Legislature(2007 - 2008)HOUSE FINANCE 519
03/13/2007 03:30 PM House OIL & GAS
| Audio | Topic |
|---|---|
| Start | |
| HB177 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 177 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
March 13, 2007
3:37 p.m.
MEMBERS PRESENT
Representative Vic Kohring, Chair
Representative Kurt Olson, Vice Chair
Representative Nancy Dahlstrom
Representative Jay Ramras
Representative Ralph Samuels
Representative Mike Doogan
Representative Scott Kawasaki
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Carl Gatto
Representative Bob Buch
Representative David Guttenberg
COMMITTEE CALENDAR
HOUSE BILL NO. 177
"An Act relating to the Alaska Gasline Inducement Act;
establishing the Alaska Gasline Inducement Act matching
contribution fund; providing for an Alaska Gasline Inducement
Act coordinator; making conforming amendments; and providing for
an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 177
SHORT TITLE: NATURAL GAS PIPELINE PROJECT
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/05/07 (H) READ THE FIRST TIME - REFERRALS
03/05/07 (H) O&G, RES, FIN
03/06/07 (H) O&G AT 3:00 PM BARNES 124
03/06/07 (H) -- MEETING CANCELED --
03/08/07 (H) O&G AT 3:00 PM BARNES 124
03/08/07 (H) -- MEETING CANCELED --
03/13/07 (H) O&G AT 3:30 PM HOUSE FINANCE 519
WITNESS REGISTER
PAT GALVIN, Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: On behalf of the governor, presented HB
177.
KURTIS GIBSON, Acting Deputy Director
Central Office
Division of Oil & Gas
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Assisted in the presentation of HB 177.
ANTONY SCOTT, Section Chief
Commercial Section
Central Office
Division of Oil & Gas
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Assisted in the presentation of HB 177.
KEVIN BANKS, Acting Director
Central Office
Division of Oil & Gas
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Assisted in the presentation of HB 177.
ACTION NARRATIVE
CHAIR VIC KOHRING called the meeting to order at 3:37:47 PM.
Representatives Olson, Dahlstrom, Samuels, Ramras, Doogan,
Kawasaki, and Kohring were present at the call to order.
Representatives Guttenberg, Buch, and Gatto were also in
attendance.
HB 177-NATURAL GAS PIPELINE PROJECT
3:38:54 PM
CHAIR KOHRING announced that the only order of business would be
HOUSE BILL NO. 177, "An Act relating to the Alaska Gasline
Inducement Act; establishing the Alaska Gasline Inducement Act
matching contribution fund; providing for an Alaska Gasline
Inducement Act coordinator; making conforming amendments; and
providing for an effective date."
3:40:11 PM
PAT GALVIN, Commissioner, Department of Revenue (DOR), presented
HB 177 on behalf of the governor. Mr. Galvin said that an
overview of HB 177, which is known as the Alaska Gasline
Inducement Act (AGIA), will be presented today. The
presentation is divided into two parts: the principles of the
approach to AGIA, and background information on the state's $500
million contribution to the project.
3:44:12 PM
MR. GALVIN informed the committee that DOR recognizes the need
to begin the gas pipeline project as soon as possible. Every
delay, he said, will cost the state significant value. In
addition, the state will soon need the projected revenue from
the 35 trillion cubic feet (Tcf) of known gas reserves in the
North Slope basin. The state, he said, is also aware of the
need for an open and competitive project. The Alaska Gasline
Inducement Act will provide the incentives needed for
construction of the gas pipeline and will determine which of the
projects deserves the state's support. Mr. Galvin explained
that, for the gas pipeline project to be successful there is a
need for low tariff rates for the gas flowing through the
pipeline. The state must also get gas from the pipeline to
Alaska communities and must ensure that all facets of the
pipeline project provide jobs for Alaskans. Finally, AGIA
recognizes that incentives are necessary to obtain financing and
to ensure fiscal certainty for the producers.
MR. GALVIN noted that much of the information presented today is
based on a prototype project. The prototype project is a gas
pipeline into Canada that transports 4.3 Bcf per day. This
model is built with a 70 to 30 debt to equity ratio as required
by AGIA and maintains a 14 percent return on equity. The
prototype computations are further based on current gas
production taxes legislated by the production profits tax (PPT).
The total estimated project cost of $20.5 billion is derived
from prorating the current producer's estimate of $30 billion
for construction of a gas pipeline from the North Slope to
Chicago. The destination for the prototype is Alberta, Canada,
which reduces the construction cost estimate. Mr. Galvin told
the committee that the numbers provided in the presentation
today are based on the described prototype.
3:50:27 PM
MR. GALVIN said that the structure of AGIA requires that a $500
million grant be provided, as an incentive, to the pipeline
company that obtains the AGIA gas pipeline project license. To
obtain the AGIA license, the company will include in its
proposals the means to fulfill mandated financial terms and
state requirements. The value to the state in return for the
$500 million incentive is the fulfillment of the terms of AGIA.
3:51:33 PM
KURT GIBSON, Acting Deputy Director, Central Office, Division of
Oil & Gas, Department of Natural Resources (DNR), informed the
committee that the list of values the state receives for its
incentive begins with timely completion of the gas pipeline
project. Acceleration of the project will mean that the state
will gain lost revenue due to delay and will recoup the $500
million incentive. Mr. Gibson explained that when the price of
gas is at the Chicago land and market price of $5.50, the state
will recoup three times its capital contribution, or $1.8
billion, by accelerating the project by one year. At the
current price for gas of $6.75 the state recuperates five times
its capital contribution in one year. These figures, he said,
illustrate the importance of beginning the gas pipeline project
now. Mr. Gibson noted that all of the scenarios discussed today
are based on a gas pipeline with a projected life of 30 years.
3:55:30 PM
MR. GALVIN said that the AGIA timeline for the project begins
when the license is awarded. The licensee will have up to 36
months to complete its binding open season process, and 24
months after that to achieve the Federal Energy Regulatory
Commission (FERC) public convenience and necessity
certification.
MR. GALVIN clarified that the AGIA model can be used as an
example of the construction of a pipeline continuing through
Canada, or an all-Alaska pipeline.
REPRESENTATIVE DOOGAN asked why there is a 36-month delay
between issuance of the AGIA license and open season.
MR. GIBSON explained that this is a reasonable timeframe.
REPRESENTATIVE SAMUELS asked whether shortening this time period
could shorten the entire project.
MR. GALVIN responded that the open season deadline of 36 months
allows the project to be closer to qualifying for the FERC
certificate. He noted that this time period was approved by
interested parties. However, the licensee has the right to
schedule this deadline earlier. He also noted that a change in
the open season deadline may or may not change the date of the
issuance of the FERC certificate.
3:59:15 PM
REPRESENTATIVE SAMUELS asked if the majority of the money [to
develop the gas pipeline] is spent after open season.
MR. GIBSON said yes.
4:00:33 PM
MR. GIBSON presented information on the decline of state oil
revenue to the committee. He said a North Slope gas pipeline
will offset the decline in oil production, and will provide
future revenue for Alaska. Furthermore, he noted that the
overall U.S. supply of natural gas, without a gas pipeline from
the North Slope, must be supplemented by imported liquefied
natural gas (LNG). In addition, recent statements from energy
experts encourage new domestic production of natural gas, even
with increased production of energy from nuclear, wind, and coal
sources. Mr. Gibson also stressed that the national security
need to reduce U. S. dependence on foreign oil requires the
timely construction of the Alaska gas pipeline.
MR. GIBSON called the committee's attention to the importance of
lower tariffs for the transportation of gas through the
pipeline. The relationship between market price, treatment
costs, and transportation costs affect the netback value to the
state and producers. For the state, higher netback value
results in greater royalty value and higher production profits
taxes paid to the state by the producers. The $500 million
grant from the state, he said, will result in a reduction of
tariffs.
4:06:09 PM
REPRESENTATIVE RAMRAS asked the presenters to clarify which
statistics are "imaginary."
MR. GIBSON reiterated that the computations for the purpose of
the presentation are stylized numbers based on the prototype.
4:07:52 PM
MR. GIBSON continued to say that the state's $500 million grant
ultimately results in a reduction of the pipeline transportation
tariff by four to six cents for the next 30 years. Furthermore,
a one cent change in the tariff is worth $45 million in royalty
and production taxes to the state. In addition, the $500
million capital contribution will lock-in the debt equity ratio
percentages and will improve the economics of development for
all parties.
4:10:27 PM
REPRESENTATIVE DOOGAN asked if the $45 million increase was
discounted, for the lifetime of the project, at a rate of five
percent.
MR. GIBSON answered yes. He then further explained how the $500
million grant will reduce the transportation tariff. The
Federal Energy Regulatory Commission uses many components to
determine a rate base for an interstate pipeline rate. Some of
these components are: capital contribution, debt equity ratio,
and allowance for funds used during construction (AFUDC). The
$500 million grant from the state during the 5 to 10 years of
pipeline construction will accrue interest. This interest can
be rolled into the rate base and ultimately will be paid back to
the project sponsor by the shipper. The state's capital
contribution, therefore, results in a $900 million impact to the
rate base.
4:13:28 PM
REPRESENTATIVE SAMUELS asked if the state can recoup the $900
million.
MR. GIBSON replied no. If the $500 million grant is managed as
a loan, the advantage would not reach all shippers.
4:14:17 PM
ANTONY SCOTT, Section Chief, Commercial Section, Central Office,
Division of Oil & Gas, Department of Natural Resources (DNR)
informed the committee of the importance of debt equity ratio,
or capitalization, on the overall cost of transportation of the
gas through the pipeline. The Alaska Gasline Inducement Act
requires a licensed project to have a minimum of 70 percent debt
and 30 percent equity ratio. Seventy percent debt
capitalization will ensure lower tariffs for the state, the
producers, and future explorers. Mr. Scott stated that this
requirement is commercially reasonable and is an important
protection of the state's interests. He referred to recent
examples of pipeline projects for data to support the licensee
minimum requirements that are incorporated in AGIA.
REPRESENTATIVE SAMUELS requested specific information on the
sizes of the comparable projects.
MR. SCOTT confirmed that additional information about the
comparable projects will be submitted to the committee.
Furthermore, he said, he believed that a successful project
could be leveraged even higher than AGIA's minimum requirements.
Mr. Scott indicated that a 70 percent debt and 30 percent equity
ratio results in returns to the state of $2.5 billion at a
discounted rate of 5 percent over 30 years. He stressed the
importance to the state regarding how the project is capitalized
and the rates of the resulting tariffs.
4:18:30 PM
REPRESENTATIVE RAMRAS again requested that the presenters denote
that this is hypothetical data. He then remarked:
The debt to equity ratio, as I understand it, applies
to the scope of the project. And if the project goes
$10 billion over budget, ... then all $10 billion of
that as, I understand it, would then also be debt
financed over and above the 70:30 ratio .... What
[will that] do to increasing the tariff over a 30-year
life, in cents per tariff, if we say that it's a $10
billion cost overrun beyond whatever the eventual
licensee scopes the project at.
MR. SCOTT confirmed that the tariffs that are being discussed
are based on a hypothetical project, with a construction cost of
$20.5 billion, delivering gas through a 4.3 Bcf per day
pipeline, from the North Slope to Alberta. It is fair to say,
he acknowledged, that no one knows what the exact project
construction costs will be. Mr. Scott pointed out that if there
are cost overruns beyond what is anticipated in the application,
the expectation is that the increases will be capitalized at a
minimum of 70 percent debt.
4:22:58 PM
MR. GALVIN stated that AGIA recognizes the risk of cost overruns
and the effect overruns would have on the tariff. The
evaluation criteria method will mitigate the effect of overruns
that are passed along to the shipper by higher tariffs. He said
that computations indicating the effect of cost overruns,
managed by different debt to equity ratios, can be provided to
the committee.
REPRESENTATIVE SAMUELS asked if the percentages given for the
changes in debt equity ratios are also hypothetical.
MR. GALVIN replied that the tariffs are based on the model.
MR. SCOTT said:
You actually cannot simply extrapolate percentages
increase in debt to differences in the tariff without
also specifying a base capital cost. If the base
capital cost were half of what we are saying, the
pennies difference on the tariff would change.
4:25:52 PM
REPRESENTATIVE SAMUELS questioned whether there is a penalty for
the licensee that is unable to obtain financing at the agreed
upon debt to equity ratio.
MR. GALVIN responded that the debt to equity ratio required by
AGIA and FERC may be different than what is required for
obtaining financing.
4:27:33 PM
REPRESENTATIVE SAMUELS observed that different license
applicants may qualify for different financing interest rates.
MR. SCOTT stated that the expectation is that the debt for this
project will not vary, and will be guaranteed by the federal
government.
REPRESENTATIVE RAMRAS tasked the presenters with providing
additional information on the effect of the debt and equity
structure on tariffs. He requested the amounts of estimated
tariffs determined by a 100 percent debt capitalization on a $10
billion cost overrun over 30 years.
MR. GALVIN offered to provide the requested information and he
indicated that he will include a range of cost overruns and
their effect on the potential ratios of debt to equity.
4:30:42 PM
REPRESENTATIVE SAMUELS requested that 75 to 85 percent ratios
also be included.
MR. SCOTT said:
I will prepare a table for you showing 70:30
capitalization for the base cost, and then show what
happens at different cost escalations: 10 percent, 20
percent, 30 percent, 40 percent, 50 percent, all
assuming that that those cost overruns are 100 percent
financed with debt.
REPRESENTATIVE RAMRAS requested that the information be
represented by billions of dollars, rather than by percentages.
REPRESENTATIVE DOOGAN asked for the amount of the maximum loan
that the federal government will guarantee for the gas pipeline
project.
MR. SCOTT replied that through the Alaska Natural Gas Pipeline
Act of 2004 (ANGPA), the federal government offers loan
guarantees of up to 80 percent of the cost of the project, or
$18 billion, escalated for inflation.
4:32:36 PM
KEVIN BANKS, Acting Director, Central Office, Division of Oil &
Gas, Department of Natural Resources, informed the committee
that expansion commitments for the pipeline are an important
aspect of AGIA. He explained that without the expansion
provisions to allow in-state off taking of gas from the
pipeline, new explorations for natural gas will be hampered.
During the time leading up to the open season, there will be
only a few producers capable of committing their gas in the open
season. However, the proposals in AGIA provide that the
pipeline licensee will assess the market demand for additional
capacity every two years. Sufficient market demand, he opined,
will determine expansion of the pipeline.
MR. BANKS said that the U.S. Geological Survey (USGS), and the
U.S. Mineral Management Service (USMMS), estimate the
undiscovered and technically recoverable gas reserves on the
North Slope, the [outer continental shelf], Beaufort Sea, and
Chukchi Sea to be about 200 trillion cubic feet (Tcf). This
total, he advised, refers to gas that is technically
recoverable, but may not be economically recoverable. The
expansion of one Bcf per day, to an existing pipeline, is equal
to about eleven Tcf over the life of the gas pipeline project,
he opined. Mr. Banks stressed that the economically feasible
recovery of gas reserves depends on price, cost, access to the
pipeline, access to the discovery, and other factors. Also not
included in estimates is the amount of hydrates underlying the
oil and gas fields. Hydrate prospects that have been mapped,
but have never been tested, are classified as technically
recoverable at this time.
MR. BANKS called the committee's attention to FERC's mandatory
pipeline expansion process. He noted that expansions are common
and are supported by a vigorous and wide-open market. The ANGPA
recognizes that there will be one pipeline serving the North
Slope; therefore, it requires provisions for expansion to be
incorporated in the Alaska gas pipeline. These requirements
mean that shippers will need to complete studies before
submitting commitments of their gas at open season, and will
also demonstrate their take-away capacity from the pipeline
terminus. Moreover, the expansion must not adversely affect the
operation, or economics, of the pipeline.
4:38:44 PM
MR. BANKS assured the committee that AGIA resolves many
anticipated issues. However, many of the terms and conditions
in AGIA have not been subjected to judicial review and
litigation will occur, he advised. In fact, litigation
regarding the rules of the open season continues today, and the
state may not be able to rely on FERC regulations to assure that
expansion occurs. Mr. Banks then outlined some of the costs to
the explorer under the terms of AGIA. The parameters of the
model prospect created to illustrate these costs, assumes that
the seismic work has been completed and exploration drilling has
been sanctioned. In addition, for the model, the exploration
wells cost $35 million each, the three well delineation program
cost $45 million, and six years pass from the first delineation
drilling to gas sales.
4:41:36 PM
MR. BANKS continued to explain that the model project is
economic at a 12 percent return [net present value (NPV)];
however, after a one year delay the project operates at a loss.
This illustrates, he said, the looming risk to an explorer when
expansion provisions are unsuccessful.
4:43:40 PM
REPRESENTATIVE SAMUELS asked if one to five year delays on
expansion have the same effect on producers as one to five
delays have on completion of the entire project.
MR. GALVIN said yes. He added that the risk for the explorer is
to undertake the expense of drilling wells without the guarantee
that expansion will occur in a timely manner. If the explorers
conclude that the risk is too great, the discoveries will not be
made.
4:45:14 PM
MR. BANKS reminded the committee of the fact that the
opportunity to participate in an open season every two years
acts as a powerful incentive to the explorers.
MR. GALVIN pointed out that the safeguards in AGIA are provided
to assure explorers that expansion will occur even if commercial
and market circumstances prevent the usual marketing procedures.
4:47:07 PM
REPRESENTATIVE SAMUELS questioned whether an exploration company
might decide to delay exploration until after the pipeline is
completed rather than assume the initial exploration cost and
risk.
MR. GALVIN replied that AGIA requires an applicant provide
certain dates for the open season; this also will be the
deadline for the explorer's commitment to providing gas.
MR. SCOTT presented information on AGIA's terms for rolled-in
rates (RIR). He explained that AGIA requires that expansion
costs receive RIR treatment as opposed to incremental rate
treatment. However, rates, including pipeline fuel costs, can
not exceed 15 percent of the initial in-service tariffs.
Rolled-rate treatment, he said, will foster exploration and
development.
MR. SCOTT continued to explain that expansion shippers will pay
lower rates on expansions, thereby increasing the likelihood of
exploration. A lower tariff will result in a higher economic
value. Under RIR treatment all shippers will pay the same rate,
whereas incremental rate treatment results in varying rates for
shippers. Mr. Scott gave the following example: If the initial
cost of a project is $100, and throughput is 100, then the base
initial toll will equal $1 per unit of throughput. In the case
of a subsequent expansion cost of $30 and expected throughput of
$18, a RIR will be calculated by the entire capital costs
divided by the entire throughput, which would equal $1.10 per
unit. In comparison, with a subsequent expansion cost of $30,
and an expected throughput of $18, calculated under incremental
rate treatment, only the expansion costs would be divided by the
throughput and the rate would equal $1.67 per unit. For this
reason, initial shippers would pay $1 per unit and expansion
shippers would pay $1.67 for the same service.
REPRESENTATIVE GATTO surmised that the initial shippers will
resist expansion of the gas pipeline.
MR. SCOTT clarified that, generally, shippers who are interested
in exploration and who do not own the pipeline prefer RIR
treatment for expansion costs because their prospects will be
more economic. He then introduced to the committee three
scenarios that illustrate how RIRs encourage exploration. The
scenarios take into account varying engineering expansion
variables, such as fuel costs associated with compression
stations, and FERC policy on expansion shipping rates.
4:57:29 PM
MR. GALVIN further explained that, based on scenario one, a
shipper that is projecting the value of an exploration prospect
based upon the rate of a RIR tariff and with a one Bcf per day
increase from 4.5 to 5.5 Bcf will value the prospect at $6
million. However, with compression, and an increase from 4.5 to
5.5 Bcf per day under the incremental rate treatment, the
shipper will value the prospect at $6.5 million.
MR. SCOTT pointed out that scenario one and scenario two are
both examples of projects that are profitable to drill. Under
these circumstances the state would expect pipeline expansion to
occur.
4:58:57 PM
REPRESENTATIVE RAMRAS noted that the scenarios presented do not
include the possibility of developing a gas pipeline terminating
at a liquefied natural gas (LNG) plant in Valdez. He remarked:
It looks like [the Palin Administration] is on point
toward a 4 Bcf, the larger pipe .... If that is the
case and we are looking at the "y" plan, where then a
rolled-in rate in expansion in a "y" plan, could be a
part of this, in which case ... some expansion could
lead to a "y" line going down to Valdez for an LNG
plant somewhere down the line.
5:00:22 PM
MR. GALVIN responded that a 4.3 Bcf per day, through Canada, gas
pipeline is the model for AGIA. However, the principles of AGIA
do allow for the licensing of either project.
MR. SCOTT agreed that AGIA's provisions facilitate expansions to
serve a "y" line for a LNG project or to increase the diameter
of a gas pipeline to Alberta. The practical reason, he
explained, to base the model on a 4.3 Bcf per day gas pipeline
to Alberta is that preliminary studies have been completed. Mr.
Scott continued to explain that scenario two, which uses an
addition of 1 Bcf per day, with compression from 5.5 to 6.5 Bcf
per day, results in a total value to the shipper of $4.5 million
with RIR and a negative value of -$5.4 million with incremental
rates. This scenario illustrates that given the higher fuel
prices of today, without RIR treatment, the state may not get
full expansion of the pipeline. Scenario three illustrates the
addition of 700 million cubic feet (Mmcf) per day, with
"looping" from 6.8 to 7.5 Bcf per day, and indicates the total
value to the shipper of $.9 million with RIR and a negative
value of $25 million with incremental rates.
5:04:19 PM
MR. SCOTT then called the committee's attention to three
scenarios that illustrate both the rate and fuel impacts of each
scenario, under incremental and RIR treatment, for existing and
expansion shippers. He indicated that he would discuss this
information with members at their convenience.
MR. GALVIN added that these additional details support the
previous scenarios presented to the committee.
MR. BANKS noted that AGIA presumes that the initial expansion of
the gas pipeline will lower tariffs for all shippers. However,
because of fuel costs and shipping costs, subsequent expansions
under RIR and incremental rates will be higher. Further
expansion of the model illustrated in the presentation today
results in the gas pipeline increasing delivery of gas from 5.5
Bcf per day to 6.5 Bcf per day. Mr. Banks pointed out the
impact of the tax and royalty offset. This offset, he said, is
the result of the increased tariff, and hence, lowers the
royalty revenue due the state. The third scenario, illustrating
a 700 Mmcf per day looping expansion, reflects similar effects.
Mr. Banks reminded the committee that the state benefits from
expansion even though RIRs effect all production.
5:08:24 PM
MR. GALVIN concluded the presentation and asked for questions
from committee members.
5:08:49 PM
REPRESENTATIVE SAMUELS asked for clarification of the term in
AGIA, page 6, line 23, that limits the increase of shipper's
rates to 15 percent over the initial rates.
MR. GALVIN explained that the 15 percent is based upon the
original tariff and that it is a fixed rate.
5:10:56 PM
MR. BANKS further explained that tariffs are expressed in
nominal dollars and usually do not increase with inflation.
REPRESENTATIVE SAMUELS asked for clarification of what is meant
by the royalty offset.
MR. BANKS noted that the scenario of a 700 Mmcf per day
expansion with looping indicates that the production profits tax
increase to the state is $3 billion.
MR. SCOTT stated that the model scenario computations are based
on gas of which one-half is produced from state land and one-
half is produced from onshore federal land.
MR. BANKS continued to say that the model indicates shippers are
experiencing higher tariffs due to the RIR. Therefore, other
taxpayers are going to be paying less tax because their net tax
has been reduced.
5:13:21 PM
REPRESENTATIVE SAMUELS asked how offshore production will affect
the taxes, royalties, and tariffs of the scenarios presented.
MR. SCOTT assured the committee that the offshore affect is
factored into the models. This is illustrated, he said, by the
negative effect on production profits tax values associated with
higher tariffs for the remainder of the state's gas.
5:14:11 PM
REPRESENTATIVE RAMRAS asked the following questions: How do you
increment in the $500 million dollar-for-dollar match? [How do
"we" answer] Key Coalition of Alaska, and other deserving
constituents, who request a portion of the funds designated to
the construction of the gas pipeline? What if one of the
proposals comes in and declines the state matching money? How
will that affect your comparison of the proposals?
MR. GALVIN responded that AGIA provides for the state to match
costs dollar-for-dollar up to the open season. After open
season, the state will allow applicants to propose suggested
cost splits necessitated by the results of the open season. The
cost splits would be a procedure to offset perceived risks.
Moreover, the disbursal will be spread over a number of years.
He said that his answer to organizations interested in reducing
the state's inducement, is that the earliest completion of the
gas pipeline project will result in value to the state, and
thereby, more value to each Alaskan. Finally, an applicant who
meets the licensee qualifications and does not require the
state's participation will be looked upon favorably during the
licensing process.
5:20:26 PM
REPRESENTATIVE SAMUELS observed that testimony from the
producers, pipeline companies, regulators, and explorers is
expected. He said he is also interested in information on how
questions of corporate behavior will be addressed. In addition,
he requested further discussion by Commissioners Galvin and
Irwin about the weighing of the criteria that will be used to
evaluate the applications. He then remarked:
Is there enough gas at Prudhoe and Kuparuk right now
to finance a project, absent explorers? How does
Point Thomson play into it? The timeline on the
lawsuit; if it gets in federal court, if it does not
get into federal court, when can we take action? Can
you drop it and make a deal? All those things, how
does Point Thomson play in to the entire picture with
that amount of gas, or can you do it without Point
Thomson?
REPRESENTATION GATTO asked if the basis for the model is
predicated on installation of 52 inch pipe.
MR. GALVIN confirmed that the model presented today assumes the
construction of a gas pipeline transporting 4.3 Bcf per day, but
the pressure and design will determine the diameter.
REPRESENTATIVE GATTO asked if a scenario for two smaller
parallel pipes has been considered. He suggested that if a
smaller pipeline were built initially, that pipeline could begin
operation and then an additional pipeline could be added when
necessary.
5:25:16 PM
MR. GALVIN explained that during the development of AGIA, the
drafters decided to let the applicants propose various projects.
The DOR has studied many different projects to ensure that
AGIA's incentives are applicable to the potential proposals, but
it has not made a determination of their value. The state's
role, he said, is to establish the rules of the competition so
that the private sector can make proposals for the state to
evaluate.
[HB 177 was held over.]
5:27:19 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at 5:27
p.m.
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