02/04/2013 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB4 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 4 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 4, 2013
1:32 p.m.
MEMBERS PRESENT
Representative Eric Feige, Co-Chair
Representative Dan Saddler, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Craig Johnson
Representative Paul Seaton
Representative Geran Tarr (via teleconference)
Representative Chris Tuck
MEMBERS ABSENT
Representative Mike Hawker
Representative Kurt Olson
OTHER LEGISLATORS PRESENT
Representative Andrew Josephson
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 4
"An Act relating to the Alaska Gasline Development Corporation;
making the Alaska Gasline Development Corporation, a subsidiary
of the Alaska Housing Finance Corporation, an independent public
corporation of the state; establishing and relating to the in-
state natural gas pipeline fund; making certain information
provided to or by the Alaska Gasline Development Corporation and
its subsidiaries exempt from inspection as a public record;
relating to the Joint In-State Gasline Development Team;
relating to the Alaska Housing Finance Corporation; relating to
the price of the state's royalty gas for certain contracts;
relating to judicial review of a right-of-way lease or an action
or decision related to the development or construction of an oil
or gas pipeline on state land; relating to the lease of a right-
of-way for a gas pipeline transportation corridor, including a
corridor for a natural gas pipeline that is a contract carrier;
relating to the cost of natural resources, permits, and leases
provided to the Alaska Gasline Development Corporation; relating
to procurement by the Alaska Gasline Development Corporation;
relating to the review by the Regulatory Commission of Alaska of
natural gas transportation contracts; relating to the regulation
by the Regulatory Commission of Alaska of an in-state natural
gas pipeline project developed by the Alaska Gasline Development
Corporation; relating to the regulation by the Regulatory
Commission of Alaska of an in-state natural gas pipeline that
provides transportation by contract carriage; relating to the
Alaska Natural Gas Development Authority; relating to the
procurement of certain services by the Alaska Natural Gas
Development Authority; exempting property of a project developed
by the Alaska Gasline Development Corporation from property
taxes before the commencement of commercial operations; and
providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 4
SHORT TITLE: IN-STATE GASLINE DEVELOPMENT CORP
SPONSOR(s): REPRESENTATIVE(s) HAWKER, CHENAULT
01/16/13 (H) PREFILE RELEASED 1/7/13
01/16/13 (H) READ THE FIRST TIME - REFERRALS
01/16/13 (H) RES, FIN
01/30/13 (H) SPONSOR SUBSTITUTE INTRODUCED
01/30/13 (H) READ THE FIRST TIME - REFERRALS
01/30/13 (H) RES, FIN
02/04/13 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
REPRESENTATIVE MIKE CHENAULT
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As joint prime sponsor, introduced SSHB 4.
RENA DELBRIDGE, Staff
Representative Mike Hawker
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of Representatives Mike Chenault
and Mike Hawker, joint prime sponsors of SSHB 4, provided a
PowerPoint presentation and sectional analysis to further
introduce the bill.
FRANK RICHARDS, Manager
Pipeline Engineering & Government Affairs
Alaska Gasline Development Corporate (AGDC)
Alaska Housing Finance Corporation (AHFC)
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions related to SSHB 4.
TINA GROVIER, Attorney, Natural Resources and Energy Law
Birch Horton Bittner & Cherot
Counsel to Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Answered questions related to SSHB 4.
ACTION NARRATIVE
1:32:39 PM
CO-CHAIR DAN SADDLER called the House Resources Standing
Committee meeting to order at 1:32 p.m. Representatives Seaton,
P. Wilson, Johnson, Feige, and Saddler were present at the call
to order. Representatives Tuck and Tarr (via teleconference)
arrived as the meeting was in progress. Representative
Josephson was also present.
HB 4-IN-STATE GASLINE DEVELOPMENT CORP
1:33:19 PM
CO-CHAIR SADDLER announced that the only order of business is
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 4, "An Act relating to the
Alaska Gasline Development Corporation; making the Alaska
Gasline Development Corporation, a subsidiary of the Alaska
Housing Finance Corporation, an independent public corporation
of the state; establishing and relating to the in-state natural
gas pipeline fund; making certain information provided to or by
the Alaska Gasline Development Corporation and its subsidiaries
exempt from inspection as a public record; relating to the Joint
In-State Gasline Development Team; relating to the Alaska
Housing Finance Corporation; relating to the price of the
state's royalty gas for certain contracts; relating to judicial
review of a right-of-way lease or an action or decision related
to the development or construction of an oil or gas pipeline on
state land; relating to the lease of a right-of-way for a gas
pipeline transportation corridor, including a corridor for a
natural gas pipeline that is a contract carrier; relating to the
cost of natural resources, permits, and leases provided to the
Alaska Gasline Development Corporation; relating to procurement
by the Alaska Gasline Development Corporation; relating to the
review by the Regulatory Commission of Alaska of natural gas
transportation contracts; relating to the regulation by the
Regulatory Commission of Alaska of an in-state natural gas
pipeline project developed by the Alaska Gasline Development
Corporation; relating to the regulation by the Regulatory
Commission of Alaska of an in-state natural gas pipeline that
provides transportation by contract carriage; relating to the
Alaska Natural Gas Development Authority; relating to the
procurement of certain services by the Alaska Natural Gas
Development Authority; exempting property of a project developed
by the Alaska Gasline Development Corporation from property
taxes before the commencement of commercial operations; and
providing for an effective date."
1:33:49 PM
REPRESENTATIVE MIKE CHENAULT, Alaska State Legislature, joint
prime sponsor, first noted that this process of how to monetize
Alaska's Prudhoe Bay gas and bring it to tidewater to benefit
the most Alaskans has been ongoing for 30-some years. He said
he is not here to argue the size, location, or destination of an
in-state gas pipeline, but rather to explain the project the
sponsors have put together in the belief that it has the best
opportunity to bring gas to Alaskans in the near future.
Building a 24 inch high pressure line or a 36 inch 1,440 pound
per square inch (psi) line would be considered a big pipe
anywhere else in the world.
1:35:59 PM
REPRESENTATIVE CHENAULT continued, stating that while it may not
be the magical 48 inch pipe, a pipeline of this size would do a
number of things. It would: bring down the cost of utilities
for Fairbanks, improve the air quality which hampers how
Fairbanks heats its homes, bring a long-term energy supply to
the Cook Inlet, and along the way it would help rural Alaska by
providing propane and possibly jobs. He pointed out that [since
being established under] House Bill 369 [in 2010], the Alaska
Gasline Development Corporation (AGDC) has completed every task
before it and more. Now, tools are needed in AGDC's toolbox to
move forward, and [SSHB 4] would provide the tools the sponsors
believe would get Alaska to an open season to see if there
really is a market for selling Alaska's gas.
1:37:20 PM
REPRESENTATIVE CHENAULT opined it is time to make a choice. As
requested, AGDC developed a plan. Now the legislature must give
AGDC its next direction and the tools to carry out its mission,
or the legislature needs to pull the plug. There is no halfway
unless the legislature is okay with driving up the cost to the
Alaskans who will eventually pay for gas - every time there is a
wait it just costs the state more. It is time to deliver the
promise of gas to Alaskans through the Railbelt system.
1:38:49 PM
RENA DELBRIDGE, Staff, Representative Mike Hawker, Alaska State
Legislature, on behalf of Representatives Mike Chenault and Mike
Hawker, joint prime sponsors, provided a PowerPoint presentation
to further introduce SSHB 4. She said she will be explaining
where things are, how they got to this point, and how the
sponsors would like to move forward with SSHB 4 [slide 2].
"Alaska has long wanted to develop Alaska's rich North Slope
natural gas resource," she said. Development would bring a
clean, reliable, reasonably priced energy solution for Alaskans
that would help with electric and home heating costs, provide
economic development opportunities for communities, and provide
a secure gas supply for industrial development opportunities.
Further, this commercialization of gas would generate state
revenue through production taxes, royalty gas, and the future
oil and gas exploration and development that a gas line would
enable.
1:40:39 PM
MS. DELBRIDGE pointed out that Alaska has tried for decades to
develop its gas resource, having been on the table before the
Trans-Alaska Pipeline System (TAPS) was completed [slides 3].
Governor Tony Knowles worked to develop a gas line under the
Stranded Gas Development Act, Governor Frank Murkowski [worked
on the issue], and Governor Sarah Palin worked on it under the
Alaska Gasline Inducement Act (AGIA). But it has not worked
yet. Part of the problem, in the sponsors' opinion, is that
there are divergent interests. Alaska wants in-state gas
developed to serve Alaskans and to commercialize the resource,
whereas the private industry that the state has looked to for
support of a large pipeline needs to give a return to
shareholders and make profit from a resource in the ground. To
some, it is no wonder that things have not worked to date - any
project would be of massive scale, massive costs, and massive
risks. The state can be pretty prescriptive in demanding terms
of a pipeline and size of a pipeline. Industry can be slow in
responding to meet Alaska's needs. And, markets change - where
Alaska thinks it has a market for its gas in a large quantity
has evaporated; so windows close and windows open. Right now,
alignment with the "MOU group", where the governor has
encouraged TransCanada, ExxonMobil, ConocoPhillips, and BP to
work together on a new project, is promising. But the sponsors
want to know how long Alaska is willing to wait until it gets
gas to Alaskans.
1:41:59 PM
MS. DELBRIDGE recounted that by 2010 there was frustration with
a lack of progress on a big pipeline [slide 4]. Trying to make
others develop a pipeline for Alaska, on Alaska's terms, was not
delivering the results that Alaskans wanted. In 2010 members of
the legislature took a fresh approach, deciding that Alaska can
define what it wants and then do that itself. In-state energy
use, a need to get gas to Alaskans, was the primary driver of
that. There was an idea to use the state as a catalyst to
develop the early engineering and design work on a project that
would demonstrate for the private sector that this could be, in
fact, a pipeline that can work, and to demonstrate to Alaskans
that an in-state gas pipeline could, in fact, deliver energy at
reasonable costs. At the same time, members of the legislature
wanted to continue providing opportunities for private sector
partners without asking them to take on the project themselves.
The legislature wanted to empower an independent entity to serve
as the nexus for people interested in a project that, to date,
the private sector had been unwilling or unable to take on due
to its being a mega-project of huge costs and risks.
Legislators saw that the public benefit of having the state
serve as a catalyst is the long-term deliverability of
reasonably priced gas for heating homes, generating electricity,
providing economic stability and growth, and providing
opportunities for industrial development, such as a power source
for large mines. Legislators also clearly heard the imperative
that Alaska address in-state energy issues.
1:44:01 PM
MS. DELBRIDGE outlined the goals of House Bill 369, passed in
2010: build a team under the leadership of the Alaska Housing
Finance Corporation (AHFC), have the team consolidate the
state's gas pipeline work to date, have the team fill in the
data gaps and decide an optimal route for an in-state gas
pipeline, and have the team report back to the legislature with
a project plan. She said House Bill 369 passed with very broad,
bipartisan support and passed the House unanimously. The Alaska
Gasline Development Corporation (AGDC) subsequently delivered
with its July 2011 project plan [slide 6]. This plan showed
that: a pipeline for Alaskans is possible, even without a major
export component; an in-state line could deliver competitively
priced gas to the major population centers, specifically
Fairbanks and Southcentral Alaska; a project would require firm,
long-term contracts for pipeline capacity to support financing;
and some items would require legislative action.
1:45:18 PM
MS. DELBRIDGE reviewed AGDC's recommendations [slide 7] for the
legislated authority that it needs to be able to: determine a
pipeline ownership structure, work confidentially with private
sector partners, operate as a contract carrier, and decide rates
and [tariff] terms for shipping gas on this pipeline. Further,
she said, AGDC recommends that the state waive property taxes
and state land lease fees to help keep the pipeline costs down
and to provide sufficient funding. Providing sufficient funding
is not simply a dollar value, it is to carry AGDC through a
stage within its process. It is difficult to secure the kinds
of contracts that AGDC needs with certain engineers and designs
for big ticket items, like a gas conditioning facility on the
North Slope, without the surety for that private sector partner
that the state is serious and the money is going to be there to
support that contract through the length of the terms. The
sponsors are pleased with the work that AHFC and AGDC have done
to progress this project since 2010. The stage-gated and risk-
based project management approach adopted by AGDC is appreciated
and the plan does exactly what AGDC was asked to do.
1:46:47 PM
MS. DELBRIDGE moved from her historical review to where things
are at today - SSHB 4. She said this legislation proposes to
empower one entity, separated as much as possible from politics,
to forge ahead and carry out this plan [slide 8]. However, SSHB
4 is not about just one gas line. The sponsors realize that
with one gas line in place the possibilities for Alaska are
probably endless. The bill creates a statutory framework for
this corporation to go through on its project plan and to be
flexible and responsive and seize opportunities in the future.
The bill also maintains momentum because delays hurt - project
costs go up with inflation by $200 million or more per year of
wait. These additional costs would be borne by the people,
including Alaskans, using gas at the end of this pipeline.
Meanwhile, the Southcentral gas supply and cost are increasingly
uncertain. Energy costs continue to be a devastating problem in
Fairbanks and the air quality problem in that community has no
real end in sight. As urban costs increase, rural communities
also hurt more. Plus, there is a continuing expectation for the
state to offset high costs of energy in these communities, be it
through direct assistance or the state's responsibility for
covering energy costs for its own facilities and buildings.
1:48:17 PM
MS. DELBRIDGE pointed out that the sponsors had seven guiding
principles in the drafting of SSHB 4 [slide 9]. First, keep
politics out of pipeline development and let the markets
determine the way this pipeline looks. Second, build in maximum
flexibility and options for AGDC because at the beginning of a
project there is only a general idea of what the risks and costs
will be; as money is spent refining the engineering, permitting,
and design, there becomes a better idea of what the costs and
risks will be. For example, at this point it is unknown exactly
what the optimal ownership structure is going to be to get gas
to Alaskans at the lowest possible price, so AGDC needs that
flexibility. Third, support an aggressive, responsible schedule
that is driven by the needs of Alaskans. Fourth, let markets
shape pipeline decisions. Fifth, provide reasonable backstops
for Alaska gas consumers. Sixth, include ways that the state
can further keep costs down and enhance a pipeline project's
success. By empowering AGDC to go forward with a project the
state is making a defacto declaration that that is in the
state's best interest, and if this project is in the state's
best interest the sponsors would like to see the state assist it
as much as possible. Seventh, respect the state's long-term
policy of encouraging future development of Alaska's oil and gas
basins through pipeline development. The state has always tried
to ensure that infrastructure is developed in a way that
encourages additional exploration and production in the future.
1:50:16 PM
MS. DELBRIDGE stated that SSHB 4 attempts to strike a balance
between the free market forces that the sponsors are counting on
to become partners to AGDC to ship gas versus the tremendous
needs in Alaska that need to be met [slide 10]. There is a need
to balance the public sector support in the early stages to
bring the project to an open season where economics will then
dictate the project's fate. Under SSHB 4, AGDC would have
significant authority and autonomy, but a clear mission, that
can be used to get gas from the North Slope to Fairbanks and
Southcentral Alaska at the lowest possible costs and to other
communities when AGDC is able to so at a reasonable price. She
said AGDC is also poised to shift gears if another project
develops that delivers gas to Alaskans at the lowest possible
costs without delay. There are institutional checks and
balances built into SSHB 4 - yes, a pipeline; but no, not at any
cost. A pipeline under this legislation may not go forward
unless there is a commercial project that has sufficient
contractual support for financing without additional state
financial participation. Under SSHB 4, a gas line must deliver
gas to Alaskans at a competitive price.
1:51:44 PM
MS. DELBRIDGE specified that the plan going forward under SSHB 4
is that AGDC would first and foremost be empowered to continue
work on the in-state gas pipeline [slide 11]. Sufficient
shipper support will be required to finance a pipeline; the plan
is to hold an open season in 2014, which will secure whether
that is a possibility. The target date for gas flowing is 2019.
Additionally, AGDC will work with TransCanada and the three
producers as per the governor's request to see if those two
projects can merge into one. This is uncertain as there has
been no development commitment to date by TransCanada and the
three producers; however, they are continuing to meet benchmarks
set out by the governor and the sponsors are pleased by that.
The governor has specifically identified AGDC as a partner to
that as AGDC brings certain assets to the table that can help
any project, including an aggressive timeline for Alaskans, an
existing state right-of-way lease, and a final Environmental
Impact Statement (EIS) for a federal right-of-way. At the same
time, SSHB 4 equips AGDC to be prepared for participation in
other frameworks. A license is still issued under AGIA, so if
an export line to the Lower 48 is built, AGDC can shift gears
and consider a spur line to serve Alaskans. Once a main in-
state line is complete, AGDC, under SSHB 4, is in position to
evaluate other pipeline opportunities, which could be connecting
lines off that mainline to other communities and industrial
developments to gas, as well as other smaller stand-alone Alaska
gas pipelines that are needed and proved commercial.
1:53:53 PM
MS. DELBRIDGE noted SSHB 4 can be broken conceptually into three
main areas [slide 12]: a statutory framework for AGDC to serve
as Alaska's natural gas pipeline corporation, a maximizing of
the state's efforts in [gas] pipeline development, and resolving
of regulatory uncertainties while supporting future development
of Alaska's resources. Addressing the first area of statutory
framework, she said AGDC has done a wonderful job as a
subsidiary of AHFC, and AHFC has been a good incubator while
AGDC studied the issue to see if something is possible. Now
that it is known something is possible, SSHB 4 moves AGDC from
its present location as a subsidiary corporation and makes it a
stand-alone public corporation of the state located under the
Department of Commerce, Community & Economic Development (DCCED)
for administrative purposes only, which essentially means for
budget requests and appropriations if necessary. Under SSHB 4,
AGDC will be governed by a five-member board with expertise in
relevant fields, such as natural gas pipelines, finance, and
large project management. These members would be appointed by
the governor and confirmed by the legislature. The bill also
provides clear transition language to ensure that the re-
positioning of AGDC as a corporation does not interfere with, or
delay, any of the work that is ongoing or any of the progress on
a pipeline project.
1:55:59 PM
MS. DELBRIDGE reiterated that the legislation clearly states
AGDC's purpose [slide 14]: to advance an in-state gas pipeline
as described in the July 2011 project plan, with modifications
as appropriate to make gas available to Fairbanks, Southcentral
Alaska, and other communities at the lowest rates possible; to
develop pipelines that serve utility and industrial customers at
commercially reasonable rates; and to develop pipelines offering
commercial rates to shippers and that offer access for shippers
that produce gas in Alaska.
MS. DELBRIDGE specified SSHB 4 provides AGDC with clear
statutory abilities to function as a corporation and to
accomplish its purpose [slide 15]. She said this section of the
bill is long and very boilerplate; for example, a corporation
needs the explicit authority to adopt a seal and to enter into
contracts and hire people. The section also includes language
relevant to AGDC's particular mission so that AGDC may: enter
into ownership and operating partnerships; create subsidiaries,
including a subsidiary to market gas, such as state royalty gas
or gas belonging to others; issue revenue bonds limited to
AGDC's own backing to finance a pipeline; enter into
confidentiality agreements that are necessary to participate
with private sector shippers, partners owning the pipeline, and
financiers; and keep confidential information like field
studies, data, and tariff models, which are assets that AGDC is
developing for the state with the state's money. During the
time these assets are of relevancy to a project, the intent is
that the state gain maximum return for these assets.
1:58:10 PM
REPRESENTATIVE P. WILSON inquired whether SSHB 4 provides that
after a certain amount of time the confidential information
becomes the state's purview.
MS. DELBRIDGE replied nothing in SSHB 4 explicitly states that.
However, at the point in time that AGDC ceases to exist as a
corporation, all of its assets are remanded to the state.
Currently, the concern is the data being generated for this
project remain confidential through the time that this project
is built. She offered to discuss ways to be more explicit about
that, but said it is important to protect the value of that
asset right now, given there are other interests who may find
the information beneficial.
1:59:19 PM
CO-CHAIR SADDLER asked whether it is usual for a developer of
such a large project to basically be its own financier.
MS. DELBRIDGE offered her belief that with revenue bonds it is
normal for a project to be able to bond for the financing of
that project because it is the one pledging the revenue from its
project to those funds.
1:59:52 PM
MS. DELBRIDGE, resuming her review of statutory abilities
provided by SSHB 4, said AGDC would be given ability to exercise
the state's existing power of eminent domain [slide 15].
CO-CHAIR FEIGE commented that the power of eminent domain could
be interpreted as being fairly heavy handed and inquired why
AGDC would need this power.
MS. DELBRIDGE advised that the power to exercise eminent domain
for a pipeline project exists within state statute. Granting
AGDC the power to exercise eminent domain is essentially
delegating that power to AGDC so that AGDC itself can exercise
it rather than having to go back and work through the state
channels, creating the potential for delays and additional
costs. She further advised that AGDC would only be able to
exercise the state's power of eminent domain along the same
lines that the state would be able to exercise its power of
eminent domain. Thresholds are built into statute that require
good-faith negotiations be held with land owners and those must
have failed to go to this route. Statute then requires that the
landholder receive fair compensation for the property that is
taken under eminent domain.
2:01:24 PM
MS. DELBRIDGE, turning back to her review of SSHB 4, specified
that SSHB 4 exempts AGDC and Alaska Natural Gas Development
Authority (ANGDA) from the state procurement code and state
personnel act, as well as the Executive Budget Act [slide 16].
She said the bill also applies public official disclosure rules
to AGDC's board members, therefore AGDC board members would be
required to make disclosures. At Representative P. Wilson's
request, Ms. Delbridge outlined the reasons for AGDC's
exemptions. The intent is still that AGDC gets things from the
private sector and SSHB 4 requires AGDC to, as possible, give a
preference to Alaskans for procuring services, materials, and
hiring, and to work through the state's labor department
programs that train and fit employees for positions. Exemption
from the procurement code essentially means that AGDC would not
have to go through those particular channels that the state
requires. When procuring items, AGDC needs to be flexible, move
quickly, and be able to work through whatever terms it can to
get the absolute best prices on things; that might not always
look like the state procurement code procedures. The situation
is also one of bulk materials and contracts. Much of AGDC's
work going forward will be for contract personnel and AGDC will
need the flexibility to move quickly and to move into the very
best expertise that it can.
2:03:57 PM
CO-CHAIR SADDLER understood that SSHB 4 would encourage Alaska
hire. He then asked whether the bill has any provision to
encourage veteran procurement preference.
MS. DELBRIDGE responded no, nothing in SSHB 4 does that. Alaska
Native corporations and local government entities are
specifically mentioned, which, she said in further response, is
in Section 1, page 3.
2:04:39 PM
REPRESENTATIVE TUCK requested some examples be provided,
although not at this moment, of how the state procurement code
does not fit with the flexibility the sponsors' desire.
MS. DELBRIDGE agreed to do so.
.
2:04:58 PM
CO-CHAIR FEIGE inquired whether these proposed provisions would
put AGDC in the same situation as the Alaska Railroad.
MS. DELBRIDGE answered there are differences between the Alaska
Railroad and the Alaska Permanent Fund Corporation and AHFC.
She said she is unsure what specifically the railroad exemption
is from the state procurement code, but said the railroad is
exempt from the Executive Budget Act and AHFC is partially
exempt.
2:05:40 PM
MS. DELBRIDGE, continuing her presentation, stated that AGDC
shall publicize the results of an open season when it has
successful bids for pipeline capacity. This provision was
modeled largely after the Federal Energy Regulatory Commission's
(FERC) rules governing an open season for Alaska. Once
commitments are signed, AGDC must publicly state who those
shippers are, how much capacity the shippers have contracted
for, and over what length of time. This is reassurance to
Alaskans that these are legitimate shippers, that they are
actually bidding up the space required to fill up this pipeline,
and that they promising those contracts for a length of time
that is reasonable and lets things work for the state.
2:06:38 PM
MS. DELBRIDGE moved to slide 17 and said SSHB 4 would maximize
the state's efforts in gas pipeline development. The sponsors'
position is that the passage of SSHB 4 and direction of AGDC on
this new mission is a defacto finding that an in-state gas
pipeline is in the state's best interest and therefore the state
should be supporting this pipeline as much as possible to reduce
delays and keep costs as low as possible. To do this, SSHB 4
redefines the Alaska Natural Gas Development Authority (ANGDA)
as an AGDC subsidiary and adapts AGDC's purpose to serve as a
gas marketer. A gas marketer is a bit like a gas aggregator in
that it might buy gas at the top of the pipeline, pay to
transport it, and then sell it to multiple entities at the
bottom of the pipeline. The bill encourages the Department of
Natural Resources (DNR) commissioner to work with AGDC, and
particularly a gas marketing subsidiary, to make the state's
royalty gas available for shipment through an AGDC pipeline.
She noted that this is to make state royalty gas available for
shipment, not to give the gas to AGDC or a subsidiary and not to
sell it to any particular person at any particular price as that
is a decision that the DNR commissioner makes. She pointed out
that SSHB 4 also limits the judicial review of state permitting
decisions and authorizations to avoid delays once construction
has started.
2:08:22 PM
CO-CHAIR SADDLER inquired whether SSHB 4 establishes ANGDA as
the sole venue through which this gas could be marketed.
MS. DELBRIDGE replied, "ANGDA would be able to serve as a gas
marketer; AGDC has the ability to create subsidiaries for any
purpose, but it needs a subsidiary to do in conjunction with
carrying out its mission."
2:08:53 PM
REPRESENTATIVE JOHNSON asked whether ANGDA has the expertise to
be a gas marketer.
MS. DELBRIDGE offered her belief that there is nothing left of
ANGDA at the moment, no existing board members or personnel, so
the intent is that ANGDA be recreated to have the expertise to
carry out that function.
REPRESENTATIVE JOHNSON inquired why [recreate ANGDA].
MS. DELBRIDGE responded ANGDA was created by the voters through
initiative in the early 2000s specifically to build a gas
pipeline by 2005. That did not work and ANGDA took on other
tasks as directed or at its own initiative over the years to try
being involved in gas development in Alaska.
REPRESENTATIVE JOHNSON asked whether the intent, then, is to
have a marketing subsidiary that is named ANGDA for political
purposes, given ANGDA currently has no staff and no purpose and
is just a name.
MS. DELBRIDGE answered AGDC does not need ANGDA to market gas.
2:10:40 PM
REPRESENTATIVE P. WILSON inquired if the reason for limiting
judicial review of state permitting decisions and authorizations
is because each department is encouraged to ensure the state
gets this pipeline going.
MS. DELBRIDGE replied judicial review is important and gives
people a voice, as do the public processes that the State of
Alaska requires when issuing permit decisions and giving project
authorizations. The intent is not to disallow any of that
public process, but to avoid the kind of lawsuits that are filed
late in the process with the specific intent to delay a project.
Delay happens when a court issues injunctive relief and calls a
halt to project construction until that lawsuit is settled.
That lawsuit may or may not have any foundation in the end, but
the project has been stopped. Delays are incredibly costly and
difficult. She specified that this limit is strictly of state
permitting decisions, lease issuances, and authorizations, so
people would still have the public process before a decision or
authorization is made in which to participate. She said she
believes the limitation restricts complaints to the superior
court and prohibits injunctive relief so that a court cannot
delay the process. If someone has a challenge to this
particular provision, he/she has a set period of time after this
bill passes to challenge that. Further, if a person feels that
the state has made some sort of a decision or authorization that
violates his/her constitutional rights, the person has 60 days
from the time that that state decision is made to challenge it.
Thus, avenues are maintained for legal challenge, but the
boundaries of those are restricted.
REPRESENTATIVE P. WILSON responded that makes perfect sense.
2:13:15 PM
CO-CHAIR SADDLER understood this kind of post-sanction judicial
limitation has been a feature of all the gas line proposals in
Alaska over the last decade and that it was also a feature of
the Trans-Alaska Pipeline System (TAPS) authorization.
MS. DELBRIDGE responded she does not know about all gas pipeline
projects, but the theory is that [a limitation] is reasonable
when the state has decided that something is in the best
interest of the people of the state and therefore wants to go
through with it. She confirmed that TAPS did enjoy limits on
judicial review, and she further believed that that is also part
of the 2004 federal Alaska Natural Gas Pipeline Act.
2:14:02 PM
MS. DELBRIDGE proceeded with her review of SSHB 4, saying that
to maximize the state efforts at gas development the bill waives
state and local property taxes during pipeline construction.
The legislation requires state entities to cooperate with and
share information with AGDC. This means that AGDC's requests to
other state agencies would receive priority, except for AGIA
requests which have already claimed priority, and also means
that AGDC and state entities can enter into confidentiality
agreements to share information if that information involves a
third-party that needs to be protected. The bill calls on the
state to provide water, sand, gravel, and other non-hydrocarbon
natural resources to AGDC and AGDC will pay the usual prices to
the state for these resources, but the costs cannot be included
in the tariff base for the pipeline and passed on to shippers.
Lastly, SSHB 4 directs DNR to waive annual fees on a state
right-of-way lease for AGDC, which is currently costing nearly
$200,000 a year.
2:15:14 PM
CO-CHAIR SADDLER asked whether the proposal from AGDC would
waive state and local property taxes during operations as well
as during construction.
MS. DELBRIDGE answered the bill specifically waives local and
state property taxes on a gas pipeline that AGDC has any
involvement in; for example, a pipeline in which AGDC is part
owner or a pipeline financed by AGDC. She said she believes
those local and state taxes would be waived only until that gas
is flowing. She noted it is not generally reasonable to have
one state entity paying taxes to another; therefore Section 3,
the corporate authorities for AGDC, exempts all property of AGDC
from state taxes, as per most of the state's corporations. So,
she said, the answer is that it does a little bit of both and
what ultimately happens will depend on the ownership structure
of the pipeline, whose property it is.
2:16:49 PM
MS. DELBRIDGE, resuming her review of SSHB 4, stated that a
large part of the bill is an attempt to resolve regulatory
uncertainties [slide 19]. Regulatory uncertainties add risk,
which adds costs and can deter private sector participation, so
AGDC and its private sector partners need to know up front how a
pipeline is going to be regulated. Therefore, SSHB 4
establishes a framework within the state to accommodate a
contract carrier pipeline and it does this through two avenues:
through allowing natural gas pipelines to operate as contract
carriers via changes to the Right-of-Way Leasing Act and through
Regulatory Commission of Alaska (RCA) oversight. Second, it
reinforces the state's policy that gas pipeline development
should be fair and should offer reasonable access to new and
future shippers and encourage future development of Alaska's oil
and gas resources.
2:18:16 PM
CO-CHAIR FEIGE, regarding the provision to act as a contract
carrier, asked how space would be allocated in the pipeline
should the commitments total more than the limit of 500 million
cubic feet per day.
MS. DELBRIDGE confirmed that, under the terms of the Alaska
Gasline Inducement Act (AGIA), an AGDC pipeline would currently
be limited to 500 million cubic feet a day. The precise method
of allocating capacity initially is something that AGDC needs to
determine and make known to the RCA and to the people bidding on
its pipeline. Rather than legislatively prescribing that
[method], AGDC is being asked to make that part of its
commercial contracting.
2:20:03 PM
CO-CHAIR FEIGE inquired whether that would bid the tariffs up or
down.
MS. DELBRIDGE responded she is unsure which way the bidding
would end up if people are signing contracts without knowing who
else is also signing contracts at the same time. She said she
thinks the scenario of a bidding war is likely if people know
what the other parties are wanting to do and the terms they are
wanting to do it. The sponsors are cognizant that there is a
limit right now on pipeline size. However, an open season is a
year and a half away and it is difficult to know if the state
will still be a licensee under AGIA at that time.
REPRESENTATIVE CHENAULT quipped what a terrible position the
State of Alaska would be in should people bid more gas than this
proposed project could handle. He said he thinks the state
would step in and make the right choice of allowing any of them
to be included and sizing the project appropriately.
2:21:34 PM
CO-CHAIR SADDLER asked whether an open season is an expression
of interest or a binding commitment to ship.
MS. DELBRIDGE answered an open season in this case would be
binding. She explained an open season is a period of time
during which potential shippers and the pipeline carrier talk
about terms and negotiate. What comes out of an open season is
a precedent agreement that is binding and usually conditioned -
a contract that says there is a deal provided certain things are
worked out. Some of the terms on a precedent agreement are very
standard, such as the project must come in within a certain plus
or minus of budget, does not face delays, or any outstanding
uncertainty is ironed out. Other things are more particular to
a given project or a given shipper.
2:23:00 PM
MS. DELBRIDGE, turning back to her review of SSHB 4, explained
the reasons for why contract carrier status [slide 20]. She
said shippers on a pipeline need to know the space they are
reserving by signing a long-term commitment will be available.
Those firm, uninterruptible contracts are the way gas pipelines
are typically financed; the future income promised through those
contracts secures the revenue bonds. The bill establishes
contract carrier status while providing for expansion in the
future. So long as [a future] expansion does not violate any of
the terms of AGIA, the regulatory framework under SSHB 4
absolutely provides for expansions - a pipeline is required to
expand when it is presented with a commercially reasonable
expansion project. Expansion can happen in a number of ways,
such as adding compression or looping. The difference between
contract carrier status and common carrier status is that
expansion [of a contract carrier pipeline] cannot make the
existing shippers pay more than their contracts allow, so an
expansion cannot raise their rates.
2:24:53 PM
CO-CHAIR SADDLER inquired how much more capacity, in general,
could be squeezed out of a 24 inch pipeline through compression
or looping.
MS. DELBRIDGE replied it depends entirely on the engineering of
each particular pipeline as to how much pressure can go through,
how much compression is already in place, and the size of the
pipeline.
CO-CHAIR SADDLER presumed there must be some absolute limit
technologically.
2:25:25 PM
CO-CHAIR FEIGE recalled it being mentioned earlier that the
pipeline would be a [1,480] psi line, 36 inches in diameter. He
asked what the specification for wall thickness would be on such
a line as well as the type of steel.
MS. DELBRIDGE deferred to an AGDC representative for an answer.
2:25:57 PM
FRANK RICHARDS, Manager, Pipeline Engineering & Government
Affairs, Alaska Gasline Development Corporate (AGDC), Alaska
Housing Finance Corporation (AHFC), Department of Revenue (DOR),
responded that the pipe specifications for AGDC's new lean gas
case is 1,480 psi, American National Standards Institute (ANSI)
600 pound class, and approximately .52 inches wall thickness;
thus making the pipe approximately grade X60 or X65.
2:26:57 PM
CO-CHAIR SADDLER inquired what the expandability factor might be
of this pipe.
MR. RICHARDS explained that under the provisions of AGIA, AGDC
is limited to designing an in-state pipeline to 500 million
cubic feet per day. At the request of the committee AGDC could
look at the ultimate capacity of that pipe, but AGDC has been
very specific in its designs to limit it to the 500 million.
CO-CHAIR SADDLER said that contradicts what was said about the
expandability of the pipeline via compression and so forth.
MR. RICHARDS answered the capacity of flow through the pipe can
be increased by adding compression. As a project, however, AGDC
has not done that because of the provisions of AGIA.
2:28:07 PM
REPRESENTATIVE P. WILSON asked whether the committee would be
violating the terms of AGIA if it asked AGDC [to calculate an
ultimate capacity].
MS. DELBRIDGE deferred to legal counsel for an answer.
2:28:36 PM
TINA GROVIER, Attorney, Natural Resources and Energy Law, Birch
Horton Bittner & Cherot, Counsel to Alaska Gasline Development
Corporation (AGDC), said she would need to look into that and
determine how much is publically available information that
could be acquired from a different source, as opposed to
actually causing AGDC to go through those calculations, which,
in her mind, would cause some concern.
REPRESENTATIVE P. WILSON said she thinks the committee should
get that information from another source also, but that she
would like to know the ramifications before going any further
with this.
CO-CHAIR SADDLER encouraged Ms. Grovier to err on the side of
caution in regard to the aforementioned.
2:30:10 PM
MS. DELBRIDGE, continuing her discussion about why a contract
carrier pipeline is needed [slide 20], explained that a common
carrier pipeline can have firm commitments, but typically those
commitments are interruptible. The concept behind a common
carrier is that when other people want room on that pipeline,
those people with existing space are then prorated to make room
for the new. Enabling contract carriage gets the state past
this difficulty. In the state's case it is very much a matter
of financing as well as a matter of the end users of the gas.
Oil pipelines tend to feed into a hub of some sort, such as a
trading hub or storage tanks. Gas pipelines often deliver gas
that is used immediately for an ongoing power source. A power
plant or industrial mine does not typically store a lot of the
gas being received from a pipeline. People need to know that
the amount of gas they are counting on through that line every
day is going to always be there.
2:31:32 PM
MS. DELBRIDGE reiterated that contract carriage is enabled two
ways: through the Right-of-Way Leasing Act and through
Regulatory Commission of Alaska (RCA) oversight. In regard to
the Right-of-Way Leasing Act [slide 21], a lessee must agree to
a set of covenants in statute to get the right-of-way lease.
Many of those covenants are very nuts and bolts, such as the
lessee will not abandon a pipeline, will abide by the state's
rules, and will take all the necessary precautions to avoid any
environmental degradation. The legislation creates a subset of
covenants for contract carriage. A contract carrier is still
subject to all the nuts and bolts covenants of a common carrier,
but a contract carrier would not be subject to certain covenants
reflecting common carrier principles. Under SSHB 4, contract
carrier covenants still require a pipeline, per contractual
terms, to provide connections with other pipelines and
facilities. The contract carrier terms in SSHB 4 still require
expansions, but on commercially reasonable terms so that the
rates of existing shippers are not adversely affected. The
contract carrier covenants in the bill still require a pipeline
to ship without "undo discrimination", which accommodates the
principle that certain classes of shippers will probably be
treated a little bit differently than other classes of shippers.
For example, the terms for a group of people shipping small
quantities will be similar, but those terms will probably be
different from the terms of a group of people shipping large
quantities.
2:34:01 PM
MS. DELBRIDGE, regarding the bill's enabling of a contract
carrier gas pipeline through RCA oversight [slide 22], explained
that the RCA regulates as told to do so by the legislature.
Currently, the RCA has statutes directing it in how to regulate
public utilities and statutes directing it in how to regulate
pipelines. The RCA's pipeline regulation has generally been
used for oil pipelines and reflects common carriage principles.
There are some provisions in statute for a North Slope pipeline
that have never been tested. Therefore, SSHB 4 adds a new
chapter to law, AS 42.08, for the RCA to regulate a contract
carrier gas pipeline. This new regulatory section tries to walk
that balance between enabling a private sector commercial
contractual base project to go forward and protecting the other
parties that might be involved, such as public utilities buying
gas that is shipped on a line like this, or that ship gas
themselves, and also ensuring that protections for the ultimate
consumers of that gas are still in place through the RCA.
Therefore, the contract carrier regulatory framework requires
the pipeline carrier to give a baseline package of rates and
terms, called a recourse tariff, to all interested parties.
Specific rates and terms are then negotiated off of that
baseline. The point is to ensure that all parties have had the
ability to get in on the same terms.
2:35:56 PM
CO-CHAIR SADDLER inquired whether "all interested parties" is
all potential shippers or both sides of the shipper/supplier
agreement.
MS. DELBRIDGE replied she is meaning shippers, the people
signing contracts to ship gas on the pipeline. She said the
structure requires the RCA to decide if precedent agreements
made after the open season are just and reasonable. The bill's
premise is that contracts entered into willingly by two parties
are just and reasonable or else the contract would not have been
signed. There are some checks and balances. The RCA is to take
a much stronger look at contracts made between affiliated
parties. They are to take a stronger look at contracts that do
not include that recourse tariff and that are made between
entities that have an existing relationship.
2:36:52 PM
REPRESENTATIVE P. WILSON asked whether the RCA currently deals
only with common carriers.
MS. DELBRIDGE responded the RCA currently regulates public
utilities and public utility pipelines and also has the ability
to regulate under a chapter for common carrier pipelines. The
RCA does not regulate things like field gathering lines within
an oil and gas development.
2:37:35 PM
MS. DELBRIDGE, returning to her review of RCA oversight for a
contract carrier gas pipeline [slide 22], stated that the
contract carrier provisions in SSHB 4 try to provide certainty
and protection for the state's public utilities. It is unknown
whether public utilities will actually commit to long-term
shipping contracts on this pipeline or whether they will buy gas
that is shipped on this pipeline by the marketer/aggregator
subsidiary mentioned earlier. A standard of review is created
to where contracts involving public utilities can come to the
RCA for approval before they are finalized. That lets the
public utility know that it will be able to recover the costs it
is agreeing to incur through involvement with this pipeline in
its rate base that is passed on to consumers.
2:38:36 PM
CO-CHAIR SADDLER inquired whether the regulatory authority would
change based on the ultimate destination of gas, i.e. if some of
this gas were to be exported out of Alaska and/or the U.S.
MS. DELBRIDGE answered that is possible, but not certain, and
would depend as to what percentage of a pipeline is carrying gas
to export and to what destinations. She requested Ms. Grovier
to provide further explanation as to when the Federal Energy
Regulatory Commission (FERC) may decide to regulate on behalf of
the state.
MS. GROVIER said her understanding of the FERC regulation is
that gas exported to the U.S., such as the West Coast, would be
subject to FERC jurisdiction; but gas exported to other
locations, such as the Pacific Rim, would not be subject to FERC
jurisdiction.
2:39:54 PM
CO-CHAIR SADDLER understood, then, that FERC would be involved
for gas within the U.S., but FERC would not be involved for gas
exported outside the U.S.
MS. GROVIER confirmed the co-chair's understanding and added
that FERC could elect not to regulate if the volume is small and
has some intra-state, but that generally she thinks it fair to
say that FERC would be involved if it goes to the West Coast or
elsewhere in the U.S.
2:40:25 PM
CO-CHAIR SADDLER asked whether that would be exclusively or just
to the percentage that was being exported. He further asked
whether the RCA would have any piece of this for gas that was
used inside the state solely.
MS. GROVIER offered her understanding that it would depend on
the volume. She said she believes FERC could exercise complete
jurisdiction, but it would depend on the volumes and the intra-
state component and how significant FERC evaluated that to be.
CO-CHAIR SADDLER said the committee might follow up later on
this topic with Ms. Grovier.
2:41:05 PM
REPRESENTATIVE P. WILSON requested Ms. Delbridge to define
precedent agreements.
MS. DELBRIDGE explained the pipeline carrier puts together a
package specifying the amount of space available, the rates, and
the terms for anyone wanting to buy and reserve some of the
space. In further response, she confirmed that this is done in
the open season when potential shippers and the carrier talk and
come to an agreement. That agreement is referred to as a
precedent agreement; it is binding, but is conditional on things
stated in the agreement. Once those conditions are ironed out,
usually at the point of sanctioning, the precedent agreements
evolve into a firm transportation contract/firm transportation
service agreement. That is when the pipeline carrier has met
all of those conditions in a potential shipper's contract and so
that shipper is signing the final deal.
2:42:44 PM
MS. DELBRIDGE [addressed Co-Chair Saddler's earlier question],
pointing out that in this regulatory statute the sponsors have
been explicit that it applies to an in-state natural gas
pipeline that is not subject to FERC's jurisdiction. There is
no attempt to take jurisdiction when it is someone else's, she
stressed.
2:43:05 PM
MS. DELBRIDGE returned to her review of the regulatory structure
provided by SSHB 4. Moving to slide 23, she said the regulatory
structure allows the confidential filing of those precedent
agreements with the RCA. The confidentiality is because some of
the terms in those agreements are still being worked out and in
need of commercial protections. Once those precedent agreements
become final contracts - firm transportation agreements - they
are made public at the RCA; however, information can be withheld
from that publication if it threatens the commercial position of
one of the entities involved in the contract. The regulatory
framework requires that the pipeline get from the RCA a
certificate of public convenience and necessity (CPCN), which is
equivalent to a building permit. The CPCN is the RCA saying
that this pipeline is needed and that the people proposing this
pipeline are able to actually build, maintain, and operate it
the way they say they will. The legislation puts in a few
special terms for an AGDC pipeline in getting this building
permit, which are intended to reflect that state-sanctioned
mission. If the state is telling AGDC to build this pipeline,
then the state has already decided that it is in the public
interest, which is one of the findings that the RCA generally
has to make in issuing that building permit. Also, the state
has made sure that AGDC is financially capable of doing this by
passing legislation giving AGDC that authority and ability,
which is another one of the findings that the RCA would usually
have to make in issuing a CPCN. The RCA will still have to make
sure that AGDC is technically fit, willing, and able to do this
pipeline. The RCA needs to make sure AGDC has the right
expertise and personnel on board to do this and to do it right.
Further, SSHB 4 allows the RCA to intervene in pipeline
management when there is a dispute that cannot be resolved
between contracting parties and that threatens the public health
and safety; for example, if because of a contractual dispute a
power plant in Southcentral Alaska would not get its gas in the
middle of January, the RCA has the authority to step in and set
the terms.
2:45:50 PM
CO-CHAIR SADDLER inquired whether this provision denies access
to the courts in this kind of dispute resolution.
MS. DELBRIDGE responded she does not believe it denies access
necessarily to the courts. The concern is that if there is a
threat to the public health and safety there is no time to go
through courts; someone needs to take charge, iron things out,
and act promptly in the public's interest. This legislation
requires that AGDC's contracts with its shippers specify and
include dispute resolution methods; the bill does not say what
those have to be, just that they need to be included in the
contracts. Thus, any disputes between contracting parties that
are not public health and safety issues will be handled per the
terms of those contracts.
2:46:46 PM
CO-CHAIR SADDLER surmised this deals with the negotiation
because he does not see where an imminent danger to public
health is created at the point at which this kind of dispute
would arise.
MS. DELBRIDGE answered it is a contingency that one hopes will
never happen. However, this is a pipeline carrier that has
contracts with multiple parties and something could go astray
with the carrier and one party that cannot be ironed out. For
example, hypothetically, it could have to do with connecting new
gas into the pipeline at a given time that is being counted on
by someone at the end or where it will interrupt the volume
needed by a public utility to fire its power plant.
2:47:41 PM
MS. DELBRIDGE, resuming her review of the regulatory structure
provided by SSHB 4 [slide 23], said the regulatory framework
sets some standards. To date, she explained, the State of
Alaska has never had a need for statutes regulating an open
season. The federal government has some statutes regulating an
Alaska open season, but something needs to be put in place to
ensure that the state also has open seasons that are fair and
accessible and that people know about them and have an
opportunity to participate. Therefore, SSHB 4 requires that the
carrier come up with its rules for an open season, that it makes
those rules known, that those rules apply to all the people that
come in an open season, and that everyone has that opportunity
to know that the open season is happening. Also, when there is
new capacity or future expansion of the pipeline, SSHB 4
requires there be an open season for that because it is an
opportunity for anyone thinking about developing a project to
get into the pipeline at a convenient time and make the most of
any given expansion opportunity. Ms. Delbridge concluded her
review of the bill's regulatory framework by noting that SSHB 4
further sets timelines that are intended to not interfere with
the commercial processes. She said that is one reason why the
precedent agreements are presented to the RCA before they become
final transportation agreements. The RCA has an opportunity to
approve them early on in the process, which means that the final
agreements between the shippers and the pipeline carrier are not
contingent on some future action of the RCA once the pipeline is
flowing.
2:50:46 PM
MS. DELBRIDGE next provided a sectional analysis of SSHB 4. She
paraphrased from the sectional analysis for Section 1, Findings
and Intent [original punctuation provided]:
· Finds that an Alaska Gasline Development Corporation
(AGDC) natural gas pipeline is in the best interests
of the state, and required for public convenience and
necessity.
The Regulatory Commission of Alaska (RCA) uses
these standards in issuing a building permit to a
project. Through this section, the legislature is
making these findings on behalf of the RCA.
· Finds it is the state's policy to make the state's
royalty gas available to be shipped in an AGDC
pipeline.
Royalty gas may be an important volume for an
instate gas pipeline. This finding does not
address ownership of state royalty gas, only
transportation.
· Finds that locating AGDC under the Department of
Commerce, Community and Economic Development [DCCED],
for administrative purposes only, will advance AGDC's
mission.
Establishing AGDC as an independent state entity
with a clear purpose and the statutory authority
to meet its mission will make AGDC more likely to
succeed.
2:52:19 PM
CO-CHAIR SADDLER surmised the italicized portions of the
sectional analysis are an elaboration on the main point.
MS. DELBRIDGE replied it is an attempt to explain the purpose
for the legislative finding or intent.
2:52:32 PM
MS. DELBRIDGE continued paraphrasing from the sectional analysis
regarding Section 1 [original punctuation provided]:
· Provides intent that AGDC's transfer from an Alaska Housing
Finance Corporation (AHFC) subsidiary to a stand-alone
corporation will be treated as a repositioning and not as
creating a new entity.
This intent should prevent the need to dissolve AGDC
and re-create it as a new corporation; as a transfer,
AGDC will need to amend bylaws and regulations.
· Provides intent that AGDC will procure services, labor,
products and resources from Alaska businesses, including
Alaska Native corporations and municipal organizations,
when prices are competitive.
· Provides intent that AGDC will, as possible, hire Alaskans;
establish hiring facilities in Alaska; and use Department
of Labor and Workforce Development systems.
2:53:54 PM
REPRESENTATIVE TUCK asked what the advantage is for having AGDC
under DCCED rather than AHFC.
MS. DELBRIDGE responded AHFC is the state's housing finance
corporation, whose basic mission is admittedly unrelated to gas
pipeline development. The AHFC served as a wonderful place to
incubate an idea, to name a team, and to get a plan together to
see if this is possible. Now that this is possible, it is time
for the state, in the sponsors' eyes, to get serious about it
and create an entity that is charged with gas pipelines, that
has the absolute mission, relevancy, and experience to carry
that out. The private sector - potential pipeline owners, joint
owners, shippers, and financiers - will react favorably to
knowing the state takes this so seriously that it is willing to
pull AGDC out of AHFC and make it happen.
2:55:12 PM
REPRESENTATIVE TUCK inquired why not put AGDC with the Alaska
Energy Authority (AEA), which seems like a more natural spot.
MS. DELBRIDGE answered AEA is an authority and she is unsure
whether AEA can make subsidiary corporations. She related that,
to the sponsors, an in-state gas pipeline is all about Alaska's
communities, economic development, commerce, and commercializing
part of the North Slope gas resource. A stand-alone state
corporation must go under something and DCCED was a logical
choice of the sponsors. However, she added, it is strictly for
administrative purposes, budget appropriations or requests,
there is no real management interface or policy interface.
2:56:22 PM
MS. DELBRIDGE returned to paraphrasing from the sectional
analysis [original punctuation provided]:
Section 2 (conforming) deletes from AS 18.56.086,
Alaska Housing Finance Corp, Creation of subsidiaries,
the ability to create a pipeline subsidiary.
Section 3 (new corporation) adds a new chapter, Alaska
Gasline Development Corporation, to AS 31, Oil and
Gas. This section is the statutory authority for the
stand-alone corporation.
(As AHFC's statutes were the basis for developing
AGDC's statutes, similarities are noted for each
section.)
Sec. 31.25.010, Structure, establishes AGDC as an
independent public corporation of the state,
located for administrative purposes in DCCED, and
makes provisions for asset distribution upon
termination.
(Termination language is from AHFC 18.56.020)
2:57:38 PM
CO-CHAIR SADDLER requested the names of other state-owned
corporations.
MS. DELBRIDGE replied the Alaska Permanent Fund Corporation, the
Alaska Railroad, the Alaska Housing Finance Corporation, the
Alaska Industrial Development and Export Authority (AIDEA), and
she believes the Tobacco Settlement Corporation.
2:58:26 PM
MS. DELBRIDGE turned back to the sectional analysis, continuing
with Section 3 [original punctuation provided]:
Sec. 31.25.020, Governing body, establishes a five-
member board of directors, serving staggered, seven-
year terms. Members are appointed by the governor and
must be confirmed by the legislature. In making
appointments, the governor shall consider expertise in
natural gas pipeline construction, operation and
marketing; finance; and large project management.
Members may be removed only for cause; vacancies will
be filled in the same way as original appointments are
made. Board members receive $400 compensation per day
spent on official board business, in addition to
actual expenses.
(Similar to AHFC 18.56.030, except AHFC requires a
regional quota of board members, and permits board
members to designate a deputy. AHFC's board includes
commissioners; AGDC's board does not)
A small, highly qualified, specialized board with long
terms is expected to be flexible and responsive, and
able to see through an important project. Compensation
is commensurate with that paid to Alaska Railroad and
Permanent Fund Corporation board members; AHFC board
members are compensated at a substantially lower
level, $100.
2:59:41 PM
CO-CHAIR SADDLER asked whether there would be term limits for
reappointment; for example, a maximum of one or two terms.
MS. DELBRIDGE responded there is no language related to term
limits.
2:59:54 PM
REPRESENTATIVE P. WILSON inquired whether a designated deputy to
the board must go to the other meetings to ensure that he/she is
[up to speed] on everything.
MS. DELBRIDGE answered that many of the existing frameworks do
allow a deputy to be appointed. However, she said she does not
believe SSHB 4 allows for deputies to the board, which is often
something that is done when there are commissioners on a board
whose time is pulled in many different directions.
3:00:45 PM
CO-CHAIR FEIGE inquired whether a five-member board will be
enough people, given the wide variety of professions and
expertise that will be needed for a project as extensive in
scope as this.
MS. DELBRIDGE related there was much discussion among the
sponsors as well as consultation with people who have had
experience in this as to what size board is unwieldy versus too
small to bring the needed leadership and expertise. Five
members seemed a strong, intact board that would balance a
strong executive director of an organization and work
complementary in advancing this project efficiently and quickly.
3:02:17 PM
CO-CHAIR SADDLER asked whether the board members are required to
be Alaska residents.
MS. DELBRIDGE replied there is no requirement that they be
Alaska residents. The sponsors anticipate that some will be,
but not all, and that the governor should have some leeway in
his appointments so he is able to find people with the greatest
expertise to advance this project forward.
3:02:44 PM
REPRESENTATIVE TUCK inquired how the terms of the five board
members will be staggered.
MS. DELBRIDGE drew attention to page 5 of the bill, lines 6-9,
which state: "the terms of the initially appointed members of
the board shall be set by the governor to be two years for one
member, three years for one member, five years for one member,
and seven years for two members."
3:03:37 PM
CO-CHAIR SADDLER surmised that is a pretty standard staggering
of terms for an initial creation of a board.
MS. DELBRIDGE nodded yes.
CO-CHAIR SADDLER reminded Ms. Delbridge that he had asked about
allowing a second term so the expertise of the first person
coming on is not lost. He said he would come up with that.
3:03:57 PM
REPRESENTATIVE P. WILSON remarked it appears that this is going
to be very intense for the first several years, so these board
members may at first have to work every day of the month,
including weekends, at $400 per day. She asked how much money
that could come up to be.
MS. DELBRIDGE replied the board versus executive director
structure was built to ensure a strong executive director and
strong management within the organization so that the board
could act more as board members instead of hands-on daily
affairs managers. It is always a bit of a balancing act to
determine the appropriate boundaries for corporations that have
a board and an executive director. Because of the balance and
because of separations that have been included in SSHB 4 so that
the executive director is the one charged with running the
actual corporation, the sponsors believe that [needing daily
management by the board members] will not be a problem.
3:05:29 PM
REPRESENTATIVE P. WILSON presumed, then, that it would be like
an advisory board.
MS. DELBRIDGE responded it would not be advisory. She said she
will get back to the committee with information as to what kind
of business the board will need to be doing outside of a formal
meeting in order to claim that per diem.
3:06:03 PM
CO-CHAIR FEIGE commented Representative P. Wilson brings up a
good point. Given this is a $7 billion project, the state will
want to get the best people it can to oversee it, he said. He
questioned whether $400 per day will be enough to attract the
best people possible, as it is less than what a Twin Otter
captain would make. He added that a five-member board is a lean
board and will consist of the five different specialties that
the governor is supposed to pick from. Given the board's small
size, he suggested that the quorum to conduct business be a
minimum of all five members so there is input from all five
major project areas.
MS. DELBRIDGE replied that is an excellent suggestion. She said
the bill as currently written requires for a meeting a quorum of
three members. However, the sponsors decided that this board is
going to be making some very significant decisions that Alaskans
are really relying on, and therefore for substantive matters,
significant board matters, including bond issuances, whether to
commit to a project, whether to transfer or dispose of parts of
the project, a majority of the board is required for an
affirmative vote, so that a minority of the board is not able to
be a majority vote on an action that is of significance.
3:08:00 PM
CO-CHAIR FEIGE specified he would still like to see all five,
but said it can be addressed later.
REPRESENTATIVE JOHNSON asked whether Co-Chair Feige is talking
about all five for a quorum, not for a vote.
CO-CHAIR FEIGE answered correct, a quorum to conduct business.
3:08:25 PM
MS. DELBRIDGE again turned back to Section 3, paraphrasing from
the sectional analysis [original punctuation provided]:
Sec. 31.25.030, Meetings of board, directs the board
to annually elect officers; defines a quorum as a
majority of members; and requires meetings at least
once every three months. Electronic meetings are
allowed. For a meeting in which the board authorizes a
bond issuance, at least 24 hours public notice is
required. At least three board members are required
for major votes, including bond sales; sale or
disposition of assets; determining a pipeline
ownership structure; and participation in a pipeline
project.
(Similar to AHFC 18.56.040, with the addition of the
majority for major votes threshold)
A quorum for a meeting requires three members. To
avoid a situation in which a minority of the board is
able to carry a major, substantive vote, this section
requires a majority of members for certain votes.
Sec 31.25.035, Minutes of meetings, requires the board
to keep minutes.
(From AHFC 18.56.045)
Sec. 31.25.040, Administration of affairs, allows the
board to manage the assets and business of the
corporation; the board may adopt, amend, and repeal
bylaws and regulations; and the board will delegate
corporation administration to the executive director.
Requires the board to adopt formal procedures for
procurement processes.
(Similar to AHFC 18.56.050, with the addition of
requiring formal procedures for procurement)
AGDC is exempt from the State Procurement Code (HB 4,
Section 3, 31.25.140). To ensure fairness in
procurement, the board must adopt clear procedures.
3:09:43 PM
REPRESENTATIVE JOHNSON, returning to meetings of the AGDC board,
observed that electronic meetings are allowed. He inquired
whether that includes voting.
MS. DELBRIDGE replied the same kind of notice applies for
electronic meetings. The bill provides that the board may meet
and transact business by electronic media; thus, a board member
would not necessarily have to be present.
3:10:23 PM
MS. DELBRIDGE, resuming her review of Section 3, paraphrased
from the sectional analysis [original punctuation provided]:
Sec. 31.25.045, Executive director, requires an
executive director who is appointed by and serves at
the pleasure of the board. The director may not be a
board member.
(From AHFC 18.56.052)
Sec. 31.25.050, Legal counsel, directs the corporation
to retain legal counsel.
(AHFC 18.56.055 makes the attorney general the legal
counsel for AHFC. Under this section, AGDC will retain
independent legal counsel instead.)
Sec. 31.25.060, Employment of personnel, allows the
board to engage professional and technical
consultants, and allows the executive director to hire
corporation employees and contract with consultants.
The board sets duties and compensation for corporation
personnel.
(Similar to AHFC 18.56.060. Both the board and the
corporation have the ability to contract for services.
AHFC allows the director to engage professional and
technical advisors only with the board's approval.
AGDC does not have this requirement as the director
may have to move quickly in retaining specialized
professional services and as a high number of
contracts will be awarded for technical services.)
Sec. 31.25.065, Personnel exempt from State Personnel
Act, exempts AGDC from the State Personnel Act.
(From AHFC 18.56.070)
3:11:11 PM
REPRESENTATIVE TUCK re-emphasized he would like to know why the
state procurement code will not work for AGDC, given the
problems with independent contractors that have happened with
the Port of Anchorage. He said he believes the state's
procurement code allows for almost every opportunity AGDC will
need to have as far as procuring services and materials. There
needs to be proper oversight and strong procurement codes for a
mega-project like this, he argued. An audit of the Alaska
Energy Authority (AEA) showed what happened when the AEA did not
follow its own procurement codes and did not have best
practices. Therefore, he continued, he wants to ensure [the
state] is not going to get itself in trouble.
MS. DELBRIDGE responded "duly noted" and said she will get back
with that information.
CO-CHAIR SADDLER commented he believes the federal government
was the overseer of the aforementioned rather than a contractor.
3:13:06 PM
CO-CHAIR SADDLER asked what the Alaska Railroad, Alaska
Industrial Development and Export Authority (AIDEA), AHFC, and
other state-owned corporations do for legal counsel and the
personnel act.
MS. DELBRIDGE answered each one has its own similarities and
differences and said she will get back to the committee with a
precise comparison for the procurement code. She related that
the attorney general statutorily serves as legal counsel for
most other public corporations of the state.
3:13:54 PM
MS. DELBRIDGE, continuing her review of Section 3, paraphrased
from the sectional analysis [original punctuation provided]:
Sec. 31.25.070, Purpose, directs AGDC to advance an
instate natural gas pipeline as described in AGDC's
July 2011 project plan, with modifications as
necessary, making gas available as soon as practicable
to Fairbanks, Southcentral, and other communities
where possible; and try to ship and deliver gas at
commercially reasonable rates.
3:14:32 PM
CO-CHAIR SADDLER inquired whether there is a distinction between
"commercially reasonable rates" and "lowest cost to consumers"
as laid out in the authorizing legislation.
MS. DELBRIDGE confirmed they are two different terms, and said
consumers and Alaskans who need an in-state energy solution need
gas at the lowest possible rates. It seemed reasonable that
this pipeline would need to present commercially reasonable
terms to people who would be using the pipeline other than those
people for whom the state is trying to get gas for in the end.
3:15:07 PM
MS. DELBRIDGE, proceeding with her review of Section 3,
paraphrased from the sectional analysis [original punctuation
provided]:
Sec. 31.25.080, Powers and duties, lists 21 powers of
the corporation, including the abilities to determine
pipeline ownership and operating structures; plan,
finance, construct and operate a pipeline system;
lease, rent, acquire and manage property; exercise
eminent domain; transfer or dispose of all or part of
a pipeline system; operate as a contract carrier;
conduct hearings; sue and be sued; adopt bylaws;
borrow money; and invest funds. Prohibits development
of a pipeline that competes under the terms of the
Alaska Gasline Inducement Act (AGIA). Requires
publication of open season results.
This section includes abilities for general
corporation operation, such as the ability to make
contracts and to adopt an official seal, carried over
from AHFC statutes. This section also includes a
number of abilities specific to AGDC's purpose. Under
this section, AGDC may not develop a project that
competes under the terms of AGIA, unless a project
under AGIA has been abandoned or the licensee is no
longer receiving state inducements. If AGDC received
commitments for capacity in an open season, AGDC must
publicize the name of each shipper; the amount of
capacity allocated; and the length of time of the
commitment.
Sec. 31.25.090, Confidentiality; interagency
cooperation, allows state agencies to share
information with AGDC; requires state agencies to
cooperate with AGDC and give priority to AGDC
requests, except for requests from the AGIA
coordinator; and directs AGDC to avoid duplicating
state work on a pipeline. State entities must provide
non-hydrocarbon resources like water, sand and gravel
to AGDC at usual cost, but those costs may not be
recovered in the pipeline tariffs. DNR will grant AGDC
a right-of-way lease at no appraisal or rental cost if
certain conditions are met; the fee waiver carries
with the lease in case of a transfer, which must be
approved by the commissioner. AGDC may enter into
confidential agreements as necessary, including with
other state entities; information covered by a
confidentiality agreement is not subject to disclosure
under the Public Records Act. AGDC may also keep other
information confidential, including the results of
field studies; technical information; trade secrets;
and commercial negotiations. AGDC may waive
confidentiality of some information.
3:17:43 PM
Sec. 31.25.100, In-state natural gas pipeline fund,
establishes the instate-natural gas pipeline fund
within AGDC and directs fund use.
Sec. 31.25.110, International borrowing, provides AGDC
the authority to access international capital markets
to borrow money.
(From AHFC 18.56.084)
Sec. 31.25.120, Creation of subsidiaries; sale of
natural gas by a subsidiary, allows AGDC to create
subsidiary corporations to meet AGDC's mission,
including to acquire and ship the state's royalty gas.
Allows a subsidiary, together with the DNR
commissioner, to pledge state royalty gas to honor
delivery commitments. The DNR commissioner will decide
how much gas to pledge, and at what price.
(Similar to AHFC 18.56.086, but tailored to AGDC)
3:18:23 PM
CO-CHAIR SADDLER asked whether the authority would actually be
from the DNR commissioner. He said that seems to be a pretty
important transfer of rights to a subsidiary organization and
further asked how that would work.
MS. DELBRIDGE replied the language in SSHB 4 would "allow an
AGDC subsidiary to make commitments to ship the state's royalty
gas and then would allow DNR and the authority together to
pledge gas to meet those commitments. ... The subsidiary would
need to know that it has gas available, but then it would be
between the subsidiary and DNR to decide, in fact, that this gas
is available for shipment."
3:19:07 PM
CO-CHAIR SADDLER understood the commissioner has the authority
to decide how to dispose of state royalty gas, which would work
if it coincided with what was in the interest of AGDC. However,
he continued, it sounds like what is being said is that the
subsidiary of AGDC has the right to tell the commissioner that
he "shall" dedicate royalty gas.
MS. DELBRIDGE responded the language is that the commissioner
"may" pledge that royalty gas to honor those commitments made by
the subsidiary. There is no "shall" - it is absolutely the DNR
commissioner's authority to decide, along with the state's
royalty gas board, how the state's royalty gas is managed. The
language in SSHB 4 provides for the commissioner to treat
management of royalty gas through an AGDC subsidiary as a
disposal for other purposes, which means that there does not
need to be competitive bid or the following of those kinds of
regulations for those quantities.
3:20:06 PM
CO-CHAIR SADDLER commented one would assume that the AGDC
subsidiary would not negotiate that in isolation from the DNR
commissioner, but this would allow the DNR commissioner the
ability to say no and then the mess on the other end with the
subsidiary would have to be cleaned up.
MS. DELBRIDGE nodded affirmatively.
3:20:25 PM
MS. DELBRIDGE, resuming her review of Section 3, paraphrased
from the sectional analysis [original punctuation provided]:
Sec. 31.25.130, Administrative procedure; regulations,
exempts AGDC from the Administrative Procedure Act,
except for the Open Meetings Act portion. Provides
board direction related to bylaws, regulations, and
public notice of meetings.
(From AHFC 18.56.088, but tailored by removing parts
that relate to extending loans (for housing)
Sec. 31.25.140, Exemption from the State Procurement
Code and the Executive Budget Act; corporation
finances, exempts AGDC and its subsidiaries from the
State Procurement Code and the Executive Budget Act.
Requires an annual independent audit.
(AHFC has a partial exemption in 18.56.089. AGDC's
exemption is broader. Both require annual asset
reviews and independent audits.)
Sec. 31.25.150, Federal taxation of interest on bonds
and bond anticipation notes, provides that, if
interest on bonds or notes becomes taxable under
federal income tax laws, the legislature may pay off
the principal and interest.
(From AHFC 18.56.103. This section creates a moral,
but not legal, obligation of the state. It serves as
reassurance for lenders who count on the tax-exempt
quality of revenue bonds.)
Sec. 31.25.160, Bonds and notes, allows the
corporation to issue bonds and notes in one or more
series, limited to the corporation's own backing.
(Similar to AHFC 18.56.110. With this section, AGDC
can issue bonds to meet its corporate purpose of
financing a gas pipeline, supported by anticipated
revenue from the pipeline, as evidenced by long-term
transportation contracts. Much of AHFC's bonding
authority directly relates to housing and other
specific programs, and as such was not included. Also,
AHFC is limited to the amount of bonds issued in a
calendar year without legislative authorization. AGDC
does not have this limitation, as exact project costs
cannot be determined with certainty at this time, and
may fluctuate if delays occur in project progress.)
Sec. 31.25.170, Independent financial advisor, allows
the corporation to retain a financial advisor in
negotiating the private sale of bonds or notes to an
underwriter.
(From AHFC 18.56.115)
MS. DELBRIDGE elaborated it was explained to her that oftentimes
that underwriter has a stake in the game and would like to see
things done a certain way. When AGDC can bring in its
independent advisor, that person's stake in the game is simply
advising its client, so this provides a nice balance to ensure
that AGDC's interests are well represented.
3:22:31 PM
CO-CHAIR SADDLER requested elaboration on Sec. 31.25.160 and the
language "limited to the corporation's own backing". He asked
what a practical limit would be.
MS. DELBRIDGE AGDC answered the language means that AGDC cannot
promise the state's faith and credit, that AGDC and AGDC alone
is responsible for those funds.
3:22:55 PM
MS. DELBRIDGE, returning to her review of Section 3, paraphrased
from the sectional analysis [original punctuation provided]:
Sec. 31.25.180, Validity of pledge, declares as valid
and binding any pledge of assets or revenue of the
corporation to payment or interest.
(From AHFC 18.56.120. This is a standard statement
that lenders need to see. It assures lenders that AGDC
has the statutory authority to pledge revenue; in
turn, that protects AGDC contracts under the U.S.
Constitution contracts clause so that future state
legislative action cannot violate protected
contracts.)
Sec. 31.25.190, Capital reserve funds, allows AGDC to
establish capital reserve funds to secure its
obligations, and directs fund management. Requires
annual reports to the governor and legislature.
(From AHFC 18.56.125 with structural modifications per
legal counsel. This section includes a moral, but not
legal, obligation of the state to replenish, if
necessary, a reserve fund created to cover interest
payments due on bonds.)
Sec. 31.25.200, Remedies, permits enforcement of
rights by those holding AGDC obligations.
(From AHFC 18.56.130 with structural changes by legal
counsel. Lenders need to see this standard statement.)
3:24:08 PM
REPRESENTATIVE P. WILSON, regarding Sec. 31.25.190, inquired
whether a "moral" versus "legal" obligation means "legally you
don't have to do it, but you better."
MS. DELBRIDGE replied that SSHB 4 does not bind the state, or a
future legislature of the state, to appropriating money to do
something; therefore it is not a legal obligation. It is a
moral obligation in the sense the provision says the state may
do this in the future, which is creating that moral obligation
that it is [the legislature's] intent now that in the future
that does occur.
REPRESENTATIVE P. WILSON concluded her statement was therefore
correct.
MS. DELBRIDGE nodded yes.
3:25:10 PM
CO-CHAIR SADDLER held over HB 4.
3:25:35 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:26 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB04 Hearing Request.pdf |
HRES 2/4/2013 1:00:00 PM |
HB 4 |
| HB04 Sectional Analysis.pdf |
HRES 2/4/2013 1:00:00 PM |
HB 4 |
| HB04 Sponsor Statement.pdf |
HRES 2/4/2013 1:00:00 PM |
HB 4 |
| HB04 Version O.pdf |
HRES 2/4/2013 1:00:00 PM |
HB 4 |
| HB04 AGC Letter.pdf |
HRES 2/4/2013 1:00:00 PM |
HB 4 |
| HB04 Alliance Resolution.pdf |
HRES 2/4/2013 1:00:00 PM |
HB 4 |
| HB04 City of Kenai Resolution.pdf |
HRES 2/4/2013 1:00:00 PM |
HB 4 |
| HB04 PowerPoint.pdf |
HRES 2/4/2013 1:00:00 PM |
HB 4 |
| HB04 RDC Letter.pdf |
HRES 2/4/2013 1:00:00 PM |
HB 4 |
| HB04 Fiscal Note AGDC.pdf |
HRES 2/4/2013 1:00:00 PM |
HB 4 |