Legislature(2015 - 2016)BARNES 124
03/16/2015 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Adjourn | |
| Start | |
| HB123 | |
| HB132 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 123 | TELECONFERENCED | |
| + | HB 132 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 16, 2015
3:16 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Shelley Hughes, Vice Chair
Representative Jim Colver
Representative Gabrielle LeDoux
Representative Cathy Tilton
Representative Andy Josephson
Representative Sam Kito
Representative Mike Chenault (alternate)
MEMBERS ABSENT
OTHER LEGISLATORS PRESENT
Representative Craig Johnson
COMMITTEE CALENDAR
HOUSE BILL NO. 123
"An Act establishing the Marijuana Control Board; relating to
the powers and duties of the Marijuana Control Board; relating
to the appointment, removal, and duties of the director of the
Marijuana Control Board; relating to the Alcoholic Beverage
Control Board; and providing for an effective date."
- HEARD & HELD
HOUSE BILL NO. 132
"An Act relating to the support of the Alaska liquefied natural
gas project by the Alaska Gasline Development Corporation."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 123
SHORT TITLE: ESTABLISH MARIJUANA CONTROL BOARD
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/23/15 (H) READ THE FIRST TIME - REFERRALS
02/23/15 (H) L&C, JUD, FIN
03/04/15 (H) L&C AT 3:15 PM BARNES 124
03/04/15 (H) Heard & Held
03/04/15 (H) MINUTE(L&C)
03/11/15 (H) L&C AT 3:15 PM BARNES 124
03/11/15 (H) Heard & Held
03/11/15 (H) MINUTE(L&C)
03/16/15 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 132
SHORT TITLE: AGDC SUPPORT OF NATURAL GAS PROJECTS
SPONSOR(s): CHENAULT
03/02/15 (H) READ THE FIRST TIME - REFERRALS
03/02/15 (H) RES, L&C
03/06/15 (H) RES AT 1:00 PM BARNES 124
03/06/15 (H) Heard & Held
03/06/15 (H) MINUTE(RES)
03/11/15 (H) RES AT 1:00 PM BARNES 124
03/11/15 (H) Heard & Held
03/11/15 (H) MINUTE(RES)
03/11/15 (H) RES AT 6:00 PM BARNES 124
03/11/15 (H) Heard & Held
03/11/15 (H) MINUTE(RES)
03/13/15 (H) RES AT 1:00 PM BARNES 124
03/13/15 (H) Scheduled but Not Heard
03/14/15 (H) RES AT 1:00 PM BARNES 124
03/14/15 (H) -- Continued from 3/13/15 Meeting --
03/16/15 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
MICAELA FOWLER, Legislative Liaison
Department of Commerce, Community & Economic Development (DCCED)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions on HB 123
on behalf of the administration.
WES SCHACHT, Member
Kachemak Cannabis Coalition
Fritz Creek, Alaska
POSITION STATEMENT: Testified during the discussion of HB 123.
MIKE TONGA
Homer, Alaska
POSITION STATEMENT: Testified during the discussion of on HB
123.
RENA DELBRIDGE, Staff
Representative Mike Hawker
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented a sectional analysis and answered
questions on HB 132 on behalf of the prime sponsor,
Representative Chenault, and co-sponsor, Representative Hawker.
FRANK RICHARDS, P.E.; Vice President
Engineering & Program Management
Alaska Gas Development Corporation (AGDC)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the discussion of
HB 132.
RICK KOCH, City Manager
City of Kenai
Kenai, Alaska
POSITION STATEMENT: Testified in support of HB 132.
ACTION NARRATIVE
3:16:32 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:16 p.m. Representatives
Chenault, Tilton, Hughes, Kito, Colver, Josephson, and Olson
were present at the call to order. Representative LeDoux
arrived as the meeting was in progress.
HB 123-ESTABLISH MARIJUANA CONTROL BOARD
3:17:17 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 123, "An Act establishing the Marijuana Control
Board; relating to the powers and duties of the Marijuana
Control Board; relating to the appointment, removal, and duties
of the director of the Marijuana Control Board; relating to the
Alcoholic Beverage Control Board; and providing for an effective
date."
3:18:30 PM
MICAELA FOWLER, Legislative Liaison, Department of Commerce,
Community & Economic Development (DCCED), on behalf of the
administration, stated that HB 123 would establish a Marijuana
Control Board (MCB) that would be parallel to the Alcoholic
Beverage Control Board (ABC Board) served by the same agency
staff and executive director. She said that Section 1 covers
the appointment and removal of the director, ensuring that both
the ABC Board and MCB have authority over the director. There
has been some discussion on what would happen if one board voted
to remove a director, since the appointee is appointed by the
Governor, but cannot be removed by the governor except under
extenuating circumstances.
3:19:47 PM
CHAIR OLSON suggested that the Alaska Public Office Commission
(APOC) was an example of another board with similar provisions.
3:19:52 PM
MS. FOWLER offered that the proposed director for the Marijuana
Control Board (MCB) might be addressed in a committee substitute
since the issue of the director has not yet been determined.
She provided a section-by-section analysis of the bill. Section
2 would establish the Marijuana Control Board (MCB) with
designated seats not in the Alcoholic Beverage Control Board
(ABC Board), but the Title 4 [AS 04, Alcoholic Beverages]
rewrite has the same reflections of seats, including adding
seats for public safety and public health representatives. She
pointed out that currently the ABC Board has a rural seat, but
not a public health or public safety representative, which is
important especially in relation to marijuana since it is not a
substance the state currently regulates, nor does the state have
the same federal guidelines as it does with regulation of
alcohol since marijuana is still considered illegal under
federal law. Section 3 would establish the terms of office,
including powers, duties of the board, and enforcement powers.
She said the Alcoholic Beverage Control Board (ABC Board) is a
quasi-judicial agency, and while that language is not included
in this version of the bill, it is the department's intent that
the Marijuana Control Board (MCB) would also be a quasi-judicial
agency and the enforcement staff in the Alcoholic Beverage
Control Board (ABC Board) will have enforcement and peace
officer responsibilities.
MS. FOWLER related that Section 4 would amend the initiative
language to refer to the Marijuana Control Board (MCB). Section
6 would add the Marijuana Control Board (MCB) to the list of
boards served by the DCCED. Section 8 would provide transition
language.
3:21:50 PM
REPRESENTATIVE COLVER referred to page 3 of HB 123 to board
member representation and asked for further clarification on the
number of designated seats.
MS. FOWLER answered that the board would be comprised of six
members, including representatives of the general public, public
safety, public health, rural, and up to two members with
industry experience, and the executive director, who is also
included even though the executive director would not be a
voting member of the board. Thus it would be a five-member
board with the sixth member being the executive director.
CHAIR OLSON offered that to qualify for the last two seats the
industry member would either be subject to felonies or not
living in Alaska, so finding the appropriate language for
industry membership is something the committee is working
through.
3:23:15 PM
REPRESENTATIVE COLVER related his understanding that the
Marijuana Control Board (MCB) would be a six-member board with
an ex-officio member.
MS. FOWLER replied that it would be five members and the
executive director, who is not considered an ex-officio member.
She explained that the board composition was a hard fought
compromise that came from the Title 4 revisions, since it was
felt that the executive director has a fair amount of power in
the ABC Board structure. The ABC Board meets five times a year,
but the work is carried out by the executive director the
remaining time, so for that reason, the Title 4 group believed
that the background of the executive director should be taken
into consideration when determining the other seats on the
board.
3:24:19 PM
REPRESENTATIVE COLVER asked whether the positions could be
designated as rural and public health and also tighten up the
remaining interests. He suggested that besides the designated
seat, only one seat is designated for a public member.
CHAIR OLSON anticipated that a proposed committee substitute
will be forthcoming and it will address board composition more
fully.
3:25:19 PM
REPRESENTATIVE LEDOUX asked to discuss the fiscal note. She
wondered if the Marijuana Control Board (MCB) wasn't created,
but it was left to the Alcoholic Beverage Control Board (ABC
Board), whether the ABC Board incur most of the expenses. She
assumed that the ABC Board would likely need additional staff.
MS. FOWLER stated that the bill initially had a zero fiscal note
and the Department of Commerce, Community & Economic Development
asked for funding in its base budget request. Whether the
function falls to the Alcoholic Beverage Control Board (ABC
Board) or to the Marijuana Control Board (MCB), the department
will need additional staff to implement the program. She agreed
the department will need the additional staff members and the
same costs will be incurred, regardless of the board structure.
3:26:50 PM
REPRESENTATIVE LEDOUX asked whether the costs would be identical
or if additional costs will be incurred.
MS. FOWLER answered that it would be a "wash."
3:27:10 PM
REPRESENTATIVE COLVER asked how the fee structure will offset
the costs and whether it would be by regulation or statute.
MS. FOWLER answered that it would be done by regulation.
3:27:41 PM
REPRESENTATIVE KITO related his understanding that the Title 4
rewrite will be introduced as a bill. He asked whether changes
to the board composition for the Marijuana Control Board (MCB)
will be necessary to conform to any changes the legislature may
make to the Alcoholic Beverage Control Board (ABC Board)
composition.
MS. FOWLER answered that nothing requires the two boards to
match, although the Department of Commerce, Community & Economic
Development (DCCED) does see some benefit to the boards
matching, but it would not necessarily mean revisiting the
Marijuana Control Board (MCB) composition. She agreed that the
department anticipates that a Title 4 rewrite will come before
the legislature.
3:28:49 PM
CHAIR OLSON asked to reopen public testimony on HB 123.
3:29:26 PM
WES SCHACHT, Member, Kachemak Cannabis Coalition, offered his
support for a separate board. Even though the substances are
somewhat related, they are different in numerous ways, he said.
3:30:48 PM
The committee took an at-ease from 3:30 p.m. to 3:32 p.m.
3:32:04 PM
MIKE TONGA wondered why the legislature was putting together a
[board]. He said he recently watched the [Senate] Finance
Committee take up several amendments that related to
"recreational stores." His community would be required to "opt
in" to have a recreational store. He expressed concern that the
first stores would not come on line until July 2016, but it
would come up at the earliest in the August primary election.
Given the 90 days it would take to certify an election, a store
could not open until mid-November.
CHAIR OLSON pointed out that he is testifying on a different
bill and the bill before the committee today will set up a
framework for the Marijuana Control Board (MCB), which does not
have anything to do with the bill that was taken up by the
Senate Finance Committee. He suggested that Mr. Tonga submit
his comments in writing.
3:34:21 PM
CHAIR OLSON, after first determining no one wished to testify,
closed public testimony on HB 123.
[HB 123 was held over.]
3:34:26 PM
The committee took an at-ease from 3:34 p.m. to 3:35 p.m.
HB 132-AGDC SUPPORT OF NATURAL GAS PROJECTS
3:35:13 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 132, "An Act relating to the support of the
Alaska liquefied natural gas project by the Alaska Gasline
Development Corporation." [Before the committee was CSHB 123
(RES)].
3:35:35 PM
REPRESENTATIVE CHENAULT, speaking as prime sponsor, stated that
HB 132 affirms the policy direction for the Alaska Gasline
Development Corporation (AGDC). The legislature set this policy
direction in 2013 when creating AGDC, and in 2014 when approving
AGDC's involvement in the Alaska Liquefied Natural Gas Project,
(AK LNG) in conjunction with Senate Bill 138.
REPRESENTATIVE CHENAULT said that HB 132 recognizes that the
AGDC [Alaska Gasline Development Corporation] is already engaged
as a partner on behalf of the State of Alaska in the AK LNG
Project, which is the project most likely to deliver the
greatest benefit to Alaskans. Because the AK LNG Project is
most likely to deliver the greatest benefits to Alaskans, HB 132
ensures that the AGDC maintains its commitment to this project.
3:36:39 PM
REPRESENTATIVE CHENAULT stated his belief that this bill does
not allow the state to embark on a duplicative, competing
project, until the future of the AK LNG Project is more certain.
REPRESENTATIVE CHENAULT said that under HB 132, the AGDC would
be free to pursue other projects at the earliest of three dates;
first, if a party to the AK LNG Project withdraws; second, if
the AK LNG Project proceeds into the front-end engineering and
design (FEED) phase, and third, on July 1, 2017. The
legislation further recognizes that the state is prudent to
maintain its back-up plan, the ASAP [Alaska Stand Alone
Pipeline] project, in case the state's partners in the AK LNG
Project fail to commit to the next development - front-end
engineering and design (FEED) phase. Should that occur, the
AGDC will be poised to re-solicit gas buyers and gas sellers and
to upgrade the ASAP proposal as supported by the market. To
avoid a duplicative or competing project, the legislation
prohibits use of the In-state Natural Gas Pipeline Fund to pay
for work on a project that would export more gas than it would
deliver instate. This bill would also require the AGDC to have
the written consent of a gas owner or controller before
attempting to market that entity's gas to a third party. Keys
to megaproject success include the elimination of competing
objectives and the alignment of stakeholders along a single
project. With the unprecedented momentum to date of the aligned
Alaska Liquefied Natural Gas [AK LNG] Project, having competing
projects will increase risk and uncertainty that threatens its
success. This legislation ensures that the AGDC will retain the
course set by the legislature in creating the AGDC and providing
a framework for the AGDC to advance the state's interests as a
full participant in the AK LNG Project.
3:39:24 PM
RENA DELBRIDGE, Staff, Representative Mike Hawker, Alaska State
Legislature, on behalf of the prime sponsor, Representative
Chenault, and co-sponsor, Representative Hawker, stated that HB
132 would temporarily confine Alaska Gas Development Corporation
(AGDC) to work on the two projects that the legislature has
approved. This would maximize the chances of success for the AK
LNG Project while maintaining a viable state backup option to
deliver gas to Alaskans and be the most responsible steward of
the state's money. She offered her belief that approximately
$180 million remains in the In-state Natural Gas Pipeline Fund,
appropriated by the legislature to get the AGDC through an open
season process for an in-state gasline. She said that the
sponsors were concerned that if the funds are rerouted to study
other options, it could take away money to implement an in-state
gas option for Alaskans.
3:40:41 PM
MS. DELBRIDGE directed attention to Section 1, which would
establish the Alaska Gas Development Corporation (AGDC)'s
purpose. She turned to page 3 to Section 2, which would place
temporary restrictions on what the AGDC can do, including
prohibiting the AGDC from developing a natural gas pipeline
project in which more than half the gas going through the
pipeline would be destined for export. It would further
prohibit AGDC's involvement in an LNG Project that competes with
the AK LNG Project to which AGDC and the state are already
contractually committed. These prohibitions would end at the
earliest of three dates: first, if the state or other parties
withdrew from AK LNG partnership, the AGDC's restriction would
no longer be in place; second, if the state and the other
parties moved forward to into a FEED [front-end engineering &
design] decision, which will involve a new level of commitment
and new level of financial commitment; and third, the July 1,
2017 date would essentially represent the final date to enter
into a FEED decision on the AK LNG Project.
3:42:23 PM
MS. DELBRIDGE directed attention to Section 3, which would
prohibit the AGDC from marketing gas if it does not have title
to the gas or written consent from the party that does own and
control the gas.
MS. DELBRIDGE directed attention to Section 4, which would amend
the In-state Natural Gas Pipeline Fund to prohibit the AGDC from
using funds for a project that competes with the AK LNG project
or for a natural gas pipeline if the majority of the gas goes to
export. She clarified that the aforementioned restriction would
expire at the end of the previously mentioned dates, at which
point the AGDC would potentially be able to use the In-state
Gasline Fund for which over 50 percent of gas is intended for
export project if the AK LNG has not gone through.
MS. DELBRIDGE directed attention to Section 5, which provided
definitions. It conforms the statutory reference in the
definition of "Alaska liquefied natural gas project" to reflect
the new subsection in AGDC's purpose to restrict the project.
3:43:30 PM
MS. DELBRIDGE related that Section 6 would add a new term
"front-end engineering and design" to definitions under AGDC,
commonly called FEED. She described it as the next development
phase that the Alaska LNG Project is bound for, she said,
stating that the language used in the definition replicates the
language in the heads of agreement (HOA) - document for the AK
LNG Project dated 1/14/2014, between Alaska Gas Development
Corporation (AGDC), TransCanada, the State of Alaska, ExxonMobil
Corporation, ConocoPhillips Alaska, Inc., and BP Exploration
(Alaska) Inc. She stated that Section 7 would establish an
effective date.
3:44:11 PM
CHAIR OLSON asked whether she could briefly discuss the AK LNG
gas issue. She suggested that they had a commitment on the full
amount of the gas.
MS. DELBRIDGE replied that the North Slope producers are the
entities that have the contractual right to develop and produce
the gas on the leases that they have leased. She said that when
the state produces the gas, the state receive a royalty
percentage that it can take royalty-in-kind (RIK) as gas or
royalty-in-value (RIV) as money. She state that under AK LNG
and the terms of Senate Bill 138 that the legislature approved
last year, the state and the producers have an opportunity to
agree to have the producers pay production taxes on the gas as
gas. For AK LNG the state would have a physical gas share of up
to 25 percent of the gas coming through the AK LNG Project. She
said that where the state's 25 percent ownership in the AK LNG
project is derived, that it is a share commensurate with the
amount of gas that the state would then have to ship and fill
its share of the pipeline, gas treatment plant (GTP)
liquefaction plant and be able to market. Essentially by moving
forward with AK LNG, which is the project the producers would
like to see materialize - and have essentially committed their
gas to that project - pending the Alaska Oil and Gas
Conservation Commission deciding how much gas it will allow the
producers to take off of certain fields at what point in time in
order to maximize ultimate recovery of all the oil and gas.
3:46:07 PM
CHAIR OLSON related his understanding that the aforementioned
oil and gas molecules can't be counted for a competing project.
MS. DELBRIDGE answered that it would be difficult to understand
how someone with gas could commit gas and negotiate contracts
for the sale of that gas under two different projects at once.
3:46:25 PM
REPRESENTATIVE HUGHES asked for the balance of the In-state
Natural Gas Pipeline Fund and when did she anticipate it would
be needed by the AK LNG Project.
MS. DELBRIDGE offered her belief that the balance in the fund is
approximately $180 million. She offered to double check the
figures and provide them in writing tomorrow. She clarified
that the balance in the fund was intended to take the AGDC's in-
state Alaska Stand Alone Pipeline (ASAP) through the final
engineering and class 3 estimates that are currently wrapping
up, which prepares the package of transportation services it
would take to people who want to ship gas on the pipeline in an
open season. Further, once the open season is held and firm
shipping contracts are negotiated, those will be sufficient to
provide financing for that pipeline construction going down the
road, so it is not a state subsidized pipeline, but something
that stands on those long-term promises that have gas to ship on
it.
3:47:36 PM
REPRESENTATIVE HUGHES wondered if she misunderstood. She asked
for further clarification on whether those funds might be needed
for AK LNG, noting of course the state wouldn't do the ASAP
[Alaska Stand Alone Pipeline]. She asked for the earliest date
that the AK LNG project may need the funds.
MS. DELBRIDGE answered that the AK LNG Project has its own
special fund created under the Alaska Gas Development
Corporation (AGDC). She suggested that it would be a policy
call for the legislature at what point in time, working in
concert with the AGDC that one might want to declare the state
so "certainly" moving forward on AK LNG that the legislature
would be willing to take money dedicated to a backup plan and
put it towards that project. She suggested this might be
something the [legislature] may wish to deliberate on.
3:48:33 PM
REPRESENTATIVE HUGHES related her understanding that in moving
from Pre-FEED to FEED that the state's portion was about $500
million. She said the state might need the $180 million in the
In-state Natural Gas Pipeline Fund balance.
MS. DELBRIDGE answered that the In-state Natural Gas Pipeline
Fund balance would be a potential source to support its 25
percent share of this project as it moves into FEED. She agreed
that while the AGDC has been fully representing the state's 25
percent on the liquefaction, the state has contracted with
TransCanada to manage its 25 percent on the GTP and pipeline.
She highlighted that the state has opportunities to buy back
about 40 percent of that, which would change the dollar value
the state will need going into FEED. Further, if the state's
relationship with TransCanada were terminated, that would also
change the amount going in, she stated.
3:49:58 PM
REPRESENTATIVE KITO asked for further clarification on the two
projects and how or when the projects would be considered
mutually exclusive, in terms of moving volumes of gas from the
North Slope to Southcentral. He asked whether the information
gathered during the FEED process and would be useful information
for both projects, for example, if one moved forward a little
ahead of the other.
MS. DELBRIDGE offered her belief that the information is useful
and can go into the Environmental Impact Statement (EIS) body of
work and can be valuable. That being said, she suggested that
many people would agree that it would be unlikely that two
projects ever go forward for very long past the FEED decision.
She said that it is a very strong commitment by the project
sponsors, including the state at that point, in which the
parties are signing up tentative customers to buy gas. At that
point, the parties would be moving forward, provided that there
are no unexpected major events, and would be expecting to make a
final investment decision and start building. Some of the
potential things that could happen include commercial risk,
market risk, and an inability to negotiate the final purchase
agreement. In addition there is also regulatory risk, which is
part of what that front-end engineering and design (FEED) period
is designed to iron out. She pointed out that the sponsors have
understood that it was unlikely that the state would support a
different project once it has made a FEED decision on any
project, she said.
3:52:07 PM
REPRESENTATIVE KITO, in terms of marketing, related his
understanding that as an owner of gas through the AK LNG Project
the state will market its gas with or without producers. He was
unsure how that would work under a fully owned state pipeline,
but it seemed to him if the state owned the line and was acting
as the conduit for gas, that the state would not trying to
market gas, but will be transporting the gas and it would be up
to the producers to market their sale of gas. The state would
be in the situation of providing the pipeline or the conduit.
He asked whether that was correct.
MS. DELBRIDGE replied that Representative Kito just described
one of the key differences between the in-state AK LNG Project
and ASAP yes; state would market its 25 percent gas, with a
variety of mechanisms set up to do so. She said that under
Senate Bill 138 the legislature required that if DNR was going
to modify a lease in a certain way with one of the producers to
keep from shifting between royalty-in-kind (RIK) and royalty-in-
value (RIV), the companies would have the obligation to go out
and market the state's gas on terms no less than what they are
getting for their gas, which represents one option. She said
there are several memorandums of understanding that the past
administration and the current administration have signed with
potential oversees entities to open the doors on a relationship
to talk about potential buyers and markets. The administration
through the Department of Natural Resources (DNR), she believed,
has hired a contractor to help build up the state's marketing
capacity to assist them in finding the contracts, markets, and
the buyers through AK LNG. She said that AGDC, under AK LNG
would never take actual possession of the state's gas, which
would be a DNR function with the Department of Revenue (DOR).
MS. DELBRIDGE acknowledged that he was correct in terms of the
ASAP in-state line, that it was a transportation service or
infrastructure, similar to having a trucking company, but the
company never owns the product being trucked. She explained
that it might be the producers that would pay to have gas
transported in another line, or more likely, that the producers
might sell their gas before it goes into a pipeline and a third
party, such as a utility or mine who wants to move the gas would
pay to have it shipped on that pipeline. The third option would
be what type of unknown competition might be out there and what
the terms would be, which she said she did not know in enough
detail to address.
3:55:24 PM
REPRESENTATIVE KITO asked whether the state has competing
interests to try to collect information in the Pre-FEED side,
but also in terms of the state performing the Front End
Engineering and Design (FEED), how different will an AK LNG
Project versus an ASAP Project be in terms of most components of
design. He said it seemed that the big difference would be the
ultimate volume of gas, since other items would be similar, that
gas would be moving from the North Slope to Southcentral. Thus
it seems as though the state could benefit from having some of
that work being done in the FEED phase, as well.
MS. DELBRIDGE answered that the legislature provided for some
information sharing between the big line and AGDC's work on a
different state option, when the legislature passed Senate Bill
138 and in passing House Bill 4, creating Alaska Gas Development
Corporation (AGDC). It was contemplated that the two projects
should work together so that the AGDC would not be wasteful or
redundant in its use of state resources. She acknowledged that
information sharing agreements are in place between the state
and the AK LNG, but also between and AK LNG. In fact, she
offered her belief that several agreements exist and cover how
this information is shared and what it can be used for going
into the future. She recalled that some concern was raised
during last week's AGDC board meeting that the AGDC was limited
to using that for a non-competing type project. She agreed that
the big difference between the two projects would be the volume
of gas shipped. In terms of the information and engineering
that happens in FEED, it may not be as useful as [the state]
wants it to be, in conjunction with an in-state alternative, if
the in-state alternative was geared toward shipping smaller
volumes in-state. She explained that a bigger line that carries
more volume might have a bigger diameter, but it would require a
different set up of compression stations around the route.
Currently, there is one that would be required for the ASAP line
to get gas off the North Slope to Southcentral. If that was
increased for export volumes, one might add as many as eight or
more compressor stations around the route, which are more
costly, and the engineering would need to match up. She
concluded that some can be valuable, which depends on what the
state's final project looks like.
3:58:46 PM
REPRESENTATIVE HUGHES asked whether the information sharing
agreements that was currently in place will allow for
information to move back and forth. She further asked if ASAP
becoming competitive would prevent that and whether it was based
on the diameter, volume, or both.
MS. DELBRIDGE answered that the agreements are confidential
agreements so she was not privy to the terms. She suggested
that may be a good question for Alaska Gas Development
Corporation (AGDC).
3:59:22 PM
FRANK RICHARDS, P.E.; Vice President, Engineering & Program
Management, Alaska Gas Development Corporation (AGDC),
Department of Commerce, Community & Economic Development
(DCCED), related his understanding that the question related to
the information flow between the Alaska Stand Alone Pipeline
(ASAP) and the AK LNG. He stated that the cooperation agreement
between AGDC and the AK LNG partners was to allow information
flow on engineering, field efforts, environmental, regulatory,
and lands information that both projects would be able to use to
advance either project. He said that the AGDC was prohibited by
the agreement from using information received from its partners
on AK LNG to advance a project that has a volume of greater than
500 million standard cubic feet per day. However, the AK LNG
project can receive information from Alaska Gas Development
Corporation (AGDC) and use it for advancement of the AK LNG
project without any prohibition.
4:00:39 PM
REPRESENTATIVE COLVER asked who would control the right-of-way
if two entities were pursuing the same alignment.
MR. RICHARDS answered that the Alaska Gas Development
Corporation (AGDC) has received a right-of-way lease from the
Department of Natural Resources as prescribed by the
legislature. Thus the AGDC holds that right-of-way. He said
that the AGDC has been working on the supplemental Environmental
Impact Statement (EIS) with the US Army Corps of Engineers
(USACE). The outcome would likely be a record of decision (ROD)
from the Bureau of Land Management (BLM), which would grant the
AGDC the federal right-of-way. He commented that the AGDC has
been working with its partners at AK LNG to come to a common
alignment from the gas conditioning facility at Prudhoe Bay
south through the Brooks Range, across Minto Flats, down to a
point just north of the Susitna River crossing. The alignment
for the ASAP Project and the AK LNG Project are one and the
same. He characterized the AGDC's internal decision to revise
its alignment as revision 6.1. The partners at AK LNG have been
reviewing the alignment changes internally and will hopefully
land on that as well. He recapped that the ASAP project and the
AK LNG Project both moved separate alignments to one alignment.
He said that the AGDC has advanced with right-of-way leases
through the state. He hoped that the AGDC would receive it from
the federal government; however, the AGDC has not moved towards
any right-of-way on private lands at this point. He said that
the two differences in the project is that the ASAP Project has
just completed Front End Engineering and Design (FEED) so that
project is farther advanced in terms of its engineering efforts
whereas the AK LNG Project is still in the pre-FEED effort, he
said.
4:03:10 PM
REPRESENTATIVE COLVER asked whether temperature or soil monitors
are in place to delineate permafrost areas in the current
environmental phase or whether it will be done in the next
phase.
MR. RICHARDS answered that the AGDC has done extensive geo-
technical boreholes specifically in areas with discontinuous
permafrost since the issue the pipelines will face are areas in
which it anticipates frost heave or settlement due to the buried
pipeline. He suggested that warm permafrost areas would likely
receive those challenges. He indicated that the work was
primarily focused south of Livengood since the producers in
previous pipeline iterations had conducted a tremendous amount
of work from Prudhoe Bay, down the Trans-Alaska Pipeline
corridor to Livengood. He reported that they held significant
geotechnical information, including ground temperatures. He did
not wish to duplicate work, which is where with the initiation
of the cooperation agreement with AK LNG, the AGDC has been able
to receive that information north of Livengood. He offered his
belief that the AGDC currently has a very good repository of
geotechnical information.
4:04:54 PM
REPRESENTATIVE JOSEPHSON recalled earlier testimony that the
AGDC can't use information it has received from its partners to
advance the project beyond 500 Mcf. He asked whether the AGDC
could advance the project by proving it had received that
knowledge independent of those partners or whether it would just
get too complicated.
MR. RICHARDS answered that the confidentiality agreement has
provisos that allow for openings if the Alaska Gasline
Inducement Act (AGIA) contracts be terminated. He said the
cooperation agreement was put in place prior to passage of
Senate Bill 138 and the AGIA contract was still in place. He
stated that the AGDC has the ability to talk to its partners in
terms of using information for another iteration of an ASAP
[Alaska Stand Alone Pipeline Project].
4:06:21 PM
REPRESENTATIVE JOSEPHSON stated that subsection (a) says the
date the state or another party withdraws. He asked whether
TransCanada would be considered another party under this
definition of party.
MS. DELBRIDGE answered that she would need to check, and offered
to provide the information later.
4:06:53 PM
REPRESENTATIVE JOSEPHSON, relative to subsection (b), stated
that this bill reflects that any anxiety about competition from
a second export project would not be felt as long as Front End
Engineering and Design (FEED) was being studied. He recalled
the use of "decision" on Front End Engineering and Design (FEED)
and asked whether that was the same thing as a study on FEED.
MS. DELBRIDGE answered that a FEED study was how the Front End
Engineering and Design (FEED) period was referenced in the Heads
of Agreement (HOA), which was a period in which the data is
collected that enables the front-end engineering and design
(FEED) decision to be made, at which point, the project moves
forward with a contractual agreement or agreements as per the
language in the HOA. She stated this was duplicated in the bill
on page 5, Section 6, when it states that "front-end engineering
and design" means a study that includes ....." She suggested
that in going back to the three dates in subparagraph (A),(B),
and (C), that in subparagraph (B) that the parties need to enter
into contractual agreements to undertake that(FEED).
4:08:09 PM
REPRESENTATIVE JOSEPHSON referred to subsection (b) that talks
about FEED, even if FID would not be accomplished, but FEED
would be, whether the sponsors will be comfortable with an
expansion of ASAP as originally outlined in HB 4,
notwithstanding that FID had not been entered.
MS. DELBRIDGE acknowledged that she understood his question.
She indicated that the sponsor has considered this question and
brought it up several times to figure out whether it was a
comfort zone. She said it really defies logic that the state
would try for a competing project in which the state was
investing the type of money it would need to be in the front-end
engineering and design (FEED) process under the AK LNG Project.
She said it would be very difficult to figure out where the gas
would come from since as the state would move into front-end
engineering and design (FEED) would have committed its gas.
This the sponsor felt comfortable removing the restriction.
4:09:27 PM
REPRESENTATIVE HUGHES briefly reviewed the recent happenings
with an Alaska gasline, recalling that the administration
announced it would consider expanding the Alaska Stand Alone
Pipeline (ASAP), followed by this bill being introduced. She
asked for a sense of the reaction of investors and the market
worldwide outside Alaska.
MS. DELBRIDGE answered that she has not seen a lot of
independent news coverage outside Alaska, but she has reviewed
trade publications that perhaps ran the Associated Press
article. She suggested that regulators have picked up on the
sudden uncertainty. For example, Mr. Richards referenced the
SEIS [Supplemental Environmental Impact Statement] that Alaska
Gas Development Corporation (AGDC) has pending before the US
Army Corps of Engineers (USACE). The UASCE provided the AGDC
notice that it was suspending work through the end of the
legislative session. She said the USACE was unsure whether the
SEIS it has been working relates to the project the state will
ultimately support. The AGDC's SEIS relates to a pipeline and a
gas treatment plant [GTP] that ends at Beluga and ties into the
ENSTAR system. The announcement for the potential new project
was clearly one designed to go to tidewater and involved
liquefaction component that the state would not participate in;
however, this is a pipeline that feeds an LNG facility so it is
unlikely that the USACE and the Bureau of Land Management (BLM)
will regulate that route in preparing an Environmental Impact
Statement (EIS) in Alaska. Instead, it would likely fall under
the Federal Energy Regulatory Commission's (FERC) jurisdiction.
Thus she could see why the US Army Corps of Engineers (USACE)
might pull back while the state figures out what it will be
doing, but that is the type of regulatory uncertainty that
worries the sponsors of HB 132 in terms of going forward with
multiple projects.
4:12:15 PM
REPRESENTATIVE HUGHES asked whether she has heard any feedback
from potential buyers.
MS. DELBRIDGE answered that she did not know. She said she
could imagine what a buyer might think if was approached twice
by two fully supported State of Alaska pipeline projects, which
is one reason the sponsor included in the bill that the AGDC
can't market gas without written consent to market.
4:12:54 PM
REPRESENTATIVE KITO directed attention to the front-end
engineering and design (FEED). He asked where the state was at
in terms of making a final investment decision (FID) on the
Alaska Stand Alone Pipeline (ASAP) project. He further asked
for the timing for the AGDC doing additional work on a larger
independent line. He asked whether it would be a couple of
years before an FID would occur.
MR. RICHARDS answered that with passage of Senate Bill 138, the
policy decision was that the AK LNG Project was the priority
project for the state. The AGDC has been on schedule with the
Alaska Stand Alone Pipeline (ASAP) project to essentially be in
an open season for ASAP. With the passage of Senate Bill 138,
the AGDC considered slowing the process down to align the
project to the front-end engineering and design (FEED) decision
with the AK LNG Project. The AGDC has revised its work scope
and work plans for 2015 and early 2016 to continue with work
that is necessary for the field efforts, including defining the
right-of-way, considering off-site material sites, considering
access roads, considering work on the North Slope for the gas
conditioning site, but the AGDC is not doing the heavy
engineering that the AGDC has just now completed with its FEED
effort. The AGDC has delayed its schedule and with that the FID
decision, or project sanction, to a point after the FEED
decision with the AK LNG Project, he said. With respect to a
larger independent line, the AGDC's board gave staff a
resolution that asked them to come up with work plans to define
scope, schedule, and budget on two concepts: an upsized
American National Standards Institute (ANSI) class 600 size pipe
and an ANSI class 900 size pipe, which are essentially two
different pressure classes for the pipe - one at 1480 pounds per
square inch (ppsi) and the other at 2,200 ppsi. Thus with more
pressure the same strength and diameter of pipe can flow more
volumes. The AGDC has been developing these work plans and cost
estimates to report back to the board in a few weeks.
4:15:48 PM
CHAIR OLSON asked for the estimated cost of the study.
MR. RICHARDS answered that the AGDC is "scratching those
numbers" right now.
CHAIR OLSON asked for the source of the funding.
MR. RICHARDS answered that the money would come from the In-
state Natural Gas Pipeline Fund since it represents the sole
source of funding the AGDC has to advance the project.
CHAIR OLSON asked for further clarification that the fund
balance was approximately $180 million.
MR. RICHARDS answered yes.
4:16:27 PM
REPRESENTATIVE HUGHES, referring to the work on increased
pressure, asked whether it would increase from 1.4 to 2.4 Bcf
[billion cubic feet]. She asked for a reminder of the forecast
of the in-state need for gas.
MS. DELBRIDGE answered that the existing in-state need will
between 200-250 million cubic feet (MMcf), or substantially
less, but represents the cumulative need.
4:17:31 PM
CHAIR OLSON suggested it would depend on the time of year.
MS. DELBRIDGE agreed the volume fluctuates significantly for in-
state use depending on the season.
4:17:45 PM
REPRESENTATIVE HUGHES asked whether the 1.4 and 2.4 Bcf would
mean more than half for be for export.
MS. DELBRIDGE answered that she does not know. She stated that
when the AGDC was originally looking at the Alaska Stand Alone
Pipeline (ASAP), there was the potential for other large
quantity end users in the Cook Inlet, such as the Agrium, Inc.
facility or mining projects could cushion the gap between the
250 MMcf in-state and the 500 MMcf per day; however, to get to
the volumes for the in-state option, the AGDC went out to the
markets and held something called "an expression of interest,"
saying the AGDC's studies indicated that the state needs gas,
the utilities were considering imports, and the AGDC suggested
it could do the .5 Bcf Alaska Gasline Inducement Act capped
project. The AGDC asked if any commercial interest existed and
it did, which provided the basis for to move forward under House
Bill 4. In order to do the in-state project requires long-term
shipping commitments from the market to financially support the
construction of that project. She offered her belief that there
has not been an additional "expression of interest," and if so,
it was not noticed. Instead, she suggested that it was
direction from the AGDC's board. She said it was not clear in
the board meeting why these two classes were selected and what
other options have been vetted and discussed. She was not aware
if some new indicators from the market that indicated bigger or
more; however, the bill sponsors remain concerned that for an
in-state line will need the same gas a larger line will need.
She stated at this point the gas is generally committed and
industry, with the state as a partner, has been advancing that
larger project. She clarified that it concerns the sponsors to
add other concepts into the mix, without analysis, grounding, or
open rationale for doing so give the potential impacts, for
example, as seen by the US Army Corps of Engineers' (USACE)
decision to wait out the legislative session prior to moving
forward with the SEIS, as well as the potential use of the In-
state Natural Gas Pipeline Fund dedicated for an in-state energy
project being used to evaluate other options.
4:20:33 PM
CHAIR OLSON asked whether the AGDC's gas is of export quality.
MS. DELBRIDGE answered that the AGDC's Alaska Stand Alone
Pipeline (ASAP) line was for utility grade gas. Part of what
was designed with ASAP, was a gas treatment plant (GTP) on the
North Slope that pulls in the gas, removes impurities, and flows
it down the pipeline. She said this was for a utility grade,
which requires a different standard of processing than an LNG
grade. She related her understanding that significant re-
engineering of a GTP could occur to handle the LNG grade gas if
that is in fact the direction that the AGDC's Board directs the
AGDC to take. She was unsure whether that has been made clear
by the board yet, and deferred to Mr. Richards.
4:21:43 PM
MS. DELBRIDGE clarified that the question revolved around the
difference between the utility grade natural gas contemplated by
AGDC on the ASAP and the potential for an upgraded project that
would seem to be carrying export volumes and whether any GTP
redesign would be necessary to carry gas destined for an LNG
facility.
MR. RICHARDS recalled earlier testimony that the ASAP project
was designed using a physically solvent process to essentially
treat gas on the North Slope to the utility grade as opposed to
aiming process most used in the industry to produce LNG quality
gas specifications. The different essentially is in removal of
the carbon dioxide. He explained that the physical solvent
process brings the gas to an approximate 3 percent while the
aiming process brings it to approximately 50 parts per million.
He said that in the physical solvent process some of the higher
hydrocarbons are kept in the physical process so some of the
value of hydrocarbon chain is lost to the market. He said the
LNG market would like to receive higher value Btu [British
thermal units] content than a utility-grade gas. The Alaska
Stand Alone Pipeline (ASAP) was originally designed to meet
Alaska's in-state energy needs to be able to put it into
existing utility systems, such as ENSTAR Natural Gas Company,
and the ASAP Project gas stream was designed to meet the ENSTAR
specifications, which would allow it flow into the ENSTAR system
without any further gas conditioning downstream.
4:23:44 PM
CHAIR OLSON asked whether it would be logical to assume that
when the AGDC provides an estimate on the different diameter
pipes it will included estimated costs for treating the gas for
export grade.
MR. RICHARDS stated that the AGDC's board asked staff to look at
the 36 inch diameter pipe for two different pressure classes to
provide for utility grade gas. He said that staff will consider
whether the physical solvent process can be up-scaled to those
volumes, which relates to the train size and what is available
to meet those requirements. He explained that getting to an LNG
quality specification will require considering a different
processing technology. He acknowledged that the AGDC can
provide that information, but the AGDC is not currently tasked
to do so.
4:24:42 PM
CHAIR OLSON said he was unsure how the legislature can make any
comparisons, for example, if 2 or 2.5 Bcf of gas is flowing, but
the local consumption is .25 Bcf, substantial excess gas will be
available. He said if the costs to export are not known, that
the legislature is missing part of the equation.
MR. RICHARDS answered that if the gas stream has a higher carbon
dioxide content would be a downstream processing unit. Thus,
the state would have that prior to entering into an export
facility. He indicated the AGDC has not looked at the cost
component of that to see if will be more costly than having that
treatment on the North Slope, but that could be another
alternative. Last week he heard Representative Seaton suggested
that some of the richer CO2 content could be used on another
potential export customer.
4:25:55 PM
CHAIR OLSON suggested that this might be considered by the
Alaska Gas Development Corporation's (AGDC) Board.
MR. RICHARDS stated that the next AGDC Board meeting is
scheduled for April 9. He anticipated providing a scope,
schedule, and budget to do this additional analysis and will
likely seek an earlier meeting.
4:26:27 PM
REPRESENTATIVE JOSEPHSON referred to the outer date of July 1,
2017. He acknowledged that the governor expressed some pretty
sharp dislike of this bill, he wondered if the governor signed
the bill, what assurance people who are anxious about the
success of the AK LNG Project have that someone might ask for
another year. He acknowledged that deadlines have been met in
the recent past, but he asked what confidence he has that
between now and July 2017 that the AK LNG would follow the
schedule.
MS. DELBRIDGE answered that the July 2017 date provides "an
absolute backstop." Every indication by AK LNG, including the
state's representative, is that things are on track for a FEED
decision early to mid-2016. She realized that the sponsor group
hasn't come before this committee, but they have come before the
House and Senate Resources Committees this year, clearly
indicating that the project was on track to reach the FEED
decision by the March or April 2016. She reiterated that it was
an absolute backstop. She stated that there isn't any intent to
let negotiations string on forever; however, the state is a full
partner in the AK LNG Project, so the sponsors will look to the
state and Deputy Commissioner at Department of Natural Resources
(DNR), who serves as the lead staff, to give the legislature
those indications as to whether or not things are stalled out or
if another month will be needed, or what is happening and what
confidence the legislature can have in that working out in the
way everyone is saying they intend for it to.
4:28:59 PM
CHAIR OLSON opened public testimony on HB 132.
4:29:16 PM
RICK KOCH, City Manager, City of Kenai, offered his support for
HB 132 as a prudent to move forward the long awaited project to
bring Alaska's bounty of gas to Alaskans and to the world
markets. He said he has spent his career managing the interests
of state and municipal governments and large scale construction
projects in Alaska. In doing so, he has gained an understanding
of just how difficult it is to develop public-private
partnerships (P3). As a former member of the Alaska Gasline
Development Authority (AGDA, he commended the legislature for
recognizing and addressing the inherent difficulties in the
enabling legislation, which created the Alaska Gas Development
Corporation (AGDC). He said that HB 132 would provide
safeguards in which the state can move forward in a mutually
supportive relationship with the major North Slope producers
while still protecting the state's interest in an alternative
project in the event Alaska LNG Project does not come to
fruition. Years of effort have been expended to create a
framework of trust and cooperation, not unduly influenced by the
political whims of the next election. This framework must be
protected by not introducing opposing interest and distrust to
the project. In the event that the state and its partners in
the Alaska LNG Project decide not to pursue construction of a
large diameter gasline, the state will have every opportunity to
modify the scope of the Alaska Stand Alone Pipeline (ASAP)
Project with the benefit of the feasibility, engineering, and
permitting data developed by the Alaska LNG Project and the ASAP
Project. These projects as presently developed and further
defined by HB 132 are Alaska's best opportunities to realize the
long time goal of developing the treasure trove of natural gas
in Alaska's North Slope.
4:31:36 PM
MR. KOCH, in closing, stated that if three individuals decide to
get together and build a 150,000 square-foot grocery store in
Kenai, but during that process one of the partners tells the
other two he'd like to continue along this path, but that he
will also consider the same project on the same lot or an
adjacent lot to see how that will work out. He said that just
the inherent fairness that is required in a business
relationship would damage the possibility of success since the
goals may be diametrically opposed or run in different
directions. He encouraged the committee to move this bill
forward since it has taken decades to reach this point. He said
that this project was being managed by an outstanding
corporation, staffed with skilled people. He said that he and
the City of Kenai are fully in support of HB 132.
4:32:59 PM
CHAIR OLSON stated that public testimony will remain open on HB
132.
[HB 132 was held over.]
4:33:22 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:33 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB132 ver E.pdf |
HL&C 3/16/2015 3:15:00 PM |
HB 132 |
| HB132 Sponsor Statement.pdf |
HL&C 3/16/2015 3:15:00 PM |
HB 132 |
| HB132 Sectional Analysis.pdf |
HL&C 3/16/2015 3:15:00 PM |
HB 132 |
| HB132 Draft Proposed Blank CS ver P.pdf |
HL&C 3/16/2015 3:15:00 PM |
HB 132 |
| HB132 Summary of Changes Ver E to Ver P.pdf |
HL&C 3/16/2015 3:15:00 PM |
HB 132 |
| HB132 Fiscal Note-DCCED-AGDC-3-05-15.pdf |
HL&C 3/16/2015 3:15:00 PM |
HB 132 |
| HB132 Sectional Analysis ver P.pdf |
HL&C 3/16/2015 3:15:00 PM |
HB 132 |
| HB132 Letter-Gov to House 3-02-15.PDF |
HL&C 3/16/2015 3:15:00 PM |
HB 132 |
| HB132 Supporting Documents-Background-AGPA SOI Letter-9-14-2012 and Backup.pdf |
HL&C 3/16/2015 3:15:00 PM |
HB 132 |
| HB132 Supporting Documents-Mike Prax.pdf |
HL&C 3/16/2015 3:15:00 PM |
HB 132 |
| HB132 Opposing Documents-Lynn Willis-3-06-15.pdf |
HL&C 3/16/2015 3:15:00 PM |
HB 132 |