Legislature(2017 - 2018)ADAMS ROOM 519
02/22/2018 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Joint Presentation with the House Resources Committee | |
| HB321 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 286 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 321 | TELECONFERENCED | |
| += | HB 285 | TELECONFERENCED | |
JOINT MEETING
HOUSE RESOURCES STANDING COMMITTEE
HOUSE FINANCE COMMITTEE
February 22, 2018
1:32 p.m.
1:32:10 PM
CALL TO ORDER
Co-Chair Seaton called the House Finance Committee meeting
to order at 1:32 p.m.
HOUSE FINANCE COMMITTEE MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Mark Neuman - Alternate
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Tammie Wilson
HOUSE FINANCE COMMITTEE MEMBERS ABSENT
Representative Cathy Tilton
HOUSE RESOURCES COMMITTEE MEMBERS PRESENT
Representative Andy Josephson
Representative Garan Tarr
Representative John Lincoln
Representative Harriet Drummond
Representative Justin Parish
Representative Chris Birch
Representative DeLena Johnson
Representative George Rauscher
Representative David Talerico
HOUSE RESOURCES COMMITTEE MEMBERS ABSENT
none
ALSO PRESENT
Senator Bert Stedman, Legislative Budget and Audit
Committee Chair; Dr. Wenran Jiang, PHD, Consultant,
Legislative Budget and Audit; April Wilkerson, Director,
Division of Administrative Services, Department of
Corrections; David Teal, Director, Legislative Finance
Division; Joan Brown, Staff, Representative Paul Seaton;
Senator Click Bishop; Representative Bryce Edgmon; Senator
Tom Begich.
PRESENT VIA TELECONFERENCE
Laura Brooks, Division Operations Manager, Health and
Rehabilitation Services, Department of Corrections.
SUMMARY
HB 285 APPROP: MENTAL HEALTH BUDGET
HB 285 was SCHEDULED but not HEARD.
HB 286 APPOP: OPERATING BUDGET/LOANS/FUNDS
HB 286 was SCHEDULED but not HEARD.
HB 321 APPROP: SUPPLEMENTAL OP.; FUND; AMENDING
CSHB 321(FIN) was REPORTED out of committee with
four "do pass" recommendations, three "no
recommendation" recommendations, and four "amend"
recommendations.
JOINT PRESENTATION WITH THE HOUSE RESOURCES COMMITTEE
PRESENTATION: "CHINA, LNG, AND THE ALASKA GAS PIPELINE" BY
DR. WENRAN JIANG, PH.D.
Co-Chair Seaton reviewed the agenda for the day. He
indicated that today's meeting was a joint meeting with the
House Resources Committee.
Representative Tarr introduced the members from House
Resources.
^JOINT PRESENTATION WITH THE HOUSE RESOURCES COMMITTEE
PRESENTATION: "CHINA, LNG, AND THE ALASKA GAS PIPELINE" BY
DR. WENRAN JIANG, PH.D.
1:34:12 PM
SENATOR BERT STEDMAN, LEGISLATIVE BUDGET AND AUDIT
COMMITTEE CHAIR, introduced the presenter, Dr. Wenran
Jiang. As a consultant, Mr. Jiang would be helping the
legislature in understanding the energy economics of the
Pacific Basin and the state's potential decision dealing
with the Liquid Natural Gas (LNG) gasline with Alaska
Gasline Development Corporation (AGDC). He asked members to
hold their questions until the end of the presentation. He
indicated Mr. Jiang would be available for questions for
the following two days if the meeting ran short on time. He
spoke of the building block process of providing education
for the legislature in order to make an informed decision.
Co-Chair Seaton recognized Speaker Edgmon was in the
audience.
DR. WENRAN JIANG, PHD, CONSULTANT, LEGISLATIVE BUDGET AND
AUDIT, thanked the committee for the opportunity to speak
and introduced the PowerPoint presentation: "China, LNG,
and the Alaska Gas Pipeline."
Dr. Jiang began with slide 2: "Self Introduction." He was a
first generation Canadian. He was born in China and left in
1980 after completing his undergraduate degree. He studied
in Japan and pursued his graduate studies in the United
States. Eventually he completed his PhD in Canada and
started his tenured position as a political economy
professor and a China expert at the University of Alberta
from 1993 to July 2017 at which time he took early
retirement from his tenure. He wanted to focus on the kind
of work he was currently doing. In recent years he had been
on leave working for different organizations, federal
provincial governments, to advise on the engagement with
China from Canada. Therefore, he was focusing more on
advisory work.
Dr. Jiang had been tracking as an academic of China's
overseas investment of Chinese behavior of foreign
investment in Africa, Latin America, the Middle East, and
North America. He started looking at resources back in
early to mid 2000, 2004, and 2005 moving to further Chinese
large investments in North America in 2009. Back in 2004 or
2003, the then Canadian federal government's Department of
Foreign Affairs and International Trade, now called Global
Affairs Canada, approached him as an academic member to be
a part of the China strategic working group with the
federal government to identify priorities. He proposed a
series of measures; one of them was to hold an annual
China-Canada energy and environment dialogue to engage
China. He had been tasked with doing the annual conference
since 2004. Up until the present he had organized 13
conferences.
Dr. Jiang reported that in 2005, the energy council, which
Senator Stedman was a representative for the State of
Alaska, invited him to be a special advisor on China on a
voluntary basis, which he gladly accepted. At that time,
China was seen as a rising competitor of the United States
in terms of energy supply and security. Currently, the
picture had reversed. The United States was no longer
talking about security and independence because they were
there. The Chinese had reversed position from about 35
percent foreign dependence on oil to about 70 percent
foreign dependence on oil and close to 40 percent gas
dependence on foreign oil. He had witnessed the 10-year
period and advised the energy council. He had taken the
executives representing about 13 US energy producing
states, 3 energy producing provinces, and a legislative
group to China to engage with Chinese leadership in 2007.
His experience led to his work with the provincial federal
government of Canada. He had also been second to the
Department of Energy at the Alberta provincial level to
further engage with the Chinese, to continue to organize
the annual conference, to speak, and to brief the American
and Canadian State and Provincial legislatures on China's
energy security policy, demand curves, and investment
behaviors.
Dr. Jiang was the mission advisor to Natural Resources
Canada's Minister's China visit. He also organized the 13th
annual Energy Environment Forum in November 2017. He
continued to provide information regarding his professional
experience.
1:42:00 PM
Dr. Jiang advanced to the photo on slide 3: "Meeting with
Canadian PM Justin Trudeau, Shanghai 2016." He indicated he
facilitated a major clean energy deal between Canada and
Chinese entities. Dr. Jiang explained the pictures on
slides 4 and 5.
Dr. Jiang turned to slide 6 and 7: "Overview." He would
provide a Macro level overview. He had been brought in by
Senator Stedman to provide a perspective on energy as it
related to China, particularly as it related to the AKLNG
project. He would be informing the committee of the Chinese
demand and LNG issues. Part II of his presentation would
include where Alaska would fit in terms of potential LNG
development. In the third part of his overview, he would
provide specific project-related information and analysis
about the Chinese parties involved with the signing of the
memorandum of understanding between 5 parties: The State of
Alaska, AGDC, the Sinopec Group, the Bank of China, and the
China Investment Corporation. He had interacted with all of
the entities. He would end his presentation with some
concluding remarks.
Dr. Jiang skipped to slide 9: "China's Growth." The slide
showed some indicators that, by about 10 years prior and
after joining the World Trade Organization (WTO) in early
2000, came to scale. Everything was moving up with positive
indicators other than the employment rate going down. It
was also the time when China began to heavily implement a
"go out" strategy - going abroad to continue a similar
drive. By 2005, 2007, and 2008 China was formidable. The
economy had been growing at about 10 to 12 percent
annually. He mentioned the miracle story about China
beginning to heavily sustain its drive by investing
overseas in the developing world in places such as
Southeast Asia, Africa, Latin America, and, later, in North
America.
1:46:09 PM
Dr. Jiang continued to slide 10: "What's next after 50
years of remarkable growth in China?" He highlighted the
historical 50-year time span from 1964-2014 on the graph.
It showed China as the leader of the major economies. He
furthered that 1/5 of the world's population had never
grown the economy as fast or sustained it as long as China.
He indicated that the chart showed an average 50-year
compounded growth rate of 7.5 percent.
Dr. Jiang turned to slide 11: "China's GDP Grow was 6.9
percent in 2015: Slowest in 25 Years." In recent years the
speculation had to do with where the drive went in China as
it was slowing down. He posed the question if China would
sustain itself forever at such an impressive rate. The
percentage of growth was going down. However, it was only
part of the story.
Dr. Jiang discussed the graph on slide 12: "But China's
Total GDP Value Keeps Getting Bigger." He explained that
while the percentage of growth had gone down in recent
years, the volume of the gross domestic product (GDP) had
added up substantially. He conveyed that it was because the
base of the economy was so large. Currently, China was
growing at a rate of 6.5 percent. It added more GDP volumes
to the Chinese economy than in 2007 when China was growing
at 12 percent. Therefore, implications for the Chinese use
of everything from energy to resources reflected an upward
track which could be seen on the slide.
Dr. Jiang scrolled to slide 13: "Top three countries by
economic dominance." By 2030 China was looking at having 80
percent more economic capacity than the United States.
India followed the United States. He suggested that there
would be a very rapid transition of the world's economic
order. The question was where China was going with its
economy.
Dr. Jiang continued to a summary on slide 14:
"Modernization paradigm on steroids." He called the
impressive numbers from the previous slide the
modernization paradigm on steroids. China had chosen to
have a particular state driven paradigm that was heavily
dependent on capital inputs and labor inputs with low
wages, focused on heavy and manufacturing industries. China
was the largest producer in the world of most things. It's
industry sector was larger than the United States. China
had a deepening integration with the world economy
welcoming whomever came. He would revisit this point
because of the U.S. and China trade deficit. He continued
that U.S. and European companies voluntarily moved their
factory production base to China for the purpose of
exports. He indicated that China was earning very little
return. As a result, China was not only producing for
itself but for the rest of the world resulting in a huge
demand for energy and resources. He asserted that it came
with a cost. There was severe damage to the environment and
a major contribution to global warming. Overall, the
Chinese was seen as pursuing GDP growth at any cost.
Dr. Jiang discussed slide 15: "Giant Appetite." He pointed
to the resources, major commodities, that were highly
consumed around the world.
1:50:43 PM
Dr. Jiang turned to slide 16: "Primary energy demand, 2035
(MTOE)." He emphasized that China was becoming the largest
overall primary energy user in the world, larger than the
U.S.
Dr. Jiang scrolled to slide 17: "China surpasses the United
States as the world's top energy consumer." He pointed to
the read bars on the slide which increased over 10 years,
eventually surpassing the U.S. and never looking back.
Dr. Jiang advanced to slide 18: "China's oil production and
consumption, 1993-2016." In looking at the oil sector, from
1993 the Chinese began to have an import situation in which
currently it had a 70 percent import dependence. He
reported that by 2040 China was projected to have an 80
percent import dependency. China was very concerned about
energy security. In terms of imports, the U.S. used
significantly more oil than China. However, China had
overtaken the U.S. as the largest oil importer in the
world. It ended up growing because the U.S. was producing
more and importing less.
Dr. Jiang moved to slide 19: "China is now the world's
largest net importer of petroleum and other liquid fuels."
Looking into the future to 2040, he believed China would
likely consume twice as much energy as the U.S. even given
the slow pace.
Dr. Jiang discussed slide 20: "China's Energy Use Could be
able Level by 2040." China would be the largest consumer,
twice as much as the US.
Dr. Jiang turned to slide 21: "Historical and Projected
Population and Urbanization Trends in China." He posed the
question about what drove the historical trend. He wondered
why energy consumption was growing so much.
Dr. Jiang moved to slide 22: "Urbanization and China's
emerging middle class." China had nearly 1.4 billion
people, 4 times the population of the U.S. He reported that
in the early 80s barely 20 to 30 percent of China was
urbanized. Presently just over half of China was urbanized,
which meant that well over 600 million people were yet to
be urbanized. He asserted that as the Chinese urbanized,
they consumed more energy. They became richer, joining the
middle class. They wanted cars, apartments, appliances. the
poor population from 1985 were currently in the middle to
upper classes. He indicated that by 2025 most Chinese would
be in the middle class. He reported that around 250 million
people in the U.S. were in the middle class and their
consumption was very high. He furthered that nearly one-
third of the world's emerging middle class was in China and
growing. Other countries such as India followed. The
emerging middle class had profound implications as a driver
of energy use.
Dr. Jiang continued to slide 23: "China Natural Gas
Production and Consumption." In terms of natural gas and
the AKLNG project, all major agencies projected that China
would need to increase its import of LNG significantly.
China was a major large producer and its domestic reserve
was huge. However, it could not keep up with demand.
Dr. Jiang explained slide 24: "China Leads the growth in
projected global natural gas consumption." He relayed that
the latest number from the U.S. EIA reflected that China
was the leader in growth in projected global natural gas
consumption. The numbers were reflected in the chart.
Dr. Jiang detailed slide 25: "China natural gas supply in
IEO2017 Reference case (2010-40)." He explained that
breaking down what kind of gas the Chinese were producing,
what kind of gas they would be importing, and from what
locations, would provide a larger picture.
Dr. Jiang advanced to slide 26: "Energy Consumption per
capita versus the GNP per capita." He used a laser pointer
drawing attention to the right side of the chart noting
that the U.S. and Canada - rich countries - consumed a
significantly larger amount of energy. The United States'
counterpart was much more efficient and rich. They used
less energy but were high on the consumption list. He used
the laser point to draw attention to China on the chart. He
noted that India was not on the slide at all. The classic
trend was going in a direction such that China sold more
cars in the U.S. China out-paced everyone else. A
traditional trajectory, with no paradigm shift, would not
be sustainable. He suggested thinking about China consuming
one-quarter of the United States' total energy on a per-
capita basis. China would need close to 100 million barrels
of oil per day. China's demand was not at this level
presently but was on a trajectory. USA and Canada would use
more energy.
1:56:01 PM
Dr. Jiang turned to slide 27: "China's Energy Consumption
Composition 2007." He reported that China's mix of energy
use was on the slide. China's oil consumption was a
relatively small portion versus coal.
Dr. Jiang discussed the pie charts on slide 28, 29, and 30
showing the various consumption mixes. Last year 64 percent
of China's total energy came from the burning of coal. He
highlighted the yellow bar on slide 28 reflecting that of
China's total use of energy, only 6 percent came from oil.
He spoke of china's energy mix in comparison with the
global energy consumption was drastically different. The
global consumption of natural gas 24 percent versus 30
percent coal. He suggested going between the pie charts on
slides 28, 29, and 30 to see the comparison between the
world, the U.S., and China.
Dr. Jiang detailed slide 31: "China accounts for nearly
three-quarters of the world increase in coal-fired
generation." China might need more gas because it had been
driving industrialization by primarily coal-powered
generation plants. China had made great efficiency moves
but it continued to use a significant coal burning energy
creating additional pollution. The world was looking at
China as the country using the most coal.
Dr. Jiang moved to slide 32: "Crude Steel Production." He
relayed that China produced the largest amount of steel,
consuming more coal energy than anything else.
Dr. Jiang explained slide 33: "Share of total CO2 emissions
from aluminum smelting, 2014." He spoke of the aluminum
production in China that emitted high volumes of CO2 and
used high quantities of energy during the production
process. Not only did China have a large population, it was
a large production country. As a result of these factors,
CO2 emissions were going through the roof. He reported that
China sought a 26 percent global total. The U.S. sought a
percentage of 21 percent. Emissions was a serious issue
that china was trying to address.
Dr. Jiang discussed slides 34 - 39. He reported that coal
use in the Chinese economy in the energy mix was mainly
responsible for CO2 emissions. He mentioned coal was 80 +
percent responsible for emissions. As a country, China was
the largest CO2 emitter. Although China was the largest
emitter of CO2, it argued that on a per capita basis, other
countries such as India in the U.S. ranked higher. Never
the less, on the population chart, with a 5 percent
combined population of U.S. and Canada, North America
emitted about 23 percent CO2. China emitted about 16
percent based on population. It was not country-based, but
a calculation based on population. China used to use the
percentages as a justification to do less. He claimed, "No
more." Everyone else's per capita emissions in the
projections were going down, while China's was going up.
China finally understood that they had so much fuel to
emission pollution. The public demanded it, and the policy
makers wanted to do something about it.
2:00:45 PM
Dr. Jiang advanced to slide 40: "China's 13th Five Year
Plan (2016-2020)." He explained that in China's 13th 5-year
plan, which was more of a guidance plan than the
centralized plan of the Soviet era, there was a major shift
in the development paradigm. There was less emphasis on
numbers and more emphasis on a balance between growth and
the environment. He proclaimed there was a huge investment
in clean energy sectors. There was a nationwide effort in
reducing the use of coal. China wanted to replace the use
of coal with natural gas. China's target kept changing and
projecting more use of natural gas. The natural gas and LNG
demand would rise as a part of the natural economic growth
and the decisive centralized government policy driver. He
reported that there had been a great need for China to
change its policies.
Dr. Jiang turned to slide 41: "Where does China get its
gas?" Central Asia delivered most of the land-based
pipeline delivery of gas supply. It was an LNG import and
had remained relatively the same for the past few years.
Australia, Qatar, Indonesia, and other countries also lead
in supplying LNG to China.
Dr. Jiang scrolled to slide 42: "China LNG import sources,
2012." He reported that in the previous year and for the
first time, the LNG import had overtaken the land-based
pipeline import from central Asia. The 38 percent overall
dependency rate jumped from 2016. Year on year their growth
was about 15 percent for gas imports which was considered
slow. In the previous year it was 27 percent.
Co-Chair Seaton indicated that Senator Tom Begich had
joined the audience.
Dr. Jiang relayed that in the following section he would
look at the sectoral demand worldwide. He would be looking
at the players in the field, the buyers of gas worldwide,
and the gas suppliers. He would be investigating who were
the suppliers and who were the competitors of Alaska LNG.
He moved to slide 44: "Gas demand growth is driven by the
non-OECD." The slide showed the demand for oil and gas
primarily by non-OCED countries.
Dr. Jiang detailed slide 45: LNG trade growth twice as fast
as global gas production." He elaborated that LNG in
particular was developing much faster than pipeline gas
delivery. He highlighted that with the technology driver
and China was looking at natural gas trading. He believed
LNG movement would become a very globally traded commodity.
2:05:01 PM
Dr. Jiang moved to slide 46: "Pace of global LNG supply
growth has started to outpace Pacific LNG demand growth."
He reported that the United States was not the only country
looking at selling LNG and gas to China. He mentioned a
number of countries. A significant amount of capacity was
being added, many countries began to build before 2014 when
the natural gas prices had skyrocketed in Asia. As a
result, the current supply inventory was building up. It
was almost at the margin. In the following few years, the
demand and supply curve could meet. Alaska's timeline was
sensitive, as there could be a large change in demand in
the natural gas energy market within 6 years. There were
several moving targets.
Dr. Jiang continued to slide 47: "This presents a
challenging picture for spot prices in Asia and Europe from
2018-21." He spoke to the volatility of the natural gas
market. Recently the market had been flat, however, it was
subject to change.
Dr. Jiang reviewed slides 48, 49, and 50. He reported that
the top three countries, Japan, South Korea, and China,
accounted for 60 percent of the global LNG on an annual
basis. By the end of the previous year China overtook South
Korea in the ranking moving into second position. He
mentioned a downturn situation in the past but noted that
the Chinese import was taking up the pace.
Dr. Jiang scrolled to slide 51: "Nominal Liquefaction
Capacity by Country in 2016 and 2022." The issue was where
the supply would come from if there was demand. The chart
showed potential suppliers and competitors. He noted
Australia had been building its capacity, whereas the
supply in the Middle East was flat. He thought America's
supply would shoot up. He would come back to Russia, which
had a major interest, particularly in Alaska. He pointed to
3 very large jumps in terms of suppliers.
Dr. Jiang reviewed the regional breakdown on slide 52:
"Liquefaction Capacity by Region in 2010, 2016, and 2022."
He highlighted the capacity spikes in the Asia Pacific
region, the former Soviet Union region, and the North
American region. He did not count Canada. It had over 20
initiatives that were not moving significantly. He
clarified that when he spoke of North America he was really
talking about the U.S.
2:09:17 PM
Dr. Jiang discussed slide 53: "Chinese LNG Terminals." He
relayed that China wanted to take all of the supply. It was
busy building LNG terminals along its coastal line. He
noted several pipelines that had been built as well in
order to take in gas from central Asia. China was
positioning itself strategically. China was very worried
about the energy security environment and did not want to
be too dependent on any one area. The United States and
Canada were part of China's diversification. It was a very
important move on the Chinese side to build all of the LNG
terminals. China was over-working its terminal capacities.
He had relayed that in terms of infrastructure the Chinese
could build additional terminals quickly. There were major
national oil companies involved in building terminals and
importing business. He thought Alaska was involved with the
right partners.
Dr. Jiang detailed slide 54: "Russia-China Gas Deal May
2014." As far as LNG potential, China was not far from
Russia. He recalled the Ukraine crisis from about 4 years
prior in which U.S. lead European allies to impose
sanctions on Russia. As a result, some of the projects were
falling apart. After 10 years of difficult negotiations
between Russia, Gazprom Energy, and the China National
Petroleum Corporation (CNPC) they could not reach an
agreement until Putin went to China explaining that Russia
needed the project. Russia was under a significant amount
of pressure. In May of 2014, a large deal was signed, a
$400 billion multi-year plan spanning 30 years. In November
2014, a similar deal was signed delivering the same amount.
There was a massive Russian and Chinese collaboration. Many
people were suspicious, thinking the deals were just talk.
He confirmed that presently the Chinese were building very
quickly. He highlighted the Yamal Project in which CNPC
invested $12 billion when Western sanctions had to withdraw
funds. He would return to discuss the Yamal project because
Putin opened it. It was the first delivery of LNG and
equated to a $27 billion project. There were many other
projects he could discuss.
Dr. Jiang moved to slide 55: "Energy Alliance." China was
way ahead of schedule. The Russian pipeline to the boarder
was already completed. He indicated the Russians were real
competitors in terms of land-based delivery. According to
Gazprom, by 2025 they wanted to capture 10 percent of
China's gas market, which he thought was very ambitious.
The Russians were very eager to diversify because they were
facing sanctions and most of their gas was via Ukraine, and
Turkey selling to Europe. At the time they were not selling
much to China, although they wanted their market.
2:14:16 PM
Dr. Jiang continued to slide 56: "Giant tiger, small bear."
Russia had many contracts. In terms of a bilateral
partnership, Russia was a large energy supply and reserve.
In terms of economy and trade, Russia was small. The
largest partner for Russia's trading was China, it was only
88 million in comparison to the partnership between China
and the United States. Russia ranked only 9th in China's
foreign trade chain.
Dr. Jiang explained slide 57: "Russia-China Gas Pipelines."
The chart showed pipelines currently being constructed.
They were planned and moving fast. They were not memorandum
of understandings, they were real projects. He highlighted
the Northeast part. In November 2014, another $400 billion
30-year contract was targeted in the Western portion. China
was not just depending on Russia, it was relying on Central
Asia and the Middle East for a long time in terms of
diversification.
Dr. Jiang advanced to slide 58: "Silk Road." He noted that
the one-belt, one-road initiative by the current president
was a $1 trillion initiative. There were hundreds of
billions of dollars already lined up for investment. The
so-called "belt" was actually from the Chinese coastal line
via Southeast Asia at the Indian Ocean all the way to the
horn of Africa, up to the Middle East to Mediterranean
Europe. The land-based route was identified along the
traditional Silk Road via Central Asia to the Middle East
to Europe. He was talking about infrastructure building all
along the way. China had an infrastructure development bank
and a Silk Road fund. They were all in operation. They were
not in the planning stages, they were in the implementation
phase. In the past 5 or 10 years China had been busy
building all of the pipelines. He pointed to Turkmenistan -
Uzbekistan via Kazakhstan. Kazakhstan provided oil while
Turkmenistan and Uzbekistan provided gas.
Dr. Jiang turned to slide 59: "China-Central Asia
Infrastructure Development." He noted there were multi-
transit roots going to China all the way to Shanghai. The
pipeline was more than 3,000 kilometers long and referred
to as the East-West Connection Pipeline of China. The first
line was built about 10 years prior, then the second and
third ones were built, and more continued to be
constructed. He pointed to Pakistan and Gwardar and
mentioned the Burma-Kunming pipeline which was about 1,200
kilometers (similar to what Alaska planned to build - 800
miles of pipeline) going from Burma, at the Indian Ocean to
Kunming, China. China decided to build the pipeline in
2010, began building it in 2011, and completed it in 2012.
By 2013 China was building a second line.
Dr. Jiang had reviewed the customers and potential
competitors who were supplying China with gas by land or
sea. He had provided a global picture of things currently.
Next, he thought the committee should consider how Alaska
would fit in, for deliberation of the project.
2:17:12 PM
Dr. Jiang scrolled to slide 60: "The AGDC-Sinopec MOU." He
also wanted to discuss the viability of the AGDC-Sinopec
project in the current environment. He suggested there were
several questions around the viability, cost, size, and
scope of the project.
Dr. Jiang reviewed slide 61: " China, LNG, and the Alaska
Gas Pipeline." He began with discussing China's capacity in
terms of doing such a project. The project would have a
budget of more than $30 billion, with a $10 billion
contingency fund, totaling about $43 billion. It would be
one of the largest energy cooperation projects in US
history. It was new and unpredictable to Alaska but
familiar to China. The Chinese had already done projects of
the same or larger scope around the world just in the last
10 to 15 years. China had already dealt with the
institutions Alaska was dealing with currently such as the
Bank of China, China Investment Corporation, Sinopec, and
CNPC. There were also state-owned enterprises and national
oil companies teaming up with Chinese state-supported
policy and financial commercial banking institutions. They
were massively investing around the world for more than 10
years.
Dr. Jiang provided an example. The Democratic Republic of
the Congo (DRC) in 2005 or 2006 started a massive $20
billion initiative calling for infrastructure in exchange
for copper. He mentioned China Railway and China Hydro,
massive global-sized state-owned enterprise entities, going
to DRC to build roads and train stations in exchange for
developing a state-owned copper mine via a joint venture
and a state-signed contract. He continued to provide
detailed information about the exchange. He had tracked the
investments for multiple years.
Dr. Jiang presented another example in Angola where
infrastructure was built in exchange for oil. Angola was a
major producer and ranked number 1 after Saudi Arabia. For
many years Angola was number 2 on the list of top oil
exporters. Payment of all loans ($20 billion or more) were
made in oil. He spoke of the price difference of oil and
how that affected the amount of oil that was exchanged. At
$60 per barrel the loan was paid at 40 percent less than at
$100 per barrel. Therefore, it took more oil to pay off a
loan and, at times, left very little oil to spare. He
indicated that this was the case in Venezuela.
Dr. Jiang explained that much of the loan from the China
Development Bank went to Venezuela under President Chavez.
Petroleum of Venezuela (PDVSA), the state-owned oil
company, invested $50 billion and received payments of oil
to China. The Chinese were very concerned whether they
would receive their payment. The key was that the Chinese
were very flexible and innovative, and they liked dealing
with state actors. He believed the Chinese would be happy
working with AGDC, Alaska's government entity, because
China had done similar projects around the world. He
mentioned a large deal with Russia to supply gas. He noted
that Alaska had its own competitor in the U.S. Gulf Coast
already shaping LNG. That U.S. competitor had just signed a
supply contract with China Energy Corporation committing to
supplying China with 1.2 million tons of LNG per year with
two subsidies of China Energy Corporation in the Gulf Coast
area. China National Petroleum Corporation, the largest
group in China, signed a deal for $11 billion during
President Trump's trading. In a $250 billion package, three
projects were about $140 billion. Alaska's project was $43
billion, CNPC's project was another $11 billion, and West
Virginia had a project worth $83 billion developing shale
gas. He suggested the larger comparison was the Yamel deal
in the Arctic.
Dr. Jiang reported that the Chinese had been eying the
arctic for a while. In the prior month, they had released
their first white paper suggesting that it build an arctic
silk road. The Chinese had gone to Russia and other arctic
countries seeking to enter into free trade agreements
including with Canada. He emphasized that the Chinese were
deep into the Arctic with the Russians. He spoke of the
location of the Yamel peninsula. He noted that the $27
billion project produced about 16 million tons per year
capacity versus the 20 million tons anticipated from
Alaska's project. They delivered LNG in the past month,
they were on budget, and were on time. He reported that of
the $27 billion, the Chinese put in $12 billion in 2014.
The contract work building 85 percent of the LNG modules to
be assembled were bought and built in China. That was worth
$7 billion. They built 7 transportation trips related to
the project and 14 of the 15 LNG tankers for the project.
The cost was more than $8 billion. He reviewed the Chinese
investment totals. He thought Alaska would be dealing with
many potential collaborative issues between AGDC and china.
He mentioned several different issues. He noticed the
Chinese press and other observers had commented that the
Alaska project would be good because there was government
backing and the project would be larger than the Yamel
deal.
2:27:26 PM
Dr. Jiang discussed slides 62: "China has deep pocket for
overseas assets." He reported that China's total foreign
reserve peaked at $4 trillion. He thought it was currently
$3.5 trillion. China definitely had money for investments
and liked investing in the U.S. However, the Chinese felt
uncertain about the U.S. Treasury. They felt better about
investing in genuine assets.
Dr. Jiang turned to slide 63: "Composition of China's
foreign-exchange reserves." He reported that the Chinese
were investing in many different energy assets.
Dr. Jiang moved to slide 64: "China Leads the World in
Clean Energy Investment." He relayed that China was leading
the world in alternative and renewable energy investments.
China was leading the world in installation capacity and in
investments. European countries and the U.S. were
significantly behind. Some of the data indicated that China
lead in installation capacity.
Dr. Jiang advanced to slide 65: "China's National Oil
Companies." He highlighted that much of the traditional and
new energy works were done by national oil companies. The
slide listed 4 of those companies including China National
Petroleum Corporation, Sinopec China Petroleum and Chemical
Corporation, CNOOC Limited, and Sinochem Group. He wanted
to inform members of something AGDC had not relayed. He
continued that the top three companies used to be the
ministry of energy in the 1980s. It was a state-owned
enterprise, the state ministry similar to Russia. However,
they reformed and tried to figure a way to break it up.
2:28:18 PM
Dr. Jiang discussed slides 66 - 73. He pointed to the blue
line on the slide depicting the Yangtze River. Anything
North of the Yangtze River was given to CNPC. Anything
South of the Yangtze River was given to Sinopec Group.
Anything not on the land offshore was given to CNOOC
Limited. The initial stage was supposed to have some kind
of division of labor because North of the Yangtze River sat
most of China's upstream oil and gas fields. Most of
China's refineries sat South of the Yangtze River.
Naturally CNPC became focused on upstream, and Sinopec
became focused on downstream. China's refinery was the
second largest in capacity worldwide. CNOOC Limited focused
on everything offshore. He noted the interesting division
of labor. He indicated things had changed in the previous
10 years. As things evolved, the 3 companies started
breaking barriers. They wanted to be integrated large
international oil companies. They were trading in Shanghai,
Hong Kong, and New York in their subsidiaries, even though
they were all state controlled to a certain extent.
PetroChina, a subsidiary of CNPC, was the largest group
with 1.5 million employees. It dealt with most gas imports
and built most of the pipelines. The corporation was
building pipelines at unprecedented speeds. Alaska needed
to contemplate whether CNPC would build the pipeline. He
indicated that CNPC was very interested in building it. He
noted that CNPC had approached Canada. However, Canada was
not interested unless they had a local partner.
Dr. Jiang continued to talk about the major 3 companies. He
noted that Sinopec was the second largest interested
company. He indicated that CNOOC was the third largest oil
company interested in Alaska's project. He mentioned that
CNOOC was trying to purchase Unico for $17 billion. He
provided additional information about the possibility of
the transaction with Unico. He provided additional
investment details about the companies. He conveyed that
they were important players and dominated China's energy
sector and have done overseas investment.
Dr. Jiang continued that in looking at the LNG import
business, Sinopec was a smaller player which meant they had
room to expand with doing the LNG project with Alaska.
2:34:16 PM
Dr. Jiang continued to slides 74-75 that showed LNG imports
in 2016. He indicated that in the first half of 2016 the
United States did not ship any LNG. In the second half of
2016, the U.S. shipped about 3 percent of China's LNG
import. He thought the growth was interesting.
Dr. Jiang advanced to slide 76: "LNG Export Forecast from
Qatar, Australia and the US." The chart showed the U.S.
growing substantially reaching similar supply levels of
Qatar and Australia by 2025.
Dr. Jiang moved to slide 77: "Japan LNG Demand Versus
Contracted Volume: South Korea LNG Demand Versus Contracted
Volume: Taiwan Gas Use." The chart showed normal
projections for Japan, South Korea, and Taiwan. He pointed
out that the supply from both Japan and South Korea were
flat. China's supply would be very static.
Dr. Jiang provided a volatility example on slide 78: "China
imports Projections Versus Capacity." The slide showed
capacity and demand which indicated they might not need
much. However, the policy drivers stressed that they
convert as much coal power generating plants to natural gas
as possible.
Dr. Jiang reviewed slide 79: "But recent interruptions show
conventional wisdoms may be misleading." In the spring the
executive orders were issued from multiple ministries to
convert coal to LNG. However, by the time the notices went
out from the environmental protection agency it was August.
By the time October and November came around, not enough
coal had been converted to gas and left the Northern part
of China in a bind. People did not have heat because the
order had been to stop using coal because of smog. However,
there had not been enough time to convert the coal. The
reality was that China had not finished the job of
converting coal to gas and was in short supply. The
situation became urgent. The central government issued
urgent directives to convert back to coal, as people's
livelihoods were at stake. However, coal was experiencing a
slow season and they did not expect it to pick up. The coal
industry experienced a bottleneck. China had a massive
shortage of coal and LNG. He mentioned that earlier in the
current month, China was receiving about 40 percent of its
LNG from Central Asia, a land-based delivery from
Turkmenistan. One day Turkmenistan's supply dropped
50,000,000 cubic meters from 120,000,000 cubic meters down
to 70,000,000 cubic meters. The Chinese import system
almost collapsed. It was reported that the equipment had
failed. Instead of fixing the problem, the supply was
reduced. There was widespread speculation that some
diversion of gas might have occurred because of the very
cold winter. It was a perfect storm of a policy blunder
combined with a market mess up that drove the spot price
from $7 to $18 British Thermal Unit (BTU). People had
called him from China looking for an LNG supply. People
were desperate. China was facing a major jump in price of
gas imports and anything related to coal. He indicated the
price was $10 BTU. Alaska was looking at a price of $8 BTU
versus $7 BTU in the Lower 48. China faced a dynamic and
volatile situation not caused by normal market conditions,
but other unknown factors. Many Chinese were advocating for
a more predictable and transparent supplier. He noted the
dispute between Russian and the Ukraine about gas to
Europe. The situation in China was good news for Alaska in
terms of doing business with the Chinese. He warned that
Alaska could expect a full bureaucratic struggle with the
Chinese in the process.
2:40:18 PM
Dr. Jiang discussed slide 80: "Governing Structure of
Chinese NOCs." The chart showed the decision-making process
in China around energy. He had dealt with the multiple
agencies associated with the process. He could elaborate in
greater detail on the structure in the future. The Chinese
would scrutinize the project, in part because of some of
its previous investments not going very well.
Dr. Jiang referred to slide 81: "National Energy
Administration (NEA)." He reported the National Energy
Administration (NEA) was supervising the process. He
briefly scrolled to slide 82 which showed NEA's internal
structure.
Dr. Jiang continued to slide 83: "Bank of China." The Bank
of China had been presented to members by Alaska Gasline
Development Corporation (AGDC) and CIC. They had presented
the Bank of China in a very credible light, which was true.
It was a credible institution. The China Investment
Corporation was another entity to have involved in Alaska's
project. He displayed slide 84: "China Investment
Corporation" as he talked. Sinopec was also another company
worth having involved in Alaska's project. Shortly, he
would review some of the lessons he had gleaned when
working on Canadian investments with these Chinese
companies.
Dr. Jiang advanced to slide 85: "Major Chinese Investment
in Canada since Late 2009." The chart reflected a $35
billion investment by China into the Alberta, China energy
sector from 2009-2013. Oil prices and stock prices were
high, and Canada sold to China enthusiastically. He
highlighted the $15 billion CNOOC deal in red. At present,
some of the investments listed were not doing well.
Dr. Jiang turned to slide 86: "CIC invested $1.25 billion
in Penn West Corp. in 2010, at over $18 per share? Now?"
One example of an investment not doing well was the CIC
investment in Penn West Corporation. The company invested
$1.25 billion in 2010 paying over $18 per share. Currently,
the shares were worth just over $1. The joint venture was
completely gone.
Dr. Jiang scrolled to slide 87: "CIC invested $500 million
in 2009. Now?" China Investment Corporation also invested
$500 million in South Gobi Resources Ltd. In 2009, the
shares were worth more than $20 per share. Today the shares
were worth about 20 cents each.
Dr. Jiang reviewed slide 88: "CIC invested $150 million in
2012. Now?" He reported CIC's investment in Sunshine
Oilsands Ltd., Sinopec, and the Bank of China. The total
investment was $300 million. The investors had to de-list
themselves in 2005 in Canada. Currently, the shares were
trading for 22 cents in Hong Kong Dollars, which was
equivalent to 3 or 4 cents in U.S. dollars. The company was
not going into production. He mentioned another example of
a bad investment for Sinopec. He had several other
examples.
2:44:09 PM
Dr. Jiang discussed the lessons learned by China on slide
89: "Chinese investment in Canada's oil sands." The Chinese
had learned their lesson. In the case of Canada, China
concluded that there was much more data and the
corporation's bets on Canadian resources were worth less
than 20 cents on the dollar. The good news was that they
were shifting all the energy emphasis from Canada to the
United States. He thought it was understandable why China
was willing to sign up for a massive energy deal in the
previous year. China was now putting its eggs into the
United States' basket. He thought the state needed to make
some decisions about how to move forward.
Dr. Jiang moved to slide 91: "Conclusions." China was the
largest growing market for LNG and was driven by market and
policy. There was a strong desire by the centralized state
to reduce the use of coal replacing it with LNG in the
short-term. The energy market was volatile. Everyone saw
potential which created competition of suppliers to China's
LNG market. The global capacities were also increasing
partly due to the United States. China's overseas
investment was also shifting to the United States. Chinese
large national oil company (NOC) and investment players
were key drivers because they had been making investments
all over the world. Therefore, in the context he had
provided, Alaska was well positioned with the MOU between
AGDC and Sinopec in terms of global supply and demand,
China's shifting emphasis, overall momentum, and China's
desire to buy more things from the US to balance trade. He
mentioned the pending trade war with the Trump
administration, which the Chinese wanted to avoid. China
might want Alaska to focus on its efforts in the arctic as
opposed to the LNG project. The Chinese were cautious and
tough negotiators. He advised that there would be more work
and expertise necessary to finalize the MOU. His
recommendation was to engage extensively with China. He
thanked committee members for their time.
Co-Chair Seaton acknowledged that Senator Bishop had
stopped by the meeting.
2:48:18 PM
Representative Birch asked about the potential for China's
energy independence. He also asked about the potential for
shale gas production in China.
Dr. Jiang responded everyone was aware of the U.S. context
of national security, energy security, and the independence
debate. He commented that 4 or 5 years made a difference.
He thought China had worsened in the past 10 years. China
used to be in a similar situation as the U.S. was
presently. China was 40 percent dependent on gas imports
and 70 percent dependent on oil imports. Presently, the
Chinese consumed about 11,000,000 barrels of oil per day,
produced only about 4,000,000 barrels per day, and imported
about 7,000,000 barrels per day. He had watched the barrels
of imported oil increase, raising China's dependency on
imports. The Chinese policy makers were worried about their
import numbers. Many countries had a 100-day reserve
requirement. A couple of years ago China's strategic
petroleum reserve fulfilled a week or two of consumption.
Now it's reserves would satisfy two months of consumption.
Dr. Jiang continued that another debate was over China
building a massive accumulation of reserve. Some Chinese
thought it was not worth the cost to have that cushion.
Another faction was adamant about not depending on
Americans who were controlling all of the sea lanes in case
of a conflict. He opined that the Chinese, overall, were
too sensitive. China was banking on the largest partnership
in terms of economic interaction. They thought the stakes
were too high for the U.S. to go further into a trade war
or a hot war. He spoke of China building up its military
and a new generation of aircraft carriers. The Chinese
wanted to eventually have its own capacity to guard but did
not seem to have a solution. They did not have enough oil.
There had been substantial discoveries of oil. However,
they were challenged by geography and connection. The water
requirement to extract shale was a barrier as well. Many
people were more concerned with the country's supply of
water rather than oil and gas.
2:54:12 PM
Representative Grenn asked about the culture and
philosophies of the Chinese companies regarding investment
and their potential reactions to a slow approach.
Dr. Jiang responded that China was not a very experienced
international player. He recalled that the U.S. was leading
the world in the oil industry in the second half of the
19th century. China had not had any oil discoveries until
the 1960s. He provided examples of China's behavior that
lead to success stories. China showed different patterns in
business dealings. In the case of Alaska's project, Sinopec
would be the off-taker of the partner, but not necessarily
the owner. The ownership would remain in Alaska. Local
expertise would be used. In terms of contracting, the
Chinese were looking to contract build some of the project
modules. China could move very quickly once they saw there
was potential. He mentioned an example.
Co-Chair Seaton indicated that there were two more
questions from members. He conveyed his appreciation that
Dr. Jiang would be in town until the following day. Members
could arrange a meeting with him through Senator Stedman's
office.
2:58:14 PM
Representative Pruitt mentioned the Chinese demand focused
on market and policy. He asked if there was a need to move
away from coal as quickly as possible. He wanted to
understand the philosophy around the country's concern with
air quality.
Dr. Jiang replied that China had a large economy and was
polluting its environment heavily. He was concerned about
China. He wanted it to be healthy and environmentally
friendly. He wanted the Chinese to have a middle-class
life, breath better air, and not to suffer the CO2 global
warming impacts. About 5 to 7 years previously China would
have been very defensive about being asked to change
something related to policy. The Chinese did not like the
West questioning its contribution to emissions. Eventually,
the impact of air pollution and CO2 emission took root. The
Chinese became very concerned with air quality only after a
few years of the Chinese government being passive. China
shifted from being passive to being proactive. The key
driver was a domestic consensus being formed. He emphasized
that as China began integrating into the global economy,
all of the Western major multi-national corporations
started moving their production bases to China for the
purpose of exports. He noted Apple products and Walmart
items. He had calculated that 65 percent to 70 percent of
export value of China's production was produced by foreign
multi-national corporations in China for the purpose of
exports. In the process he calculated all of the energy
consumption, CO2 emissions, and combustion in China. He
opined that China's environmental problem was also the
United States' problem. His message was to treat the LNG
project as a commercial project but also as an
environmental project - helping to fight global warming.
There was an international consensus.
Co-Chair Seaton reported that the committee had to move on
to other items on the agenda. He thanked the presenter and
members of the House Resources Committee for their
participation.
3:05:47 PM
AT EASE
3:08:30 PM
RECONVENED
Co-Chair Seaton called the meeting back to order.
HOUSE BILL NO. 321
"An Act making supplemental appropriations and other
appropriations; making an appropriation to capitalize
a fund; amending appropriations; and providing for an
effective date."
3:08:48 PM
Co-Chair Seaton wanted to start with public testimony on
the supplemental bill.
Co-Chair Seaton OPENED and CLOSED Public Testimony.
3:09:59 PM
AT EASE
3:10:16 PM
RECONVENED
Co-Chair Seaton indicated that no one had signed up to
provide testimony on HB 321. He asked for comments from
committee members.
Representative Thompson was opposed to rushing the
supplemental bill out of committee. He wanted a couple more
days to properly vet the bill. He thought it was necessary
to have further discussion about certain items in the bill.
Co-Chair Seaton asked if Representative Thompson had
certain items he wanted to discuss. He conveyed that only
one issue was brought up. He explained that any of the
items all 4 co-chairs could not agree on as necessary to go
in the fast-track budget were not included. The amount of
$170 million had come down to $49 million. He suggested
discussing the item Representative Wilson had brought up
concerning corrections. Representative Thompson had the
same question as Representative Wilson. He asked for
clarification on the related item.
Co-Chair Seaton recalled that Representative Wilson had a
question that was addressed to the department for feedback.
The department had replied with a letter. Hopefully the
department had been responsive. He asked Representative
Wilson if she wanted to discuss the issue.
Representative Wilson met with DOC and understood the
portion regarding population management. She wanted to put
on the record that the $10 million did not have anything to
do with SB 91. However, it had to do with the controversial
fiscal note associated with SB 91. She clarified that when
Palmer was closed, there was not a reduction in personnel.
Rather, personnel were placed into other institutions.
Historically, halfway house money had been used as an
offset, although the money was reduced by a significant
amount of $8 million. Currently there was no extra cushion
funds to rely on. She did not understand about the medical
costs associated with prisoners. She wanted to better
understand about the growth in the number. She reported
there had been an increase of $10 million in healthcare
costs. She noted there was a supplemental request of $10
million in the current legislation. There was also another
$10 million request for FY 19. She was unsure what drove
the increase. She specifically wanted to know where the
growth was derived. She remarked that $10 million was a
significant amount of money. She was aware that 2-3 people
had been sent out of state because of high medical costs. A
few more prisoners might be sent out-of-state. She was
looking for a breakdown of the population management.
Co-Chair Seaton did not want to get confused, as the
committee was currently dealing with the supplemental for
FY 18. Representative Wilson wanted to ensure that it was
not a one-time deal. Co-Chair Seaton invited the Department
of Corrections to respond.
APRIL WILKERSON, DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, DEPARTMENT OF CORRECTIONS, asked Representative
Wilson to repeat her question. She noted that Laura Brooks
from the department was also available to provide more
detail on the populations that the department was seeing.
Co-Chair Seaton mentioned a memo from the Department of
Corrections dated, February 21, 2018 specifically
addressing the question. It was a three-page response to
the question.
Representative Wilson asked about the actuals, and about
what the department anticipated spending.
Ms. Wilkerson replied that the total budget for the
physical healthcare component in FY 18 was $30 million. In
FY 17 the department spent just over $43.5 million. She
noted that the department received a supplemental in FY 17
and it made up an additional $3 million through existing
authorization within the Health and Rehabilitation RDU. She
expected a shortfall of $11.7 million. The department
anticipated making up the difference between the
supplemental ask of $10.3 million, the difference of which
would be made up within the existing authority. The
shortfalls were currently within personal services, the
contractual line, and the commodity line. The department
was asking for the same amount to be added to the FY 17
budget because a shortfall of a minimum of $10.3 million
was expected. She thought Laura Brooks could speak to the
actuals.
3:18:36 PM
LAURA BROOKS, DIVISION OPERATIONS MANAGER, HEALTH AND
REHABILITATION SERVICES, DEPARTMENT OF CORRECTIONS (via
teleconference), thought the question was about why the
department's costs had increased. She conveyed that one of
the things that had greatly influenced the department's
budget was the treatment of Hepatitis C in the facilities.
For the first time there was a cure. However, the
medication was incredibly expensive. She reported that when
the department first started treating inmates, the cost for
a 12-week regimen was about $120,000. The amount dropped
down to about $74,000 in the prior year, and it dropped
again in the current year to between $25,000 to $30,000. A
person might think that because the cost of the medication
had dropped, the standard of care would broaden. She
explained that individuals were treated based on the degree
of illness and on the degree of fibrosis versus a 4-tier
system. It used to be the department would treat the most
severe at level 4. However, the standard had changed, and
the department was now treating levels 3 and 4. Therefore,
while the cost of the medication had decreased, the number
of patients that were being treated had increased. In the
current year, the department was expecting to treat about
20 patients with the medication at an unbudgeted cost of
$540,000. In the following year, the department anticipated
that up to 200 inmate patients would be treated, equating
to an unbudgeted cost of $5.4 million. She reiterated that
while the cost of medications treating Hepatitis C had gone
down, the need had risen.
Ms. Brooks highlighted that the overall costs of
pharmaceuticals had risen dramatically. Over the previous 5
years she had seen an increase in medication costs of
almost 60 percent. Although the department had done a
tremendous amount to streamline and reduce the number of
prescriptions written (about 12 percent), there was still a
10 percent increase in the overall cost of pharmaceuticals
impacting the department's budget substantially. As
Representative Wilson indicated, the department never knew
who would walk through the door. The department had had
cancer patients that had run up costs in the hundreds of
thousands of dollars who were pre-trial inmates with very
serious charges. There was no option to send them out of
state, to send them to a community residential center
(CRC), or to enroll them in pretrial electronic monitoring
(EM). The costs had to be paid by the department. Although
Medicaid had been a benefit to the department covering the
stays of inmates who were hospitalized for 24 hours or
more, the largest increase was the fee for service costs.
The department was spending about $800,000 per month on
fees for services to vendors outside of the facility. She
cited examples such as going to an orthopedic specialist, a
day surgery, a colonoscopy, or an eye exam. She also
thought a change in prison population had influenced the
rise in healthcare costs. Inmates were coming to the state
sicker, with untreated medical conditions that were further
complicated by substance abuse like opiate abuse. Opiate
abuse was having a noticeable impact on emergency room
visits. The department had over 840 visits costing anywhere
from $700 to $5,000 per visit, sometimes more.
3:23:33 PM
Representative Wilson asked for expenses to-date in the
areas of personal services, services, and commodities. They
were the areas in which the department was requesting
increases. She was looking at page 3. Ms. Brooks did not
have the FY 18 year-to-date figures on hand. She had last
year's numbers.
Representative Wilson was trying to figure out how much the
department had already spent. Co-Chair Seaton relayed that
the supplemental budget was projecting through the end of
the year. It did not reflect the actuals already incurred
to-date. He suggested having someone from the Legislative
Finance Division come to the testifiers table. He relayed
that the committee was not working with FY 18 actuals.
Representative Wilson suggested that the department already
knew its numbers because it had determined a supplemental
number to request. The department already knew its
population management numbers. She wanted the information
as it pertained to health services. She wondered if the
division had already overspent.
3:26:28 PM
Ms. Wilkerson reported that although she did not have the
actual breakout of numbers, she confirmed that the
department had spent just over $20 million of a $30 million
budget. The division did not have negative appropriations.
There was a difference between the current $11.7 million
shortfall and the difference in the supplemental having
spent just over $20 million of a $30 million budget. The
department did not have negative appropriations presently.
Of the department's personal services, it had spent about
$15 million. Under the contractual line, the department had
spent just under $10.7 million. Under the commodity line
the department was just under the $2 million mark. She
could provide the actual report. She noted that of the
department's medical costs, some of its providers were 6
months to 9 months out. She could not confirm that the
expenditures were through 100 percent of the billings
received to-date. They were through the invoices received
within her office. The department was aware of anticipated
items that made up the anticipated shortfall.
Representative Wilson was just trying to understand where
the money was going.
Co-Chair Seaton added that the supplemental was to get the
state through the end of the year. The figures were not
known. He commented that the figures were projections
except for the amounts already expended. He continued to
remark about the varying numbers.
Representative Pruitt thought the supplemental request
spoke more about the Department of Corrections' management
over the prior year. The department had asked for an
additional $10 million for institutional operations. He
pointed to the department's comments about the budget
reductions being taken in anticipation of a reduction of
the daily prison population of 1257 starting on July 1st.
The daily reduction was around 500 which reflected a 757-
person difference. He also highlighted that the anticipated
savings would not be attainable until the projected
reductions of SB 91 could be achieved. He indicated that
the original number was projected by the department with
the understanding that certain aspects of SB 91 would not
be in place. However, the department was off by 757
individuals. He thought the discrepancy brought the
management of DOC into question. He wondered how the
legislature could trust the accuracy of the department's
information.
Ms. Wilkerson understood Representative Pruitt's concern,
as the department shared his concerns. Within the fiscal
note, the department tried to accurately represent that the
funding reduction was an annual immediate reduction while
the projected population would be achieved over a period of
time. The department knew it was behind the curve. At the
bottom of the fiscal note, the department identified that a
supplemental would be needed if the reductions did not
occur. The department did not see the immediate drop in
population as anticipated.
3:31:46 PM
Representative Pruitt asked why the initial numbers
provided to the legislature were "best case scenario"
numbers and used to plan the budget. He thought that the
department's fiscal note should have reflected more
realistic numbers. He noted that the changes made in SB 54
[Legislation passed in 2017 regarding crimes, sentencing,
and probation] did not go into effect in time to change the
department's numbers. The numbers were affected by not
being able to attain something. He suggested that the
department should have communicated that it could not meet
its goals. Having the full information would have allowed
the legislature to make a better-informed decision on SB 91
[An omnibus crime bill passed by the legislature in 2016]
and for budget planning purposes for the following year.
Ms. Wilkerson replied that the department had been very
hopeful about achieving its intended reductions. Two
factors played a role in the department's circumstance.
First, the inmate population had not reduced as the
department had anticipated due to its difficulties with
community placements. Second, there was a reduction to the
FY 18 budget in the amount of $8.1 million of existing
authority to backfill the institutions. The additional
reduction had burdened the department and left it without
sufficient operational funding.
Representative Pruitt mentioned hearing about less use of
halfway houses and electronic Monitoring. The state had not
seen the usage of halfway houses in the capacity that was
expected to generate savings. He asked about the
commissioner's and leadership's policy decisions and why
things had not shifted. Ms. Wilkerson deferred to the
commissioner of the department.
Representative Wilson had additional questions regarding
the bill. She referred to page 6, line 20 of the work draft
which mentioned $322,000 for paying judgements and
settlements. She asked for more details.
3:35:53 PM
AT EASE
3:36:51 PM
RECONVENED
Co-Chair Seaton relayed there was only one case which was a
Department of Environmental Conservation employment case.
Representative Wilson pointed to Section 7(b) where it
talked about fund capitalization. Funds in the amount of
$30 million were being appropriated from the ACHI fund to
the Community Assistance fund. She thought that, through
legislation, the community assistance fund was being paid
with Power Cost Equalization funds based on a formula
contained in the bill. She wondered why the state would use
health money. She referenced a previous occurrence in which
$55 million of the funds were used and partially repaid.
She thought it would be better to leave the funds in place.
She asked if the money would be paid out or left in its
current fund.
Co-Chair Seaton explained that $30 million was deposited
annually into the community assistance program from the PCE
fund, if available, to allow for the same payout each year.
The problem was due to a gap year in which the governor put
$30 million from PCE funds into the FY 18 budget but
nothing for the FY 19 budget. The legislature would be
placed in the same situation of not having known funds for
the following year. Therefore, in the proposed work draft,
one-time ACHIA money was taken and placed into the
supplemental for FY 18. Intent language was included that
specified that $30 million could be taken from the PCE fund
to fund FY 19. The bill would fulfill the legislative
intent to have $30 million deposited into the fund each
year in order to stabilize the Community Assistance
Program. Rather than trying to cross fiscal years, they
wanted to take the FY 19 budget and utilize the PCE excess
earnings of $30 million in statute for the fiscal year in
which they were preparing the budget. They would take the
one-time money from ACHIA and put it into the $30 million
that was not appropriated for FY 18 in the form of a
supplemental appropriation. The municipalities and
communities would know the amount of money they would
receive annually.
Representative Wilson asked how much money the PCE Fund
made in the current year. She also wondered about how much
was paid out of the PCE fund.
3:40:09 PM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
answered that it was not the current year, but it was the
previous year. In FY 17 the earnings were about $112
million which more than paid for the cost of the PCE
program - roughly $35 million. It left a substantial amount
for community assistance in the amount of $30 million. The
money was intended to be deposited in FY 19 in order to
know at the beginning of the fiscal year that the FY 19
deposit was covered by FY 17 earnings. As communities
prepared their FY 20 budgets they would know well in
advance that the money would be there. He explained that
the other use of the PCE earnings of $112 million after $30
million was used for community assistance $25 million could
be used towards energy programs. The governor had split the
$25 million between supplemental in FY 19 [and another
year]. The Office of Management and Budget indicated that
there would be a change making the $25 million occur all in
FY 19 just as all of the PCE earnings from FY 17 went to fY
19 community assistance. It was a matter of which fiscal
year the money was assigned. The idea behind the
legislation was to get the community assistance program
back on track using earnings from the second prior year. In
FY 19 the deposit would be based on FY 17 earnings.
Similarly, energy program deposits made in FY 19 would be
based on FY 17 earnings. However, it left a hole for FY 18,
which needed to be filled in the supplemental process. The
governor had proposed using the PCE earnings in FY 18. The
Legislative Finance Division thought the proposal did not
follow the intent of the law passed 2 years prior. He
thought it was a matter of timing and finding fund sources
to fill the shortage in Community Assistance funding.
Representative Wilson asked for the balance in the ACHIA
fund once the $30 million was removed.
3:43:33 PM
Mr. Teal thought it was important to focus on how much
excess was in the fund. He detailed that the state had made
3 deposits of about $60 million each, one of which was for
FY 17. He reported $55 million flowing out in FY 17. Only
$30 million was needed and $25 million was refunded. He
continued that $60 million was deposited in FY 18. He
reiterated that there were 3 deposits; one for FY 16, one
for FY 17, and one for FY 18 through FY 22. The state
obtained a waiver from the federal government for a 5-year
program. The expectation was for the state to receive
federal payments for the reinsurance plan. The amount of
$55 million for FY 18 - FY 22 took up $55 million leaving 3
deposits to the fund and only 2 withdraws. The total amount
of excess funding was about $93 million. The Legislative
Finance Division recommended that the state might want to
spend about $80 million rather than the full amount because
it was uncertain how much the federal government would pay
from one year to the next. He thought it would be better
for there to be more money available 3-4 years from now
rather than finding out additional deposits were necessary.
The bottom line was that there was about $93 million in the
fund to be used for one-time expenditures. Co-Chair Seaton
added a comment about one-time money.
3:46:10 PM
Representative Neuman understood the fast-track
supplemental was being discussed relating to line 34 on the
spreadsheet. He had a question beyond that. He referred to
page 13, line 49 having to do with the open-ended
appropriation for statutory designated program receipts for
the AKLNG fund. The Legislative Finance Division notes
stated that it was open-ended language that would allow the
investments to be deposited into the AKLNG project and
spent without further appropriations.
Co-Chair Seaton interrupted Representative Neuman
indicating that the item was not presently on the table.
Representative Neuman understood and had clarified himself
at the beginning of his question. The way he understood the
language, it conveyed that the administration could enter
into an agreement with Sinopec or China Gas and the
legislature would not have any say in how the money was
spent or appropriated. He asked if he was correct.
Co-Chair Seaton did not want to discuss the budget that was
not on the table currently. The only thing before the
committee was the fast-track supplemental. He reiterated
that he wanted to keep the focus on the fast-track
supplemental.
Representative Wilson referred to page 7, Section 9. She
asked why the word "reduced" was being changed to
"adjusted."
Representative Guttenberg asked if Representative Wilson
was referring to the bill or the spreadsheet.
Representative Wilson responded that she was talking about
the bill. She reiterated her question.
3:49:12 PM
JOAN BROWN, STAFF, REPRESENTATIVE PAUL SEATON, responded
that the change was due to some of the monetary terms which
currently included furlough days. In other words, it was
not just a cash adjustment. The number of furlough days
could be adjusted, resulting in the number going up or
down.
Representative Wilson asked about the ratifications of
certain expenditures on page 9, Section 10. Ms. Brown
responded that generally there were ratifications in the
supplemental every year. Usually they were in the capital
budget bill at the end of session. They were clean-up
transactions to the accounting system. The funds had
already been spent, and there was no additional cost. The
ratifications did not add to the cost of the bill. It was
an accounting clean-up transaction.
Representative Wilson asked why 2010 and 2011 were
included. She asked if something had been missed. Ms. Brown
could not say definitively why there were so many old
transactions. If revenue was expected to be received that
would have cleaned things up, the adjustments could drag
on.
Representative Wilson suggested it could possibly be
federal funds that were expected. In other words, general
fund money was spent in the hope of another type of funding
being received but had not been obtained to-date. Ms. Brown
agreed.
Representative Pruitt wanted to return to the fund source
change regarding community revenue sharing. He referred to
page 6, line 13 of the bill and page 19 of the spreadsheet.
He thought money that was earned in FY 17 was applied to
FY 19. He asked about the earnings in FY 16 and how they
could have been applied in the current year [FY 18]. He
wondered why a draw from the PCE fund was necessary.
Mr. Teal responded that the earnings were only about $8
million or $9 million. The amount was insufficient to pay
for the PCE program. There were no excess earnings
available to make the FY 18 deposit for community
assistance. He continued to explain that with no excess
money, the governor did not ask for a deposit from PCE. He
also did not make a general fund deposit to the community
assistance fund. The legislature did not make a deposit
either. If a deposit was not made before June of the
current year the distribution to communities in FY 19 would
be $20 million rather than $30 million.
3:53:59 PM
Representative Pruitt remarked that there was a policy call
made by not funding community assistance. He wondered why
the governor did not introduce it [an amendment]. He asked
about the initial thought process.
Mr. Teal could not comment on the governor's thought
process or policy decision. He could only confirm that the
appropriation was not included in the budget. It was the
basis for discussions between the chairman's office and the
governor's office. The governor indicated his support for
the community assistance program and wanted money
deposited. However, he did not submit an amendment making
the deposit. If the legislature decided to make the
deposit, it would show an additional $30 million of
spending. He was not sure the legislature was willing to do
that in the prior year, which resulted in the appropriation
being placed in the supplemental bill.
Co-Chair Seaton added that there had been an appropriation
to spend some money. He explained that $30 million went
into the fund and came out as an amount calculated based on
how much money was in the fund. In the prior year, there
was an appropriation offered to add an appropriation
amount, rather than adding to the fund, which would have
brought the amount back up to the level it had been the
previous year.
Representative Pruitt asked if the amount was smaller. He
thought the amount was $8 million. Co-Chair Seaton replied
that it was about $8.3 million. He added that if the money
had been in the fund, only about one-third would have been
spent because it was the third distribution. It was added
to the amount appropriated with a third taken out of the
fund and $8 million added. The legislature did not have to
find $30 million to place in the fund and then remove one-
third of it. The legislature only took what was needed to
make the past payment.
Representative Pruitt did not like appropriating funds
through the supplemental because he thought the
supplemental process was typically overlooked by the
public. Co-Chair Seaton commented that he had brought the
matter up so that the public could understand that the
legislature had not capitalized the fund with $30 million
in the prior year. Instead, the legislature had
supplemented the payment. Currently, the legislature was
doing the capitalization.
3:58:45 PM
AT EASE
4:00:37 PM
RECONVENED
Co-Chair Seaton announced that it was Mr. Teal's birthday
and presented him with a present.
4:02:37 PM
AT EASE
4:04:22 PM
RECONVENED
Vice-Chair Gara MOVED to report CSHB 321(FIN) out of
Committee with individual recommendations.
Representative Wilson OBJECTED.
Representative Kawasaki indicated that it had been a while
since he had seen a fast-track supplemental and understood
the discomfort of some members to pass such legislation
prior to discussing the budget. Historically, it had been
how things were done for several years. He expressed
appreciation for the work that had been done by both bodies
in finding the agreement points on the items in the bill.
He understood there would be a bolder discussion about the
supplementals in general. He noted that the FY 19 budget
discussions were ongoing. He would support moving the bill
from committee.
Representative Pruitt understood wanting to pass an
appropriation bill on things that the legislature agreed
on. However, he was concerned with the use of the term
"Fast-track" as it implied that there would not be the
opportunity to properly vet it and offer amendments. The
movement of the bill at such a quick pace did not allow for
the public to properly weigh in on the policy calls being
made. He did not understand why more time was not being
provided. The appropriation was sizable at $65 million. It
appeared the request was less because of the money received
from the Alaska Comprehensive Health Insurance Association
(ACHIA) program. He reiterated his hesitancy to support the
bill because of the process. He would be opposing the
legislation.
Representative Wilson was concerned with the quickness of
the process. One of her concerns had to do with the
Department of Corrections portion. She had received the
numbers regarding population management. She was aware the
department had a payroll date to meet and would not
otherwise meet it. She mentioned the $10 million
supplemental request from the prior year and another
anticipated. She thought it equated to a significant amount
of money going out without a discussion about what could be
done to save money. She was fine with fast-tracking
anything as long as she could explain the legislature's
actions to her constituents. She would be objecting because
she did not agree with some of the items and because of the
advanced pace of the bill.
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Grenn, Guttenberg, Kawasaki, Ortiz, Foster,
Seaton
OPPOSED: Wilson, Pruitt, Thompson, Neuman
The MOTION PASSED (7/4).
CSHB 321(FIN) was REPORTED out of committee with four "do
pass" recommendations, three "no recommendation"
recommendations, and four "amend" recommendations.
4:12:45 PM
AT EASE
4:14:05 PM
RECONVENED
Co-Chair Seaton indicated that the subcommittee report and
amendments for the Office of the Governor would be
addressed on the following day's agenda.
ADJOURNMENT
4:14:48 PM
The meeting was adjourned at 4:14 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Dr.Wenran Jiang information.pdf |
HFIN 2/22/2018 1:30:00 PM |
HFIN Presentation |
| Wenran Jiang Alaska PPT Feb 22 2018.pdf |
HFIN 2/22/2018 1:30:00 PM |
|
| HB 321 DOC Supplemental Response.pdf |
HFIN 2/22/2018 1:30:00 PM |
HB 321 |