara believed that if the gasline proposed
in HB 9 was built that consumers would be obligated to pay
for the price and the gas for a long period, given that the
pipeline shipper would not build without a long-term
contract. He wondered what about the length of a contract
that may be required for Alaska consumers.
Mr. Persily could not provide a specific answer, but he
explained that if he wanted to borrow money on a
development the lenders would want to know that he had a
revenue stream that would cover the mortgage. For example,
it would be necessary to convince a lender that there was a
15-year revenue stream that would cover a 15-year mortgage.
He furthered that it would depend how long the debt was
for, which would dictate how long the contract would be to
use the pipe to produce the revenue to pay off the
mortgage. The mortgage could be stretched out over a number
of years with lower payments and higher interest or it
could be accelerated and paid off more quickly.
10:23:20 AM
Vice-chair Fairclough clarified that the legislation did
not specify the size of the pipeline. She remarked that
cost estimates and variables discussed during the meeting
were a speculation. She explained that the bill provided a
framework for the project; the bill required economics, a
safe construction, and other. She stressed that none of the
assertions made regarding the project numbers were included
in the bill.
REPRESENTATIVE MIKE HAWKER, CO-SPONSOR, agreed.
Co-Chair Stoltze thanked Mr. Persily for his time.
Representative Gara MOVED to ADOPT Amendment 13 27-
LS0075\K, which would amend previously adopted Amendment 3
(copy on file):
Amendment 3, Page 2, line 26, after "commission."
Insert:
"The commission may, by order, extend the 180 day
review period by the duration of any delay caused by a
public utility's failure to submit supplemental
information that is available to the public utility."
Co-Chair Stoltze OBJECTED for discussion.
Representative Gara explained Amendment 13 that would amend
previously adopted Amendment 3. He had worked with
Representative Hawker and staff to reach a compromise on
what would occur if the Regulatory Commission of Alaska
(RCA) did not make a decision in 180 days. The current bill
included a provision specifying that the lack of a decision
by the RCA within 180 days was deemed to be approval. The
amendment addressed a situation in which a utility did not
provide the necessary information to the Regulatory
Commission of Alaska, which prevented it from making the
decision within the 180-day timeframe. The amendment
reached a middle ground and allowed the RCA more time if
the utility did not provide the information to the
commission. A party could not withhold information in order
to beat the 180-day deadline.
Representative Hawker concurred and deferred the response
to his staff.
10:26:46 AM
RENA DELBRIDGE, STAFF, REPRESENTATIVE MIKE HAWKER, agreed
that a compromise had been reached; the sponsors were
comfortable with the amendment.
Co-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION, Amendment 13 was ADOPTED. He referred to
the fiscal note.
Representative Hawker remarked that the sponsors had
endeavored to provide the committee with the best possible
resources.
Vice-chair Fairclough pointed to the fiscal impact note
from the Department of Revenue. The note would provide an
allocation to the Alaska Gasline Development Corporation
(ADGC) and funded varying position counts including, 22 in
FY 13 (7 of which were included in the governor's request),
45 in FY 14, 48 in FY 15, 61 in FY 16, and 54 in FY 17 and
FY 18. The total cost included in the governor's FY 13
request was $3,629,400.
Representative Neuman thought that Amendment 13 was worded
incorrectly. Co-Chair Stoltze would come back to the issue
after the fiscal note discussion.
Representative Gara asked whether the ADGC cost estimate
associated with the legislation was approximately $400
million to get to project sanction.
JOE DUBLER, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
ALASKA GASLINE DEVELOPMENT CORPORATION AND DIRECTOR OF
FINANCE, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF
REVENUE, replied that the total estimated cost for the pre-
sanction activity would be $400 million. Approximately $30
million in costs had been incurred to date; therefore,
about $370 million in additional funds would be necessary.
Representative Gara wondered why the cost was not in the
fiscal note.
Mr. Dubler replied that the fiscal note included $286
million in capital costs to get through FEL 2 (i.e. stage
2) and an open season. Subsequently ADGC would need an
additional appropriation to continue the project into its
third and final phase (pending a successful open season).
Representative Gara asked for verification that the second
appropriation would bring the total up to the $400 million
figure. Mr. Dubler replied in the affirmative.
Representative Guttenberg pointed to a graph on page 2 of
the fiscal note and wondered whether the first column
should read "FY12" instead of "FY13." Mr. Dubler responded
that the numbers were for FY 13 and were intended to
conform to page 1; the $3.6 million in the second column
was included in the governor's request and the first column
showed the appropriation requested for the FY 13 capital
budget.
Representative Gara wondered whether he could ask Mr.
Dubler the questions that Mr. Persily had not been able to
answer earlier in the meeting related to the ASAP project
cost estimates.
Co-Chair Stoltze asked whether the questions were related
to the fiscal note.
Representative Gara replied that the questions were related
to the cost of the project.
10:31:55 AM
AT EASE
10:33:44 AM
RECONVENED
Co-Chair Stoltze brought attention back to the fiscal note.
Vice-chair Fairclough clarified the record related to the
Amendment 13. She explained that the amendment was specific
to Amendment 3 that had been previously adopted.
Vice-chair Fairclough MOVED to report CSHB 9(FIN) out of
committee with individual recommendations and the
accompanying fiscal note.
Representative Gara OBJECTED for discussion. He pointed to
page 310 of the ASAP project plan. He understood that the
more preferable scenario was the 500 mcf line. Figure 3-3
assumed the export of 250 mcf possibly from Nikiski. He
referenced a tariff to Big Lake at $7.75.
Mr. Dubler explained that the 3-3 used inflated dollars for
the 500 mcf base case estimated tariff. Figure 3-4 included
current dollars at $5.63. He communicated that it was not
appropriate to compare the number with current dollars.
Representative Gara surmised that the inflated figure
represented what the tariff would cost in the future when
the gas was potentially delivered. Mr. Dubler answered in
the affirmative; the number reflected a 3 percent per year
inflation rate.
Representative Gara asked for verification that ADGC
estimated a $2 cost for gas. Mr. Dubler responded in the
affirmative.
Representative Gara asked for the ADGC cost estimate for
distribution from Big Lake to tidewater. Mr. Dubler replied
that the only thing that ADGC assumed was the gas to Big
Lake. The liquefaction producer would bring the gas from
Big Lake to its facility; the figure was included in the
ADGC liquefaction process cost estimates.
Representative Gara asked what the additional increment
would be for liquefaction and transportation between Big
Lake and tidewater.
Co-Chair Stoltze asked Mr. Dubler to continue the
conversation with Representative Gara outside of committee.
Mr. Dubler replied in the affirmative.
Representative Doogan pointed to FY 13 estimated capital
costs included in the fiscal note and wondered whether the
$286 million figure plus $200 million that had already been
appropriated represented the total cost. Mr. Dubler
responded in the negative. He explained that the $286
million would be the expenditure of the $200 million plus
some additional expenditures submitted by different
departments related to work on the project (Department of
Environmental Conservation, Department of Natural
Resources, Department of Transportation and Public
Facilities, and other).
Representative Doogan thought he heard a $400 million
figure referenced.
Mr. Dubler replied that $400 million was the total capital
expenditure estimate that would be required up to the
sanction process; the $286 million represented a portion of
the $400 million figure.
Representative Doogan surmised that the total cost would be
the $286 million plus the balance that would reach $400
million. Mr. Dubler clarified that the balance would be
less the amount that had already been expended.
10:39:20 AM
Representative Wilson asked for verification that the costs
and tariffs would be divided by users throughout the state.
From Dunbar to Fairbanks (including a straddle plant if
needed) would be paid by the Fairbanks users. From Dunbar
to the end location in Anchorage (plus a straddle plant if
needed) would be paid by Anchorage. She surmised that
Anchorage would pay a tariff of $9.63 and Fairbanks would
pay $10.45, which represented an $0.82 difference per
million BTU. Currently Fairbanks was paying $23.35;
therefore, it would see a 55 percent decrease in gas price.
She believed there would be a 66 percent decrease the more
the community "got off of heating oil."
Mr. Dubler responded in the affirmative. He added that
Anchorage would have a less than 10 percent increase in the
cost of gas. He stated that the project would supply gas to
Fairbanks and Anchorage for an indefinite amount of time.
Representative Wilson recognized that the legislation was
not perfect, but she believed the momentum needed to
continue on the framework and figures; therefore, she
supported the bill. She communicated that Fairbanks would
watch closely to ensure that the figures did bring
affordable gas to the community.
Representative Doogan commented that he had not been
present for the prior night's meeting due to health reasons
and he expressed intent to offer at least one amendment on
the House floor.
A roll call vote was taken on the motion to report the bill
out of committee.
IN FAVOR: Fairclough, Joule, Neuman, Wilson, Costello,
Doogan, Edgmon, Stoltze, Thomas
OPPOSED: Gara, Guttenberg
The MOTION to report the bill from committee PASSED (9-2).
There being NO further OBJECTION, it was so ordered.
CSHB 9(FIN) was REPORTED out of committee with a "do pass"
recommendation and with one new fiscal impact note from the
Department of Revenue.
Co-Chair Thomas highlighted that the opportunity to truck
gas to Tok, Delta, Haines, or other had not ever been
mentioned in the discussion. He would vote for the bill,
but wanted people to understand that there was more to
Alaska than Anchorage, Fairbanks, and Mat-Su.
Representative Guttenberg remarked that he had brought the
issue up.
Representative Hawker assured Co-Chair Thomas that the
sponsors had been prepared to respond to the questions. He
relayed that a significant focus of the bill was about
establishing a backbone that would provide a way to get the
majority of the gas from the North Slope reserves to
tidewater in Southcentral. The bill specifically empowered
ADGC to bring gas to any communities that could be reached
in an economically feasible way, which included the propane
project on the Yukon River that the Alaska Natural Gasline
Development Authority had worked on. He communicated that
it would then be up to the legislature to develop a vision
for future development. He referenced a Norwegian model
that used a fleet of compressed natural gas tankers that
could work off of tidewater to provide coastal deliveries
around the state. He stated that the legislature's own
vision was the only limitation on what could be served in
Alaska.
Representative Edgmon agreed with the comments made by Co-
Chair Thomas. He thanked the sponsor for adding intent
language that further clarified that the application could
be statewide in nature. He believed that natural gas would
be the great equalizer in terms of bringing affordable
energy to all areas of the state.
Co-Chair Stoltze thanked the staff and committee for the
hours spent on the legislation.
HOUSE BILL NO. 64
"An Act relating to permanent motor vehicle
registration; and providing for an effective date."
HB 64 was SCHEDULED but not HEARD.
ADJOURNMENT
10:45:59 AM
The meeting was adjourned at 10:45 AM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB009CS(RES)-NEW_DOR-AHFC-03-22-12 Attachment #2.pdf |
HFIN 3/23/2012 9:00:00 AM |
HB 9 |
| HB009CS(RES)-NEW FN DOR-AHFC-03-22-12.pdf |
HFIN 3/23/2012 9:00:00 AM |
HB 9 |
| HB009CS(RES)-DOR-AHFC-03-12-12 Attachment #1.pdf |
HFIN 3/23/2012 9:00:00 AM |
HB 9 |
| HB9 Amendment #13.pdf |
HFIN 3/23/2012 9:00:00 AM |
HB 9 |
| HJR16 Sponsor Handout.pdf |
HFIN 3/23/2012 9:00:00 AM |
HJR 16 |