Legislature(2015 - 2016)BARNES 124
02/09/2015 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| Overview: Department of Commerce, Community & Economic Development - Division of Corporations, Business and Professional Licensing | |
| Overview: Alaska Industrial Development and Export Authority | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 9, 2015
3:18 p.m.
MEMBERS PRESENT
Representative Shelley Hughes, Vice Chair
Representative Jim Colver
Representative Gabrielle LeDoux
Representative Cathy Tilton
Representative Andy Josephson
Representative Sam Kito
MEMBERS ABSENT
Representative Kurt Olson, Chair
Representative Mike Chenault (alternate)
COMMITTEE CALENDAR
OVERVIEW: DEPARTMENT OF COMMERCE~ COMMUNITY & ECONOMIC
DEVELOPMENT - DIVISION OF CORPORATIONS~ BUSINESS & PROFESSIONAL
LICENSING
- HEARD
OVERVIEW: ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
SARA CHAMBERS, Acting Director
Division of Corporations, Business, and Professional Licensing
Department of Commerce, Community, & Economic Development (DCCED)
Juneau, Alaska
POSITION STATEMENT: Presented a PowerPoint overview of the
Division of Corporations, Business, and Professional Licensing
(DCBPL), Department of Commerce, Community & Economic
Development (DCCED).
TED LEONARD, Executive Director
Alaska Industrial Development & Export Authority (AIDEA)
Department of Commerce, Community, & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Presented a PowerPoint overview of the
Alaska Industrial Development and Export Authority (AIDEA).
ACTION NARRATIVE
3:18:26 PM
VICE CHAIR SHELLEY HUGHES called the House Labor and Commerce
Standing Committee meeting to order at 3:18 p.m.
Representatives Tilton, Kito, Josephson, Colver, and Hughes were
present at the call to order. Representative LeDoux arrived as
the meeting was in progress.
^OVERVIEW: DEPARTMENT OF COMMERCE, COMMUNITY & ECONOMIC
DEVELOPMENT - DIVISION OF CORPORATIONS, BUSINESS AND
PROFESSIONAL LICENSING
OVERVIEW: DEPARTMENT OF COMMERCE, COMMUNITY & ECONOMIC
DEVELOPMENT - DIVISION OF CORPORATIONS, BUSINESS AND
PROFESSIONAL LICENSING
3:19:57 PM
VICE CHAIR HUGHES announced that the only order of business
would be an overview by the Department Of Commerce, Community &
Economic Development, Division of Corporations, Business, and
Professional Licensing.
3:20:07 PM
SARA CHAMBERS, Acting Director, Division of Corporations,
Business, and Professional Licensing (DCBPL), Department of
Commerce, Community, & Economic Development (DCCED), offered to
give a PowerPoint overview to review some of the concerns that
were raised by the legislature and the department. She briefly
mentioned components of the division, including business
licensing, corporations, professional licensing, investigations,
and administration support [slide 2]. She said the division
licenses businesses and ensures that corporations are registered
in the state and file the appropriate biennial reports. The
professional licensing section comprises approximately 84
percent of the division's function, with the investigation unit
and administrative assistance section providing support to the
board and non-boarded professions.
3:22:27 PM
MS. CHAMBERS presented a brief timeline to highlight some of the
issues the division faces. In 2010, Commissioner Bell joined
the administration and appointed Don Habeger as division
director. In 2011, she was hired as the professional licensing
manager. The Legislative Audit Division conducted a special
legislative audit that identified concerns on the division's fee
setting methodology, indirect cost allocation methodology and
investigative case management. The legislature appropriated
$3.4 million in 2012 to offset an historical overpayment of
indirect expenses by professional licensing programs. The
division assessed indirect costs without allocating indirect
expenses to the business licensing or corporation sections of
the DCCED. Essentially, the one-time appropriation repaid the
professional licensing programs for the overpayment, but the
division also agreed to reconcile expenses for the past 10 years
to ensure the accuracy of the division's finances and
accounting.
3:25:38 PM
REPRESENTATIVE LEDOUX asked whether the $3.4 million
appropriation was refunded to licensees or if this appropriation
went from one governmental agency to another.
MS. CHAMBERS answered that the appropriation reimbursed
professional licensing programs for the indirect allocation
costs [for administrative support to the boards]. After
allocating indirect costs appropriately, some programs were in
further deficit, even with the infusion of funds from the
appropriation, she said, but in other instances the
appropriation created a surplus that put some programs in good
standing and will benefit future fee-setting for its licensees.
For example, in an instance in which a program began with
$100,000 surplus, the appropriation may have increased the
surplus to $200,000, which would "stave off" any increases to
professional licensing fees for the next biennial cycle.
3:28:35 PM
REPRESENTATIVE LEDOUX asked for further clarification on the net
effect of any savings to the state, the public, or to licensees.
She agreed it's nice to have the books in order, but ultimately
she was interested in the ultimate benefits to license holders
or the state.
MS. CHAMBERS advised members that the division experienced a
serious trust issue with its 20 boards since boards didn't have
any confidence in the indirect cost allocation figures. She
explained that licensees must cover 100 percent of their program
costs, including the division's cost to administer their boards
and conduct any investigations. The appropriation offset the
incorrect indirect costs, she said, but other issues surfaced as
a byproduct of the process.
3:31:15 PM
REPRESENTATIVE LEDOUX asked whether the $3.4 million went to the
licensees.
MS. CHAMBERS answered yes; that the reimbursement went to the
licensing programs.
3:31:38 PM
VICE CHAIR HUGHES related her understanding that the
reimbursement was made to boards, but checks were not issued to
license holders. She asked whether a minimum amount was
recommended in the audit report for a base level to prepare for
potential investigations. She further asked whether the
division put in place any safeguards so reimbursement didn't
result in expenditures for extra projects, given that $3.4
million spread over 20 boards would results in sizable funds.
MS. CHAMBERS answered that the details were worked out between
the administrative services manager and the division and
management was informed; however, in many instances the day-to-
day staff had less of an awareness of the accounting actions.
She recalled that spreading $3.4 million among the 40 licensing
programs affected programs through the accounting function.
Further, the expenditure of funds requires adequate safeguards
through the procurement and approval process, she said.
3:34:43 PM
VICE CHAIR HUGHES asked whether she could explain the difference
in the number of programs since she mentioned 20 boards, but
there are 40 licensing programs.
MS. CHAMBERS answered that the licensing programs are split
between 21 boards and 22 non-board professions, including a few
new programs authorized by the legislature.
3:35:13 PM
MS. CHAMBERS returned to the timeline, noting that in 2013, the
division provided the legislature with its annual report,
including a six-year review of the division's licensing
programs.
MS. CHAMBERS reported that House Bill 187 was introduced to
address some of the concerns. This committee recognized some of
the problems programs face with fee-setting methodology and
investigator cost-sharing. There has not been a standard
recommendation in terms of providing safeguards for potential
investigation, but the statute requires fees be set in
consultation with the boards. This process allows the division
and the boards to anticipate and forecast potential expenses
over the next two-year cycle to help ensure the programs can
operate.
3:37:33 PM
REPRESENTATIVE JOSEPHSON asked if the greatest power afforded
the boards was the ability to write regulations that affect
their professions, even though 22 programs do not have that
authority. He asked whether boards receive any other benefits,
such as travel costs.
MS. CHAMBERS answered that board governance varies widely
depending on the statutes, but the boards meet in person for a
specified number of meetings and hold additional
teleconferences. The boards have the ability to initiate
regulations, but they must follow the same procedures to
promulgate regulations as any other agency. She reported that
the division partners with boards on fee setting and regulations
that apply to all programs, which she described as being a
parallel process. The non-board program areas are administered
by the division, with the commissioner and staff performing any
public noticing, she said.
3:40:16 PM
MS. CHAMBERS highlighted the issues addressed in the Legislative
Budget and Audit Committee (LB&A), including fee setting,
indirect expenditures, board travel, and investigative
procedures [slide 3].
MS. CHAMBERS outlined issues related to investigative
procedures, including an awareness that board members are part
of the "gate" to determine whether to initiate an investigation
[slide 4]. Board members also provide guidelines for consent
agreement negotiations and make final decisions on license
disciplines. The professional investigators use standard
procedures and also use guidelines the boards establish to help
ensure consistency in investigations.
3:42:44 PM
VICE CHAIR HUGHES asked whether the division's investigators are
fulltime state employees or contract employees.
MS. CHAMBERS answered they are state employees.
VICE CHAIR HUGHES further asked whether this is the most
economical method to obtain expertise for all the areas.
MS. CHAMBERS agreed it may take time for investigators to "get
up to speed." However, the division has put into place some
processes to help ensure this, including adding more "hands on
supervision" and "quality control" for investigators. Several
boards have unique processes, for example, the division's
investigators may attend board-approved training specific to
real estate appraisers. In addition, the division may bring in
expert witnesses for situations that requires precise expertise
and the board does not have the expertise or for professions
administered by the division [in non-board areas]. Expert
witnesses are vetted to ensure they have the expertise but do
not have any conflict of interest.
VICE CHAIR HUGHES acknowledged this committee is not a finance
subcommittee, but these are the types of questions the committee
must also keep in mind.
3:45:43 PM
REPRESENTATIVE KITO disclosed that he also holds a professional
civil engineer license. He stated that the Board of Architects,
Engineers, and Land Surveyors (ALES) funded an investigator
dedicated to the board since it has a fair number of
investigations or unique ones. He suggested that House Bill 187
was an effort to control the costs of investigations and spread
the costs among the licensees to avoid significant fee increases
in any given year.
3:46:38 PM
MS. CHAMBERS, returning to the investigative procedures,
reported that the division has put in place internal controls
that have reduced legal expenses by 34 percent since 2011.
MS. CHAMBERS directed attention to other issues addressed in the
Legislative Budget and Audit Committee, including board travel.
The division resolved all of the issues raised by the committee.
For example, board members are now able to coordinate travel
through the division using the state travel agent, or
associations are authorized to book travel through their
processes. In addition, the legislature approved reimbursements
for board travel to be credited to the boards.
3:48:42 PM
VICE CHAIR HUGHES asked whether the division or boards have used
video conferencing.
MS. CHAMBERS answered that board members prefer face-to-face
conferences; however, staff have sometimes used video
conferences or teleconferences for some board meetings.
3:49:55 PM
MS. CHAMBERS directed attention to the indirect allocation
methodology [slide 6]. She stated that the division reduced its
indirect costs by nearly $1 million, by finding efficiencies and
scrutinizing indirect costs. In addition, the division
published its first annual report on professional licensing
boards that provides a thorough explanation of the allocation of
direct and indirect expenses.
3:51:31 PM
REPRESENTATIVE KITO asked for a listing of the indirect cost
items that are billed to the boards and the percentage of the
indirect allocation.
MS. CHAMBERS agreed to provide it.
3:51:55 PM
VICE CHAIR HUGHES asked whether the indirect costs are
attributed to the boards, some to administrative services, or to
the commissioner.
MS. CHAMBERS answered that the indirect costs include statewide
costs from the Department of Administration (DOA) that filter to
administrative services and to the commissioner. The division
allocates those costs to the boards.
3:52:57 PM
VICE CHAIR HUGHES asked whether some of the indirect costs in
license fees are attributed to administrative services division
and the commissioner.
MS. CHAMBERS answered yes.
VICE CHAIR HUGHES asked how much of these costs was for overhead
and whether these costs are the same for all the professions.
MS. CHAMBERS offered to provide indirect costs to the committee.
3:53:22 PM
VICE CHAIR HUGHES asked for an assessment of the indirect costs
for boards and non-board licensing programs.
MS. CHAMBERS answered that there is no difference.
3:53:40 PM
VICE CHAIR HUGHES asked for the range of license fees for the 43
programs.
MS. CHAMBERS answered that several programs have the least
expensive fees of $50, but the most expensive [biennial]
licensing fee is $1,700 for midwifery fees.
3:54:34 PM
REPRESENTATIVE LEDOUX asked for clarification that the division
does not license physicians and attorneys.
MS. CHAMBERS answered that the Alaska State Medical Board falls
under the division, but attorneys do not.
REPRESENTATIVE LEDOUX asked for further clarification that
licensing fees for midwives are more than licensing fees for
doctors.
MS. CHAMBERS answered yes; fees for midwives are higher.
3:55:19 PM
REPRESENTATIVE JOSEPHSON expressed concern that the division may
go overboard with its recordkeeping, such that staff must
document all its time.
MS. CHAMBERS answered that most staff are assigned specific
programs so their timesheets are focused on specific licensing
programs. Some staff have multiple licensing functions and
their time was entirely billed out to indirect costs since it
would be too difficult to track the time.
REPRESENTATIVE JOSEPHSON pointed out that in the private sector
in the practice of law, about five percent of their time is lost
in tracking billable hours.
3:57:04 PM
REPRESENTATIVE KITO, speaking from his experience working for
the Department of Transportation & Public Facilities (DOT&PF),
reported that the department developed an indirect cost
allocation plan. For example, the commissioner's office would
estimate the amount of time spent on the Alaska Marine Highway
System (AMHS) to generally allocate the commissioner's time. He
offered his belief that the Department of Commerce, Community &
Economic Development (DCCED) similarly tries to provide a
reasonable assessment of the time spent for oversight of the
division.
3:57:57 PM
VICE CHAIR HUGHES surmised that the professions paying $50
versus $1,700 for licensing fees would pay substantially less in
indirect costs.
MS. CHAMBERS agreed that licensing fees must cover all costs,
including indirect costs. Thus each program shares the indirect
costs using the indirect cost allocation methodology. It varies
depending on the number of staff that provide support, which has
been refined in the last year to ensure the costs are defensible
and transparent. For example, the direct expenses for the Board
of Nursing would be spread over 18,000 licensees whereas direct
expenses for midwives would be absorbed by a handful of
licensees.
4:00:00 PM
VICE CHAIR HUGHES related her understanding that indirect costs
are the same or similar for all programs. She asked for the
percentage or dollar amount for indirect costs.
MS. CHAMBERS answered that the division estimated in 2014, the
indirect cost was $43 per licensee, which covered the cost of
such items as electricity, heating, parking, and telephone
service. Further, the Board of Nursing has nine staff members
whereas one examiner might cover four other licensing programs.
She acknowledged there is quite a bit of disparity and indirect
costs may vary widely for programs.
4:01:44 PM
REPRESENTATIVE LEDOUX was uncertain how much staff time was
required for the timekeeping. She asked how division staff
calculates their time and whether the time is calculated
similarly to the process law firms use, with staff assessing
every 7-15 minutes to bill to a client, or if the costs are
allocated more generally, similarly to how the DOT&PF's
allocates its costs.
MS. CHAMBERS explained that the commissioner and administrative
services allocate indirect expenses, similar to how DOT&PF
calculates expenses. The division's staff tracks time on task;
however, the nine staff working for the Board of Nursing would
not track time since all their expenses are charged to one
board.
4:04:58 PM
REPRESENTATIVE LEDOUX asked for further clarification on the
difference between direct and indirect expenses.
MS. CHAMBERS identified direct expenses as ones attributable to
a specific board, for example, time spent processing license
renewals for one profession. Further, the front desk staff
answers calls for all programs, but do not track their time;
instead, front desk staff time is all billed as indirect
expenses. In response to a question, she agreed that it doesn't
make any sense for staff assigned to one board to track direct
expenses.
4:06:37 PM
MS. CHAMBERS directed attention to fee setting, noting that the
2011 audit raised issues with respect to deficiencies in fee
setting [slide 7]. The division has revised its fee setting
including refining its methodology to forecast future expenses.
Some programs have historical deficits and the division
discussed amortizing this deficit over time, since it would be
very difficult to overcome the deficit "in one fell swoop." The
division worked with the LB&A, agreeing that it might take
several biennial licensing cycles to achieve a surplus for some
programs. In fact, the professional licensing unit recently
ended up in a surplus position for the first time in several
years. The division worked with the Legislative Budget and
Audit on several other issues, including fee spikes created by
unanticipated investigations or appeals, keeping in mind that
programs can't predict investigations. Again, the division has
been working to refine its indirect costs since these costs
increase license fees. Further, she stated that the majority of
revenue was collected every other year through the biennial
license renewal process, which forces the programs to operate in
a deficit for one year.
4:10:43 PM
VICE CHAIR HUGHES asked for the average annual cost for
investigations and appeals for all the professions.
MS. CHAMBERS offered to provide the figures.
4:11:20 PM
MS. CHAMBERS highlighted that the division has acquired new
licensing programs, including licensure of pawnbrokers, athletic
trainers, massage therapists, and behavior analysts. The state
currently licenses 67,000 professionals, up from 50,000
licensees in 2007.
4:12:10 PM
VICE CHAIR HUGHES asked whether the increase in licensure was
due to population growth or from adding more boards.
MS. CHAMBERS answered that the increase in licensees was due to
several reasons, noting that 12 new licensing programs have been
since 1987, including nurse aides - consisting of a large number
of licensees. She surmised that having an Alaska license also
has a certain amount of cachet, so licensees maintain their
licenses in Alaska, but may not practice in the state. She
recapped that the division has 43 programs, with 63 professional
licensing or investigative staff.
^OVERVIEW: ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY
OVERVIEW: ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY
4:13:27 PM
VICE CHAIR HUGHES announced that the final order of business
would be OVERVIEW: Alaska Industrial Development and Export
Authority
4:13:57 PM
TED LEONARD, Executive Director, Alaska Industrial Development &
Export Authority (AIDEA), Department of Commerce, Community, &
Economic Development (DCCED), offered to provide a quick
overview of AIDEA, discuss current projects, and to specifically
discuss the jack-up rig, Pentex acquisition, and due diligence
efforts.
4:15:17 PM
MR. LEONARD explained that AIDEA is the development finance
authority for the State of Alaska and it represents one of the
largest development authorities in the country. He reported
that AIDEA was capitalized with approximately $333 million and
has repaid approximately $356 million, with assets of $1.1
billion. The AIDEA's mission is to promote, develop, and
advance economic growth and diversification in Alaska by
providing various means of financing and investment. AIDEA
fulfills its mission by providing access to affordable long-
term, asset financing, he said [slide 2].
4:16:37 PM
MR. LEONARD directed attention to AIDEA's seven different
programs, including infrastructure development, energy
development, project development loan participation, and conduit
bonds [slide 3].
MR. LEONARD highlighted the tools that AIDEA has available to
provide financing for Alaska businesses, projects, and
infrastructure necessary to support Alaska's economic
development. He offered that AIDEA can participate in loan
participations or provide access to long-term capital for
Alaska's businesses. In addition, AIDEA can provide direct
loans, conduit bonds, where AIDEA acts as the conduit for
businesses to access taxable and tax-exempt bonds. Finally, the
AIDEA can also provide investments to projects through direct
ownership or by investing in a corporation or LLC that own the
project or infrastructure [slide 4].
4:17:50 PM
MR. LEONARD directed attention to a map depicting AIDEA's seven
assets: the Snettisham Hydroelectric Facility, the Ketchikan
Shipyard, the Skagway Ore Terminal facility, an armory on the
Joint Base Elmendorf-Richardson (JBER), the Federal Express
Maintenance Facility, the Mustang Oil Processing Facility/Road,
and the DeLong Mountain Transportation System. In addition, the
AIDEA has a partial ownerships in the LLC that owns the Mustang
Oil Processing Facility [slide 5].
4:18:34 PM
VICE CHAIR HUGHES asked whether these projects add up to $1.1
billion.
MR. LEONARD answered that it was one leg of the three-legged
stool. He explained that AIDEA has approximately $400 million
in direct loans; $400 million in projects; and $500 million in
investments that allow AIDEA the ability to invest in projects,
as well as providing debt capacity. Thus these assets are one
portion of the asset base [slide 5].
4:19:19 PM
REPRESENTATIVE KITO asked whether the seven assets are salable
assets.
MR. LEONARD answered that they could be salable assets. He
explained that AIDEA holds several projects because they serve a
public purpose, such as Delong Mountain Transportation System
since that system can be used more than Red Dog. However, he
confirmed the assets are salable. For example, the Mustang Oil
Processing Facility was structured for AIDEA to phase out of the
investment in 5-7 years and the rig was also structured so AIDEA
will be out within five. Thus it really depends on the
economics AIDEA is trying to promote, as well as the community
and the type of asset, he said.
4:20:23 PM
REPRESENTATIVE KITO asked whether these assets are revenue
generating assets or if there is a mix.
MR. LEONARD answered that these seven assets are all performing
assets. He characterized the Ketchikan shipyard as being more
of an asset that is held, noting AIDEA receives about $20,000-
30,000 from the asset. However, the Ketchikan shipyard was
purchased for $2 million, and the federal government has put in
about $75 million so it is now valued at $80 million. He
offered his belief that the Ketchikan shipyard will become a
performing asset based on the contracts as the new Alaska Class
Ferries (ACFs) come into play.
4:21:30 PM
REPRESENTATIVE LEDOUX asked why the projects AIDEA was involved
in were not being done by the private sector.
MR. LEONARD answered that it is based on the type of asset -
infrastructure. For example, with the Delong Mountain
Transportation System, a $260 million asset, AIDEA was able to
issue a 40-year bond to allow the private sector to use the
infrastructure over a long-term period and repay AIDEA. Thus
AIDEA has the ability to have patient capital. In addition,
AIDEA can step in for a public purpose such as economic
development. For example, AIDEA purchased the Skagway Ore
Terminal, worked with the private sector to clean up the area,
and then built a new ore terminal. Infrastructure funds can
require 15-18 percent rate of return, but AIDEA's typical rate
of return at 5-7 percent promotes more than one owner to invest,
such as the aforementioned Skagway Ore Terminal, which has 4-5
users. Therefore those types of assets allow AIDEA to assist
for a public purpose and to encourage economic development.
4:23:41 PM
REPRESENTATIVE LEDOUX suggested that the Federal Express
[Corporation (Fed-Ex)] represents a large public enterprise.
She asked for the reason the company would not just build its
own facility.
MR. LEONARD answered that the state provided the infrastructure,
which incentivized the company to come into Anchorage and the
Anchorage International Airport System (AIAS). He said there
are times where development finance authority can utilize the
lower rate of return and patient capital to incentivize a
private sector company. He related his understanding that FedEx
did not want to own a long-term hangar at the time so AIDEA's
ability to build the Fed-Ex Maintenance Facility allowed the
corporation to provide the economic development to the
Municipality of Anchorage (MOA).
4:24:56 PM
REPRESENTATIVE LEDOUX asked whether Fed-Ex wasn't present prior
to AIDEA building the facility.
MR. LEONARD was unsure, recalling that this became an asset in
2002, but he offered to provide information to the committee.
4:25:14 PM
VICE CHAIR HUGHES commented that partnering with the private
sector is more apt to happen in Alaska rather than Lower 48
since the rate of return is lower.
MR. LEONARD agreed that is one main reason, but the legislature
provided authorization to partner with LLCs and corporations and
blending AIDEA's capital with more expensive private capital, it
makes the projects more feasible.
4:26:19 PM
MR. LEONARD highlighted the breakdown of AIDEA's investments
since FY 2001 [slide 6]. Since 2000, AIDEA has invested $1.5
billion, with write-down on loans of approximately $1.8 million,
although AIDEA has not had any write-down on projects that it
has invested in since 2000. Currently, AIDEA does not have any
non-performing assets, he said.
4:27:14 PM
REPRESENTATIVE LEDOUX asked for further clarification on AIDEA's
non-performing assets. She asked how many assets AIDEA has -
similar to the Ketchikan Shipyard - that are not technically
non-performing assets. She pointed out that the project
consists of $7 million in state funds and another $75 million of
federal funds, yet it only produces $20,000 in dividends.
MR. LEONARD argued that in actuality the Ketchikan Shipyard is
one of AIDEA's best performing assets in terms of economic
development. The Ketchikan Shipyard facility provides over 200
jobs for Ketchikan. When AIDEA considers performing assets, it
does not just consider dividend payment. The performing asset,
the Ketchikan Shipyard, does not cost the state any funds, but
it represents huge economic development for the area. For
example, it provides a shipyard for the Alaska Marine Highway
System (AMHS), and the shipyard was just awarded a contract to
build the two Alaska Class Ferries (ACFs), which will be built
by Alaskans. He said that considering all of AIDEA's assets
together, the corporation provides dividends, but again, while
the Ketchikan Shipyard is not considered an income-generating
asset, it is a very big economic development asset in the state.
4:29:19 PM
REPRESENTATIVE LEDOUX argued that money has a cost since money
on the open market might earn "x" dollars, but AIDEA will earn
"y" dollars, which is significantly less.
MR. LEONARD replied that as a development finance authority,
AIDEA must generate funds to invest in the state and provide
loans and capital for businesses and projects.
4:30:29 PM
MR. LEONARD emphasized that the aforementioned project is an
asset and without AIDEA stepping in as the conduit for the
federal government to invest in the Ketchikan region, there
would be significantly fewer jobs in Ketchikan. He agreed that
if AIDEA was an investment bank that it would be different;
however, the Ketchikan Shipyard is a flagship asset in economic
development.
4:31:08 PM
REPRESENTATIVE KITO asked for the economic viability of the
Ketchikan Shipyard once the Alaska Class Ferries (ACF) are
built. He suggested that unless the state continues to build
ships, the shipyard will need to have projects to continue into
the future.
MR. LEONARD apologized that he may have miscommunicated. While
the Ketchikan Shipyard hasn't been a large cash flow performing
asset for AIDEA, it generates sufficient funds as a viable
business in Ketchikan. Vigor Alaska has been building ships, he
said, and based on the investment, the shipyard is one of the
state-of-the-art shipyard building halls in the country,
consisting of a six-story structure that allows ships to be
built inside. He cautioned that he did not want to communicate
that this wasn't a viable asset since it definitely is one. One
of the reasons AIDEA exists is that it has the ability to take a
long-term, patient capital view and hold assets to ensure that
they are promoting the economic development needed in the state.
4:33:21 PM
REPRESENTATIVE LEDOUX related her understanding that the
Ketchikan Shipyard builds more than ferries. She asked whether
the shipyard was designed for or could be modified to build an
icebreaker.
MR. LEONARD deferred to Vigor Alaska to answer, but offered his
understanding that the shipyard can build ships over 200 feet,
but he will furnish the committee with the response.
4:34:01 PM
REPRESENTATIVE LEDOUX asked whether this shipyard built the boat
that Wasilla is dealing with now.
MR. LEONARD answered yes; the most current vessel completed was
the Arctic Prowler, a fishing trawler.
4:34:28 PM
VICE CHAIR HUGHES asked whether the research vessel (RV)
Sikuliaq, a research vessel was also built there. She
acknowledged that someone in the audience is nodding "no."
4:34:43 PM
MR. LEONARD referred to AIDEA's 2014 activity overview,
including completing the $15 million National Guard Armory
expansion for the US Coast Guard, completing construction of the
Mustang Road and Pad for approximately $20 million and
committing $50 million in funding for the Mustang Operations
Center. The AIDEA completed construction of a steel fabrication
facility at the Ketchikan Shipyard. In addition, AIDEA approved
over $43 million in loan participations, issued $51 million in
conduit revenue bonds to expand Fairbank's hospital, and issued
$23.1 million in loans to build out the distribution system in
Fairbanks under the Interior Energy Project [slide 7].
4:35:50 PM
MR. LEONARD predicted that these investments will create or
retain 1,046 jobs and 1,462 construction jobs [slide 8]. He
reported that AIDEA has $149.4 million in investments funded and
committed as part of the $835.4 million in total project costs.
He estimated that AIDEA's projects through this process will
leverage approximately $686 million of private sector
investment.
4:36:35 PM
REPRESENTATIVE JOSEPHSON asked for the leaseholder of the
Mustang Road and Pad project.
MR. LEONARD answered that there are several different investors,
including Brooks Range Petroleum Corporation.
4:36:58 PM
VICE CHAIR HUGHES asked for further clarification that these
activities are solely 2014 activities and not from previous
years.
MR. LEONARD answered yes.
VICE CHAIR HUGHES said the number of permanent jobs is pretty
impressive.
MR. LEONARD commented that 2014 was a very good year.
4:37:23 PM
MR. LEONARD reviewed AIDEA's 2015 activity, such that AIDEA has
approved and funded $33.6 million in loan participations.
Further AIDEA has approved an additional $28 million in loans to
build out the distribution system in Fairbanks, has issued $8.1
million in conduit revenue bonds for a Juneau business
expansion, and is in the construction mode for the Mustang
Operations Center anticipated to be completed in the first
quarter of 2016 [slide 9]. The AIDEA typically has 10 to 15
projects in the pre-feasibility to construction stage, he said.
MR. LEONARD offered that AIDEA anticipates investing $70 million
in Mustang Operations Center 1, LLC, an oil processing facility
for the Mustang field, estimated to cost $200-$225 million and
able to deliver 15,000 barrels of oil per day [slide 10]. He
stated that AIDEA works to leverage private sector funds and in
this instance, AIDEA anticipates leveraging about $540 million
over the life of the field.
4:39:37 PM
REPRESENTATIVE JOSEPHSON wondered why the royalty reduction and
exploration development credits offered to Mustang weren't
enough to make this viable. He asked for further clarification
on how the project came about.
MR. LEONARD said that besides bringing lower cost capital,
Brooks Range Petroleum came to AIDEA due to the corporation's
ties to investment banks and infrastructure funds. Thus the
relationships had ties to international funds willing to invest
in this project since AIDEA had performed the due diligence. He
characterized it as an instance in which AIDEA could be a
conduit for Brooks Range Petroleum to find the necessary capital
to make this field viable.
4:41:00 PM
MR. LEONARD highlighted several new projects that AIDEA is
considering, including BlueCrest Energy, an onshore oil rig that
would be used to tap the oil reserves in the Cosmopolitan field,
which was one of the fields used by the Endeavor rig to discover
a large oil and gas reserve in Cook Inlet [slide 11].
MR. LEONARD reported that AIDEA was in the due diligence phase
of a $50 million project with Furie Gas Production to build a
mono-pod rig, pipeline, and onshore processing facility,
estimated to produce up to 100 million cubic feet per day of
natural gas production. He said AIDEA has currently been
undergoing a rigorous due diligence to verify the project is one
that warrants AIDEAs involvement, that it receive an appropriate
rate of return, and will be repaid for its investment. These
due diligence efforts can take months or even up to a year to
accomplish, he said.
4:42:36 PM
REPRESENTATIVE KITO wondered if there has been any legislative
change in legislation that changed AIDEA's risk profile.
MR. LEONARD acknowledged that some changes have allowed AIDEA to
reduce its risk profile. In the past, in essence, AIDEA was
required to own the full project and could lease it out. Over
the past two or three years, AIDEA has acquired the ability to
invest in corporations and not be the full owner. For example,
with the jack up rig, AIDEA invested 20-30 percent of the total
investment, plus investing through corporation helps to protect
AIDEA's assets. He acknowledged that this has changed AIDEA's
risk profile by expanding the type of projects that AIDEA can
invest in; however, through the due diligence structure, it has
not increased the risk profile. Instead, it has reduced the
risk profile by allowing AIDEA to invest in projects without
having 100 percent ownership.
4:44:07 PM
REPRESENTATIVE JOSEPHSON asked for the size of AIDEA's Board of
Directors (BOD).
MR. LEONARD answered that AIDEA's BOD consists of five private
sector members plus the commissioners from the Department of
Revenue and the Department of Commerce, Community & Economic
Development.
4:44:31 PM
REPRESENTATIVE JOSEPHSON asked for further clarification on
whether the final go ahead is a matter of public record.
MR. LEONARD answered yes; then elaborated that for all its
projects AIDEA must perform full due diligence, provide the
board with a finance plan, and obtain local government
concurrence. He agreed that the whole process is a public
process.
4:45:06 PM
REPRESENTATIVE JOSEPHSON, speaking from his experience with the
Alaska Supreme Court, commented that the Board of Director
process typically means that it is less likely to be a
contentious process.
4:45:26 PM
MR. LEONARD pointed out a slide was missing, slide 13, that
provides an update on the jack-up rig. He reminded members that
AIDEA brought up a jack-up rig to drill for gas exploration.
AIDEA's investment was $23.6 million of approximately $123
million total cost, leveraging approximately $96 million of
private sector capital between the overseas Chinese bank and
Australia-based Buccaneer Energy Limited and Ezion Holdings Ltd.
of Singapore. Some issue arose with the rig not modified in the
Singapore shipyard, which required modifications in Homer to
drill in Cook Inlet. He said that AIDEA acknowledged it is not
an expert in jack-up rigs, so through the new due diligence cost
overruns would be borne by the common equity owners, which
occurred. He reported that the jack-up rig drilled for one
season, used to discover the Cosmopolitan field. Due to a lack
of long-term commitment, AIDEA sold its share to Ezion Holdings
Ltd so the rig could be moved. The rig was moved last December
and AIDEA, received $25 million. Based on the structure, AIDEA
knew about the risks, and received a 6.6 percent rate of return
while the state obtained a field discovery.
4:49:22 PM
MR. LEONARD briefed members on the Interior Energy Project [IEP]
status [slide 14]. He said that the IEP's goals were to provide
low cost affordable gas as soon as possible to as many Interior
customers as possible. In addition, this project would enhance
the proposed natural gas pipeline and to lower the particulate
matter 2.5 in the nonattainment areas of the Interior. Over the
past year, AIDEA has been working with private sector on P3 to
build a facility on North Slope pursued development of a North
Slope supply of LNG with a private partner through a concession
agreement format. He reported that the cost came in 20 to 30
percent higher than the original feasibility analysis, and the
dramatic reduction in the cost of oil also happened so the
equivalent of heating fuel was $30/mcf and is now at $20/mcf.
However, AIDEA does not believe that it can stop moving forward
on this project since oil prices won't stay at that level
forever. Further, it is important for the Interior to find an
alternative to heating fuel based on cost and health. As an
update, the project came to the City of Fairbanks at $13-14/mcf,
with the cost of distribution at $5-6, so cost at the burner tip
is $19-20 based on North Slope facility. Thus AIDEA has taken a
step back to evaluate alternative sources of gas, which could
include Cook Inlet.
4:53:03 PM
MR. LEONARD advised that AIDEA has set up a new team dedicated
to this project, consisting of Alaska Energy Authority and AIDEA
employees will concentrate on alternatives exist to ensure the
lowest cost possible to make it through to the proposed natural
gas pipeline.
4:53:50 PM
VICE CHAIR HUGHES asked whether the refocused alternatives
happened since December.
MR. LEONARD recalled that this occurred after January 7, 2015,
since the AIDEA worked with MWH Global through December 2014.
In the agreement certain conditions had to be met for financial
closure, including that the price had to meet the goals of the
IEP, MWH Global had to obtain long-term contracts from the
utilities as well as meet other conditions. Since those goals
were not met, AIDEA canceled the concession agreement and
reevaluated how to move forward, including refocusing to
consider alternatives.
4:55:06 PM
REPRESENTATIVE KITO expressed concern that it appears that there
are two separate efforts, finding the gas source and build-out
of the local infrastructure. He said he was a little worried
that if the build-out begins and supplying gas becomes
challenging, that lots of infrastructure in Fairbanks will not
have any gas supply.
MR. LEONARD answered that AIDEA is moving forward with the
build-out since it will be needed at some point in time gas will
become available for the distribution system. First, AIDEA
believes Cook Inlet gas exists and gas on the North Slope
exists; it is just necessary to ensure that it comes at a price
that meets the goals. Essentially, AIDEA was given the Senate
Bill 23 monies and the broad latitude on the length of time to
pay back the rates that could be used. He acknowledged that
this project is a challenging project and it is correct that
four phases exist, including gas, transportation, storage, and
distribution that all has to be built simultaneously to meet the
community needs. Despite these challenges, AIDEA believes the
project infrastructure needs to move forward since waiting will
mean delaying gas by two more years. He has learned the
importance of timing with this project due to the considerations
or the window will be missed. He characterized it as an
orchestrated build-out of all components so risk exists.
4:58:10 PM
REPRESENTATIVE KITO maintained his concern about not having gas
for the distribution system. He asked for further clarification
on the detriments of having the infrastructure waiting for gas.
4:58:26 PM
VICE CHAIR HUGHES pointed out that the press release on Pentex
came as a surprise. She asked for an explanation of why that
was necessary, why the legislature was not informed, and the
long-term goal.
MR. LEONARD answered that as AIDEA got through the evaluation
North Slope gas, AIDEA believes it must concentrate on the full
chain, not just the gas, but to look at how to lower the cost of
distribution and one way to do that is through integrated
utility system, which was one of the things that AIDEA must
consider. Structuring the letter of intent provides the
framework to do the due diligence to see if what is being
proposed will lower the costs, which are critical to the
project. He described the roll out, such that this was the
framework that they [Pentex] required and needed. As previously
stated, AIDEA is still moving quickly, that the goal is to
obtain gas as quickly as possible to provide Fairbanks. He
described this as the start of the due diligence and not the
end. He reported that the next AIDEA board meeting will be in
February, and he regrets the press release was worded as it was.
He said that how it was presented on his shoulders, but AIDEA
believes it is very important to have an integrated system.
5:01:16 PM
REPRESENTATIVE COLVER asked him to highlight a couple of points.
He related his understanding that AIDEA bought the holding
company, Pentex, honoring Hilcorp's purchase of the Titan LNG
plant. Secondly, the intent of acquiring the distribution
system was that AIDEA already has $23 million in equity
financing of the distribution system. He said a lack of
investment in one of the utilities exists, so the intent is not
to expand the distribution network, but to get the
infrastructure expanded for Fairbanks consumers. He suggested
AIDEA provide information on how it is assisting utility that
have capital constraints, which is a key component - the two
utilities.
MR. LEONARD offered to provide more information at a later date.
5:03:28 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:03 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DCCED-CBPL Overview to HLC 02-09-2015.pdf |
HL&C 2/9/2015 3:15:00 PM |
CBPL Presentation |
| DCCEC-AIDEA Matrices Presentation to HLC 02-09-2015.pdf |
HL&C 2/9/2015 3:15:00 PM |
AIDEA Matrixes |
| DCCED-AIDEA Overview to HLC 02-09-2015.pdf |
HL&C 2/9/2015 3:15:00 PM |
AIDEA Presentation |
| AIDEA presentation to Sen Energy 2-5-15.pdf |
HL&C 2/9/2015 3:15:00 PM |
AIDEA for Reference |