Legislature(2013 - 2014)HOUSE FINANCE 519
04/16/2014 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB191 | |
| SB129 | |
| SB138 | |
| SB140 | |
| SB194 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 140 | TELECONFERENCED | |
| + | SB 129 | TELECONFERENCED | |
| += | SB 169 | TELECONFERENCED | |
| += | SB 138 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 194 | TELECONFERENCED | |
| += | SB 191 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 16, 2014
1:44 p.m.
1:44:46 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:44 p.m.
MEMBERS PRESENT
Representative Alan Austerman, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Lindsey Holmes
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Daniel George, Staff, Representative Bill Stoltze; Senator
Anna Fairclough, Sponsor; Kris Curtis, Legislative Auditor,
Alaska Division of Legislative Audit; Michael Pawlowski,
Deputy Commissioner, Strategic Finance, Department of
Revenue; Janak Mayer, Partner, enalytica; Nikos Tsafos,
Partner, enalytica; Jessee Logan, Staff, Senator Lesil
McGuire; Sarah Lunkin, CEO, PT Public Policy, LLC;
Genevieve Wojtusik, Staff, Senator Lesil McGuire.
PRESENT VIA TELECONFERENCE
Ron Long, Manager, City of Seward; Ted Leonard, Executive
Director, Alaska Industrial Development and Export
Authority.
SUMMARY
CSSB 129(FIN)
REAL ESTATE APPRAISERS
CSSB 129(FIN) was REPORTED out of committee with
a "do pass" recommendation and with one
previously published fiscal impact note: FN2
(CED).
CSSB 138(FIN)am
GAS PIPELINE; AGDC; OIL & GAS PROD. TAX
CSSB 138(FIN)am was HEARD and HELD in committee
for further consideration.
CSSB 140(FIN)
AIDEA: ARCTIC DEVELOPMENT PROGRAM/FUND
CSSB 140(FIN) was HEARD and HELD in committee for
further consideration.
CSSB 191(FIN)
GENERAL OBLIGATION BOND FUND TRANSFER
HCS CSSB 191(FIN) was REPORTED out of committee
with a "do pass" recommendation and with one
previously published zero fiscal note: FN1 (REV).
CSSB 194(L&C)
TOURISM MARKETING BOARD
CSSB 194(L&C) was HEARD and HELD in committee for
further consideration.
1:45:33 PM
Co-Chair Stoltze discussed the meeting agenda.
CS FOR SENATE BILL NO. 191(FIN)
"An Act relating to the authority of the Legislative
Budget and Audit Committee to approve the temporary
transfer of money from the general fund to
construction funds or accounts; and providing for an
effective date."
1:45:55 PM
Vice-Chair Neuman MOVED to ADOPT the proposed committee
substitute for CSSB 191(FIN), Work Draft 28-LS1483\C
(Wallace, 4/16/14).
Co-Chair Stoltze OBJECTED for discussion.
DANIEL GEORGE, STAFF, REPRESENTATIVE BILL STOLTZE,
explained the change in the CS, which began on page 1, line
14 with the addition of new language:
If a temporary transfer has already been made from the
general fund to the bond construction fund or account,
additional transfers may be made, but the total amount
of the outstanding transfers not returned to the
general fund under (d) of this section may not exceed
25 percent of the amount authorized for the general
obligation bonds without approval from the Legislative
Budget and Audit Committee.
SENATOR ANNA FAIRCLOUGH, SPONSOR, was amenable to the
changes in the CS. She appreciated the committee's work on
the bill. She noted her intent to ensure that the
legislature retained its oversight.
Co-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION, Work Draft 28-LS1483\C was ADOPTED.
Representative Costello highlighted the zero impact fiscal
note from the Department of Revenue.
Vice-Chair Neuman congratulated Senator Fairclough on her
recent engagement.
Vice-Chair Neuman MOVED to REPORT HCS CSSB 191(FIN) out of
committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
HCS CSSB 191(FIN) was REPORTED out of committee with a "do
pass" recommendation and with one previously published zero
fiscal note: FN1 (REV).
CS FOR SENATE BILL NO. 129(FIN)
"An Act extending the termination date of the Board of
Certified Real Estate Appraisers; relating to real
estate appraisers; and providing for an effective
date."
1:49:25 PM
SENATOR ANNA FAIRCLOUGH, SPONSOR, spoke to the purpose of
the bill. The legislation would extend the sunset date for
the Board of Certified Real Estate Appraisers. She detailed
that the federal government had outlined new requirements
for the board; therefore, its length of time for
reauthorization was shortened in order to ensure there was
time to review the process for federal compliance.
KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF
LEGISLATIVE AUDIT, communicated that the division had
conducted a sunset review of the Board of Certified Real
Estate Appraisers. The division had concluded that the
board was protecting the public's interest by effectively
licensing and regulating the real estate appraisers. The
audit recommended a four-year extension (half of the
maximum allowable statutory extension) because the board's
mandated responsibilities had been expanded by federal law.
The audit included two recommendations for operational
improvements, which were directed to the director of the
Division of Corporations, Business and Professional
Licensing. The first recommendation was for the division to
improve its administrative support to the board, including
addressing delays in investigations. The second
recommendation was to continue efforts to improve the
investigative case management system's integrity and
confidentiality. She relayed that the board and department
had both concurred with the recommendations.
1:51:28 PM
Co-Chair Stoltze CLOSED public testimony. He asked if there
were any amendments.
Representative Costello discussed the previously published
fiscal impact note from the Department of Commerce,
Community and Economic Development. The note included an
annual fiscal impact of $7,400 in FY 15 through FY 20.
Vice-Chair Neuman MOVED to REPORT CSSB 129(FIN) out of
committee with individual recommendations and the
accompanying fiscal note.
CSSB 129(FIN) was REPORTED out of committee with a "do
pass" recommendation and with one previously published
fiscal impact note: FN2 (CED).
1:53:26 PM
AT EASE
1:58:49 PM
RECONVENED
CS FOR SENATE BILL NO. 138(FIN) am
"An Act relating to the purposes, powers, and duties
of the Alaska Gasline Development Corporation;
relating to an in-state natural gas pipeline, an
Alaska liquefied natural gas project, and associated
funds; requiring state agencies and other entities to
expedite reviews and actions related to natural gas
pipelines and projects; relating to the authorities
and duties of the commissioner of natural resources
relating to a North Slope natural gas project, oil and
gas and gas only leases, and royalty gas and other gas
received by the state including gas received as
payment for the production tax on gas; relating to the
tax on oil and gas production, on oil production, and
on gas production; relating to the duties of the
commissioner of revenue relating to a North Slope
natural gas project and gas received as payment for
tax; relating to confidential information and public
record status of information provided to or in the
custody of the Department of Natural Resources and the
Department of Revenue; relating to apportionment
factors of the Alaska Net Income Tax Act; amending the
definition of gross value at the 'point of production'
for gas for purposes of the oil and gas production
tax; clarifying that the exploration incentive credit,
the oil or gas producer education credit, and the film
production tax credit may not be taken against the gas
production tax paid in gas; relating to the oil or gas
producer education credit; requesting the governor to
establish an interim advisory board to advise the
governor on municipal involvement in a North Slope
natural gas project; relating to the development of a
plan by the Alaska Energy Authority for developing
infrastructure to deliver affordable energy to areas
of the state that will not have direct access to a
North Slope natural gas pipeline and a recommendation
of a funding source for energy infrastructure
development; establishing the Alaska affordable energy
fund; requiring the commissioner of revenue to develop
a plan and suggest legislation for municipalities,
regional corporations, and residents of the state to
acquire ownership interests in a North Slope natural
gas pipeline project; making conforming amendments;
and providing for an effective date."
1:59:06 PM
MICHAEL PAWLOWSKI, DEPUTY COMMISSIONER, STRATEGIC FINANCE,
DEPARTMENT OF REVENUE, continued to address questions on
the legislation. He recapped that earlier in the day the
administration had discussed the affordable energy aspects
and the ability to move and look at infrastructure and to
move benefits of the project across the state.
Representative Gara referred to a request for information
about where Alaska ranked in terms of its potential
government take on the project. He stated that Roger Marks
[Legislative Consultant, Legislative Budget and Audit
Committee] estimated the state's share at approximately 60
percent, which he deemed to be lower than other
jurisdictions taking similar risks.
Mr. Pawlowski replied that the royalty study was available
on the Department of Natural Resources website and provided
a broad range of government takes across different types of
projects. He noted that he would work to provide excerpts
from the study. He relayed that the consulting firm Black
and Veatch was updating the study to put the information on
one page.
Representative Gara wondered if the information would be
available prior to the amendment process. Mr. Pawlowski
replied that the consultants were working on the
information as fast as possible.
Representative Costello communicated that her primary
concern about the current project was the state's
relationship with TransCanada. She asked about all of the
opportunities the legislature would have the ability to
alter its relationship with TransCanada.
Mr. Pawlowski pointed to page 8, Exhibit C of the
Memorandum of Understanding (MOU) related to termination
events (copy on file). The section described the rights
that the state and TransCanada had to reevaluate the
relationship and choose to terminate. The initial and pre-
FEED [Front End Engineering and Design] stages were
estimated to conclude around the end of 2015; at that point
contracts with a longer duration would be ratified. He
detailed that the state had the right at any time (provided
that 90-day notice was given to TransCanada) to reevaluate
and/or terminate the relationship prior to the ratification
of the contract in 2015. He relayed that the firm
transportation services agreement decision would be
required to be brought to the legislature and be made
public 90 days prior to the effective date; the MOU
specified the date would be 90 days before the end of 2015.
The legislature would have an opportunity to determine if
it wanted to continue moving forward with its partner
TransCanada.
Mr. Pawlowski communicated that after the contract had been
approved, the FEED stage would be entered; during the FEED
stage through to the final investment decision (FID), the
legislature and the state would retain an ability to
terminate the relationship with TransCanada for a couple of
reasons. Including, if within 60 days from the date, one or
more of the producers or the transporter withdraws from the
project or at any time the shipper was unable to sign
agreements to sell all of its royalty or tax gas on terms
acceptable to the shipper. He relayed that the legislature
would play a role in the FID (most likely through
appropriation powers). The state would have another
opportunity to reevaluate its relationship with TransCanada
at the FID stage; however, during the FEED and FID stages
there was a provision that would provide TransCanada an
option to participate in an alternative similar project
advanced by the state. The opportunity was based on the MOU
terms (75 percent debt and 25 percent equity); however, the
cost of debt and return on equity were open to negotiation
based on conditions at the time. He summarized that there
would be multiple occurrences when the state had the
opportunity to weigh advancement with TransCanada; the
legislature would make the next decision on the terms
towards the end of 2015.
2:06:57 PM
Representative Costello asked whether the state's buyback
option was always open or limited. Mr. Pawlowski replied
that the buyback option was only applicable in the
ratification of the firm transportation services agreement.
The provision would be in effect from the end of 2015
forward.
Representative Costello referred to testimony from the
Department of Transportation and Public Facilities. She had
been surprised by the testimony related to the department's
lack of awareness about logistical needs. She wondered
whether the logistics would be provided to the state at a
certain point or if the conversation would improve with
time.
Mr. Pawlowski answered that the needs of the project
broadly and specifically related to transportation were
issues developed during the pre-FEED period. The phase
moved from a conceptual idea to a conceptual design. He
elaborated that the size of the pipe was developed during
the time period; all of the decisions impacted the boom and
trench sizes in addition to other logistics. The
development of due diligence conducted during the pre-FEED
time period, which was also important for the Federal
Energy Regulatory Commission (FERC) environmental impact
statement (EIS) requirements related to social impacts. He
noted that the department would provide the list of
resource reports to the committee. He summarized that
during the next project stage the detailed work would begin
and the items would be developed in order for the involved
parties to decide whether it was desirable to move forward.
2:09:38 PM
Co-Chair Stoltze handed the gavel to Vice-Chair Neuman.
Mr. Pawlowski followed up on his response to Representative
Costello. He added that Black and Veatch was currently
updating the government take to include implied state
expenditures for infrastructure; the information would be
provided to the committee.
Vice-Chair Neuman referred to a 5 percent return on equity
(ROE) related to SB 21 [oil tax legislation that passed in
2013]. He discussed a 5 percent per barrel of oil exclusion
on ROE in the Black and Veatch proposal.
Mr. Pawlowski asked for verification that Vice-Chair Neuman
was speaking about the Black and Veatch fiscal analysis.
Vice-Chair Neuman replied in the affirmative.
Mr. Pawlowski explained that under SB 21 there was a credit
for the production of each barrel of oil. One of the items
Black and Veatch had looked at was a similar credit for
each million British thermal unit (btu) or million cubic
feet (mcf) of gas produced. The goal had been to determine
a modification that would create the same system. The $5.00
had been divided by the energy equivalent, which created a
fixed credit per unit of gas. He believed it had been $5.00
divided by 6 per mcf.
Vice-Chair Neuman asked for detail on off ramps [i.e.
termination options].
Mr. Pawlowski pointed to page 8 of Exhibit C of the MOU. He
explained that the section was broken up into circumstances
under which the shipper could terminate, the transporters
could terminate, and cases where either the shipper or
transporter could terminate. He addressed the right to
terminate prior to the FEED stage; notice could be given by
the shipper (State of Alaska) any time provided that a 90-
day notice was given to the transporter (TransCanada). From
the beginning of FEED through FID the shipper could
terminate within 60 days from the date one or more North
Slope producers or transporter withdrew from the Alaska LNG
Project. Secondly, the shipper could terminate at any time
if it was unable to sign agreements to sell all of its
royalty or tax gas on terms acceptable to the shipper.
Additionally, the shipper could choose to terminate for any
reason at FID.
Mr. Pawlowski addressed that the transporter could choose
to terminate if the legislature failed to provide statutory
authority to the Department of Natural Resources (DNR) or
the Department of Revenue (DOR) to enter into the precedent
agreement by June 30, 2014. He referred to additional
reasons listed in the MOU (Exhibit C):
· Shipper fails to execute the PA within the specified
time.
· Shipper fails to execute the FTSA by December 31,
2015.
· Shipper fails to maintain the standard of
Creditworthiness Requirements. Transporter shall
provide notice to Shipper of a failure to meet such
standards, and Shipper shall have a reasonable
period to cure.
· At FID, if all Transporter corporate/Board approvals
have not been obtained.
· Within 3 months from FID, if debt financing has not
been secured on terms and conditions satisfactory to
Transporter in its sole discretion.
Mr. Pawlowski noted that the term sheet was a conceptual
document. The precedent agreement would begin with the
concepts and would add detail. The firm transportation
services agreement would add a more thorough level of
detail.
2:14:36 PM
Representative Guttenberg referred to DOR's earlier
testimony that Black and Veatch was working on a new report
on government take. He believed it had been in the context
of the state's obligation to expand and build
infrastructure. He was concerned about the issue because of
a report from the Department of Transportation and Public
Facilities. He wondered if there were things like
deductions for existing North Slope infrastructure,
expansion, and how it would affect the existing oil tax
rate.
Mr. Pawlowski responded that the deductibility of lease
expenditures had been included in every model developed on
the project since the beginning. He noted that the
deductions were often listed in Black and Veatch models as
a separate part of the negative calculation for the early
years. He clarified that the prior evening the department
had received a request by the committee chair's office for
an update on the government take. Also requested was that
the state choose some numbers that it would be spending on
infrastructure. He believed it had been a specific request
to assume $1 billion or another amount was spent by the
state on infrastructure. He explained that providing the
information required the models to be rerun; the models
were not based on anything other than a guess. He relayed
that the royalty report included government take
information.
Representative Guttenberg asked if there was one scenario
being run that included $1 billion as the infrastructure
needs. Mr. Pawlowski replied that the scenarios would
include $1 billion, $2 billion, and $500 million. He
provided a disclaimer that the numbers were arbitrary.
Representative Gara noted that a contract under former
Governor Murkowski had fallen apart when the legislature
had realized the governor could move forward without
legislative approval. He asked for the meaning of FID.
Mr. Pawlowski replied that FID stood for Final Investment
Decision.
Representative Gara referred to department testimony that
the state's authority would be determined [at FID] when the
governor came forward with a contract and the legislature
could decide whether appropriate the money. He asked if his
understanding was accurate.
Mr. Pawlowski replied that he was hesitant to contemplate
what would be necessary for the FID. His reference to
appropriations had been used based on his assumption that
appropriations would be necessary given the scale of the
FID and construction step. He communicated that any
contract with a duration exceeding five years would require
a legislative vote. He did not currently know how many
contracts would be necessary for the FID to take place.
Representative Gara wanted to ensure that it was in writing
that at FID the legislature had the right to say no to a
contract. He did not want the legislature to be in a
situation where it was held liable for damages if it chose
not to appropriate money.
2:19:33 PM
Mr. Pawlowski answered that the actual body of work that
would go into the FID was not currently known. To his
knowledge there was nothing specific in the legislation
that drove one single decision. The department had worked
to break the concept apart from previous efforts, that one
contractor or one execution would actually lead to a
project. There were multiple contracts and agreements. He
detailed that part of the path was designing what would
occur in the pre-FEED stage. As the different work needed
was identified, it would become clearer what would need to
be done in the FEED and FID stages. There were many
potential decision points leading up to FID, but they were
unknown at present.
Co-Chair Austerman noted that enalytica was available for
questions.
Representative Wilson wondered how to determine the project
was the best deal for the state's residents. She wondered
why the consultants believed the current project was the
best way to go or if there were other options it should
consider.
2:22:28 PM
JANAK MAYER, PARTNER, ENALYTICA, asked for clarification on
the question. He wondered if the question was primarily
focused on potential future gas prices for constituents
along the pipeline route.
Representative Wilson agreed. She believed the state would
ensure the constituents were taken care of. She relayed
that the Fairbanks area was primarily on heating oil. She
wondered how gas would be different from heating oil for
Fairbanks and other areas.
NIKOS TSAFOS, PARTNER, ENALYTICA, responded with advice on
thinking about the issue at the 40,000-foot level. He
highlighted that the state would sell gas in Asia. Once the
process began the state would realize that consumers were
using gas or fuel oil. He spoke to the competitiveness of
Alaska's gas in the Asian market; it would need to be less
expensive than fuel oil. When oil prices had collapsed in
2008 and 2009 there had been a short period of time where
oil was cheaper than gas. He stated that during the time
the Korea Electric Power Corporation had switched from LNG
to oil. He reasoned that if gas was taken earlier it would
be able to compete with fuel oil if the delivery price of
gas had to be lower than the fuel oil in Asia. He could not
think of many cases worldwide where gas traded at a
continuous premium to fuel oil. He detailed that in most
locations gas gained market share by being more competitive
than fuel oil, which was one reason gas prices in Asia and
Europe were linked to fuel oil. Distribution price was not
yet known. He characterized his response as the highest
level observation that could provide any comfort that the
energy delivered to Alaskans would be more competitive than
what they currently paid (especially locations that relied
heavily on oil-based energy).
2:27:05 PM
Representative Wilson wondered if it came down to
contracts. She asked how the state would make sure it would
have sufficient gas for instate use. She remarked on
meeting demand and making sure Alaska was not only
receiving a leftover amount of gas.
Mr. Tsafos replied that the issue could be thought of in
two different ways. He remarked that the concern was not
unique to Alaska; any sovereign developing LNG considered
to obtain competitive energy. He believed there were two
parts that would require management. First, when using gas
for heating it was difficult to know how much would be used
because it depended on the weather. He stated that the
limitation was well understood and would require working
through contracts. He explained that sales contracts
typically had upward or downward quantity provisions. For
example, if 4 million tons were sold there was usually
flexibility to go 10 percent higher or lower. Additionally,
there was a planned out monthly delivery schedule. He
suspected that in Alaska it would be assumed that the state
needed more gas in the winter; therefore, it would deliver
less during that period. He noted that it would also depend
on the state's ability to produce more. He communicated
that the state could produce at a flat amount and alter the
distribution between domestic sales and exports or it could
produce more when more was needed and vice versa. Second,
the broader concern was what would happen if the state
underestimated its need. He relayed that there were a
number of ways to manage the issue including studying what
the number would be. He referred to prior testimony that
AGDC would work to determine the most reliable number
possible. He discussed the importance of understanding what
the contingencies and spare capacities of infrastructure
would be. He referred to committee discussions on surplus
infrastructure and spare capacity in order to enable other
producers to meet the demand. Additionally, it was
important to have a contractual access regime that would
allow third-parties to supply the gas; the absence of a
well laid plan could be problematic. He stated that the
optimal solution was not yet known. Sovereigns that failed
to do the proper due diligence had seen exports decline
because they had diverted gas to the domestic market; some
had paid penalties as a result. He detailed that there were
ways to mitigate the problem such as choosing to commit 80
to 90 percent of sales to long-term contracts in order to
provide more flexibility and avoid penalties. He noted that
the state may want to consider marketing its gas in
different ways than producers. Perhaps the state would want
to keep more of its gas for the open market in order to
retain gas for the "what if's." The commercial and
technical aspects would be worked through during the pre-
FEED and FEED stages. He reiterated that the concerns were
fairly common facing all LNG producers. He thought the best
thing to do was to look at how various concerns were
addressed in each stage of the agreements.
2:32:52 PM
Representative Wilson believed the state was looking for
answers that were not yet known. She noted that the answers
were desired before the start of the project, but the
legislature was being told the project needed to start
before the answers could be obtained. She remarked that
AGDC and the administration would direct the project on the
state's behalf. Currently TransCanada was the state's
partner and the three producers would each have 25 percent.
She believed most of the gas would be takin in-kind versus
in-value. She believed the tax structure was being set
somewhat. She remarked on the pre-FEED and FEED stages. She
wondered if she was missing any pieces. She understood that
a contract would not be set at present.
Mr. Mayer answered that there were a number of key items
occurring at present. He discussed that the state was
acknowledging a vision that addressed whether all
requirements could be met for taking in-kind and having an
equity share. The legislature was giving the administration
the authority to negotiate the key points. He remarked that
the basic structure of a state gas share and direct
participation in the project provided significant
flexibility for the state to solve the problem of obtaining
affordable gas prices in the state. The options would be
better understood as the process evolved. He relayed that
the state could decide to solve the problem by using its
own share of the gas to provide for the domestic demand;
the price would have an impact on the economics received by
the state. The state could decide that it was a uniform
obligation across all project participants; if the other
partners believed the terms were not in their best interest
there may be negotiations. There were a wide range of items
that could be considered including meeting in-state demand
not primarily with gas from the project but from other
sources such as Cook Inlet or from other producers on the
North Slope (gas that was essentially stranded at present).
There were many different mechanisms the state could use
that would determine the ultimate delivery price.
Representative Wilson asked what the state would be
required to approve next and when. Mr. Tsafos deferred the
question to the administration.
2:38:16 PM
Representative Wilson wondered if the consultants believed
the state would need to be able to meet the deadline for
the Asian market needs. There were other competitors
working to get the market as well. She wondered if 2022 was
the "drop dead" deadline.
Mr. Tsafos cautioned that it was dangerous to speak about
closing windows of opportunity. He stated that because of
the time the project would take, the farther out the
project went the better it looked because there were fewer
projects planned in the future. He discussed that currently
entities selling gas were aiming for delivery dates in 2018
through 2021. Alaska was looking at a later market that was
not as saturated by competition. He acknowledged that as
time went by, later future dates would become saturated as
well. He stated that trying to capture a specific window
was the wrong way to move forward. He believed the primary
reason to keep moving forward was due to the length of time
the process took. He noted that everything was interrelated
and one piece could not be moved without the other. It was
not possible to talk about marketing until conducting the
financing study; likewise it was not possible to know how
much gas there would be before conducting the engineering
study. Although the state would get to FID that included
financial, marketing, technical studies, the items would
become more final throughout the process. He concluded that
it was not possible to wait for everything to be done
before moving to the subsequent step because everything
would become obsolete if too much time passed.
2:42:16 PM
Co-Chair Austerman believed that what the legislature
approved in the current session would mean a two-year
timeframe on most contracts. He surmised that if contracts
were not signed within the two years they would become null
and void; the contracts would be required to come before
the legislature in order to move to the next step. Mr.
Mayer answered in the affirmative. The contracts the
legislature was empowering the administration to negotiate
without coming back before the legislature would govern the
pre-FEED phase. Contracts governing the project beyond pre-
FEED would come back to the legislature for approval
(especially large contracts such as the joint-venture
agreements and firm transportation services agreements).
Mr. Tsafos communicated that the fiscal notes only covered
the pre-feasibility study. The FEED stage would cost
hundreds of millions of dollars.
Co-Chair Austerman surmised that by the time the state got
to the FEED stage there would be a special session in late
2015 to discuss the issue. Mr. Tsafos replied that it
sounded reasonable, but he deferred the question to the
administration.
Representative Gara was interested in the ability to get
extra gas in the pipeline. He discussed expanding by
compression up to 1 billion cubic feet; expansion beyond
the amount would become difficult without help from other
parties. He referred to a provision in the HOA that
represented risk for the state, but reward for the other
companies. He elaborated that if the state wanted to expand
the pipeline, as long as it and a new shipper came in and
expanded, the state had to share the benefits with Exxon,
Conoco, and BP. Once the expansion got the state back to
the cost of the initial shipping rate the state would be
required to bare all of the cost. He remarked that if the
cost of expansion increased the tariff up to the original
rate, the state and shipper would be required to pay the
cost. He wondered why the provision was fair.
2:46:37 PM
Mr. Mayer replied that there were two important items to
distinguish pertaining to Representative Gara's question.
The first item pertained to the parties involved in an
expansion and who bore the direct capital cost. The second
item related to the total per unit capital costs for the
entire pipeline, whether the costs were higher or lower
than previously, and whether there was a benefit or cost to
the expansion in terms of the implied tariff. He stated
that among the parties to the HOA there were active
explorers who may have additional gas in the future that
they would like to see an expansion for (that the state may
or may not want to participate in). He noted that the
agreement allowed a party that wanted to expand to do so
unilaterally without being held back by the other parties.
He mentioned that under the HOA any benefits of an
expansion would go to all parties; however, when costs rose
they were borne by the parties executing the expansion. He
agreed that greater symmetry from the state's perspective
was preferable. However, he noted that reasonable people
could disagree on the subject. He had heard testimony that
the tradeoff was that the initial investment enabled the
expansion; therefore, the initial investors should benefit
in some way. However, when looking solely at the state's
interest, it would be reasonable to say that only expanding
parties bore costs and benefits or that if benefits were
shared that costs would also be shared. He stated that in
negotiations if one party was adamant about unilateral
expansion, sharing the costs may be given up.
2:50:29 PM
Mr. Tsafos referred to discussions about the importance of
initial design and how to build a pipeline that was as
expandable as possible as cheaply as possible. He reasoned
that if the state wanted its partners, which would be
baring 75 percent of the cost, to put down 75 percent on a
slightly larger or more expandable pipeline, one way to
encourage the partners towards the option would be to
provide them with a benefit. He noted that the tradeoff
could be important.
Representative Gara believed the state had the most
interest in bringing in new parties. He opined that the
producers did not care about the ability to bring in new
parties. He stressed that the state cared how much more of
the North Slope was developed. He hoped the state would be
actively seeking new partners; however, he reasoned the
partners would not develop unless they could get their gas
in the pipeline. He commented on the state giving producers
the benefit of reduced shipping rates if there was an
expansion.
Co-Chair Austerman asked Representative Gara to avoid
making statements about how producers would act in response
to certain things.
Representative Gara agreed. He wondered why it would not be
fair for producers to share in costs. He asked about the
fairness of allowing the state to bring the cost back up to
the original rate in order to expand.
Mr. Mayer answered in terms of the implied pipeline tariff,
the arrangement seemed to be a fair and equitable. He could
not say whether the arrangement would ensure the state with
the right of unilateral expansion that was provided in the
current contract.
2:54:10 PM
Representative Guttenberg wondered if the consultants could
answer a question related to the midterm service agreement
in the MOU, Exhibit C. Mr. Mayer replied that he would try
to answer the question.
Representative Guttenberg looked at the document and
observed that TransCanada would have the ability to write
off its property taxes against the capital expenditures,
which was 100 percent recovered through tolls. He surmised
that Anchorage and Fairbanks would charge property taxes
and they would charge the taxes to the state. He observed
that the money moved in a circle.
Mr. Mayer answered that there were a series of costs
incurred in the development of a project. The costs with
allowances for the return on debt and equity would be
recovered by the project builder over the lifespan of the
project. The costs included the upfront capital,
maintenance, operating, and those associated with taxes
such as federal, state, and property taxes etc.; the costs
were all built into the model determining the tariff.
Representative Guttenberg observed that it was money moving
in a circle.
2:56:41 PM
Co-Chair Austerman asked for verification that the
consultants were under contract with the Legislative
Affairs Agency. Mr. Mayer replied in the affirmative
(specifically under the Legislative Budget and Audit
Committee).
Co-Chair Austerman asked when the contract expired. Mr.
Mayer replied that it expired on January 31 of the
following year.
Co-Chair Austerman asked for verification that the
consultants would be available over the upcoming interim.
Mr. Mayer agreed.
Co-Chair Austerman relayed that amendments on the bill were
due at 4:00 p.m. that day.
CSSB 138(FIN)am was HEARD and HELD in committee for further
consideration.
2:58:07 PM
AT EASE
3:04:49 PM
RECONVENED
CS FOR SENATE BILL NO. 140(FIN)
"An Act creating the Arctic infrastructure development
program and fund in the Alaska Industrial Development
and Export Authority; and relating to dividends from
the Alaska Industrial Development and Export
Authority."
3:04:54 PM
Co-Chair Stoltze noted the intent to hear an explanation of
the bill, brief questions, and public testimony.
JESSEE LOGAN, STAFF, SENATOR LESIL MCGUIRE, addressed the
legislation. The bill would create an Arctic Infrastructure
Development Fund within the Alaska Industrial Development
and Export Authority (AIDEA) and addressed one of the
principle elements in the Alaska Arctic Policy Commission's
(AAPC) legislative package. He detailed that the AAPC had
been created to prepare the Arctic policy and
implementation plan for the state for the legislature's
consideration. The bill would attract private investment to
pair with public investment in Alaska's infrastructure in
the Arctic. Although AIDEA currently had the authority to
invest in many of the areas, it had no specific programs
directed to attract private investment. There were specific
limitations to the package financing. He asked for the
committee's preference on how to proceed.
Co-Chair Stoltze asked for a brief description of the goals
and aspirations of the bill.
Mr. Logan addressed the sectional analysis. Sections 1
through 8 were boiler plate and put the Arctic
Infrastructure Development Fund in line with other funds
within AIDEA (e.g. the revolving fund and the Sustainable
Energy Transmission and Supply Development Fund (SETS)).
Additionally, the sections described net income, ways to
generate incentive packages within the funds, and what the
funds consist of. He spoke to the limitations on financing.
For land-based infrastructure AIDEA would be authorized to
give loans for one-third of the capital cost or loan
guarantees up to $20 million. There was a project life of
up to 40 years; AIDEA was also authorized to provide
securities for bond guarantees. Page 7, lines 9 through 15
included a fisheries provision, which was limited to loan
guarantees only (no direct loans) because the Alaska banks
were currently very active in the sector; the sponsor did
not want to create undo competition. The loan guarantees
had a floor of $7 million to ensure that it did not
conflict or create competition with other state or federal
programs. Additionally, the loan guarantee could not exceed
more than one-third of the project's capital costs. The
eligibility for the loan guarantees would be the purchase
or repair of vessels used in federally managed fisheries or
the purchase of quota shares or individual quota shares in
federally managed Arctic fisheries.
Co-Chair Stoltze asked for a description of the fisheries
in the Arctic. Mr. Logan replied that the fisheries were
primarily cod and pollock fisheries. The bill looked
primarily at Bering Sea fisheries that included mostly
large fisher/processor trolls. He relayed that most of the
fishing entities were located outside of Alaska. He
explained that because AIDEA was forbidden to operate
outside of Alaska, any fishing entity taking advantage of
the financing opportunity would be required to relocate to
Alaska. The purpose of the provision was to repatriate some
of the quotas and vessels to the state.
Co-Chair Stoltze asked how large the boats were. Mr. Logan
did not know.
3:09:30 PM
AT EASE
3:09:41 PM
RECONVENED
Mr. Logan replied that the fund did not specifically choose
winners or losers or look for specific projects; it would
wait for private entities to seek out the funding. He did
not know who would be seeking the funds.
Co-Chair Stoltze wondered about the vessel size and asked
if they would be trawlers or draggers. Mr. Logan believed
the vessels would be trawlers and processors. He relayed
that Sarah Lunkin with PT Capital was available to answer
detailed fishery provision questions.
Co-Chair Stoltze asked for verification that PT Capital was
a private entity. Mr. Logan replied in the affirmative.
Representative Edgmon took exception to use of the word
Arctic because technically it was the Bering Sea. He noted
that the federal definition of the Arctic extended down
into the upper Bering Sea. He asserted that there were
currently no fisheries in the Arctic and may not be for the
next 50 years.
3:11:03 PM
Representative Costello asked for verification that outside
companies would be able to benefit from the bill's
fisheries provision. Mr. Logan replied in the affirmative.
He added that the asset taking advantage of the funds or
loaned against would be required to remain in Alaska.
Representative Costello asked if the asset could also be
repatriated. Mr. Logan answered in the affirmative.
Representative Costello noted that geographically Alaska
was an Arctic nation. However, the infrastructure fund
would only benefit projects in one region of the state. She
wondered why the fund should not apply to the entire state.
Mr. Logan pointed to page 8, lines 4 through 7 that defined
the state's geographical boundary of the Arctic. He pointed
to a map included in members' packets that had been taken
from the federal Arctic Region Policy Act of 1990 (copy on
file). The map included all areas north of the Arctic
Circle to the north and west of the Yukon boundary; it also
included the Bering Sea. He referred to the definition of
Arctic development on page 7 of the bill, which included
the construction, improvement, rehabilitation, or expansion
of a facility in the Arctic to aid in development or meet
emergency response or anywhere in the state if the
construction, improvement, rehabilitation, or expansion
supported the further development of a facility in the
Arctic.
Representative Costello asked for the location in the bill.
Mr. Logan pointed to page 8, lines 8 through 15 that
included the Arctic infrastructure development definition.
In response to Representative Edgmon's comment, he agreed
that the bill pertained mostly to the Bering Sea; however,
because the bill used the definition of the Arctic it also
used the language "federal fisheries in the Arctic." He
agreed that there were no fisheries located north of the
Arctic Circle; there was a moratorium on any fisheries in
the location for the foreseeable future.
Representative Costello surmised that there would be a
hurdle that would need to be overcome in lines 13 through
15. She wondered if it would be a substantial hurdle or one
that could easily be overcome.
Mr. Logan answered that it would depend on the individual
project. The purpose of the bill was to create incentives
for infrastructure in the state's least developed areas. He
elaborated that if development in other areas would further
the development in the state's least developed areas (i.e.
the Arctic) they would be eligible. He provided the deep-
water draft port in the Arctic as an example. The Army
Corps of Engineers had identified Port Clarence as a likely
target. He expounded that for the project to be built over
the course of several years, staging grounds in other ports
would be necessary due to the limited amount of shipping
available for the area. Other ports may include Dutch
Harbor, Seward, or Ketchikan. He stated that if storage
capacity was increased in the areas to provide for staging
they would be eligible for the funds.
Representative Costello asked how the dividend aspect
worked in the bill. Mr. Logan referred to page 2, lines 14
through 19. The dividends were the same as those set up
from the revolving and SETS funds. He explained that
between 25 and 50 percent of money the fund earned through
loan proceeds would be returned to the general fund
annually. For example, in the current year AIDEA's
dividends provided approximately $20.5 million to the
general fund.
3:15:30 PM
Co-Chair Stoltze asked if the SETS fund was a model for the
bill's fund. Mr. Logan answered in the affirmative.
Co-Chair Stoltze wondered if the fund would be drained in
two years. Mr. Logan replied that the bill did not seek
capitalization at present; therefore, there was nothing to
drain.
Co-Chair Austerman referenced the building of ports. He
stated that fisheries was only a portion of the bill. He
spoke to the original intent of the bill to develop areas
that were not developed in the Arctic.
Representative Wilson asked for verification that one of
the projects would not qualify under AIDEA's current
structure. Mr. Logan replied that AIDEA could invest in
infrastructure in most of the areas contained in the bill;
however, there was no existing provision to specifically
attract outside investment. The loan limitations in the
bill were a signal to outside investors that the state
would help provide capital at a slightly reduced rate if
investment was brought to Alaska.
Representative Wilson wondered how the commission was
connected and if AIDEA would look for private investors.
Mr. Logan replied that the commission was not connected to
AIDEA in any way. He assumed AIDEA could market the fund if
it chose to do so, but that was not the sponsor's
intention. The intention was to provide AIDEA with another
tool and to allow companies to submit proposals.
Representative Wilson thought most of the items in the bill
(with the exception of fisheries provisions) could
currently occur through AIDEA. She wondered about the
purpose of the bill. She remarked that it made sense for
AIDEA to look for businesses to bring back to Alaska.
Mr. Logan could not speak to AIDEA's marketing ability. He
explained that the bill created an incentive. Currently,
AIDEA's funds were not designed to be limited to certain
portions of the capital investment or the overall costs
(with the exception of the SETS fund). Without legislative
approval AIDEA could not issue a loan for more than one-
third of the capital cost; however, the loan for one-third
of the capital cost could be significantly below market
value, which would be a trigger to investors. He did not
know whether AIDEA would actively seek the investors.
3:19:43 PM
Representative Costello remarked on Mr. Logan's testimony
that there was no connection between AIDEA and the Arctic
Policy Commission. She wondered whether the commissioner of
the Department of Commerce, Community and Economic
Development (DCCED) sat on both boards.
Mr. Logan replied that AIDEA had its own board; in statute
the participants were referred to as members, but in
practice it was a board of directors.
Representative Costello asked whether the commissioner of
DCCED sat on the board. Mr. Logan believed so.
Co-Chair Stoltze replied in the affirmative.
3:20:52 PM
RON LONG, MANAGER, CITY OF SEWARD (via teleconference),
spoke in support of the legislation. He highlighted his top
five reasons for supporting the bill. First, the
legislation did not ask for capitalization and used AIDEA's
authority to guarantee loans and transfer between funds. He
stated that the Alaska Arctic Policy Commission identified
that needs and opportunities in the Arctic would generate
billions in private capital that would go to the region.
Second, the bill would allow AIDEA to give Alaska
businesses better-than-market rates to move the money
through the state's resources (e.g. oil and gas, response,
search and rescue, tourism, fisheries, and economic
sectors). He believed the definition of Arctic
infrastructure recognized that ports outside the geographic
arctic would play a critical logistics and support role in
developing the Arctic. Third, the bill made Alaskan ports
more competitive than outside ports; it would take several
Alaska ports to get everything accomplished. Fourth, the
fisheries component created an economic reason for the 90
percent of the federally managed Bering Sea fisheries
currently monetized out-of-state to home port in Alaska,
adding to the 10 percent currently allocated to the CDQ
[Community Development Quota] programs. Fifth, he believed
the federal government had done little to advance Alaska's
goals in the Arctic; however, the bill would enable Alaska
to make the U.S. a participant rather than an observer.
Co-Chair Stoltze referred to a resolution on by-catch. He
spoke to concern about bringing in by-catch with a
conflicting goal of bringing more by-catch in for
subsidizing. Mr. Long replied that the bill did not add a
new quota to fully allocated fisheries. He surmised that
the bill may change some of the quota ownership from non-
Alaskans to Alaskans.
Co-Chair Stoltze asked if it was okay for Alaskans to by-
catch Chinooks. Mr. Long answered in the negative.
3:23:24 PM
SARAH LUNKIN, CEO, PT PUBLIC POLICY, LLC, shared
information about the company. She explained that the
company was the only private equity firm headquartered in
Alaska that was focused exclusively on deploying capital in
the Arctic. The company expected to deploy approximately 80
percent of the total money raised in Alaska; the other 20
percent would be deployed in Iceland, Greenland, and
Canada.
Co-Chair Stoltze appreciated the information.
Ms. Lunkin thanked the sponsors for their work on the bill.
She shared that PT was currently in the midst of speaking
with global investors about deploying significant capital
in Arctic Alaska. She planned to speak primarily on the
bill's fisheries provision.
Co-Chair Stoltze asked for information about other
provisions as well.
Ms. Lunkin clarified that the fisheries provision was
focused on AIDEA financing federally managed industrial
fisheries in the Bering Sea. The Alaska fishing industry
was the largest employer in Alaska and was the third
largest industry in the state; nearly 60,000 Alaskans were
employed in commercial fishing and seafood processing. She
stated that an additional 11,000 jobs in the state were
created by support services industries. She relayed that
most additional jobs created by Alaska's fisheries were
located outside of Alaska. She stated that the company saw
the provision as bringing some of the outside fisheries
jobs back to Alaska. She detailed that jobs would be
brought back in-state if AIDEA had the ability to guarantee
bank loans for quota and or vessels used in the Bering Sea
for fisheries including pollock, crab, and cod. The
fisheries provision also provided AIDEA loans for shore-
based plants, facilities, and equipment within the State of
Alaska that were used in support of the Bering Sea fishery.
The company believed the bill would increase economic
development, infrastructure, opportunities, and keep jobs
and profits in-state.
3:27:56 PM
Representative Wilson asked what new authority the bill
would provide to AIDEA.
TED LEONARD, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY (via teleconference),
answered that the bill would establish a new fund that
would allow AIDEA to move forward on Arctic projects
assisted by the legislature. He communicated that AIDEA had
the ability to finance the projects through its revolving
fund, but there were side bars for a sample of loan
participation that allowed the agency to provide investment
at its cost of capital. He noted that development projects
through the agency's development program were based on its
cost of capital. The different fund would allow the agency
to assist the legislature with projects that it wanted to
fund and allowed the legislature to set the type of cost of
capital for the project; it also set limits on investment.
Additionally, the bill would allow the legislature to
increase the investment amount through legislation. He
provided the Interior energy project funded by the SETS
program as an example. Under the SETS program the
legislature had instructed AIDEA to invest up to $125
million in low-cost loans at a rate of no more than 3
percent and had provided a capital appropriation to use in
combination with the loans. He elaborated that the fund
would allow the same type of flexibility for the
legislature to use AIDEA as a tool in financing projects
that it wanted to move forward. Finally, the bill set up a
different fund; therefore, it would not impact the bond
rating of the AIDEA revolving fund and funding of other
projects.
3:31:40 PM
Representative Edgmon spoke in support of the bill that he
believed was forward looking. He believed the bill dealt
with an issue that was not presently on the radar of the
mainstream public. He stated that things were happening
quickly associated to the potential opening of the Arctic
and issues pertaining to the Arctic Policy Commission. He
viewed the bill as providing similar building blocks as
those that had led the legislature to the current gas
legislation. He opined that the opening of the Arctic would
mean bigger things for Alaska. He noted that the fund
focused on fisheries.
Co-Chair Stoltze made a remark about the state's commercial
fisheries.
CSSB 140(FIN) was HEARD and HELD in committee for further
consideration.
3:33:45 PM
AT EASE
3:43:27 PM
RECONVENED
CS FOR SENATE BILL NO. 194(FIN)
"An Act creating the Alaska Tourism Marketing Board;
and relating to tourism marketing."
3:43:41 PM
Co-Chair Stoltze spoke to the intent of the bill hearing.
GENEVIEVE WOJTUSIK, STAFF, SENATOR LESIL MCGUIRE, discussed
the bill. The bill would create the Alaska Tourism
Marketing Board within the Department of Commerce,
Community and Economic Development (DCCED). There were 21
members on the board; one member was appointed by the
Senate, one was appointed by the House, and one was
appointed by the DCCED commissioner. The remaining 18 were
members of the Alaska Travel Industry Association (ATIA)
representing Southeast, Southcentral, Southwest, Interior,
and Far North. The regions were designated by the Alaska
State Travel Planner. She detailed that the categories
involved in ATIA were accommodations, activities and
attractions, transportation, cruise travel, tour operators,
and destination management organizations such as the
Anchorage Convention and Visitors Bureau and the JCB. The
bill would require the department and the board to work
together to plan and execute a destination tourism
marketing plan for Alaska. The public members of the board
served at no cost to the state. The bill would sunset in
2018. She added that the bill did not change how tourism
marketing was currently funded or how expenditures were
made by the department; it would formalize the board,
recognizing it as an important part of the process in the
development of a marketing plan for the state. She
communicated that having significant tourism marketing
experience and knowledge from the private sector at the
table would be very beneficial to the state.
3:45:21 PM
Co-Chair Stoltze asked about the history and why the
legislation proposed to place the board under DCCED. Ms.
Wojtusik replied that DCCED was supportive of housing the
board.
Co-Chair Stoltze noted that the board had been through
different iterations. Ms. Wojtusik agreed.
Co-Chair Stoltze CLOSED public testimony with the intent to
reopen it if needed. He assumed that the majority of
potential parties wishing to testify would be advocates of
the legislation.
CSSB 194(L&C) was HEARD and HELD in committee for further
consideration.
Co-Chair Stoltze discussed the evening meeting.
Representative Gara relayed that the administration had
expressed concern over two of the minority amendments
[pertaining to SB 138]. Subsequently the amendments had
been submitted for rewording by Legislative Legal Services.
He noted that the concern was over rolled-in rates. He did
not want to increase anyone's cost for gas if the state did
not receive tax for the gas.
Co-Chair Stoltze replied that the amendments would be
considered timely.
Representative Holmes expressed a similar concern to
Representative Gara's over an amendment she was working on.
ADJOURNMENT
3:50:02 PM
The meeting was adjourned at 3:49 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 191 CS WORKDRAFT FIN C VERSION.pdf |
HFIN 4/16/2014 1:30:00 PM |
SB 191 |
| CSSB 140 (FIN) Letters of Support.pdf |
HFIN 4/16/2014 1:30:00 PM |
SB 140 |
| CSSB 140 (FIN) Sectional Analysis.pdf |
HFIN 4/16/2014 1:30:00 PM |
SB 140 |
| CSSB 140 (FIN) Summary of Changes ver U to ver E.pdf |
HFIN 4/16/2014 1:30:00 PM |
SB 140 |
| CSSB 140 (FIN) Supporting Document-Planning and Infrastructure Section of AAPC Preliminary Report.pdf |
HFIN 4/16/2014 1:30:00 PM |
SB 140 |
| CSSB 140 (FIN) Sponsor Statement.pdf |
HFIN 4/16/2014 1:30:00 PM |
SB 140 |
| CSSB 140 (FIN) Supporting Document-ARPAPolar map.pdf |
HFIN 4/16/2014 1:30:00 PM |
SB 140 |
| SB 138 4.16.14 HFIN Response to Rep Gara Questions.pdf |
HFIN 4/16/2014 1:30:00 PM |
SB 138 |
| SB 138 4.15.14 House Finance 830 AM DOR Notes.pdf |
HFIN 4/16/2014 1:30:00 PM |
SB 138 |