Legislature(2015 - 2016)BARNES 124
03/23/2015 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing(s): Alaska Gasline Development Corporation Board of Directors | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 23, 2015
1:05 p.m.
MEMBERS PRESENT
Representative David Talerico, Co-Chair
Representative Mike Hawker, Vice Chair
Representative Bob Herron
Representative Craig Johnson
Representative Kurt Olson
Representative Paul Seaton
Representative Andy Josephson
Representative Geran Tarr
MEMBERS ABSENT
Representative Benjamin Nageak, Co-Chair
OTHER LEGISLATORS PRESENT
REPRESENTATIVE MIKE CHENAULT
SENATOR CLICK BISHOP
COMMITTEE CALENDAR
CONFIRMATION HEARING(S):
Alaska Gasline Development Corporation Board Of Directors
Joe Paskvan - Fairbanks
- HEARD
Rick Halford - Eagle River
- HEARD
Hugh Short - Bethel
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOE PASKVAN, Appointee
Board of Directors
Alaska Gasline Development Corporation (AGDC)
Fairbanks, Alaska
POSITION STATEMENT: Testified as appointee to the Alaska
Gasline Development Corporation Board of Directors.
RICK HALFORD, Appointee
Board of Directors
Alaska Gasline Development Corporation (AGDC)
Eagle River, Alaska
POSITION STATEMENT: Testified as appointee to the Alaska
Gasline Development Corporation (AGDC) Board of Directors.
HUGH SHORT, Appointee
Board of Directors
Alaska Gasline Development Corporation (AGDC)
Bethel, Alaska
POSITION STATEMENT: Testified as appointee to the Alaska
Gasline Development Corporation (AGDC) Board of Directors.
ACTION NARRATIVE
1:05:25 PM
CO-CHAIR DAVID TALERICO called the House Resources Standing
Committee meeting to order at 1:05 p.m. Representatives Seaton,
Josephson, Tarr, Hawker, Olson, and Talerico were present at the
call to order. Representatives Herron and Johnson arrived as
the meeting was in progress. Representative Chenault and
Senator Bishop were also in attendance.
^CONFIRMATION HEARING(S): ALASKA GASLINE DEVELOPMENT CORPORATION
BOARD OF DIRECTORS
CONFIRMATION HEARING(S):
Alaska Gasline Development Corporation Board of Directors
1:06:40 PM
CO-CHAIR TALERICO announced that the only order of business is
the confirmation hearing for the Alaska Gasline Development
Corporation Board of Directors. He requested the first
appointee, Mr. Joe Paskvan, to present his testimony.
1:07:06 PM
JOE PASKVAN, Appointee, Board of Directors, Alaska Gasline
Development Corporation (AGDC), testified as appointee to the
Alaska Gasline Development Corporation (AGDC) Board of
Directors. He said he was born in the territory of Alaska and
was seven years old at statehood. A gasline in Alaska has been
talked about since before he was born, he noted. It is an issue
that is very close to heart of everyone in Alaska, certainly in
Interior Alaska where Alaskans are being crushed by the high
cost of heating oil for homes and businesses. He said he has
been in private law practice since 1981 and was an elected
official for a number of years. Having been active in his
community as a hockey coach, church committee member, and
Sunrisers Rotary Club, he would like the opportunity to serve as
a public member of the AGDC Board of Directors. With his
legislative experience he will be able to help the board work
with the legislative process to advance the goal of House Bill 4
[28th Alaska State Legislature], which is to provide the lowest
[gas] rates to Alaskans.
1:10:14 PM
MR. PASKVAN stated his belief that the Alaska Stand Alone
Pipeline Project (ASAP) is not in competition, nor should it be
in competition, with the Alaska LNG Project (AK LNG). He said
he found out about [Resolution No. 2015-01] at the [3/12/15 AGDC
Board of Directors] meeting regarding the question of American
National Standards Institute (ANSI) standard 900 pipe as
compared to ANSI standard 600 pipe. In regard to the resolution
he listened to Mr. Dave Cruz of the board's Technical Committee
and Mr. Frank Richards [AGDC staff member] and advisor to the
board for the ASAP Project. He related that Mr. Richards
indicated AGDC had assembled a technical team capable of putting
together an industry standard class 3 cost estimate for an ANSI
600 pipe, and that this technical [team] had arctic engineering
skills in addition to general skills, and that if the team was
disbanded it would be difficult to come back at a later date and
put together a skilled team to try to get an ANSI 900 class 3
industry standard cost estimate. Mr. Paskvan said it will take
two to three weeks for the additional cost estimates, then the
team would be disbanded because its work is done. An ANSI 900
standard has the potential for greater compression, 2220 pounds
per square inch (PSI) pipe pressure as compared to 1480, so the
gas treatment facility and additional compression stations also
need to be addressed. It is not to develop a competing project,
he reiterated, it was never advanced as a competing project. It
was purely that AGDC has a technical team with arctic skills
that has put forward an industry standard cost estimate for the
ANSI 600 pipe and whether that should also be done for the ANSI
900 pipe, and the determination was that it was appropriate
given AGDC had skilled who could very timely put together an
industry standard class 3 cost estimate.
1:13:55 PM
MR. PASKVAN said it appears he will be on the Commercial
Committee and possibly the Technical Committee. His skills as
an attorney would apply to the Commercial Committee in regard to
contracts and retaining experts, since as an attorney he is
experienced in retaining experts to advise him for ensuring he
is able to get to the heart of a matter as efficiently as
possible. The goal is that AK LNG proceed forward, whether it
is a 42 inch or a 48 inch line. Only if the producers determine
at the stage gate that they do not want to move forward with AK
LNG is it a question as to what is the alternative that Alaska
might pursue. In respect to the resolution, he further pointed
out that the line was a 36 inch line before the resolution and
is a 36 inch line after the resolution; as well, it was a lean
gas product in the pipeline before the resolution and is a lean
gas product in the pipeline after the resolution. He reiterated
that the ASAP line will only be relevant should AK LNG not
proceed through the stage gate.
1:16:15 PM
REPRESENTATIVE JOSEPHSON recalled that Mr. Paskvan was co-chair
of the Senate Resources Standing Committee during some key
moments in the history of all of this. He noted that Title 31
states the governor should consider [a potential board member's]
expertise in natural gas pipeline construction, operation, and
marketing, as well as finance, large project management, and so
forth. He requested Mr. Paskvan to describe his background and
knowledge in the context of where things are at now relative to
Mr. Paskvan's role on the Senate Resources Standing Committee.
MF. PASKVAN replied that facts count for him because he knows
that to present a legal case he must have the facts. As co-
chair of the Senate Resources Standing Committee, he and his
staff worked hard to understand the facts. The committee joined
the American Society of Petroleum Engineers in order to have
access to the society's documents. The committee wanted to
learn by going back into the society's history regarding what
issues exist within the industry and what the society was
identifying as the science of petroleum. He takes facts very
seriously, he said, and tries to advance that within the policy
structure.
REPRESENTATIVE JOSEPHSON requested Mr. Paskvan to describe his
background in regard to the debates during passage of the Alaska
Gasline Inducement Act (AGIA) and Alaska's Clear and Equitable
Share (ACES) and how they may or may not have guided Mr. Paskvan
at this point.
MR. PASKVAN responded he was in the legislature for the ACES
debates, but not the AGIA debates. He inquired whether
Representative Josephson is focusing on the issues of internal
rates of return and reserves.
REPRESENTATIVE JOSEPHSON said yes.
MR. PASKVAN answered the question is so broad that it can be a
day-long discussion.
1:19:06 PM
REPRESENTATIVE HAWKER asked whether Mr. Paskvan applied, or was
approached, to be on the AGDC Board of Directors.
MR. PASKVAN replied he isn't sure exactly how that occurred
other than he had indicated to people, one being Mr. Whitaker
[Governor Walker's chief of staff], that he was not interested
in something full-time, but rather something part-time in the
oil and gas industry that would utilize his years as co-chair of
the Senate Resources Standing Committee.
REPRESENTATIVE HAWKER concluded that Mr. Paskvan was more or
less recruited for some state job and that Mr. Paskvan had said
he wanted a part-time, not full-time, job and this is the one
that was found for him.
MR. PASKVAN responded that no one approached him with a full-
time job. The question was whether he might be interested in
doing something, and like many Alaskans his response was that if
the governor believes he can help, then he wants to help because
that is his duty as an Alaskan. So he had said he would help
but didn't want to do something full-time year around, in part
because he wants to spend time with his family, has been a
lawyer for 35 years, and is at a stage in his life where he
wants to work very hard on AGDC because he thinks AGDC can
deliver the lowest rates to Alaskans and he can participate in
that and honor Alaska.
REPRESENTATIVE HAWKER, regarding Mr. Paskvan's interest in a
less demanding, part-time position, stated that the AGDC Board
of Directors has been very active and very involved, so it has
been a full-time job. He requested Mr. Paskvan to explain how
he will approach being a director given how the directors have
been working in the past.
MR. PASKVAN acknowledged it is sometimes multiple days per week
and certainly multiple days per month, but not something that is
8:00 to 5:00 Monday through Friday. For example, on April 8 the
board has both a commercial meeting and a technical meeting
followed by a full board meeting on April 9. Prior to those
meetings he will prepare and will then be at the meetings for
those two days. He can be back in Fairbanks with his wife after
the full board meeting is done and therefore it is not like he
must move to Anchorage to be part of the board.
1:24:02 PM
REPRESENTATIVE OLSON asked whether Mr. Paskvan has ever
represented the Alaska Gasline Port Authority (AGPA) or been on
AGPA's board.
MR. PASKVAN answered no.
1:24:40 PM
REPRESENTATIVE SEATON offered his appreciation to Mr. Paskvan
for talking about [Resolution No. 2015-01]. He recalled Mr.
Paskvan's statement that the [3/12/15] board meeting was the
first time Mr. Paskvan had heard of the resolution.
Representative Seaton understood the decision was unanimous by
both continuing and new board members.
MR. PASKVAN replied yes, it was at the recommendation of Mr.
Richards who was advising the board, his own personal questions,
and the statements of Chair Burns and Mr. Cruz of the Technical
Committee.
REPRESENTATIVE SEATON inquired whether the governor asked Mr.
Paskvan to take a vote one way or another on this resolution.
MR. PASKVAN responded the governor had not personally contacted
him. He was told by Mr. Whitaker. The governor did not call
and say he had to do this in order to be on the board, there was
no contact whatsoever.
REPRESENTATIVE SEATON inquired whether the chief of staff had
asked Mr. Paskvan to take a certain vote on this resolution.
MR. PASKVAN answered no, [Mr. Whitaker] did not contact him at
all; [Mr. Whitaker] just told him that he was on the board.
Once on the board, he said, his lines of communication went
through Chair John Burns as far as coordinating all of the
issues. Neither Mr. Whitaker nor the governor contacted him
before the meeting, he reiterated.
REPRESENTATIVE SEATON understood the purpose of the resolution
was to determine whether, with higher compression and higher
thickness of pipe walls, the volume would be large enough to
make the 36-inch pipe an economical project.
MR. PASKVAN replied the short answer is yes. The longer answer
is the expectation that some additional cost for quantity of
scale would lower the ultimate rates for the consumer. Projects
with greater scale always deliver lower rates to the consumer.
Getting that class 3 industry standard cost estimate would move
[AGDC] further along the road towards determining that. Only if
the AK LNG falters would ASAP need to step forward, and if that
is the case, he wants to ensure creating an economic project, if
not a more economic project, to deliver the lowest rates to
Alaskans.
1:28:28 PM
REPRESENTATIVE HAWKER recalled that at the committee's [3/13/15]
meeting, members had requested a transcript of AGDC's [3/12/15]
Board of Directors meeting so that committee members could
understand exactly what was said and exactly who responded to
what. He said he listened in on that AGDC board meeting, and
today he is hearing a couple of things that do not quite comport
with his understanding of exactly how things were characterized.
He asked whether the committee has received the AGDC transcript.
CO-CHAIR TALERICO confirmed the transcript had been requested,
but said the transcript has not yet been received.
REPRESENTATIVE OLSON recalled the committee being told the
transcript would be received by [3/20/15].
CO-CHAIR TALERICO answered he is unsure but recalls that date as
well. He assumed the committee will have the transcript very
soon, at which time it will be distributed to all committee
members.
REPRESENTATIVE HAWKER asked what Mr. Paskvan thinks of the
statutory requirements placed by the legislature on the
considerations that the governor shall take into account when
making appointments to the AGDC Board of Directors. He asked
Mr. Paskvan to address exactly how he qualifies under each one
of those criteria.
MR. PASKVAN allowed he has not been involved in the oil or gas
patch and does not bring that skill set to the table. As a
public board member, he said, he brings to the table the Alaskan
viewpoint as far as someone from pre-statehood days to this day
and as a former legislator to try to ensure that the Alaskan
consumer benefits as much as possible. He cited AS 31.25.020
[which states the board shall have five public members] and that
[the governor shall consider an individual's expertise and
experience in natural gas pipeline construction, operation, and
marketing; finance; large project management; and other
expertise and experience that is relevant to the purpose,
powers, and duties of the corporation.] Mr. Paskvan said he has
strong marketing skills, but not necessarily within the natural
gas pipeline arena. Regarding large project management, he said
that is not a management issue and, as he indicated earlier, in
his role as an attorney he has been involved in litigation that
dealt with state contracts on behalf of public corporations, as
well he has dealt with private construction disputes over large
construction projects. He said he is generally familiar with
the construction industry and public finance construction
issues, but not within the oil and gas industry.
REPRESENTATIVE HAWKER said the key criteria [in AS 31.25.020]
are experience in natural gas pipeline construction, operation,
marketing; experience in finance; and experience in large
project management. He then opined that [Mr. Paskvan's]
qualifications are that he is an Alaskan who cares.
1:33:10 PM
REPRESENTATIVE TARR noted that the statutory language says the
governor "shall" consider an individual's expertise, it doesn't
disqualify an individual as a public member for not perfectly
fitting. When comparing Mr. Paskvan's experience to former AGDC
board members, she said she thinks there are some similarities
to that legislative background and legal background that could
be beneficial. Each of the three new appointees has an area of
expertise that could provide benefit in moving forward. She
requested Mr. Paskvan to talk about his role as a board member
and the relationship he would have with the AGDC staff, who
would be the more technical experts, for assistance to the
Technical Committee. She offered her understanding that AGDC
board members are not the people actually completing some of
those work projects, and that board members rely on strong
relationship with the AGDC staff and outside contractors to
ensure that enough information as is necessary is had.
MR. PASKVAN replied that when the resolution came up with this
issue of an ANSI standard for a pipe, he addressed his questions
to fellow board member Mr. Cruz, who has a considerable wealth
of knowledge in the oil and gas industry. Mr. Cruz discussed
this issue and explained what the purpose of the pipe was. Mr.
Paskvan said that when it then came to the policy issue of why
this should be done, he asked Mr. Frank Richards, who was
advising the entire board, why [AGDC] would want to pay for that
class 3 industry standard cost estimate. Mr. Paskvan maintained
that he can provide benefit to the AGDC board while others on
the board, Mr. Cruz for example, have greater skills in the
actual oil and gas industry.
1:35:56 PM
REPRESENTATIVE JOSEPHSON asked whether Mr. Paskvan did any work
as co-chair of the Senate Resources Standing Committee on
predecessor bills to House Bill 4 that did not advance.
MR. PASKVAN responded the short answer is that he was co-chair
of the Senate Resources Standing Committee at the time some of
those bills came through. He stated his belief that the AGDC
board should be, and is, nonpolitical. He continued: "We are
here to advance the AK LNG Project and to have a fallback that
can be as economic as possible. That's where we're at right
now. And I think that that's why I'm here."
REPRESENTATIVE JOSEPHSON, relative to the fallback, inquired
whether Mr. Paskvan perceives a consideration of the ANSI 900 as
a modification of Alternative 1, which is House Bill 4, the ASAP
line, or sees it as a whole new project.
MR. PASKVAN answered that first of all it is not a project. It
is simply a cost estimate within the parameters of the 36 inch,
lean gas pipeline that existed before the resolution. It didn't
go from a 36 inch line to a 42 inch or 48 inch line. It didn't
go from a pipe ANSI standard that exceeds, for example, AK LNG's
pipe wall thickness standard. What happened during that
resolution is, in his understanding, within the intent of House
Bill 4 to advance an ASAP project. It is just to get cost
estimates while AGDC has a skilled team with arctic engineering
skills. This team will soon be disbanded and once disbanded it
would be very costly to get that cost estimate and would
potentially cause a great delay in time as well.
1:39:13 PM
REPRESENTATIVE HAWKER, in regard to relying on staff and relying
on others, asked whether it is correct that Mr. Paskvan voted in
favor of the resolution as it was proposed to figure out the
cost of upgrading/enlarging these two new pipe sizes and pipe
configurations.
MR. PASKVAN replied he was one of the board members who
unanimously voted to look at the ANSI 600 and ANSI 900, and with
the ANSI 900 the additional gas treatment issues and compression
issues as far as a cost structure.
REPRESENTATIVE HAWKER inquired what Mr. Paskvan's foundation was
for knowing and being comfortable in making this decision which
involves spending state money. A certain amount of money was
set aside to move forward with a gas pipeline project, he said,
and given the state doesn't have a lot of money right now he
doesn't want to see that money squandered or wasted in any way.
He asked what information Mr. Paskvan had in order to know that
those particular two pipe configurations were the right ones to
look at, and that once more information was known there wouldn't
be yet more configurations to look at. Representative Hawker
said he doesn't believe it was ever discussed on the record at
that [board] meeting and suggested that maybe board members knew
something that wasn't on the record.
MR. PASKVAN responded that ANSI 600 and ANSI 900 were presented,
and that he thinks an ANSI 1500 was also presented but the board
was not interested in addressing an ANSI 1500 wall thickness.
It was solely to increase it to the ANSI 900, he said, and that
was based upon the discussions from Mr. Cruz and the
recommendations and statements of Mr. Richards.
1:41:35 PM
REPRESENTATIVE HAWKER said he is hearing that "the why" for Mr.
Paskvan's [decision on the resolution] is that it was at the
recommendation of Mr. Richards and on the testimony of Mr. Cruz.
Representative Hawker said he has listened to that part of the
[board meeting] and he does not believe he heard Mr. Richards
recommending anything, only that Mr. Richards evaluated options
in response to questions. He said his concern is how Mr.
Paskvan knew it was the right decision to make.
MR. PASKVAN offered his understanding that Mr. Richards, as the
ASAP advisor to the board, separate from Mr. Fritz Krusen who is
the AK LNG advisor to the board, was saying a skilled [team] was
together, that the class 600 study was either done or very near
complete, and that this additional study could be completed
probably within the terms of when this [team] would be disbanded
anyway, and if not, it was just a smidgen longer. Mr. Paskvan
said his takeaway was that Mr. Richards believed the board's
action to be a good thing. He said he wishes he and everyone
else had a copy of the transcript because he believes that Mr.
Richards was giving the benefits of why the board should advance
the resolution.
1:43:50 PM
REPRESENTATIVE HAWKER related that at the end of the discussion
on pipe sizing he heard Mr. [Joe] Dubler [AGDC Vice President,
Commercial Operations] providing information for [the board] to
utilize in its decision making. He maintained that Mr. Dubler
and Mr. Richards were providing information, not telling the
board what to do. Representative Hawker offered his belief that
[the board] was informed that staff had professional concerns
that the action [the board] was taking might violate a
contractual relationship that AGDC has in another matter. He
asked whether Mr. Paskvan took that counsel into consideration,
and if so, how Mr. Paskvan determined not to follow the advice
of staff and to pass the resolution without knowing for sure
whether a contractual agreement was being violated.
MR. PASKVAN replied that he believed [the board] was not and
that [the board] was advised that it was not. In further
response, Mr. Paskvan said he does not believe that [the board]
violated any contractual relationship and he does not believe
that anyone told [the board] that it was [violating a
contractual relationship].
REPRESENTATIVE HAWKER requested the committee specifically get a
transcript for exactly how the board was counseled and how the
board members reacted to it. Given the sanctity of contract, he
said, this is an issue of a lot of concern.
1:46:01 PM
REPRESENTATIVE HAWKER recalled Mr. Paskvan stating that he is
going to be on the Technical Committee. Representative Hawker
understood that Chair Burns has been on the record stating that
to be on the Technical Committee requires the individuals on
that committee to have executed the accepted confidentiality
agreements. He asked whether Mr. Paskvan is willing to execute
those agreements.
MR. PASKVAN responded that he has indicated he is willing to
sign an appropriate confidentiality agreement, he agrees with
that, and his understanding is that such a confidentiality
agreement is being evaluated. As an attorney he understands the
absolute critical necessity in the appropriate circumstance to
maintain absolute confidentiality and probably appreciates the
confidentiality issue more than most because of the ethics to
his profession of confidentiality.
REPRESENTATIVE HAWKER asked whether Mr. Paskvan is indicating
that the current confidentiality agreements are not appropriate.
He further asked whether the current confidentiality agreements
that were negotiated with the Department of Law, AGDC's counsel,
and the other contracting parties, are adequate for Mr. Paskvan
to sign.
MR. PASKVAN answered that none have been presented to him, his
understanding is that "they're working on it," and he does not
have a problem in signing that. To the extent that he is being
asked to comment upon something he has not seen....
REPRESENTATIVE HAWKER interjected and allowed that his question
is therefore inappropriate. He withdrew the question.
MR. PASKVAN added that he absolutely agrees with and will sign
the confidentiality agreement.
1:48:18 PM
REPRESENTATIVE TARR opined that the new board members provide
more geographic diversity to the membership than previously
because it now extends up to Interior Alaska. She asked whether
Mr. Paskvan would like to comment about his role from the
Interior perspective, given the energy crisis in that area.
MR. PASKVAN replied that his region of Alaska is economically
hurting right now, primarily for two reasons. First is the high
cost of energy. The potential for a large diameter line, 42
inches or 48 inches, will give Interior Alaska the best solution
to its number one economic problem. Second is the uncertainty
of U.S. military presence in Interior Alaska due to the
possibility of government cutbacks to the military.
1:50:07 PM
CO-CHAIR TALERICO requested Mr. Paskvan to describe what he
thinks is the right course forward.
MR. PASKVAN responded that job number one is AK LNG; the state's
role through AGDC is to promote AK LNG, whether AK LNG moves
forward with a 42 inch line or a 48 inch line. The bigger the
line the better due to the potential for reduced unit cost by
bigger volume. If AK LNG falters, then Alaskans deserve to have
the best shot at an economically viable alternative if one
exists.
1:51:25 PM
CO-CHAIR TALERICO opened public comment on Mr. Paskvan's
confirmation. After determining that no one wished to testify,
Co-Chair Talerico closed public comment.
CO-CHAIR TALERICO requested the second AGDC board appointee, Mr.
Rick Halford, to present his testimony.
1:52:12 PM
RICK HALFORD, Appointee, Board of Directors, Alaska Gasline
Development Corporation (AGDC), testified as appointee to the
Alaska Gasline Development Corporation (AGDC) Board of
Directors. He began by noting that while he is a 1968 graduate
of Alaska Methodist University, his real education started in
this room when he was on the House Resources Standing Committee
and the first issue was the consideration of an interim tariff
for the Trans-Alaska Pipeline System (TAPS). Committee members
must make decisions. The education that committee members
receive is one of the greatest benefits and one reason why he
stayed in the legislature for 24 years. Industry will try to
educate members from their point of view. He had incredible
opportunities to learn as either a resources committee member or
a resources chair for the majority of his 24 years, as well as
the opportunity to serve multiple times as a majority leader in
both the House and the Senate and go through many of these
projects. Some of the most interesting were the opportunity to
read both BP and Atlantic Richfield Company's (ARCO) books and
business plans in the BP/ARCO merger. It was an experience in
signing a confidentiality agreement and taking a position and
having to live up to that confidentiality agreement even though
he would have very much liked to explain all the information
that he saw. It was a window into those two industries that is
very important. They are our partners - not our friends, not
our enemies - [the state] needs to defend itself and give them
the opportunity to defend themselves in any of these things. He
offered his belief that conflict between the small line and the
large line is probably the most dangerous thing due to negative
power. But, positive power is had when everyone works together.
It's going to be very, very difficult to advance a gasline in
this climate in this world at this time and everyone must be
working together. He said he gets discouraged when he sees the
differences rising to the point of difficulty in terms of it
advancing a project. Obviously, the "majors" project is the
project that has the greatest chance, maybe the only chance, but
having some fallback is important. He continued: "All I felt
we were doing when that resolution was put before us, and it was
put before us without any warning to me either, was looking at a
different grade of pipe so that at some other time you could
look at compressor stations, you could look at gas conditioning,
you could look at gas liquefaction. The pipe is the cheapest
part of the whole project, whether it is big or small. The
other two components overwhelm the cost of the pipe. But if you
had a higher pipe standard you might be able to, at a later
date, choose to up the capacity to make something more economic.
But it is always understood that the major pipeline, the big
pipeline, from the producers who have the economic horsepower to
carry it forward, is the first option. It's only as an
alternative that any of the rest of the stuff was considered."
He added that he very much believes that a pipeline is possible,
but he also believes it is going to be very difficult.
1:57:14 PM
REPRESENTATIVE HAWKER offered his appreciation for the political
experience of Mr. Halford. He said it is fair to say that Mr.
Halford is not a pipeline person as per those other statutory
requirements, but the extensive experience that Mr. Halford
brings certainly carries some weight. Probably one of the
greatest things crafted into the concept behind AGDC and now the
AK LNG Project, he opined, was to eliminate politics from the
process. Representative Hawker asked whether Mr. Halford, given
his political experience, will be able to divorce politics from
his decision making and truly make decisions as a professional
with experience and knowledge in gas pipeline construction,
operation, marketing, finance, and major project management.
MR. HALFORD replied that everyone lives in a world of politics,
whether it is the politics of our own family or own business,
and he doesn't know how that can be totally separated. This
project is going to be driven by economics. In a contest
between economics and politics, economics eventually wins. He
said he believes his advantage is the experience that he gained
in chairing the merger committee and being a member of a gasline
committee in approximately 1999, where he listened to a lot of
people who were trying to teach from their perspective what the
details of their business was. He does not think politics can
ever overwhelm logic or economics, he opined, and he doesn't
want to see politics do that. Unless it is economic, a project
is never going to happen. "We have a lot of opportunity to stop
us from getting a gasline in this cycle, and very, very careful
opportunities to get a gasline if possible," he added.
2:00:12 PM
REPRESENTATIVE HAWKER requested Mr. Halford to talk specifically
to his experience with gaslines and gasline companies.
MR. HALFORD responded that he was involved in the Alaska Gasline
Port Authority (AGPA) in dealing with Sempra Energy and looking
at some of the things that Sempra was interested in. But, he
doesn't pretend to be an expert on gasline companies - he has
met with them and listened to them and to all of the companies
of today and some of the past. He said he doesn't believe a
public member will be found who is a gasline specialist, nor
were the previous public members gasline specialists. But, he
continued, he does believe that the experience in dealing with
those interests for that many years - in their internal
documents in the merger, in their external proposals over the
years on tax issues, development issues, investment credit
issues, construction issues, and all the other pieces - is a
part of the education that board members get.
REPRESENTATIVE HAWKER, expressing concern, inquired about Mr.
Halford's relationship with the Alaska Gasline Port Authority.
MR. HALFORD answered that about a decade ago he was a consultant
to the Alaska Gasline Port Authority for a year or so.
REPRESENTATIVE HAWKER asked how much Mr. Halford was paid.
MR. HALFORD replied he cannot remember the amount, but it was
much more than he initially thought reasonable until he realized
that he saved AGPA money when he advised not to do some things.
REPRESENTATIVE HAWKER noted that according to a research story
by the "Journal of Commerce," Mr. Halford was paid $100,000 in
2005 for lobbying work. Representative Hawker asked whether
that is an accurate statement.
MR. HALFORD responded he thinks that is accurate and he thinks
they paid him more than that to continue, but he does not
remember what the provisions were.
REPRESENTATIVE HAWKER said he and several other of the
committee's members were in that 2005 session. He said AGPA has
continued to be extremely critical of the AK LNG process and the
AGDC development. He inquired whether Mr. Halford, having
worked for AGPA, still agrees with its position of opposing what
the legislature has accomplished in the recent years.
MR. HALFORD answered that that was a decade ago and he doesn't
know what AGPA's current position is. When he worked for AGPA
on the Sempra proposal he thought it had some merit at the time.
He added that his interest is in supporting anything that has
the economics to go forward.
2:03:48 PM
REPRESENTATIVE TARR recalled her geographic diversity question
to the previous appointee and noted that Mr. Halford spends part
of his time in Western Alaska. She asked how it might help the
AGDC Board of Directors to have some of these perspectives from
around the state in terms of thinking about projects and
opportunities for in-state gas.
MR. HALFORD replied the sad part is that the system will work
for the Railbelt and Fairbanks, but that it is going to be very,
very difficult to get the benefits out to rural Alaska. But, he
said, if it successfully generates income to the state, that
income and those services provided with that income can help
rural areas. For example, power cost assistance works, it makes
things a little bit more equal. However, the fact is that a
gallon of milk or a gallon of aviation gas in Dillingham costs
about $8 today and that's a huge difference in the economics of
the world. It costs a fortune to do anything in those places so
a person has to make a lot more to be able to make it economic.
Economic development and the survival of rural Alaska is a very
important part of any consideration or issues being looked at by
the committee and a gasline is just one of them.
2:05:23 PM
REPRESENTATIVE HERRON inquired what Mr. Halford's reaction was
when asked by the governor to be a member of the AGDC board.
MR. HALFORD responded that the governor asked without much
discussion, he answered "sure" and didn't spend a lot of time
thinking about it. He expected to have more interaction on the
topic, but instead a lot of other things went on. He was just
getting ready to resign from the Compensation Commission, a
commission that has an exclusion on any other activity, so he
went ahead and resigned. He didn't hear anything from the
governor's office or the boards and commission for four to six
weeks, and then they made the appointment. They didn't do a lot
in terms of endorsing a position or trying to explain to him.
He met with the staff at the Alaska Gasline Port Authority and
with DNR to get some ideas about the background and where things
were at this point. However, he got almost no reaction or
interaction or callback from the governor's office on the issue.
It doesn't mean the governor's office wasn't concerned, but
that's the way it worked.
REPRESENTATIVE HERRON related that some people had quite some
consternation regarding the governor's remarks about competing
pipelines. He inquired whether Mr. Halford thinks the AGDC
board should be in the business of attempting to market gas.
MR. HALFORD answered he doesn't know. He said he thinks the
governor's vision seems to be a market driven pipeline and the
governor wants to see if there is some interest from that
direction. His understanding is that that is not a common
model, but it may not be impossible. He said he has a lot of
faith in the governor's energy and desire to do something.
Although it is unfortunate that the leaders of the state are
cast in a position of disagreement on an area that is very, very
important to have agreement to go forward, he hopes [AGDC] can
explore at least some of the market questions to see if there is
potential. In Japan and Korea there is potential for premium
values for gas. He is just working his way up the process to
gather information at this point. He said he thinks it very,
very important that the legislative branch and the executive
branch are together. The way the separation of powers works,
the legislature is the appropriating arm and has the resources
to do something, but the governor is in charge of the personnel
that do it. Without agreement, he said, failure is guaranteed.
2:09:11 PM
REPRESENTATIVE SEATON asked whether Mr. Halford's recollection
of the [3/12/15 board] meeting in which the resolution came
forward to study the ANSI 900 and the higher compression is that
a team was in place to do that rapidly whereas once the team was
dissolved it would be costly to do that in the future.
MR. HALFORD replied that that is the way it was presented. He
said he tried to separate the issues to be just the size of the
pipe because he thought that was the most containing issue. A
lower strength pipe can never be upgraded. But the pipe was the
smallest component. It costs a huge amount of money to "up
engineer" the gas conditioning and the liquefaction. He said he
was interested in limiting the question to just the grade of
pipe because he thought that was easier and less expensive. As
it was, that motion passed that way, but a further motion went
back and said to look at the costs of gas conditioning and
liquefaction. So, it ended up being the same even though he had
made an effort to simplify it. When looking at a backup plan,
the most flexibility is probably the wisest thing to have.
That's why he thought the board was going to look at just pipe
size, but then ended up looking at the whole thing. He said he
shares Representative Hawker's concern about conserving money
and the massive expenditures for studies that never end up with
result. However, the process is such that a number of good
projects must be studied in order to get one good project going,
so things are studied for hundreds of millions of dollars that
are in conflict with each other. He said he hopes that what is
received for not a lot of money is some simple understandable
numbers and that it maximizes the benefit of a potential that's
only a potential backup plan. He stated it doesn't threaten the
producers, shares information with the producers, lives up to
the confidentiality requirements, and doesn't endanger something
that is already a very delicate balance.
2:12:14 PM
REPRESENTATIVE HAWKER said he thinks the record will show that
Mr. Halford was a registered lobbyist back in the Alaska Gasline
Port Authority (AGPA) days.
MR. HALFORD responded that he did register at least one year,
but maybe not the second year when he may not have had that much
interaction.
REPRESENTATIVE OLSON recalled Mr. Halford visiting his office in
2004 and making no bones about identifying himself as a
lobbyist.
MR. HALFORD concurred, saying he went through the registration
process.
REPRESENTATIVE OLSON further recalled that it was when the North
Slope Borough was trying to pull out and Mr. Halford came by to
visit him.
MR. HALFORD said he doesn't remember the details, but remembers
he was obviously a lobbyist.
REPRESENTATIVE HAWKER, regarding the state conducting a
marketing activity, inquired whether Mr. Halford is familiar
with the name of Audie Setters.
MR. HALFORD replied he doesn't think so, although the name is
familiar.
REPRESENTATIVE HAWKER urged Mr. Halford to become familiar with
Mr. Setters because Mr. Setters has a significant contract with
the Department of Natural Resources (DNR) dedicated to pursuing
markets for Alaska's natural gas that might be generated from
any pipeline project. Representative Hawker inquired whether
Mr. Halford thinks it would be better for the state to have DNR
be the one looking at marketing Alaska's resources or something
that should be transferred to AK LNG itself.
MR. HALFORD responded he does not know the answer and would need
to listen to a lot more data.
REPRESENTATIVE HAWKER offered his respect for Mr. Halford's
answer. He said the state does, and has had, a very significant
ongoing marketing activity that Mr. Halford, as a member of the
AGDC board, should make a point to be aware of.
MR. HALFORD answered he thinks he may have heard from DNR Deputy
Commissioner Marty Rutherford that the aforementioned name is
someone who could provide information.
2:14:58 PM
REPRESENTATIVE HAWKER recollected a dialogue he heard somewhere
that if the pipe is built heavily up front initially it doesn't
have to be used until necessary, but it would be in place at
such time as the demand might be there for it. He asked whether
Mr. Halford's statements can be interpreted as favoring this
"prebuild concept," where more is built today than needed in
anticipation of expanded service in the future.
MR. HALFORD replied he has not thought that through to the
prebuild concept at all. All he was doing was asking the
question, How much does it cost to upgrade the pipe so that if
expanding the capacity was wanted it could be done? He said he
just wanted a number because the numbers are overwhelming in
terms of their size, and if that were the one place where
flexibility could be built in and then deal with compressor
stations, a larger gas conditioning plant, and LNG at a future
time, there would be more flexibility. All he was looking for
was flexibility.
REPRESENTATIVE HAWKER, regarding the teams/contractors at AGDC
that have done the work to get to where things are today, noted
that those contracts had largely been "stood down" in favor of
AK LNG. He pointed out that enabling legislation was approved
last year to not move forward any further on the backup project.
Testimony before the committee has been that that project has
been slowed down to let AK LNG get legs and run. Utilizing
those contractors right now for anything is going to require
investing money, Representative Hawker opined, and the governor
has his executive order (EO) that prohibits advancement of the
ASAP Project. He asked how Mr. Halford expects to pay for these
contractors.
MR. HALFORD responded that that was discussed and a condition in
the resolution is that the administration has to deal with that.
He said it was Mr. Richards' interest in keeping the team
together that "kind of carried the overall committee" to say it
will look at more than just pipe size. So, the board ended up
back at the same resolution that was introduced, but the board
did it in a circle that came back around. The argument of
keeping that team together and not losing that expertise is what
brought it back around against the opinion of just looking at
pipe size. "And we all agreed to that as we listened to it, but
it was Frank Richards trying to keep that team together and it
was also the executive director advocating for that, saying
that, 'that if we don't have these people we won't be able to
get those answers.'"
2:18:53 PM
REPRESENTATIVE JOSEPHSON inquired whether Mr. Halford has any
recollection of the staff during this meeting offering some
admonishment that the resolution might broach a question about
violations of previous agreements, that it was treading on some
grey area that was worrisome to anyone on the staff.
MR. HALFORD answered "there was concern about confidentiality
agreements and what they could share and what they couldn't
share." As was brought up by Representative Hawker, there was
significant discussion about confidentiality. The attitude was
that there was some concern about the specific confidentiality
agreement that had been offered before, but that there could be
confidentiality agreements drawn that were a little bit narrower
that people would feel comfortable with. There was some
discussion of that in the committee. He said he thinks there
were staff members that said things that were a little bit
different in perspective. There was one person from the LNG
project versus the small project and they had a little bit of
difference, but the board followed the things that they agreed
on. There were concerns, he continued, and the concerns are
legitimate in terms of the other project and how the two
projects share information and how they get along and whether
they are competitors or allies. There was even some discussion
of ending up with one project that was an amalgam of the two.
2:20:57 PM
REPRESENTATIVE HAWKER argued that his recollection had nothing
to do with the discussion of confidentiality agreements and
contracts, but rather with Mr. Dubler's counsel that moving
forward with the resolution violated the terms of a business
contract with other parties. Representative Hawker said he has
concerns that a question raised by a senior AGDC staff member
was ignored.
MR. HALFORD replied that the resolution was brought forward
without the board having seen it before the meeting. There were
questions that went both directions and it seemed like staff
members were not in total agreement.
2:22:09 PM
REPRESENTATIVE JOSEPHSON said Mr. Halford strikes him as someone
who is comfortable in a setting where he is given a set of
choices and asked to make decisions.
MR. HALFORD responded that the people sitting here today know
they have to be able to live that way and have to be able to say
no to somebody who tomorrow will be asked for his or her
support. And that's the way the political world works and the
better a person is at it the more successful he or she will be.
REPRESENTATIVE JOSEPHSON offered his understanding that Mr.
Paskvan stated that through Senate Bill 138 the legislature
issued a directive that in effect said this is currently the
primary development and LNG plan. He asked whether Mr. Halford
agrees with that.
MR. HALFORD confirmed that, absolutely, the large line is the
primary plan.
2:23:39 PM
REPRESENTATIVE HERRON noted Mr. Halford is one of three people
replacing three former members of the AGDC board. He inquired
whether Mr. Halford has reviewed and can comment on the history
of the previous members' body of work.
MR. HALFORD answered he is not sure it is fair to comment on
their body of work and their world and their time. He said he
knows they spent a lot of money to get a lot of information and
he hopes it is all very valuable to the current board and gives
some backup. The legislature granted incredible latitude to the
AGDC board to ask those kinds of questions and find those things
out - in a backup position. He said it is the broadest latitude
he has seen in any legislative creation in the time that he has
been involved in looking at those things.
REPRESENTATIVE HERRON clarified his question is whether the work
done by those former board members has proven valuable to the
process that will continue.
MR. HALFORD replied he very much hopes so; he does not have any
information that would say it is not. It is a large amount of
money and a large amount of analysis. If [AK LNG] goes forward,
everything spent on the information for the backup is money
expended that didn't have to be spent. So that's the balance
that has to be looked at in terms of what is spent. Having a
backup is important and having it be as good as it can be is
important, but not to the extent of threatening the primary
purpose or to the extent of spending money that doesn't need to
be spent.
2:25:54 PM
REPRESENTATIVE TARR surmised Mr. Halford has some level of
comfort because the work can take place immediately before the
team is disbanded, but that Mr. Halford has put his commitment
to the AK LNG Project as the primary project.
MR. HALFORD responded "absolutely."
REPRESENTATIVE TARR asked whether Mr. Halford sees the April 9
[2015] AGDC Board of Directors meeting as being where there will
be a decision point. She asked whether Mr. Halford agrees that
the information will be received quickly and that this new
evaluation will not threaten the AK LNG Project. She further
asked how much time Mr. Halford is willing to let go by before
something is pushed aside.
MR.HALFORD answered he would like to know pretty quickly and
believes the team should be able to produce information on the
pipe strength standard pretty quickly. The other parts of it
are going to be the more expensive and more time consuming, he
said, and he is not totally convinced a huge amount of money has
to be spent to totally redesign a gas conditioning plant to a
much, much larger size; but he is going to listen. The argument
that carried the day, at least for asking the question, was that
this team was still together and this needed to be asked now.
REPRESENTATIVE TARR said it sounds like Mr. Halford has no
problem being an independent voice and will be willing to
question whatever information is presented. She asked whether
Mr. Halford agrees that this will be his role moving forward.
MR. HALFORD replied, "If we can work together, I think we have a
reasonable chance of success; if we cannot work together I think
there is no chance of success of having a gasline in my
lifetime."
2:28:39 PM
REPRESENTATIVE HAWKER said he thinks the statement was just made
that nothing [AGDC] is currently doing is threatening or will
threaten any of the projects and [AGDC] has until April 9 with
no consequences. He requested Mr. Halford to explain what
happened with AGDC's supplemental environmental impact statement
(SEIS). He further requested Mr. Halford to comment on the
statements made by Mr. Fauske before the House Resources
Standing Committee that he felt that the same considerations
could very well apply to federal uncertainty and federal concern
about moving forward on the AK LNG export permit.
MR. HALFORD responded that he thinks the SEIS is a 30 day delay
to see what the interaction is between the executive and
legislative branches this session and whether people can get
together and go forward.
REPRESENTATIVE HAWKER stated the U.S. Army Corps of Engineers
suspended work on the SEIS. He maintained that the proposal put
on the table by the AGDC board implies very strongly that the
backup project is not an in-state gas project, but rather an LNG
export project. That would mean the Corps of Engineers isn't
the permitting agency, but rather the Federal Energy Regulatory
Commission (FERC) is the permitting agency. So, he posited, it
is far more than a 30-day delay while this is sorted out and
there is the potential of having to go through a complete start-
over in designing the backup project.
MR. HALFORD answered that the only thing the board decided was
to ask the question about the cost of the cheapest component,
and then the second action added the other components. He said
he looks at it as wanting to know what it costs to find out.
Finding out the pipe question is the easiest part of it, finding
out the liquefaction and particularly the gas conditioning is
the most expensive part of it and there's a question as to
whether even the same process will work if it is upsized. The
questions overwhelm any answers. The only one that is
relatively simple is the pipe question and if an answer can be
had in two weeks then the question was certainly worth asking.
The other questions depend on what they cost.
REPRESENTATIVE HAWKER maintained that that is the level of
uncertainty that has caused the permitting process to be put on
hold. When questioned, Mr. Fauske indicated that the aggregate
of these doubts, new questions, and no one being able to say
what the plan is now, could very well cause concerns with the
export permitting by FERC because [the partners] are not aligned
and working together as was established under Senate Bill 138.
He asked whether Mr. Halford shares the concern that it is
problematic to have a lack of alignment and questions being
raised so close to a decision on front-end engineering and
design (FEED) or whether Mr. Halford's opinion is that there are
absolutely no problems with re-engineering the whole process
within 12-24 months of FEED.
MR. HALFORD replied the questions have to be answered very
quickly because the dangers are real. The opportunity may be
real, but if an answer doesn't come back quickly and it is
unknown what the options are, then Representative Hawker is
right. Confusion is just as big a danger as misalignment or
lack of agreement, he said, so his hope is that a plan, with
concurrence of the governor's office, will be presented to the
AGDC board at the next board meeting. He agreed that
Representative Hawker's questions are very legitimate and said
he has the same questions.
2:33:50 PM
REPRESENTATIVE JOHNSON inquired why Mr. Halford wouldn't have
taken a couple of days to determine whether there was a
contractual violation, given the advice from AGDC staff in this
regard and Mr. Halford's own statements that the dangers are
real, people must work together, and there is a lot of risk. He
opined that it is counterintuitive to get advice that may dis-
align everyone and not take the opportunity to determine whether
it is or is not a contractual violation. It seems a little
reckless, he added, or shows a disregard for the partnership to
move forward, to hope there aren't ramifications rather than
waiting a couple of days to find out for sure.
MR. HALFORD responded that, in his mind, both the impoundment
language in the governor's large projects "thing" and that issue
were to be considered by the staff as they went forward with the
resolution. So, the board was asking to get a number first on
the pipe and secondly on the rest of it, that's all, and he
couldn't see how that could be a violation of anything. In
regard to dealing with the governor's executive order on
suspending restrictions, he said he thinks the staff has to come
up with a justification and how it works and what to do and they
have to do that with regard to dealing with any agreements that
they're also a part of in their other role. That is their job.
REPRESENTATIVE JOHNSON asked why not wait to advance the
resolution to find out for sure that it did not violate a
contract, given the advice that it might.
MR. HALFORD answered, "How can asking for the cost of a pipe
size violate a contract?"
REPRESENTATIVE JOHNSON said if he got advice from someone that
it may be in violation, he would want to make sure of that
before he moved forward, regardless of what he personally
thought.
MR. HALFORD replied there were other people advising that unless
this team is utilized the team will go away and this is the way
it has to be done. There were other people advocating for
looking at a same size pipe strength standard, he said. It
didn't seem to him that asking the question could violate
anything. The discussion went more to the confidentiality
agreements and how to get a new confidentiality agreement and
that is what he was concentrating on in that whole period of the
discussion.
2:37:48 PM
REPRESENTATIVE TARR remarked it will be good when the committee
gets the transcripts because, as she understands it, the
questions were related to confidentiality and potential sharing
of information and that was what was broadly being defined as
contract disagreement. She asked whether there were two
separate confidentiality issues about sharing information and
how that data might be shared versus a contract that would have
actually been violated.
MR. HALFORD reiterated that the board was just asking questions
about size that didn't seem to affect anything else. He said he
too would like to see what the transcript says because much of
this runs together. I was trying to learn a whole lot of things
at the same time, trying to be objective, and yet also gathering
information as fast as possible. Basically, [AGDC] is 100
percent of the small pipeline and also 25 percent of the biggest
component of the big pipeline and [AGDC] has an obligation to
everybody else who is involved. Plus there are all the staff
things. There is $150 million and 30 or 40 contract employers
and 20 or 25 employees, so there are a lot of people and trying
to figure out what their roles are. There are two people that
seem to be the managers of one project and the other project and
trying to understand what they're saying. The whole concept
that [the legislature] has developed is a good concept. To a
have a backup is a good idea. But the details of managing that
through one public corporation are going to be a little bit
cumbersome.
2:40:04 PM
CO-CHAIR TALERICO announced that the committee will receive the
[3/12/15 AGDC Board of Directors] transcript by mid-week.
2:40:26 PM
REPRESENTATIVE JOSEPHSON understood that any slowing of the SEIS
is the slowing of the ASAP backup plan.
MR. HALFORD concurred.
REPRESENTATIVE JOSEPHSON understood that the ASAP Project was
ahead of the AK LNG Project and that AK LNG needed to catch up
and even pull ahead of ASAP.
MR. HALFORD concurred, saying that this was pointed out.
2:40:51 PM
REPRESENTATIVE OLSON inquired as to whether the Alaska Gasline
Port Authority is active or inactive.
MR. HALFORD responded he doesn't know.
REPRESENTATIVE OLSON remarked that it seems like there are a lot
of former Alaska Gasline Port Authority people working in the
administration: the governor, his chief of staff, the attorney
general, Mr. Halford, and at least one staff member of AGDC. He
asked who else there might be.
MR. HALFORD answered he doesn't know.
REPRESENTATIVE OLSON inquired whether it is coincidental.
MR. HALFORD replied he doesn't think it is coincidental, people
have been trying to get a gasline for years. They've had
different visions of what it should be, different attitudes
toward how to make it work, and there hasn't been agreement. To
get a gasline is going to take a level of agreement that hasn't
been seen in a long time.
REPRESENTATIVE OLSON noted that an attempt was made last week to
amend HB 132 to include a study of the Richardson Highway with
the terminus in Valdez. He said that amendment came out of the
clear blue and didn't go anywhere. This route has been studied
since 1975 or 1976, so this amendment is what made him curious.
MR. HALFORD responded he doesn't know. He said the economics
are going to drive it where ever it goes and whatever it does.
"When you look at the big numbers," he continued, "I don't think
we have the horsepower to move the majors unless we're together
and that's going to be difficult." The majors always represent
their shareholders very well and it is always very, very
difficult for small democracies to deal with the expertise the
majors bring to the table.
2:43:01 PM
REPRESENTATIVE SEATON, regarding his name being brought up in
relation to the contracts that are on hold, said his
understanding is a little different than what was portrayed.
His understanding is that those contracts were put on hold
because if [AGDC] continued spending money on things that were
of benefit to AK LNG as well, then [AGDC] was spending 100
percent state dollars on something that [AGDC] was required to
give free to AK LNG as a participant. He expressed his concern
that board members are up for confirmation and there is talk
about some potential amorphous contract violation, yet the
chairman of the board and the continuing board members also
voted for this resolution. The people most familiar with the
contracts voted for this resolution, so [the committee] is
making a mountain out of a mole hill when talking about new
members and their support for what the continuing members were
proposing. He asked whether this is correct in understanding
that the consideration of the ANSI 900 and expanded capacity is
in response to having the ability to know whether it would be a
more economic project.
MR. HALFORD answered correct.
2:44:58 PM
REPRESENTATIVE JOHNSON requested Mr. Halford to explain what he
meant by a new plan that would be brought forward by the board
in concurrence with the governor.
MR. HALFORD replied that he said that's his hope and he hopes
the board sees something by the next meeting.
REPRESENTATIVE JOHNSON said he is concerned about "concurrence
with the governor." He asked what Mr. Halford means by that.
MR. HALFORD responded he has not had that much communication.
He said he thinks the staff, the governor's office, the
Department of Natural Resources (DNR), and everybody involved
should be trying to come up with the answers being asked here.
As a board member he wants to see that also.
REPRESENTATIVE JOHNSON inquired what will happen if the board
comes forward with a plan that doesn't have the governor's
concurrence.
MR. HALFORD reiterated that if the legislature is not on board,
if the executive is not on board, then the AGDC board is not
going to get anywhere either. "Unless we have agreement, we're
not going to be able to go forward," he said.
2:46:25 PM
CO-CHAIR TALERICO opened public comment on Mr. Halford's
confirmation. After determining that no one wished to testify,
Co-Chair Talerico closed public comment.
2:46:56 PM
REPRESENTATIVE TARR asked what committees Mr. Halford might be
serving on.
MR. HALFORD answered he hasn't decided. The technical committee
is probably going to be the most educational but the one that
may drive the project the most may be the marketing committee
and that is probably where he is most interested. "In the short
term we can drive economics through the political system," he
said, "but in the long term, economics wins, and that's to me
probably the most interesting hope is that our interest and the
majors' interest can be aligned at minimum pain to either side."
2:48:00 PM
CO-CHAIR TALERICO requested the third AGDC board appointee, Mr.
Hugh Short, to present his testimony.
REPRESENTATIVE HERRON stated for record that Mr. Short is his
nephew-in-law.
2:48:33 PM
HUGH SHORT, Appointee, Board of Directors, Alaska Gasline
Development Corporation (AGDC), said he would like to address
Representative Johnson's earlier conversation and the legal
questions that came up. First, however, he spoke from the
following written statement [original punctuation provided]:
I am honored to be before you today to be considered
to serve you, the Governor, and the State of Alaska,
as a board member of the Alaska Gasline Development
Corporation.
The economic future of the State of Alaska is in a
precarious situation with the dramatic drop in oil
prices globally. I am thankful to each of you for
your leadership and the responsibility that you bear,
to lead us through this difficult economic situation
toward a sustainable future.
As a board member of AGDC, I would take my
responsibility seriously. My top six priorities would
include pursuing:
1. competitively priced, reliable in-state gas;
2. Commercialization of ANS gas resources through
the sale of LNG to global markets and access for
instate demand
3. Creating jobs for Alaskans in the exploration,
development, production and transportation of
natural gas
4. Increasing opportunities for Alaska-based
businesses
5. Providing additional revenues to the State of
Alaska and LNG partners
6. Building infrastructure for the development of
onshore and offshore oil and gas exploration and
production
With that, I would like to briefly discuss my
background and how I believe that I would be a
qualified and effective board member for AGDC.
I have served in a career in business and finance,
most recently as the Chairman and CEO for the Pt
Capital family of companies. Pt Capital is in the
midst of building a private equity firm that focuses
on investments in small to mid-market companies in
Alaska, Canada, Iceland and Greenland. Our company is
a first for Alaska, as traditional private equity
investment in Alaska has been through PE firms that
are headquartered outside. I have built this company
anchored by one of the largest sovereign wealth funds
globally with one of the most pristine reputations,
and surrounded by other well-regarded investors.
Additionally, our subsidiary Pt Securities is the most
northern FINRA - regulated, SEC-registered,
broker/dealer investment bank in North America. Pt
Securities works with small and mid-market companies
that have needs to raise capital and debt for the
growth and development of their business.
Both of these services are first to market companies
that have been created to help spur the further
development of a strong, financial services sector in
Alaska.
During my over two-year tenure as chairman of the
Alaska Industrial Development and Export Authority,
more than $530 million in capital and associated
contributions by partners were appropriated; in
addition the board approved due diligence on another
$295 million in infrastructure development projects,
including the first investments in offshore drilling
rigs.
As Chairman of the Alaska Energy Authority, concurrent
to the Chairmanship of AIDEA, I was responsible for
the implementation of the Susitna-Watana Hydroelectric
Project. The project will generate 50 percent of the
current Railbelt's electric demand, or 2,800,000
megawatt hours (MWh) of annual energy, once it comes
online in 2024. The installed capacity is 600
megawatts (MW). As proposed, Susitna-Watana Hydro
will include construction of a dam, reservoir and
related facilities in a remote part of the Susitna
River. Transmission lines connecting into the
existing Railbelt transmission system and an access
road will also be constructed.
The Alaska Energy Authority is in the early stages of
a long, complex permitting process with the Federal
Energy Regulatory Commission (FERC), which I led as
Chairman of AEA. The anticipated cost is $5.19
billion, including licensing and construction.
When I took over as Chair of both AEA [Alaska Energy
Authority] and AIDEA [Alaska Industrial Development
and Export Authority], performance evaluations had not
been completed in a few years. I found this
unacceptable and immediately began to work with staff
to implement these important management tools. We
tied key performance metrics to overall organizational
goals of both AEA and AIDEA, and focusing the work of
the board on the large strategic items that drove
results.
As the President and CEO of Alaska Growth Capital,
Alaska's only Business and Industry Development
corporation, I was responsible for the deployment of
over $240MM of financing for the construction of a
telecommunications network for GCI, utilizing creative
finance tools to ensure the best possible cost of
capital to support the high cost Arctic, rural built
out. The remote communication towers create state of
the art communication networks, improving health care,
economic opportunities, and life/safety for many in
rural Alaska.
In addition to this, I was responsible for the
financing of businesses that worked in Alaska's oil,
mining, tourism, retail, logistics, and transportation
industries. These companies form the support
foundation for the core natural resource exploration
and production that drives our economy in Alaska. In
a state that is so dependent on the access to lands
and resources, the financial support of AGC was vital
to the business operations of many companies that
otherwise would not be able to access capital.
On a personal note, my Inupiaq mother Mildred Short
was born in the isolated community of Moses Point in
1942, just outside of Elim. My father Hugh Short Sr.,
who turns 90 this year, immigrated to Alaska in 1956
from northern British Columbia. I was born in the
western town of Bethel, and had the honor of serving
as the mayor of the community. I live in Girdwood now
with my wife of 19 years, Trina, and our three
daughters Madilyn, Karis and Elizabeth
As a board member for the Alaska Gasline Development
Corporation, I would work to ensure that the business
of the AGDC was squarely on the focus of
commercializing Alaska's gas, not politics. I have a
track record of focusing on ensuring that the State
does not make bad business decisions, and creates
opportunity and jobs for those that live here. I
would use this to serve on the board and contribute to
the important task at hand, with the Governor and
Legislature, to make Alaska's gas competitive globally
and build the important infrastructure necessary to
make this happen.
2:55:58 PM
REPRESENTATIVE JOSEPHSON inquired whether the six priorities
listed by Mr. Short were in any particular order.
MR. SHORT replied there is no prioritization as he thinks all of
those are important. He pointed out that those priorities are
from the Heads of Agreement that the State of Alaska signed. He
said he thinks those are very clear goals that the state's
partners, TransCanada, and the State of Alaska have endorsed.
He offered his belief that those are important milestones and
goals for this project.
REPRESENTATIVE JOSEPHSON requested Mr. Short to address the
previous conversations with the other two nominees.
MR. SHORT replied that when the transcripts are received by the
committee, members will clearly see that he asked the question
to the [AGDC] CEO and president, AGDC's general counsel, and Joe
Dubler as to whether any contracts are being violated with the
motions and the resolution that was presented. The transcripts
will show that the answer he got back from [AGDC's] general
counsel, Ken Vassar, was that there are no violations of any
contracts, the biggest hurdle is that "AO37" would have to be
lifted in order to spend more money. He said Joe Dubler also
made a remark approximately that same time that there are
provisions within AK LNG where data that is shared between ASAP
and AK LNG may have to be revisited if [AGDC] moves above 500
million cubic feet. So, Mr. Short continued, the data that is
shared between the two projects would need to be discussed among
the partners and there was about 30 minutes of conversation
around what that means - what data, whose data is it. It will
be seen in the transcripts that [AGDC] doesn't own the data
necessarily. So, he specified, he wants to be very clear that
from his perspective he did ask the question. He is very
concerned that [AGDC] doesn't violate any contracts; it is an
important part of any partnership.
2:58:47 PM
REPRESENTATIVE HAWKER said he thinks he may still have a
difference of opinion on exactly what was being discussed at
what time in relation to the questions. He urged that the
committee get those transcripts so they can be accurately
evaluated. Representative Hawker said he recalls Mr. Short
stating at the AGDC board meeting that he wants to make this the
most competitive project in the world. He asked what Mr. Short
means by competitive.
MR. SHORT responded that the consumption of LNG globally has
been growing at a significant pace - double digit growth
annually. In addition, some very large projects are coming on
stream around the world, including in Mozambique, Australia, and
Yamal. So, a lot of additional LNG is already past final
investment decision (FID) and into construction, and ultimately
coming into the market. To be successful, [an Alaska project]
is going to have to compete against all of these projects and be
able to provide the gas where ever [an Alaska project] can get
the contracts necessary for project financing. He said his job
as a board member is to ask the tough questions. He asked
numerous questions during that AGDC board meeting to ensure that
[AGDC] is always keeping an eye on the ball - that at the end of
the day it's going to be the market that determines [the
project's] success and being able to operate, manage, and
provide the revenues to the State of Alaska, not necessarily the
infrastructure itself. So, when he says competitively, he is
keeping in mind to compete on a global basis.
3:01:11 PM
REPRESENTATIVE HAWKER said he heard Mr. Short state the need to
be able to successfully market [Alaska's] product against a
common fungible product available from other sources in the
world. That marketing is a function of DNR, Representative
Hawker maintained, not AGDC. He asked whether that affects Mr.
Short's thoughts on this.
MR. SHORT answered that his role as a board member for AGDC "is
around strategy and ensuring that our team is representing us in
the partnership with AK LNG as well as ASAP." He said he
believes very firmly that if marketing occurs "that's not a role
for the board of directors to do and perhaps that would be a
role for our partners within AK LNG, we don't have the capacity;
or, perhaps it is a role for our governor to do as the chief
executive officer of the State of Alaska." Members of the AGDC
Board of Directors are not experts in marketing, and he is glad
to hear about the consultants on board at DNR as he did not know
that before. He said he believes [marketing] is something that
is a big hurdle for [the AGDC] project.
REPRESENTATIVE HAWKER offered his appreciation for Mr. Short
coming to visit with him earlier and noted that Mr. Short is one
of his constituents. He related that he and Mr. Short talked
about marketing and buying and the global markets, and in that
conversation Mr. Short talked about his experience in his
capital company and the contacts he has and people and
experience all over Asia. He quoted Mr. Short as having said
that he wanted to put his "people with ours to make a
transaction work." However, Representative Hawker continued,
that raised the question about either an actual conflict of
interest or the appearance of a conflict of interest. He
requested Mr. Short to resolve this for him.
MR. SHORT replied that he thinks Representative Hawker's
characterization of his statement is inaccurate. The statement
that he said, or perhaps should have said more clearly, is that
there are a number of partners out there globally - buyers that
are very interested in Alaska gas. Probably the three largest
markets that need to be focused on as the State of Alaska and as
partners in AK LNG is the emerging Chinese market, which is
growing faster than any other LNG market and which started in
2006. Malaysia is becoming a net importer of LNG as opposed to
exporting LNG. And India. The expertise that he has of
following and understanding the markets adds to his ability to
be an effective board member for AGDC. He pointed to his record
as a board member for the Alaska Industrial Development and
Export Authority (AIDEA), as well as the Alaska Energy Authority
(AEA), and the stellar ethical conduct that he had and no
conflicts. At that time he was an employee of Alaska Growth
Capital and Arctic Slope Regional Corporation (ASRC) had a
contract with AIDEA to pursue an Arctic port. So, he walled
himself off of any conversations internally in AIDEA and he
walled himself off internally at ASRC so that there was no
information that came to him, nor did he have any vote or any
vested interest in that project because of the potential
appearance or potential conflicts.
REPRESENTATIVE HAWKER concurred with Mr. Short's portrayal of
what was said in their prior meeting in regard to Mr. Short
successfully walling himself off from conflicting decisions.
Representative Hawker asked whether Mr. Short is stating here
that he did not say in their prior meeting that he has market
contacts in Asia and wants to put his people with "ours".
MR. SHORT responded he is stating that the way Representative
Hawker heard that, if that is the way it was heard, is incorrect
in the conversation context. He apologized for missing the
context and said he does not believe that that was the intent
nor the way that it was stated and he believes there are no
issues there.
3:06:09 PM
REPRESENTATIVE TARR noted Mr. Short's strong financial
background and asked which committees Mr. Short would like to be
on to best serve the AGDC board.
MR. SHORT answered he has been assigned to the commercial and
governance committees, although he is unsure whether it is
final. He said he was assigned to the governance committee
because of his management role at AIDEA and AEA and assigned to
the commercial committee because of his understanding of global
macro-economics.
3:07:16 PM
CO-CHAIR TALERICO opened public comment on Mr. Short's
confirmation. After determining that no one wished to testify,
Co-Chair Talerico closed public comment.
CO-CHAIR TALERICO announced that the committee will wait on
moving these confirmations until after the committee receives
the [3/12/15] AGDC Board of Directors meeting transcripts.
CO-CHAIR TALERICO, responding to Representative Olson, agreed to
provide committee members with at least 24 hours to read the
transcripts before putting the confirmations back on the
committee's agenda. He further noted that any paperwork signed
at the committee level neither pledges allegiance to moving the
appointees forward in confirmation nor means opposition to
confirming the appointees. It only verifies that hearings have
been held at the committee level. Responding to Representative
Tarr, he noted that the confirmation hearing scheduled for 6:00
p.m. today was cancelled due to a scheduling conflict.
Responding further to Representative Tarr, Co-Chair Talerico
said public testimony would be taken at the next confirmation
hearing for the three appointees.
[The confirmation hearing was continued and concluded at the
committee's meeting held on April 1, 2015.]
3:09:53 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:10 p.m.