02/27/2012 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB289 | |
| HB9 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 9 | TELECONFERENCED | |
| += | HB 289 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 27, 2012
1:07 p.m.
MEMBERS PRESENT
Representative Eric Feige, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Alan Dick
Representative Neal Foster
Representative Bob Herron
Representative Cathy Engstrom Munoz
Representative Berta Gardner
Representative Scott Kawasaki
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 289
"An Act relating to a gas storage facility; relating to the tax
credit for a gas storage facility; relating to the powers and
duties of the Alaska Oil and Gas Conservation Commission;
relating to the regulation of natural gas storage as a utility;
relating to the powers and duties of the director of the
division of lands and to lease fees for a gas storage facility
on state land; and providing for an effective date."
- MOVED CSHB 289(RES) OUT OF COMMITTEE
HOUSE BILL NO. 9
"An Act requiring the Joint In-State Gasline Development Team to
report to the legislature recommended changes to state law that
are required to enable or facilitate the design, financing, and
construction of an in-state natural gas pipeline so that the in-
state natural gas pipeline is operational before 2016; and
providing for an effective date."
- MOVED CSHB 9(RES) OUT OF COMMITTE
PREVIOUS COMMITTEE ACTION
BILL: HB 289
SHORT TITLE: NATURAL GAS STORAGE TAX CREDIT/REGULATION
SPONSOR(s): REPRESENTATIVE(s) THOMPSON
01/17/12 (H) READ THE FIRST TIME - REFERRALS
01/17/12 (H) RES, FIN
02/24/12 (H) RES AT 1:00 PM BARNES 124
02/24/12 (H) Heard & Held
02/24/12 (H) MINUTE(RES)
02/27/12 (H) RES AT 1:00 PM BARNES 124
BILL: HB 9
SHORT TITLE: IN-STATE GASLINE DEVELOPMENT CORP
SPONSOR(s): REPRESENTATIVE(s) CHENAULT
01/18/11 (H) PREFILE RELEASED 1/7/11
01/18/11 (H) READ THE FIRST TIME - REFERRALS
01/18/11 (H) RES, FIN
02/06/12 (H) RES AT 1:00 PM BARNES 124
02/06/12 (H) Heard & Held
02/06/12 (H) MINUTE(RES)
02/08/12 (H) RES AT 1:00 PM BARNES 124
02/08/12 (H) Heard & Held
02/08/12 (H) MINUTE(RES)
02/10/12 (H) RES AT 1:00 PM BARNES 124
02/10/12 (H) Heard & Held
02/10/12 (H) MINUTE(RES)
02/13/12 (H) RES AT 1:00 PM BARNES 124
02/13/12 (H) <Bill Hearing Canceled>
02/24/12 (H) RES AT 1:00 PM BARNES 124
02/24/12 (H) Heard & Held
02/24/12 (H) MINUTE(RES)
02/27/12 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
JANE PIERSON, Staff
Representative Steve Thompson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Reviewed the provisions of HB 289 on behalf
of Representative Thompson, prime sponsor.
GENE THERRIAULT, Vice President, Natural Resource Development
Golden Valley Electric Association (GVEA)
Fairbanks, Alaska
POSITION STATEMENT: Answered questions related to HB 289.
RENA DELBRIDGE, Staff
Representative Mike Hawker
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions related to HB 9 on
behalf of Representative Hawker, sponsor.
JOE DUBLER, Vice President
Alaska Gasline Development Corporation (AGDC)
Director of Finance, Alaska Housing Finance Corporation (AHFC)
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions related to HB 9.
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 regarding HB 9.
TOM WRIGHT, Staff
Representative Mike Chenault
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions related to HB 9 on
behalf of Representative Chenault, prime sponsor.
ALAN LEMASTER, Businessman
Gakona, Alaska
POSITION STATEMENT: Testified in opposition to HB 9.
PARK KRINER, President
American Village of Alaska; Caribou Hotel, Restaurant, Gift Shop
Glennallen, Alaska
POSITION STATEMENT: Testified in opposition to HB 9.
MERRICK PEIRCE
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to HB 9.
REPRESENTATIVE MIKE CHENAULT
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as the prime sponsor of HB 9.
REPRESENTATIVE MIKE HAWKER
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as a sponsor of HB 9.
ACTION NARRATIVE
1:07:06 PM
CO-CHAIR PAUL SEATON called the House Resources Standing
Committee meeting to order at 1:07 p.m. Representatives Herron,
Dick, Gardner, Foster, Feige, and Seaton were present at the
call to order. Representatives Munoz, Kawasaki, and P. Wilson
arrived as the meeting was in progress.
HB 289-NATURAL GAS STORAGE TAX CREDIT/REGULATION
1:07:29 PM
CO-CHAIR SEATON announced that the first order of business would
be HOUSE BILL NO. 289, "An Act relating to a gas storage
facility; relating to the tax credit for a gas storage facility;
relating to the powers and duties of the Alaska Oil and Gas
Conservation Commission; relating to the regulation of natural
gas storage as a utility; relating to the powers and duties of
the director of the division of lands and to lease fees for a
gas storage facility on state land; and providing for an
effective date." [Before the committee was the proposed
committee substitute (CS), Version I, labeled 27-LS1216\I,
Bullock, 2/20/12, adopted as the working document on 2/24/12.]
1:07:54 PM
JANE PIERSON, Staff, Representative Steve Thompson, Alaska State
Legislature, on behalf of Representative Thompson, prime
sponsor, reviewed the provisions of Version I of HB 289. She
explained that Section 1 would create a new section under AS
38.05 to provide that above-ground liquefied natural gas storage
tank facilities sited on state lands can request an exemption
from rental payments. Section 2 would amend the definition of a
natural gas storage facility under AS 42.05.990(3). Section 3
would add a new section to AS 43.20 to create a credit for: a
liquefied natural gas storage facility of 1 million gallons or
more; expansion of an existing facility of 1 million gallons or
more; and capping of the credit at $15 million or 50 percent of
the development cost, whichever is less. This would be in
addition to any other credits in this chapter. Section 3 would
also provide that the storage facility must be regulated by the
Regulatory Commission of Alaska (RCA) and would establish how
credit payment shall be dispersed. It would set forth how a
person who has received a credit shall repay the credit if the
facility ceases commercial operations within nine calendars
years immediately following the calendar year in which the
facility commenced commercial operations. Additionally, the
terms liquefied natural gas storage facility, ceases commercial
operation, and commences commercial operation are defined in
Section 3.
1:09:24 PM
CO-CHAIR SEATON closed public testimony after ascertaining that
no one from the public wished to speak.
CO-CHAIR SEATON moved to adopt Conceptual Amendment 1 which on
page 3, lines 29 and 31, would delete "1,000,000" and insert
"50,000".
CO-CHAIR FEIGE objected for discussion purposes.
1:10:24 PM
CO-CHAIR SEATON drew attention to two photographs in the
committee packet of small-scale liquefied natural gas (LNG)
receiving terminals in Norway, where small coastal vessels
deliver LNG to communities. He explained that one photo is of a
site that has three small storage tanks, each holding 200 cubic
meters, and the other photo is of an LNG tank that holds 2,000
cubic meters. For further reference, he noted that an e-mail
[from Hans R. Tveitaskog] accompanies the two pictures.
CO-CHAIR SEATON said he is offering Conceptual Amendment 1
because the legislature is trying to make competitive energy and
lower-cost natural gas available to more communities, but while
a one million gallon tank might work for the state's second
largest community it does not work for the other communities.
He explained that 200 cubic meters translates to just over
50,000 gallons, which would be more appropriate for serving
small communities. Whether LNG is delivered by vessel to
coastal towns or by truck, there needs to be enough capacity for
the community, and the aforementioned amounts have been proven
adequate for the situation in Norway.
1:13:09 PM
CO-CHAIR FEIGE said his objection is related to why not more or
why not less than 50,000 gallons. He recalled that Golden
Valley Electric Association testified that 1 million gallons
would be two weeks supply for that utility. The purpose of the
tank is to provide a quantity that buffers any fluctuations in
either demand or delivery of the supply to the community. While
he allowed that 50,000 gallons may be adequate, he said the
smaller the number that can legitimately be made, the more
communities would be able to qualify for the tax credit and the
more distribution there could be throughout interior and coastal
Alaska. He recollected that Mr. Therriault of Golden Valley
Electric Association said 12.1 gallons of LNG equaled 1 thousand
cubic feet (MCF) of gas. He asked whether there is something
more regarding why 50,000 gallons was chosen, other than it
being the way Norway does it.
1:15:11 PM
CO-CHAIR SEATON responded that if 50,000 gallons was not enough
for a particular community that community could plan for an
appropriate size. The bill would allow for both initial as well
as expansion, so the communities themselves would have to do a
cost-benefit analysis to determine the appropriate size. A
consideration is that it must be a regulated utility that
applies for this because it is supposed to be for distribution
systems for communities, which ensures that a project is not
done for an individual building or entity. For a comparison, he
related that the Talkeetna Lodge has two 5,000 gallon tanks that
are serviced by truck at regular intervals by Fairbanks Natural
Gas. He said the 50,000 was the best number he could come up
with, given there are small communities in Norway that have the
flexibility for tanks of 200 cubic meters to 2,000 cubic meters.
1:17:16 PM
CO-CHAIR FEIGE asked what size truck is used by Fairbanks
Natural Gas.
MS. PIERSON deferred to Mr. Therriault.
REPRESENTATIVE P. WILSON stated she does not know if the amount
is right, but it needs to be dealt with to ensure that smaller
communities can be taken care of.
MS. PIERSON replied that if the bill moves on, she will work
with committee members to determine what that "magic number" is
for communities.
CO-CHAIR SEATON reiterated Co-Chair Feige's question about the
capacity of LNG tankers currently being used by Fairbanks
Natural Gas.
GENE THERRIAULT, Vice President, Natural Resource Development,
Golden Valley Electric Association (GVEA), said he believes the
current tankers used by Fairbanks Natural Gas are either 10,000
or 11,000 gallons. He added that the tanker size GVEA
anticipates using for running LNG from the North Slope is 13,500
gallons.
1:19:41 PM
REPRESENTATIVE HERRON requested Mr. Therriault to comment on
Conceptual Amendment 1.
MR. THERRIAULT replied GVEA would not have a problem with
[50,000 gallons, given it is a policy call on how to balance
this. He explained that GVEA has reached out to potential users
around the highway system that it would like to serve as
customers under the premise that if the overall volume is raised
then everybody's per unit cost comes down. Therefore, if that
volume is the right size for those users on the highway then it
would be fine with GVEA.
1:21:05 PM
CO-CHAIR FEIGE suggested a tank size of 25,000 gallons, given
that the planned truck size is roughly 13,000 gallons. This
way, when half the volume in the storage tank is used there
would be enough room to receive the next truck.
CO-CHAIR SEATON responded that he has no basis for community
utilities using less than 200 cubic meters.
REPRESENTATIVE P. WILSON stated that [25,000 gallons] makes
sense to her.
REPRESENTATIVE GARDNER pointed out that if a smaller size is in
statute a community needing a larger volume would still be
covered, but not so with the reverse. She added that, in
practice, the key is the standard tank size so that the statute
is not for a volume that would require customized tanks,
although she did not personally know what a standard size would
be.
1:22:54 PM
REPRESENTATIVE HERRON related that the standard size for LNG or
propane tanks is rail cars of about 30,000 [gallons] and further
noted that a larger tank size currently available for purchase
is 18,000 [gallons]. He therefore maintained that 30,000 and
18,000 [gallons] are common sizes.
CO-CHAIR SEATON said these would not be propane tanks, so they
are not currently manufactured. He did not think that the
committee's consideration should be for an off-the-shelf size.
In response to Co-Chair Feige, he pointed out that propane tanks
are low pressure tanks.
REPRESENTATIVE HERRON asserted that those are common sizes
because an odd size or very large size cannot be transported.
He agreed that the storage tanks would be custom made, but said
they would be built according to limitations of the road system.
1:24:48 PM
CO-CHAIR SEATON stated he would be amenable to 25,000 gallons.
CO-CHAIR FEIGE said he would like more information because some
of these communities are relatively constrained and these tanks
all have a blast radius. The smaller the tank, the smaller the
blast radius, therefore the easier it would be to site these
tanks in the limited land available to villages. For example,
the coastlines limit where the tanks could be put and some
villages might not have enough land available to them should the
tank need to be sited well outside of town.
1:26:24 PM
CO-CHAIR FEIGE moved to adopt Amendment 1 to Conceptual
Amendment 1 which would delete "50,000" and insert "25,000".
CO-CHAIR SEATON accepted the conceptual amendment as a friendly
amendment. There being no objection, Amendment 1 to Conceptual
Amendment 1 was adopted. Therefore, Conceptual Amendment 1, as
amended, would on page 3, lines 29 and 31, delete "1,000,000"
and insert "25,000".
There being no objection, Conceptual Amendment 1, as amended,
was adopted.
1:27:39 PM
REPRESENTATIVE P. WILSON moved to report the proposed committee
substitute (CS) for HB 289, labeled 27-LS1216\I, Bullock,
2/21/12, as amended, out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSHB 289(RES) was reported from the House
Resources Standing Committee.
The committee took an at-ease from 1:28 p.m. to 1:31 p.m.
HB 9-IN-STATE GASLINE DEVELOPMENT CORP
1:31:43 PM
CO-CHAIR SEATON announced that the next order of business would
be HOUSE BILL NO. 9, "An Act requiring the Joint In-State
Gasline Development Team to report to the legislature
recommended changes to state law that are required to enable or
facilitate the design, financing, and construction of an in-
state natural gas pipeline so that the in- state natural gas
pipeline is operational before 2016; and providing for an
effective date." [Before the committee was the proposed
committee substitute (CS), Version U, labeled 27-LS0075\U,
Bullock, 1/19/12, adopted as the working document on 2/6/12.]
1:32:00 PM
REPRESENTATIVE P. WILSON moved to adopt the proposed committee
substitute (CS) for HB 9, version 27-LS0075\S, Nauman/Bullock,
2/25/12, as the working document. [There being no objection,
Version S was before the committee.]
CO-CHAIR SEATON explained that Version S is Version U with all
of the amendments adopted at previous committee meetings
incorporated into the bill.
RENA DELBRIDGE, Staff, Representative Mike Hawker, Alaska State
Legislature, on behalf of Representative Hawker, sponsor, drew
attention to the committee packet which included a summary of
changes made by the House Resources Standing Committee that are
reflected in Version S.
CO-CHAIR SEATON, in response to Representative P. Wilson,
reiterated that the only changes incorporated into Version S are
the amendments that were adopted by the committee so that
members could read them in context.
1:33:44 PM
REPRESENTATIVE GARDNER requested an explanation regarding why
the sponsor believes a pipeline controlled by the Alaska Gasline
Development Corporation (AGDC) should be exempt from regulation
as a public utility by the Regulatory Commission of Alaska
(RCA). She understood that the purpose of HB 9 is to bring gas
to Alaska residents; that being the case, she asked why the
pipeline should be exempt from RCA regulation.
MS. DELBRIDGE replied the intent is that if AGDC has controlling
interest in a pipeline and has some decision-making authorities,
it can carry out its mission to provide in-state gas at the
lowest possible rates for in-state use. The exemption would be
as a public utility under AS 42.05. This proposed exemption
would alleviate the risk on this project of regulatory
uncertainty in the sense that this is a state-supported project
that already inherently conveys that it is in the public's
interest and is necessary. That is a big component of being
regulated as a public utility under AS 42.05. Because the state
is approving this as it goes forward through empowering AGDC to
move along, it would be redundant and potentially highly risky
financially and time-wise for the project to also be subject to
regulation under that component.
1:35:16 PM
REPRESENTATIVE GARDNER noted it is anticipated that at some
point in the future the pipeline will not necessarily be
controlled by AGDC because it could be sold or the control
transferred to another entity. If that were to happen, she
asked whether the entity would then be regulated by the RCA as a
utility.
MS. DELBRIDGE responded she would presently say it is uncertain
at what point a project may be transferred out of AGDC's
control, but that there are several options. A project not
controlled by AGDC would not be exempt from regulation under AS
42.05; therefore that protection is in place. When debt is no
longer outstanding on the project, it can go to private
ownership. Hypothetically, if after 10-15 years from now the
project is transferred to private ownership with no longer a
degree of AGDC control, there would be in place the contracts
already developed with AGDC as a controlling interest looking
out for the interests of in-state gas. Those contracts with all
those individual shippers would likely be for a long period to
support the financing required for the gas commitments over the
life of a pipeline.
1:37:07 PM
REPRESENTATIVE GARDNER inquired whether anyone would review
those contracts during that process in which the AGDC sells off
or makes a contract with a private entity. She further inquired
whether, at any point along the way, the contract details would
become public information or would they be held privately
between AGDC and the potential buyer.
MS. DELBRIDGE answered that in this situation those contracts
would be made for the length of duration of a shipping
commitment, which should be 10-20 years, and there is no intent
to make those publicly available. The intent is to ensure that
commercial processes can work in developing those contracts and
therefore keep those as confidential information. Version S
would provide another degree of evaluation - the contracts that
are specifically with public utilities for in-state gas would be
overseen by the RCA through the ability of public utilities to
seek pre-approval of the RCA to allow the utilities to recover
the costs of involvement in this project or any large project
through the rates that they later charge their customers.
Version S would also provide that the rate of return on equity
to the pipeline owners be looked at by the RCA.
1:38:58 PM
REPRESENTATIVE GARDNER clarified she is not inquiring about
shipping contracts, but rather the transfer from AGDC such that
AGDC no longer controls the line at some point in the future.
She asked whether that agreement would be made public if the
line is transferred to an entity that is not a public utility,
and whether there would be any kind of oversight of the tariff
for consumers.
MS. DELBRIDGE replied that the tariffs would have already been
set through the contracts negotiated at the beginning of the
life of that pipeline.
1:39:34 PM
CO-CHAIR SEATON explained that the utilities forming a contract
have the ability to submit that contract to the RCA to make sure
that the rates are just and reasonable. The presumption is that
the utility purchasing gas is going to want to submit to the RCA
to be assured it has looked out for its consumers and is not
being overcharged. Version S states "may" because there could
be circumstances where it would not be efficient to submit to
the RCA and the utility is willing to take the risk. He said
his perspective is that the chance of a public utility
contracting for a supply and then not protecting itself through
oversight by the RCA would be pretty small. He related that the
committee also looked at the problem of a contract carrier line
controlled by AGDC to ensure the rate of return by different
owners; he added that this will be brought up by an amendment.
The concern was that if the RCA or Federal Energy Regulatory
Commission (FERC) was not verifying that the rate of return was
just and reasonable, then who would? Therefore, a conceptual
amendment was passed [on 2/24/12] that said those would be
reviewed.
REPRESENTATIVE GARDNER thanked Co-Chair Seaton and said that was
the heart of her question.
CO-CHAIR SEATON added that the concern was to balance the two
missions of AGDC for getting gas to consumers in Alaska as
cheaply as possible as well as getting a gasline, so that was
why there was discussion about the rate of return.
1:42:13 PM
CO-CHAIR SEATON moved to adopt Amendment 1 to Version S, labeled
27-LS0075\S.2, Nauman/Bullock, 2/27/12, which read [original
punctuation provided]:
Page 18, line 23:
Delete "the rate of return for"
Insert "rates of return accepted by the Federal
Energy Regulatory Commission for rate making purposes
for interstate"
The committee took a brief at-ease.
1:44:05 PM
CO-CHAIR SEATON tabled Amendment 1 and moved to adopt Amendment
2 to Version S, labeled 27-LS0075\S.1, Bullock, 2/27/12, which
read [original punctuation provided]:
Page 1, line 10:
Delete "projects"
Insert "contracts"
Page 5, lines 14 - 25:
Delete all material.
Reletter the following subsection accordingly.
Page 18, lines 18 - 25:
Delete all material.
Renumber the following bill sections accordingly.
Page 18, line 30:
Delete "may"
Insert "shall"
Page 19, line 3:
Delete "may"
Insert "shall"
Page 19, line 6:
Delete "may"
Insert "shall"
Page 19, line 8, following "shall":
Insert "review and may"
Page 19, following line 15:
Insert new subsections to read:
"(e) Before the start of construction of a
natural gas pipeline by the Alaska Gasline Development
Corporation or an entity controlled by the Alaska
Gasline Development Corporation, the Alaska Gasline
Development Corporation shall submit to the commission
under seal any firm transportation precedent agreement
it has negotiated with an entity that is not a public
utility. Notwithstanding AS 40.25.110 and
AS 42.05.671(a), the commission shall keep an
agreement submitted under this subsection
confidential.
(f) The commission shall review each agreement
submitted under (e) of this section and compare the
firm transportation rates in the agreement to the
weighted-average of the firm transportation rates
contained in the firm transportation contracts
submitted under (a) of this section that were approved
under (d) of this section. The transportation rates in
the contracts submitted under (a) of this section
shall be weighted by volume for purposes of the
comparison. The commission shall approve by order an
agreement submitted under (e) of this section if the
firm transportation rates are equal to or less than
the weighted-average firm transportation rates in
contracts submitted under (a) of this section and
approved under (d) of this section. The commission
shall disapprove by order an agreement submitted under
(e) of this section if the firm transportation rates
are greater than the weighted-average firm
transportation rate in contracts submitted under (a)
of this section and approved under (d) of this
section. If the commission has not disapproved an
agreement submitted under (e) of this section within
30 days after the submission of the agreement, the
agreement shall be considered approved and shall take
effect immediately. A firm transportation precedent
agreement that is approved under this subsection is
not subject to further review by the commission."
Page 19, line 18:
Delete "AS 42.05.141(e)"
Insert "AS 42.05.433"
The committee took an at-ease from 1:44 p.m. to 1:45 p.m.
1:45:27 PM
REPRESENTATIVE P. WILSON objected for purposes of discussion.
CO-CHAIR SEATON, pointing out that Amendment 2 is from the
sponsor, requested Ms. Delbridge to explain what the amendment
would do and provide details of the amendment.
MS. DELBRIDGE explained that Amendment 2 reflects to [Conceptual
Amendment 2 to Amendment 15] that was made by the committee on
2/24/12. The Department of Law (DOL) expressed a concern
related to that amendment's provision for an evaluation of the
rate of return. Amendment 2 [to Version S] would change the
concept of regulation of this pipeline so that public utilities
entering contracts "shall" submit these contracts to the RCA,
rather than "may". This would provide the RCA with the absolute
paperwork in hand that shows the tariffs the utilities are
paying for gas on that line. Amendment 2 would further provide
that contracts with non-utility shippers be submitted to RCA
under confidentiality as commercial agreements, and that the RCA
will compare the tariffs charged to the non-utility customers
with the weighted average of the tariffs charged to the utility
customers; the tariffs charged to non-utility customers cannot
be higher than those charged to utility customers. The purpose
in doing this is to give some assurance that a shipper - for
example, a large commercial shipper that is also part owner of
this pipeline - is not increasing tariffs to where that shipper
can reduce the netback value of its gas on the North Slope,
which is where the gas is valued for state tax purposes. The
sponsors understood this to be a concern of the committee and
wanted to address it. The RCA would have a 30-day window to
conduct the comparison; this short time period is because it is
a simple mathematical comparison of the average tariffs for
utilities and non-utilities.
1:48:33 PM
REPRESENTATIVE P. WILSON surmised that there would not be
utility customers right away to which a comparison could be
made. She therefore asked whether the comparison would be made
after the pipeline is built and the contracts are in place.
MS. DELBRIDGE replied that a public utility in Alaska has
several options, should a project go to open season: the
utility could commit to capacity, the utility could buy space on
the pipeline and ship the gas itself that is purchased from a
producer before that gas goes into the line, or the utility
could arrange for a middleman to ship the gas and the utility
would buy the gas at the end. That middleman might consolidate
several small contracts and arrange for shipping and buy space
in the line. Whichever the option, it would need to be
determined in large part at the time of making precedent
agreements, because either the public utility is going to have
to sign an agreement for space in the line or another shipper
will have to sign on the utility's behalf. If another shipper
signs, it would want those utility agreements in place to buy
the gas that the shipper is going to ship to support that
commitment to buy space in the line.
JOE DUBLER, Vice President, Alaska Gasline Development
Corporation (AGDC), Director of Finance, Alaska Housing Finance
Corporation (AHFC), Department of Revenue (DOR), offered his
belief that Representative Wilson is talking about utility
customer contracts between the utility and the users of the gas.
However, the contracts being discussed here are between the
pipeline and the utilities, which are done very early in the
process before construction even begins. Therefore, it would
definitely be known very early in the process who the shippers
will be and how much they will be paying.
1:51:03 PM
REPRESENTATIVE P. WILSON surmised that the non-utility and
utility customers could be the same customers.
MS. DELBRIDGE responded not necessarily, the public utilities
can ship gas in a pipeline as can other users such as a large
industrial user. A public utility does not have to buy pipeline
space, it could arrange for a middleman to buy the space and
ship the gas to the utility. Either way, there has to be some
sort of a contract in place early that says there is an end-user
for the gas that is going to be shipped. The pre-approval that
utilities have to take to the RCA is simply the public utility
saying, "RCA we want to participate in this project, we're
investing a lot of money in this, we need to know that you are
going to approve our rates later when we charge our customers,
our ratepayers, for this gas."
1:52:28 PM
REPRESENTATIVE P. WILSON said she was meaning that the owners or
partial owners of the pipeline could be the producers and they
could be shipping gas down the line.
MS. DELBRIDGE explained that a producing company could create
another component of its business that buys part of this
pipeline and ships gas on behalf of that producer entity. As is
similar with other pipelines, there would be real firewalls in
place so that there is a separation between the entity that
produces and the entity that ships.
MR. DUBLER added that Amendment 2 would create a system to
prevent a producer that is also an owner in the line from
raising the tariff so high that there is no netback on the North
Slope and therefore no tax owed to the state on the gas. He
noted that Co-Chair Seaton worked closely with [the sponsors] to
come up with this amendment to prevent that from happening.
CO-CHAIR SEATON understood that the rate would not be higher for
the commercial customer than for the weighted average of the
utilities, weighted being the volume. This would prevent a
producer that has high costs from writing off the costs against
its gas, thereby lowering the production tax value at the
wellhead, which would lower the royalty and the production tax
value on which state tax is collected.
1:55:17 PM
CO-CHAIR SEATON requested Ms. Delbridge to address whether there
could be a circumstance in which a commercial customer would
have a much lower tariff than would the utilities.
MS. DELBRIDGE answered there is a good chance that a commercial
customer tariff will be lower if that customer is arranging to
ship a quantity of gas that is substantially higher than that of
a utility. Alaska's utilities do not use an excessively large
volume of gas compared to what a gasline would be able to ship.
A single industrial user could theoretically use as much gas as
would a whole region of utilities. Generally in commercial
negotiations, committing to ship a larger amount of gas will get
a better rate for the gas. When looking at just and reasonable
rates, part of what the RCA looks for is that large volume
shippers generally are due a lower tariff.
1:56:49 PM
CO-CHAIR SEATON presumed that just and reasonable would not be
such a low tariff that it would mean the tariff to utilities
would have to be substantially higher than the weighted average.
MS. DELBRIDGE replied that within those commercial negotiations,
whoever owns the pipeline will make sure that those tariffs are
competitive for any shipper so that the owner can in fact have a
pipeline project that is commercial.
1:57:28 PM
REPRESENTATIVE GARDNER described a hypothetical situation in
which a relatively small pipeline is built and the utilities
have purchased 40 percent of the capacity and 60 percent is
going elsewhere. If somewhere down the road this pipeline is
doubled in size for one shipper, she surmised that that shipper
could get a tariff rate that is a great deal less than that
which the utilities are locked into already.
MS. DELBRIDGE confirmed that potentially this is a possibility.
She explained that expansion at some future time would be up to
the pipeline owners because under HB 9 the pipeline would be
exempted from common carrier and would have no requirement for
mandatory expansion. The rate structure on how an expansion
would be handled would tend to benefit every shipper because the
more volume being shipped the lower the rates generally go. How
future expansions might be reflected would be written into those
initial commercial contracts with the shippers.
1:58:36 PM
CO-CHAIR SEATON understood that if a shipper came in for
expansion and had a very low tariff rate, that would mean the
production tax value and the royalty value would be higher, so
higher royalty and taxes would be paid than if there was an
offset of the weighted tariff paid by the utilities.
MS. DELBRIDGE concurred and noted that the state has a lot of
competing interest when it comes to developing a resource for
commercialization versus supporting the concept of in-state use
of natural gas by customers in Alaska or industry.
1:59:40 PM
REPRESENTATIVE P. WILSON understood that royalties are paid to
the state. She asked whether the state would be paying for all
or part of the pipeline with state money, or would bonds be
issued to pay for the pipeline so that state money is not used.
MS. DELBRIDGE confirmed the state collects a royalty on gas
produced and said that that gas would likely be fed into this
gasline. The state could be an owner of this line, but does not
necessarily have to; that is part of the ownership and operating
agreements yet to be determined as AGDC is allowed to progress
the commercial process.
2:00:43 PM
REPRESENTATIVE P. WILSON said she is concerned about the
royalties for the state and asked how this would work out if at
the same time the state is going to be paying for some of this.
MS. DELBRIDGE replied that HB 9 would provide AGDC the authority
to issue revenue bonds, which would be an instance where the
state would not directly write a check to the company or entity
building the pipeline. However, AGDC may ask the state for the
equity portion of that debt that it is issuing, but then the
state would be expecting that return on its equity investment.
She deferred to Mr. Dubler for further explanation.
MR. DUBLER explained that pipelines like this can be financed
two different ways. One way is through equity contributions of
the owners, which is where the owners actually put their own
money into the pipeline. The second way is that the owners go
to the debt market and borrow money to finish the construction.
The two different financing sources are important because, in
this case, debt is a lot cheaper than equity. The equity
portion generally returns about 12 percent to the equity owners,
but debt is about half of that. Therefore, the state would want
to have as much debt in the project as possible, which is why
AGDC has proposed a structure of 70 percent debt to 30 percent
equity. If the state chose to put money into this as an equity
partner, it would get a return on its investment. If the state
wanted to get the same return as other partners or other typical
pipeline owners, it would get a 12 percent return. He pointed
out that it will be a policy call at that time as to whether the
state wants to receive 12 percent equity return or wants to keep
the tariff low. The remainder would be debt and that would be
roughly half of the 12 percent.
2:02:51 PM
REPRESENTATIVE P. WILSON asked how much is possibly being talked
about for the equity portion.
MR. DUBLER answered that at a 70:30 debt-equity ratio for a
project of $8 billion, the 30 percent portion would be about
$2.4 billion. The state or some equity partner would put up the
$2.4 billion. The equity partner would likely be a combination
of the producer or the pipeline company that owns and manages
the gasline. The remaining $5.6 billion would come from the
debt market.
2:03:37 PM
REPRESENTATIVE P. WILSON inquired who makes the decision on how
that will play out.
MR. DUBLER replied that the decision would be made by AGDC. The
AGDC staff would recommend to the board what should be done,
based upon the economic conditions at the time. For example, in
five years when AGDC begins construction and looks to the
markets for capital, circumstances could be that a 70:30 debt-
equity ratio is not beneficial. The companies that would
typically partner in an arrangement like this could be short of
capital and might require a much higher return, in which case it
could be a ratio of 80:20 or 90:10. However, he thought it
unlikely that the beneficial ratio would be different than
70:30.
2:04:45 PM
REPRESENTATIVE P. WILSON asked whether the money would come from
the board's own organization or would AGDC ask the legislature
for the money and the legislature would decide.
MR. DUBLER responded that, to the extent that AGDC was to look
to the state to participate as an equity owner in any
percentage, it would be subject to appropriation and would go
through the legislative process and to the governor for
approval. Any state contributions, any state money that is
spent on this project, is subject to appropriation. Every
contract AGDC signs is subject to appropriation. Everything
comes back to the legislature.
2:05:37 PM
CO-CHAIR SEATON, in regard to the debt-to-equity relationship,
noted that AGDC is required to get a pipeline at the best
possible deal to the state. Given the current bill structure,
he asked whether AGDC understands that it must arrange the
financing in a way that will provide the cheapest gas to
Alaskans.
MR. DUBLER confirmed this is correct and said that is why AGDC
pointed out in its report that 100 percent debt would be
cheapest and recommended that. Since then, however, he has met
with several pipeline companies and none wanted to participate
in a pipeline in which they did not have some equity. The
companies make money utilizing their capital in projects like
this and therefore they like the 12 percent return. While the
100 percent would yield the absolute best tariff for Alaskans,
AGDC does not currently think that that is a commercially viable
option for this pipeline.
2:07:05 PM
MR. DUBLER, in response to Co-Chair Seaton, confirmed that HB 9
requires a minimum of 70 percent debt.
CO-CHAIR SEATON pointed out that in other contracts, such as the
Alaska Gasline Inducement Act (AGIA), the state has used a 70:30
debt-equity ratio to maintain low tariffs.
2:07:59 PM
REPRESENTATIVE MUNOZ understood that HB 9 limits the shipment of
gas to 500 million cubic feet [per day] because of AGIA.
MS. DELBRIDGE nodded yes.
REPRESENTATIVE MUNOZ, continuing, noted that Alaskans may want
to reconsider the size and scope of this project should the
state not get a larger pipeline through AGIA, the provisions of
which end in 2016. She inquired whether there is enough
flexibility in HB 9 to reconsider size and market demands if the
AGIA project fails.
MS. DELBRIDGE prefaced that the sponsors have been very, very
careful through HB 9 to absolutely acknowledge that AGIA is the
law of the land and that there is nothing that the sponsors
intend to do to violate the 500 million cubic feet per day limit
that is inherent in that.
MR. DUBLER explained that AGDC did a preliminary expression of
interest in 2011 and the interest expressed was at about 500
million cubic feet a day, so that looks like that is what the
market for this pipeline is. It is important to keep in mind,
he stressed, that Alaskans cannot decide how big this pipeline
is going to be, the market will decide how big this pipeline is
going to be - unless the state contributes the difference.
While the main purpose of this pipeline is to get gas to
Alaskans, there must still be a market at the other side to take
all the gas that is shipped. He said AGDC has not seen interest
expressed to exceed the 500 million cubic feet per day; to the
extent AGDC did, and the restrictions were not in place, it
would behoove everybody for AGDC to upsize the pipe.
2:10:22 PM
CO-CHAIR SEATON interjected that two factors are being dealt
with, one being pipe size and one being compression. While the
pipeline design is for 500 million cubic feet per day, HB 9 does
not have any restrictions for coming back with additional
compression to carry more or to go to looping, if in the future
the AGIA standards are no longer there.
MR. DUBLER added that if there was a desire for shippers beyond
the half billion cubic feet per day, those interests would come
out via the governor's realignment of the AGIA process to
tidewater, and that line would produce a much larger throughput
than would this project. As it is currently set up, the AGIA
process with the realignment would take advantage of that market
if it is there.
CO-CHAIR SEATON further pointed out that if a larger pipeline
went to Valdez, AGDC would then probably function on the spur
line coming to Southcentral or that Cook Inlet gas was going
into that pipeline. If the AGIA pipeline goes ahead, HB 9 would
still have functionality in the future because there are other
places that gas needs to be delivered besides Valdez.
MR. DUBLER nodded in agreement.
2:13:04 PM
CO-CHAIR FEIGE said the discussion here is the difference
between the intention of what the line will be operated at and
what the line's design limit is. He asked whether the AGIA
people would file suit if a plan was put into place that would
operate the pipeline at half a billion cubic feet per day, but
the line was designed to transmit more gas per day.
MR. DUBLER replied that a suit could be brought for anything.
As AGDC is designing it, this line could have compression added
to move a higher volume. As currently designed, the line would
have two compressor stations and would be 24-inches in diameter
at 2,500 pounds per square inch. The limit for this design is
half a billion cubic feet per day, which AGDC believes does not
conflict with the restrictions set forth in the AGIA statutes.
CO-CHAIR FEIGE inquired whether TransCanada has given AGDC its
blessing on this design.
MR. DUBLER responded that AGDC has had discussions with
TransCanada and to his knowledge that subject has not come up in
those discussions.
2:15:06 PM
MS. DELBRIDGE returned to her explanation of Amendment 2,
directing attention to page 2, lines 4-5, of the amendment,
which reflect to page 19 of HB 9, Version S. She noted that on
2/24/12 there was committee discussion as to whether the RCA
"shall" or "may" require hearings and investigations if a public
utility brings a pre-application request to the RCA. In
speaking with the RCA attorney in the Department of Law, as well
as others, the sponsors realized that requiring the RCA to hold
investigations and hearings was not the committee's intent. She
offered her belief that the committee's intent was to require
the RCA to act on an application and, in doing so, to hold
hearings and investigations if the RCA sees fit. Therefore, the
sponsors wanted to put on the table this part of Amendment 2
that requires RCA to act on these applications and that it "may"
hold hearings and investigations in doing so.
CO-CHAIR SEATON thanked Ms. Delbridge for that clarification.
2:16:34 PM
CO-CHAIR SEATON recalled that RCA has 180 days for the precedent
agreements. He observed that page 2 of Amendment 2 would
provide the RCA with a 30-day timeline for making a
determination on submitted agreements. Commenting that 30 days
seems very short, he asked what the conversation was between the
sponsors and RCA attorneys in this regard.
MS. DELBRIDGE explained that 180 days is the time period the RCA
would have to respond to a public utility asking for pre-
approval. Pre-approval could be a complex matter because the
RCA would need to open a docket, get into the details, and
figure out what goes into the tariff. It is a process that
takes a little while, but the sponsors wanted to limit that to
180 days so it would not be so ongoing that it could hold up
this project. The sponsors believe that 180 days is adequate
time. The 30 days is specifically, and only, for when a non-
utility customer submits a contract and asks the RCA to
benchmark that tariff against the weighted tariff of these other
utility contracts. That is simply weighing math and 30 days
seemed quite reasonable. She deferred to Tina Grovier, an
attorney working for AGDC, to provide further information in
this regard.
2:18:27 PM
CO-CHAIR SEATON requested Ms. Grovier to address whether 30 days
would be adequate for the RCA.
TINA GROVIER, Attorney, Natural Resources and Energy Law, Birch
Horton Bittner & Cherot, Counsel to Alaska Gasline Development
Corporation (AGDC), stated she represents AGDC and in her
discussions with the Department of Law the particular topic of
the number of days did not come up. She therefore presumed that
it was acceptable to "them".
CO-CHAIR SEATON asked whether that was Department of Law
attorneys or RCA attorneys.
MS. GROVIER replied that the attorney is the RCA's counsel, but
in this context he is providing advice, as she understands it,
of the Department of Law consulting with the legislature.
CO-CHAIR SEATON inquired whether the Department of Law had a
copy of Amendment 2 when Ms. Grovier was talking with the
attorney.
MS. GROVIER confirmed that the department did.
CO-CHAIR SEATON, noting that he was seeing people shaking their
heads [in the committee room], said he wanted to make sure that
the Department of Law had the 30 days before it when Ms. Grovier
was having that discussion and that the department did not raise
issues.
MS. GROVIER stated that when she discussed this provision with
Mr. Goering he had the language before him and it had the 30-day
provision in it and that was not a topic of discussion between
them.
2:20:48 PM
REPRESENTATIVE GARDNER understood that the RCA did not
participate last week and inquired whether the commission has
any problem with the 180-day time limit.
MS. DELBRIDGE offered her understanding that the RCA, as a body
with five commissioners obligated to carry out the state's laws,
is not always inclined to weigh in on a policy level when a bill
is underway. However, the sponsors could request that it do so.
She related that in the sponsors' and Ms. Grovier's experience,
it is believed that these are reasonable timeframes.
MS. GROVIER pointed out that the timeline of 6 months, or 180
days, is a standard provision in RCA timeline statutes. She
said the RCA generally only exceeds that timeline in
particularly complex matters, such as rate redesign or complex
tariff matters.
2:22:25 PM
CO-CHAIR SEATON said he still has concern on the 30 days and
would like to get AGDC's understanding as to whether 30 or 60
days makes a difference in the operation and function of these
kinds of things. He presumed things do not move fast in these
negotiations and he did not know how often the RCA meets.
MR. DUBLER answered that his initial thought was five days was
adequate because it is a simple mathematical comparison of one
number to another. While 30 days is a reasonable time period to
AGDC, he thought a time period of 45 days would not cause AGDC a
problem.
MS. DELBRIDGE added the RCA is a very engaged commission that
meets regularly through every week, so protection is provided
there. She suggested if the committee wants to change the 30
days, that a very tight timeline be kept because these will be
coming before the RCA very close to the point at which AGDC and
its commercial team need to resolve these kinds of conditions,
such as RCA approval, to sign the firm commitments that AGDC can
then take to the bank for financing to build the line. Because
things will be moving quickly for AGDC, the sponsors would like
to ensure that state regulatory things are not lingering.
2:24:41 PM
REPRESENTATIVE P. WILSON surmised that if the RCA was in the
middle of something else, this would force it to set that aside
and deal with this first.
MS. DELBRIDGE answered Amendment 2 directs that the RCA shall
approve by order. She understood this to mean the RCA would
simply need to issue an order that says the rates are either
equal to, less than, or higher than [the weighted-average firm
transportation rate]. An order would not necessarily require
public hearings or a lengthy investigation.
MR. DUBLER added that if the RCA was so wrapped up in another
case that it could not absolutely write anything down, the
default would be that the RCA could look at the numbers without
writing up an order and after 30 days it would become accepted
by default. If the RCA looked at the number and it was higher,
the RCA could issue an order that it did not comply and then it
could be fixed. This provision does not require the RCA to do
anything except look at it.
CO-CHAIR SEATON said the committee has flagged this issue, so if
the 30 days is a problem the RCA is being put on notice to bring
up the issue.
2:26:44 PM
CO-CHAIR SEATON stated that [Amendment 2] addresses much of the
problems foreseen by the committee that protection is built into
the bill that AGDC not only exercise its authority to get cheap
gas, but that there be review of this under statutory
requirement. He offered his thanks to the sponsors for coming
forward with a mechanism to do this.
REPRESENTATIVE P. WILSON inquired whether in Version S the
utilities and non-utilities are handled under different statute
numbers, or where Version S actually states that both the non-
utility and the utility will be dealt with.
MS. DELBRIDGE replied that the language in Amendment 2 would be
inserted into Version S after the sections that were discussed
on 2/24/12 that require utilities negotiating contracts with
AGDC to submit those [to the RCA]. In further response, she
said that this is stated in Section 25 of Version S. The non-
utility is addressed under Amendment 2, page 2, line 13, and the
actual term on line 13 for a non-utility is "an entity that is
not a public utility".
2:29:46 PM
REPRESENTATIVE P. WILSON removed her objection to Amendment 2.
There being no further objection, Amendment 2 was adopted.
The committee took a brief at-ease.
2:31:23 PM
CO-CHAIR SEATON withdrew Amendment 1, saying it would not be
offered at this time.
The committee took another brief at-ease.
2:32:42 PM
CO-CHAIR SEATON moved to adopt the Letter of Intent for HB 9,
dated February 27, 2012.
REPRESENTATIVE P. WILSON objected for purposes of discussion.
CO-CHAIR SEATON read aloud the Letter of Intent, written as
follows [original punctuation provided]:
It is the Intent of the Legislature that a pipeline
operating agreement negotiated by the Alaska Gasline
Development Corporation and shippers under the
authority of HB 9 will to the greatest extent possible
not be held as confidential except to protect trade
secrets or direct competitive advantage.
2:33:26 PM
CO-CHAIR SEATON explained that AGDC has been told to build the
cheapest line possible, or the cheapest gas to Alaskans, but
AGDC must come back to the legislature if there is going to be
any state investment in a pipeline. He recalled that when the
legislature was considering the Alaska Stranded Gas Development
Act, it found that the operating agreement for that pipeline was
confidential and the legislature and the public could see the
terms. Thus, there was great reluctance to approve putting
money into something so confidential that the legislature did
not know what it was approving. He said the purpose of this
Letter of Intent is to say that unless there are trade secrets
or direct competitive advantage, AGDC will negotiate from the
position of having the information available to the public.
Presuming the pipeline goes forward and the pipeline contract
comes back to the legislature for a decision to put in money,
this Letter of Intent states that the legislature will have the
information publicly available to discuss and can make a
decision that all constituents will understand because they can
see the information too.
2:35:15 PM
REPRESENTATIVE P. WILSON pointed out there have been other
Letters of Intent that were not thought about in the way
intended. She asked whether a conceptual amendment could be
proposed that would do the same thing.
CO-CHAIR SEATON shared that in working with the sponsors, the
sponsors would like to have the intent language drafted into an
amendment. However, the sponsors would like to do this going
forward because an amendment has not been drawn up now. He
understood that it is the sponsors full intention to have a
"disclose section" and that this will be done in the next
committee or somewhere along the line of process. This Letter
of Intent is the committee's way of encouraging that in the next
committee.
REPRESENTATIVE P. WILSON asked whether the sponsor will put that
on the record so the committee knows it is going to happen.
TOM WRIGHT, Staff, Representative Mike Chenault, Alaska State
Legislature, on behalf of Representative Chenault, prime
sponsor, confirmed that the sponsors are looking at an intent
section and this intent will be evaluated along with all the
other intent disclosures as the bill is moved through the
process.
2:37:06 PM
REPRESENTATIVE KAWASAKI inquired whether the confidentiality
exceptions extend only to the discussion on HB 9 or to AGDC as a
total.
CO-CHAIR SEATON replied that AGDC is getting the authority to
negotiate the pipeline deal through HB 9, so the intent of this
would be that those operating agreements for any pipeline
proposed by AGDC would, to the maximum extent possible, be open
to the public and would not be confidential documents.
REPRESENTATIVE P. WILSON removed her objection to the Letter of
Intent. There being no further objection, the Letter of Intent
was adopted to be sent with the bill.
CO-CHAIR SEATON moved to public testimony.
2:39:47 PM
ALAN LEMASTER, Businessman, stated he has been a small
businessman in the Copper Valley for about 30 years and it has
been a struggle. He said that struggle is shared with many of
his good friends and neighbors, some of whom have come and gone
and some who, like him, have managed to stay on but still
struggle. The primary reason for this struggle is the high cost
of energy caused by electricity generated from diesel engines
the majority of the year. With no contribution from the state
to equalize those high costs, Gakona residents pay 2-4 times the
rate applicable in other sectors of the state. He said he
opposes HB 9 because, in his view, it threatens at so many
levels the responsibility in charge of the very people who are
attempting to obey the state mandate approved by voters. Ballot
Measure 3 was passed in November 2002 by 138,353 voters, a 62
percent majority of the voters in that election. That vote
established the Alaska Natural Gas Development Authority (ANGDA)
to provide the following services: acquire and condition North
Slope gas; design and construct a pipeline system; operate and
maintain the pipeline system; design, construct, and operate
other facilities necessary for delivering gas to market and to
Southcentral Alaska; and acquire natural gas market share
sufficient to ensure the long-term feasibility of the pipeline
system.
2:41:41 PM
MR. LEMASTER said another important provision in that act was
that ANGDA may not be terminated as long as it has bonds, notes,
or other obligations outstanding. He submitted that unless and
until the line is built and providing the greatest number of
Alaskans with the lowest cost energy available, ANGDA's
obligations continue and are outstanding. The statute also
states that ANGDA has the authority and the responsibility to
study, develop, construct, and maintain the pipeline. In
ANGDA's wisdom, it calls for the pipeline to be built along the
Trans-Alaska Pipeline System (TAPS)/Richardson Highway corridor
from the North Slope to Valdez with a spur line to Anchorage.
Such a pipeline would provide natural gas to the greatest number
of Alaskans, export as much gas as reasonable after Alaskans'
needs are met, and would provide Alaska with significant profits
from the sale of that gas to Pacific Rim countries or anyone
else interested in this resource.
2:42:43 PM
MR. LEMASTER said he also believes that it is the authority and
responsibility of the legislature and the administration to
support this effort by providing ANGDA with a fully staffed
board of directors and the necessary funding to continue this
work to fruition. He therefore asked what gives the sponsors of
HB 9 the authority to, in essence, sunset ANGDA without the
permission of the voters of the state and in that process
appropriate ANGDA's work into the Alaska Housing Finance
Corporation with a bill that seemingly is to be the foundation
of a smaller, more expensive, less effective pipeline commonly
known as the "bullet line", designed to be routed along the
Railbelt to serve primarily Anchorage? In his view, it would be
better for Alaskans if the sponsors would withdraw HB 9 and
redirect their efforts towards bringing natural gas to the
greatest number of Alaskans at the lowest cost available under
ANGDA's model. The democratic system of government was designed
not to be run from the top down, but rather from the bottom up.
In 2002 the people at the bottom directed the people at the top
to build a gasline under the auspices of ANGDA. It is now the
legislature's turn to act.
2:44:30 PM
PARK KRINER, President, American Village of Alaska; Caribou
Hotel, Restaurant, and Gift Shop, testified that he also has a
gas station and grocery store and employs 50-60 people in the
summer and about 30 in the winter. He said he has been in
Glennallen for 41 years and, like Mr. LeMaster, has struggled
and struggled because of the high energy cost. Last year, the
electric bill for his company, consisting of several different
entities, amounted to about $240,000. He said he has been
assured by Mr. Wilkemson (ph) that if the state gets a gasline
and the generator engines are switched over to gas, which is
easy to do, his company's light bill would be reduced to
$40,000-$50,000 a year. The $200,000 in savings would then be
used for expansion and hiring, and the trickle down would affect
every business in the Glennallen community. He noted that he is
one business along the pipeline route from the North Slope to
Valdez, the route that he is supports. He urged members to
consider the dozens of schools, hospitals, and businesses all
along that route that would be helped by the lowering of light
bills by 4-5 times from current costs. Those businesses would
also be more successful in hiring, building, and expanding, not
to mention the shipping to markets all over the globe from the
Valdez deep water port.
2:46:46 PM
MR. KRINER reminded members that 138,000 Alaskans supported the
all-Alaska gasline from the North Slope to Valdez when they
lobbied at the ballot box years ago. Attention should also be
paid to people like former governors Egan, Hickel, and Hammond,
as well as U.S. Senator Ted Stevens, all of whom supported the
all-Alaska gasline after years of study. Common sense dictates
that the North Slope to Valdez route is far superior to any
other alternative in every aspect that has been considered. He
urged getting rid of HB 9 and moving ahead with a line to Valdez
that is supported by respected people. He added that the recent
Cook Inlet find is one more reason for supporting a gasline from
the North Slope to Valdez because Cook Inlet would support the
Matanuska-Susitna Valley.
2:48:43 PM
MERRICK PEIRCE noted that he is speaking today on his own
behalf, but he is a board member and CFO of the Alaska Gasline
Port Authority (AGPA). The questions he posed to the committee
in February remain the same and remain unanswered. He asked
when the committee is going to address the most fundamental
question, which is that HB 9 seeks to build a gasline at
enormous cost to Cook Inlet, in which there is a 200-250 year
supply of gas. He further asked when the committee will hear
from those who believe that 20 trillion cubic feet of natural
gas may lie under Cook Inlet. If the estimates of Cook Inlet
gas reserves are only half right, there are 100 years of gas
supply at current Railbelt usage. There is zero credibility to
this process of vetting HB 9 if this fundamental question
continues to be ignored. The excessive rate of return on equity
that would be allowed under HB 9 is a tragic mistake. He said
FERC typically allows returns on equity of up to 14 percent,
which means that for every $1 billion of invested equity, the
investors would earn $140 million per year. At a typical 70:30
debt-equity ratio and a $10 billion price tag, the $3 billion
equity investment would cost Alaska gas users $420 million per
year, plus the cost of the gas, the other pipeline
transportation costs, and DNR costs.
2:50:38 PM
MR. PEIRCE maintained that applying this approach of high rate
of return on invested equity to the state's highways, airports,
and other infrastructure is not done because it would destroy
the state's economy. Alaska asks for no return on equity for
public infrastructure. For example, if the methodology used in
HB 9 was used to build the Parks Highway, the highway would have
to be turned into a toll road and almost $400,000 in tolls would
have to be raised per day every day forever. How many people
could afford to drive the Parks Highway if something that
foolish was done? To make matters worse, that toll would be
collected in Alaska and transferred to whatever multi-national
company had made this equity investment. So the question is why
the state would want to apply this approach to this or any other
gas pipeline. Affordable energy is every bit as critical to
Alaskans as are the state's highways, airports, and ports.
Alaska will always have the longest, coldest winters in the U.S.
and Alaska would place itself at a profound competitive
disadvantage if everything possible is not done to ensure that
Alaskans have the most affordable energy. Paying for a pipeline
with double digit rates of return in invested equity is akin to
buying a house and charging the house to a credit card. A high
rate of return on equity reduces the value of Alaska's North
Slope gas, and with trillions of dollars in North Slope gas
value the state has a compelling interest in protecting that
value. It even raises the question that HB 9 violates Article
VIII of the Alaska State Constitution by avoidably diminishing
the value of the state's resources and denying Alaskan's maximum
benefit.
CO-CHAIR SEATON closed public testimony after ascertaining that
no one else wished to testify on HB 9. He invited the sponsors
to speak on the bill.
2:53:10 PM
REPRESENTATIVE MIKE CHENAULT, Alaska State Legislature, refuted
the earlier assertion that there is an estimated 250 years of
gas supply in Cook Inlet at 20 trillion cubic feet of gas,
saying that that gas has not been found. He understood that the
current Cook Inlet gas infrastructure has used between 7 and 8
trillion cubic feet of gas in the last 40 years; therefore if 10
trillion cubic feet was found there could be a 40-year supply.
The real issue is how many billions of dollars in exploration
costs it will take to find that gas and whether it will be
economical at that time. He said HB 9 is a continuation of
House Bill 369, which was introduced because it was the only
option that Alaska had available to move in-state gas forward in
regard to the AGIA process. He asserted that people are getting
lost in the minutia when talking about the size and other
details, although he is not adverse to a lot of the changes made
by the committee in the past few days.
2:55:21 PM
REPRESENTATIVE CHENAULT acknowledged that he cannot say whether
this project will go forward, but that he can say it is the only
project he sees that is moving right now that could provide gas
to Alaskans. While it may not be the size or route or price
that is wanted, it would bring Alaska 100-200 years supply from
a confirmed gas source that would bring cheaper gas to Fairbanks
and other areas. He allowed that it will not affect a lot of
areas in the state tomorrow even if the gas were turned on
tomorrow, but said that if nothing is ever started there will
never be a result. As long as this project is moving forward,
Alaska has an opportunity to get gas. Economics will drive the
size of the gasline and its route, whether legislators like it
or not. While not all the questions have been answered, the
majority has, and the bill will likely change again before it
gets to the floor. The AGIA process is already investigating a
route to Valdez, so why duplicate that project? If that project
becomes economically viable, that is the project that will move
forward. However, if that project does not become economically
viable, this is another option that will bring gas to Alaskans.
CO-CHAIR SEATON thanked the prime sponsor for bringing forward
HB 9 and invited Representative Hawker to speak.
2:58:04 PM
REPRESENTATIVE MIKE HAWKER, Alaska State Legislature, noted that
getting Alaska's North Slope natural gas to market has been a
vision of this state since the day construction ceased on the
Trans-Alaska Pipeline System about 35 years ago. There are
reasons this has not been done, he allowed, such as using the
gas on the North Slope for important purposes. However, it is
now time for legislators to take the actions necessary to make
that dream a reality. He offered his appreciation to
Representative Chenault for having the vision to bring forward
HB 9 and said he has been working with Representative Chenault
since the start of House Bill 369. He urged Alaskans to stop
struggling against each other on this issue and that there be a
converging of the different views. He said Representative
Chenault is the visionary and his office is doing the technical
work on the issues for a viable opportunity to build a natural
gas pipeline from the North Slope to Alaska. The vision in
House Bill 369, now manifested in HB 9, has been all about
getting politics out of the way and empowering engineers to
design the best project on the best route using the best
management practices possible to bring the best technical
outcome, rather than for politicians to be serving their own
best special interests. He said AGDC has brought forward the
project plan using the management science for megaprojects of
the [Independent Project Analysis Institute]. It is the only
project he has seen in his 35 years living in Alaska where a
project has been brought forward with a true plan to accomplish
its mission, a plan that uses formal best management practices.
That is something that is very important and is why this project
is postured for success.
3:01:31 PM
REPRESENTATIVE HAWKER stated that knowing how to measure success
is a very important part of the vision behind HB 9. The bill
does not constrain ideas or vision or the future. It is a bill
that allows the people that have to make the right engineering,
financial, and other decisions. The bill would provide a state
agency around which all these interests can converge to move a
project forward. This bill is all about eliminating competing
objectives and divergent ideas and providing the opportunity to
come together with a state agency that is postured in a very
powerful position and a very powerful seat at the table with the
producers and others interested in delivering gas into the
state. Through the marketing end that is brought together there
are potential customers overseas. He related that according to
the senior marketing representative from "ExxonMobil
Corporation," who made a presentation at last week's Lunch and
Learn, there is a niche in the world market for Alaska's natural
gas. Thus, HB 9 is not about saying no, it is about the
legislature finally having the chance to say yes to Alaska's
future. He complimented the committee for its work and offered
his appreciation for the committee's consideration of the bill,
which he hoped the committee would report today.
3:04:18 PM
REPRESENTATIVE P. WILSON expressed her concern that the Alaska
Housing Finance Corporation (AHFC) is already a big organization
and HB 9 would require its board of directors to now oversee two
big organizations. She added she is pleased that the sponsors
have agreed to work on an amendment regarding confidentiality,
excepting the protection of trade secrets or direct competitive
advantage, which would protect everybody without keeping it
totally confidential.
REPRESENTATIVE HAWKER allowed he has the same concern about this
entity sharing common management with the board of directors of
the AHFC. However, in looking at how to structure a future
board, the board would likely include the state commissioners
that are already on the AHFC board of directors. He offered his
opinion that the AHFC is the single best managed organization in
Alaska and that the AHFC board of directors is eminently
qualified to take this work forward as a board of directors. He
pointed out that the entity will have its own internal
management team that is dedicated 100 percent of the time to
making the AGDC project and process move forward. An important
argument at this time for not changing the management at the
level of the board of directors is that the ongoing federal
environmental impact statement (EIS) and regulatory processes
would be compromised by a change in the management and the
timeframe would be set back. Once the missions have been
accomplished in the future, it might be time to look into
changing that management and establishing AGDC as a more
autonomous function.
3:07:33 PM
REPRESENTATIVE KAWASAKI, in regard to comments that HB 9 would
provide options, pointed out that the route selection is pretty
specific and would miss Fairbanks by nearly 40 miles. He
maintained that Fairbanks, the second largest city in Alaska and
a city dealing with high energy costs, is cut out of this
particular plan. He observed that the AGDC executive summary
specifically states that this project plan is the final route
and no more study or analysis of route selection should be
undertaken by AGDC or any other state agency. He therefore
asked how energy will be delivered to Interior Alaska.
REPRESENTATIVE HAWKER replied that before gas can be distributed
to any community in the state, there must be backbone that
brings gas through the center of the state and this project
would be exactly that. The mission statement for AGDC is to
make that backbone happen and to look at developing the
distributive infrastructure necessary to reach communities.
3:09:36 PM
REPRESENTATIVE MUNOZ moved to report the proposed committee
substitute (CS) for HB 9, version 27-LS0075\S, Nauman/Bullock,
2/25/12, as amended, out of committee with individual
recommendations and the accompanying fiscal notes.
CO-CHAIR FEIGE objected, saying that page 2, Section 1, of the
bill essentially mandates AGDC to follow the project plan as
currently established. House Bill 369 did not ask for the
pipeline route with the maximum benefit; rather, it asked for
the economically feasible route. The bullet route directly to
Anchorage was less expensive; however, the maximum benefit has
somehow bypassed his district. This is unfair to his district,
in which there is significant opposition to HB 9. As in
Fairbanks, the temperatures in his district reach 40 degrees
below zero and the population has declined primarily due to the
lack of industry and the high cost of energy. Bypassing the
people of his district is essentially writing off that part of
the state, so in good conscience he cannot vote to allow the
bill out of committee.
3:11:11 PM
REPRESENTATIVE KAWASAKI said it boils down to ANGDA, which was
overwhelmingly established by two-thirds of the state's voters.
The measure that passed in 2002 outlined specific things, such
as: how to use the state's royalty gas, which is not a
consideration of AGDC; how revenue sharing with municipal
governments would work, which is not proposed or supported by
AGDC; plan for delivering natural gas to communities along the
pipeline route and consequently a spur line to Southcentral
Alaska, but [another] route has been pre-ordained by AGDC; a
plan for delivering and pricing LNG to the Yukon River and
coastal communities, which is not important to AGDC. By pushing
through HB 9, ANGDA would be thrown under a different board of
directors. He said he supports ANGDA's continued help and
thinks this legislature ought to as well.
3:12:50 PM
A roll call vote was taken. Representatives Herron, Munoz,
Foster, Dick, Seaton, and Wilson voted in favor of reporting
Version S, as amended. Representatives Gardner, Kawasaki, and
Feige voted against it. Therefore, CSHB 9(RES) was reported
from the House Resources Standing Committee by a vote of 6-3.
3:14:09 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:14 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 9 Version U.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 9 |
| HB 9 Sectional, version U.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 9 |
| CSHB289 version I 2 21.pdf |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| HB289 version A.pdf |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| Explanation of Changes version A to Version I 2.22.12.docx |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| HB 289 Sponsor Statement.docx |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| S.pdf |
HRES 2/27/2012 1:00:00 PM |
HB 9 |
| Memo 12-070.med.pdf |
HRES 2/27/2012 1:00:00 PM |
HB 9 |