Legislature(2015 - 2016)CAPITOL 106
10/30/2015 08:00 AM House RESOURCES
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| Audio | Topic |
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| Start | |
| Overview: Alaska Gasline Development Corporation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
October 30, 2015
8:01 a.m.
MEMBERS PRESENT
Representative Benjamin Nageak, Co-Chair
Representative David Talerico, Co-Chair
Representative Mike Hawker, Vice Chair
Representative Bob Herron
Representative Craig Johnson
Representative Paul Seaton
Representative Andy Josephson
Representative Geran Tarr
MEMBERS ABSENT
Representative Kurt Olson
OTHER LEGISLATORS PRESENT
Representative Mike Chenault
COMMITTEE CALENDAR
OVERVIEW: ALASKA GASLINE DEVELOPMENT CORPORATION
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOE DUBLER, Vice President Commercial Operations
Alaska Gasline Development Corporation
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Continued the PowerPoint presentation
entitled, "Alaska LNG Project Participation," and dated
10/29/15, which was initially presented at the hearing on
10/29/15, and answered questions.
FRANK RICHARDS, PE, Vice President
Engineering & Program Management
Alaska Gasline Development Corporation
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: During the continuation of the PowerPoint
presentation entitled, "Alaska LNG Project Participation," and
dated 10/29/15, which was initially presented at the hearing on
10/29/15, answered questions.
KEN VASSER, General Counsel
Alaska Gasline Development Corporation
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: During the continuation of the PowerPoint
presentation entitled, "Alaska LNG Project Participation," and
dated 10/29/15, which was initially presented at the hearing on
10/29/15, answered a question.
JOHN BURNS, Chair, Board of Directors
Alaska Gasline Development Corporation
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: During the continuation of the PowerPoint
presentation entitled, "Alaska LNG Project Participation," and
dated 10/29/15, which was initially presented at the hearing on
10/29/15, answered questions.
FRITZ KRUSEN, Vice President Alaska LNG
Alaska Gasline Development Corporation
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: During the continuation of the PowerPoint
presentation entitled, "Alaska LNG Project Participation," and
dated 10/29/15, which was initially presented at the hearing on
10/29/15, answered questions.
DAN FAUSKE, President
Alaska Gasline Development Corporation
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: During the continuation of the PowerPoint
presentation entitled, "Alaska LNG Project Participation," and
dated 10/29/15, which was initially presented at the hearing on
10/29/15, answered questions.
ACTION NARRATIVE
8:01:27 AM
CO-CHAIR BENJAMIN NAGEAK called the House Resources Standing
Committee meeting to order at 8:01 a.m. Representatives
Johnson, Seaton, Josephson, Tarr, Herron, Talerico, and Nageak
were present at the call to order. Representative Hawker
arrived as the meeting was in progress.
^Overview: Alaska Gasline Development Corporation
Overview: Alaska Gasline Development Corporation
8:02:28 AM
CO-CHAIR NAGEAK announced that the only order of business would
be the continuation of an overview from the Alaska Gasline
Development Corporation initially presented at the hearing on
10/29/15.
8:04:38 AM
JOE DUBLER, Vice President Commercial Operations, Alaska Gasline
Development Corporation (AGDC), Department of Commerce,
Community & Economic Development (DCCED), continued the
presentation by AGDC on the liquefied natural gas project
(Alaska LNG). He displayed slide 19, entitled, "AGDC Special
Session Appropriations," which was a summary of the
appropriations requested by AGDC during the [Third Special
Session of the Twenty-Ninth Alaska State Legislature], and
informed the committee the capital appropriation totals $144.045
million, which is composed of $68.445 million to reimburse
TransCanada for its costs to date on the Alaska LNG project and
to buy out its midstream interest, and $75.6 million to fund the
state's full 25 percent share of the remaining pre-front-end
engineering and design (pre-FEED) phase of the project. An
additional component of the request is receipt authority to
allow AGDC to be reimbursed for geotechnical, geophysical, and
regulatory work that it has performed for the Alaska LNG
project. Reimbursements range from 80 percent to 100 percent,
depending on the data acquired. Mr. Dubler explained that the
statutory designated-program receipt authority would allow AGDC
to return the reimbursements to its Alaska LNG fund, and
continue its participation in the project. A further
description of the disposition of the appropriations request was
displayed on slide 20, which showed the original request of
$106.8 million was increased by additional appropriations that
were required for AGDC to complete the pre-FEED phase of the
project, such as scope changes, and aspects of the project that
will be done in pre-FEED that were not originally anticipated.
8:07:52 AM
FRANK RICHARDS, PE, Vice President Engineering & Program
Management, AGDC, DCCED, said the pre-FEED scope will increase
by $182 million - from the original estimate - to $694 million,
of which the state's portion is approximately $173 million: $66
million for the liquefaction plant and $107 million for the gas
treatment plant (GTP) and the pipeline. This work will advance
the pre-FEED portion of the project, and will provide
information and advanced-work activities that assist in the
"environmental process." He said this is critical in order to
have the best information available and thus be aware of risks,
and to provide robust information for the environmental impact
statement (EIS). Mr. Richards said the project is maturing
through the stage-gate process, and the aforementioned changes
will move some activities from the front-end engineering and
design (FEED) stage of the project into the pre-FEED stage for
better design and decision-making [slide 21].
8:09:38 AM
REPRESENTATIVE TARR expressed her understanding that the project
has stayed on budget during pre-FEED, with the exception of the
48-inch pipe scope study, and the pre-FEED period is being
extended beyond the second quarter of 2016, which was previously
the point at which the project was scheduled to advance to FEED.
MR. RICHARDS said correct. He added that the work items that
will be completed are shown on slide 22. The changes are
designed to prove the economics, improve the outcome of
environmental permitting, and provide better information for the
decision to move to the FEED phase. The first scope change is
to design optimization at the component level to lower costs,
and thereby improve the project economics. Also, additional
geotechnical and geohazard work at GTP and the liquefaction
plants will reveal a better understanding of the underlying
ground conditions. He advised that the increase in regulatory
and pre-bid work on FEED contracting helps to ensure the
environmental process is defensible, and also will complete
field work delayed by weather. Finally, this work is necessary
to bring 48-inch pipeline engineering and design up to the level
of that prepared for a 42-inch pipeline. Mr. Richards recalled
that House Bill 4 [passed in the Twenty-Eighth Alaska State
Legislature] tasked AGDC with developing pipelines and other
mechanisms for delivering natural gas and other non-liquid
hydrocarbons to the state. In this regard, AGDC has forecast
in-state natural gas demand, completed preliminary cost
estimates for gas off-take facilities, and sought to develop a
framework that will assist the legislature in evaluating the
cost of in-state gas deliveries [slide 23].
8:14:07 AM
CO-CHAIR TALERICO asked whether the locations of gas off-take
facilities have been identified.
MR. RICHARDS responded that a slide later in the presentation
will provide the actual cost of the off-take kits, and will
address the interconnection points that will allow for gas
deliveries in the state. He returned attention to slide 23, and
pointed out the AGDC board of directors authorized the formation
of a subsidiary capable of aggregating in-state gas demand. The
subsidiary would act as a state aggregator for small
communities, in order to negotiate with gas producers and with
the Department of Natural Resources (DNR), rather than having
individual small communities do so; in fact, producers would
likely prefer to work with one aggregating company regarding
sales agreements.
MR. DUBLER added that the greatest advantage to having an
aggregator negotiate with the producers and DNR is to attain a
larger volume delivery, thereby lowering costs. The advantage
to the producers is to avoid coming under the regulation of the
Regulatory Commission of Alaska (RCA), as the project is already
regulated under the Federal Energy Regulatory Commission (FERC),
and there would be duplicate regulation.
8:17:32 AM
REPRESENTATIVE JOHNSON asked to delve into AGDC subsidiaries.
MR. DUBLER said AGDC has created two subsidiaries, one of which
is intended to act as an intermediary between the smaller
utilities, producer parties, and DNR, and the second is an
asset-holding company created to hold the Alaska LNG assets that
are owned by AGDC. He explained that most corporations that
have different business ventures, separate the ventures into
separate subsidiaries, so that an impact to one venture does not
affect the corporation.
REPRESENTATIVE JOHNSON questioned whether one of the
subsidiaries can acquire new assets, such as buying gas at the
wellhead.
MR. DUBLER said to his knowledge, there is no intention to buy
gas at the wellhead, except for the aggregator to provide gas to
in-state communities.
REPRESENTATIVE JOHNSON pointed out there are withdrawal
agreements in which AGDC is the only entity that can sign
contracts for gas for more than two years.
MR. DUBLER advised that if the withdrawal agreements are
executed, AGDC most certainly would be back before the
legislature to request an appropriation, because the cost would
be very high. In further response to Representative Johnson, he
deferred to legal counsel regarding whether one of the AGDC
subsidiaries has the statutory authority to do so.
8:19:51 AM
KEN VASSER, General Counsel, AGDC, DCCED, informed the committee
the legal authority is the same for AGDC and its subsidiaries.
He advised that as a literal reading of the statute, AGDC does
have the power to acquire natural gas, however, there is "room
for interpretation of statutes" and any sellers of a large
quantity of natural gas would want assurance that AGDC does have
that power before entering into a contract. For example, an
appropriation from the legislature for such a purchase would be
a clear indication that the legislature intended for AGDC to
have that power under the present language of its statutes.
REPRESENTATIVE JOHNSON surmised that AGDC could purchase gas.
MR. VASSER said, "Most likely."
REPRESENTATIVE JOHNSON asked about any other plans or discussion
by AGDC's [board of directors] regarding forming additional
subsidiaries.
8:22:45 AM
JOHN BURNS, Chair, Board of Directors, AGDC, DCCED, answered no.
He explained that AGDC formed two subsidiaries, each with a
specific purpose, to advance the Alaska LNG project. At this
juncture, the board is not contemplating creating any other
subsidiaries.
REPRESENTATIVE SEATON returned attention to the AGDC subsidiary
formed to hold the assets of the state in the Alaska LNG
project, and questioned whether said subsidiary would hold
midstream assets if the requested appropriation is approved. and
TransCanada's interest is terminated.
MR. DUBLER expressed his belief that AGDC's intention is to hold
the assets in same subsidiary. He returned attention to the
presentation, noting that the committee previously inquired how
AGDC determines in-state gas demand and supply. To do so, AGDC
analyzed historical natural gas production and consumption,
identified existing and potential demand segments, including
future use, developed a range of demand assumptions from low
case, mid case used as the default, to high case, and identified
the most likely scenarios through 2040 [slide 24]. Slide 25 was
a graphical depiction of the anticipated demand and the
components thereof, which are mainly represented by the demand
of ENSTAR Natural Gas and the Southcentral power utilities,
including Matanuska Electric Association, Chugach Electric
Association, Anchorage Municipal Light & Power, and Homer
Electric Association. Also shown was the demand by the
Fairbanks utilities, which greatly increases beginning in 2017.
Another possible demand would be created by the mines along the
route of the pipeline. He explained that the black line on the
graph indicated the shortfall, which is the difference between
the demand for natural gas and the amount projected to be
produced in Cook Inlet. Beginning in 2020, the shortfall grows
to approximately 270 million standard cubic feet per day
(MMSCF/D) by 2040, based on a daily average. Slide 26 was a
tabular chart that illustrated ENSTAR's existing base case
demand, and the projected base case demand of about 333 MMSCF/D
in 2040. Mr. Dubler stated the reason for the projection to
2040 is to ensure there is sufficient capacity to provide energy
resources to Alaskans for the life of the project. The high
case 2040 demand of approximately 422 MMSCF/D includes supplying
natural gas to mining and other industrial users, and the
existing demand which is projected to be 243 MMSCF/D [slide 26].
8:28:52 AM
REPRESENTATIVE TARR returned attention to slide 25 and asked
whether the storage category indicated on the graph represents
Cook Inlet storage capacity.
MR. DUBLER explained that an integrated LNG project seeks to
have the maximum amount of storage so, in winter, when the
demand is highest, the seasonal fluctuations are eased. Gas is
put into storage during summer when demand is lower, and is
drawn out in winter. The demand forecast assumes there will be
storage at Cook Inlet Natural Gas Storage Alaska (CINGSA) which
injects gas into an empty gas well in Kenai for storage. In
fact, AGDC anticipates an expanded storage system of this type
within the Alaska LNG project, and assumes that there will be
storage in Fairbanks as well.
REPRESENTATIVE SEATON recalled that a new LNG plant with a
facility in the Matanuska-Susitna valley has been announced, and
he asked whether the aforementioned demand projection
anticipates an additional export facility.
MR. DUBLER responded that AGDC did not include the proposed
project in the demand forecast as there were no definite plans.
On the graph [slide 25], the dark green section representing LNG
export demand is for the plant at Kenai currently operated by
ConocoPhillips Alaska, Inc.
REPRESENTATIVE HAWKER asked for the source of the supply
estimates shown by the graph on slide 25.
MR. DUBLER said the estimates were derived from public sources
and not from confidential information, and deferred to AGDC
executives for further information.
8:33:06 AM
FRITZ KRUSEN, Vice President Alaska LNG, AGDC, DCCED, answered
that the supply projections for Cook Inlet were obtained from a
DNR report that was released to the public.
REPRESENTATIVE HAWKER requested the date of the report,
suggesting that the report may be an understatement after the
recent announcements of successes due to the Cook Inlet Recovery
Act [passed in the Twenty-Sixth Alaska State Legislature].
MR. KRUSEN was unsure of the details of the DNR report; however,
he said the report did consider several other projects, and was
updated late last year or early this year. He deferred to DNR.
MR. DUBLER offered to provide the report to the committee.
REPRESENTATIVE JOSEPHSON returned attention to slide 26, and
asked whether the projected increase in Interior heating and
power utilities was a reflection of the expected increase in
customers.
MR. DUBLER answered that the projection was based on the Alaska
Energy Authority's (AEA), DCCED, plan to build-out the natural
gas distribution system in the medium- and high-density areas of
Fairbanks. He returned to the presentation and advised that the
Alaska LNG project has the ability to provide Alaskans along its
route with a reliable, long-term supply of natural gas. He
cautioned that a financial commitment is necessary as the costs
to do so are significant; in fact, it may not make economic
sense to run a spur line to benefit smaller communities that are
miles away from the pipeline. The spur line to Fairbanks is 33
miles, but the population of Fairbanks can support the cost.
Off-take plans involve engineering, commercial, financial, and
policy considerations such as the responsibility to pay for the
infrastructure that is needed to deliver natural gas to
communities. Furthermore, AGDC and DNR are developing a
framework to assist policymakers in evaluating the options for
the delivery of gas [slide 27]. Developing a framework began
under the Alaska Stand Alone Pipeline (ASAP) project, which
identified the existing demand from the Fairbanks, Anchorage,
Matanuska-Susitna, Kenai, and Nikiski areas, all of which have
distribution infrastructure in place. Other communities along
the route, Cantwell for example, would require a new local
distribution system to deliver gas within the community, and
would require that AGDC build a skid and a two-mile spur
pipeline off of the main pipeline. Working with AEA, AGDC is
evaluating alternative means of delivery - such as propane - to
communities that are unlikely to have direct access [slide 28].
Slide 29 illustrated a gas off-take system, and Mr. Dubler
reviewed the Alaska LNG project's responsibility to build the
Prudhoe Bay Unit (PBU) and the Point Thomson Unit (PTU)
transmission lines, the GTP, the main pipeline, and the LNG
facility. The non-project costs of an off-take system are the
off-take facility, which is required to depressurize, heat, and
odorize the gas for safety, and the lateral pipeline to the
local utility and customers.
8:41:30 AM
REPRESENTATIVE JOSEPHSON asked if Senate Bill 138 [passed in the
Twenty-Eighth Alaska State Legislature] provided an agreement to
share the extra costs of the off-take facilities.
MR. DUBLER answered:
... no, there has not been. The, the [Alaska LNG]
project's responsibility ends at the flange that they
put in. We're debating whether ... the project would
put in the metering stations to determine how much gas
was taken off, or whether we put that metering station
in ... but ... basically, at the flange, anything
downstream of the flange is, is not their
responsibility.
REPRESENTATIVE JOSEPHSON surmised that the state would be
entirely responsible for the costs of the off-takes, spurs, and
the build-out.
MR. DUBLER clarified that whether the state government is
responsible is a policy decision to be made by the governor and
the legislature. As an example, ENSTAR built its system and was
reimbursed through tariffs charged to its customers; however, he
opined that smaller communities would not have the ability to do
so. In further response to Representative Josephson, he said
cost estimates for certain communities will be discussed in
slide 30.
CO-CHAIR NAGEAK recalled discussion last year about off-take
points on the pipeline, and the possibility of shipping LNG to
coastal communities and to communities along the Yukon River by
barge. He asked about the ability to ship LNG by barge.
MR. DUBLER advised that, due to the cost of LNG facilities,
building a second facility would not be cost-effective; he
suggested LNG from the Nikiski facility could be loaded onto
tankers.
MR. KRUSEN clarified that the Alaska LNG project plant is
intended to process LNG for export use only; AGDC and others
will explore the possibility of LNG manufacture for in-state
use, but that would not be part of the main LNG plant at
Nikiski. He offered that some alternatives are propane,
compressed natural gas, and LNG.
MR. RICHARDS added that under Senate Bill 138, AGDC and AEA, in
consultation with DNR, are charged with reviewing alternative
methods to deliver hydrocarbons to communities within Alaska,
and this is being undertaken at this time.
8:47:07 AM
CO-CHAIR NAGEAK further asked whether liquefaction [facilities]
in Prudhoe Bay and in Fairbanks are still under discussion.
MR. DUBLER said the trucking option from the North Slope to
Fairbanks is still a possibility; furthermore, AGDC has a
statutory direction to explore all of the options once
construction begins on the Alaska LNG project. In further
response to Co-Chair Nageak, he said currently there is no
liquefaction plant in Prudhoe Bay.
8:47:58 AM
REPRESENTATIVE HAWKER returned attention to AGDC's subsidiaries.
He expressed his understanding of the legal format that vests a
subsidiary with the authority provided by the legislature in AS
31.25.120, and of AGDC's stated intent, and the purpose and
powers outlined in its articles of incorporation. He asked
whether the powers given to the subsidiary are so broad that
AGDC may be exposing itself to "mischief with the subsidiary."
For example, the subsidiary is empowered to acquire gas from the
North Slope for certain activities or for export. The limiting
factor, as heard during previous testimony, is that the
legislature must appropriate money to enable the subsidiary to
do so; however, the statute reads as follows [in part]:
A subsidiary created under this section may borrow
money and issue bonds as evidence of that borrowing
REPRESENTATIVE HAWKER surmised the foregoing language would
allow the subsidiary to buy massive amounts of gas for export by
going to the capital market, without a general obligation (GO)
bond, "and suddenly you have a subsidiary that has just taken
one of our producers out of the picture, and if I was our
producers, I'd be a little nervous about us having given you
this power."
8:51:32 AM
DAN FAUSKE, President, AGDC, DCCED, answered that AGDC created
subsidiaries at the request of the administration, one of which
was to act as an aggregator for "small, in-state use." He
stressed that there was never a discussion in regard to the
magnitude suggested by Representative Hawker. Mr. Fauske said
AGDC's board of directors discussed the issue, and decided it
would be a good asset to create two subsidiaries, but gave clear
instructions that AGDC was not to name officers or take action.
He remarked:
I can't speak to the intentions or what could possibly
happen, I can only speak to what I know took place ...
and I don't have a clear answer for what could happen.
I just want to be clear, that was never the intention
of the meeting ....
REPRESENTATIVE HAWKER said he believed the board of directors
acted in good faith, but he remained seriously concerned with
the unclear lines of authority and responsibilities, the fact
that there is no coordinator of the entire project, and the
possibility of "ulterior motives by people that can read these
laws as clearly as I can and see that you have opened up a
facility here that we could drive a gas pipeline project
through."
8:54:27 AM
MR. BURNS agreed with Representative Hawker in that the breadth
of the authority given in the statute is very broad, as is
intended, because any corporation needs full flexibility to act
in the best interests of the corporation to achieve its
objective. He assured the committee the board of directors'
decision regarding the two subsidiaries was limited to the
purposes indicated by Mr. Dubler in previous testimony. Mr.
Burns said the biggest concern is one of trust. The AGDC board
has a fiduciary responsibility to the state of Alaska, and it
respects that responsibility. He cautioned against limiting
authority because of concerns about what might happen in the
future, and urged that the broad authority remain. He restated
that the AGDC board of directors is judicious in its exercise of
its responsibilities.
REPRESENTATIVE HAWKER observed that a significant lack of trust
has developed between some members of the legislature and
whomever is in charge of this project plan. In contrast, he
pointed out that the ASAP project was executed and communicated
- with the legislature - in manner of trust, which has now been
violated and lost.
MR. BURNS, speaking as board chair, expressed his concern about
the lack of a clear command and control structure. He opined
part of the problem is that Senate Bill 138 gave AGDC the
primary responsibility for developing natural gas pipelines, the
Alaska LNG project, other transportation mechanisms, and more.
However, the same statute provides broad authority which directs
that the commissioners of DNR and DOR are in charge of the
activities of each their departments. He said that leaves one
wondering about the command structure. Mr. Burns returned
attention to slide 10, which illustrated the project management
team (PMT), and remarked:
That's what everybody expects. You, you have a very
clear organizational structure, you do not have that
in this situation. I think that's evidenced by the
organizational chart that was presented, I think, by
DNR. And you are left with wondering who is making
those decisions.
MR. BURNS cautioned that the state cannot allow the project to
fail, if it makes economic sense, but unless decisions are made
competently, with a coordinated effort, and are consistent, the
project cannot succeed. There must be an organizational
structure with clear coordination of efforts. He relayed a
recent conversation with Mr. Fauske informing him that, subject
to confidentiality agreements, and speaking as the board chair,
AGDC will provide the legislature with complete information and
access to its employees as needed. Finally, Mr. Burns expressed
his belief that the attorney general does not have the time or
ability to be the head of the project status, and he advised
that the statute, as drafted, leaves many questions unanswered,
leading to turf warfare within the corporate structure.
9:02:36 AM
REPRESENTATIVE HAWKER acknowledged that Mr. Burns was speaking
from an element of frustration, however, he pointed out that the
House Resources Standing Committee contributed significantly to
the crafting of Senate Bill 138, and; therefore, has a strong
grasp of the intent and purpose of the bill. Although AGDC is
the "prime mover here" the fact that DOR and DNR have prime
responsibilities was very intentional, because DNR and DOR have
strong custodial responsibilities for specific tasks and
activities, such as regulatory authority, which cannot be
assigned to AGDC. The legislature created AGDC as a corporate
entity to work in a contractor and client relationship to
execute the state's constitutional responsibilities as it
develops its resources. Representative Hawker stressed that DNR
and DOR have clear and unalienable responsibilities. If it so
chooses, DNR may contract through AGDC for the sale and
marketing of gas. He said turf wars are a big problem and are
not unusual in corporations large and small. During the process
of crafting the enabling legislation for the heads of agreement
(HOA) and memorandum of understanding (MOU) documents, the
legislature envisioned that someone in the executive branch of
government would be responsible for managing the separate
elements and adjudicating responsibilities between the entities.
He expressed his hope that AGDC would help find a senior manager
and a clear line of authority to be in charge of the project.
He remarked, "But no matter how well we craft the statute, John,
we cannot legislate leadership ...."
9:08:54 AM
REPRESENTATIVE JOHNSON expressed his belief that since the
administration has replaced AGDC board members, it could do so
again. It is incumbent on the legislature to search for
leadership and he said, "If you don't know who your leader is,
there is no leader."
REPRESENTATIVE JOSEPHSON shared the perspective of those who
have testified regarding a lack of clear command and control
structure, or demarcation of authority; on the other hand, he
questioned the inference that Mr. Fauske or Mr. Burns "gamed the
board," and that the legislature feels trust has been violated
or lost. He said he did not feel that way, although he agreed
with Representative Hawker that there should be a designated
statutory authority at "the top of the pyramid." He stated that
he sees a good gas team, and he applauded work of Senate Bill
138, but some reform is necessary to make the legislation work
more smoothly.
REPRESENTATIVE HAWKER strongly clarified that he in no way
impugned or suggested that Mr. Fauske or Mr. Burns had gamed the
board. He repeated his question, "Has the board been gamed by
someone with an ulterior motive?" There was no suggestion that
Mr. Burns or Mr. Fauske in any way were part or party to
anything inappropriate.
9:12:57 AM
REPRESENTATIVE HERRON asked whether there should be a formal
document that guarantees that TransCanada's assets will cleanly
go all the way to the subsidiary.
MR. BURNS said he was unaware of such a document. There is no
doubt in his mind of the intent that if the legislature
purchases TransCanada's assets, said assets are best held in the
subsidiary AGDC has formed for that purpose, and a document is
not necessary. However, this matter is to be determined by the
legislature. He observed that the administration, the
legislature, and AGDC all want Alaska LNG to succeed, and AGDC
has proven its competency, but there remains a lack of trust,
which may stem from the lack of a clear demarcation that one
person - or a coordinated effort - is ultimately making
decisions. Mr. Burns opined that House Bill 4 and Senate Bill
138 are phenomenal statutes of unprecedented authority that are
focused on a specific objective. He noted that he did not take
Representative Hawker's comments personally, and added "...
nobody was gamed and nobody gamed anybody in the formation of
those two corporations, or subsidiary corporations. They were
very thought-through, it was a very deliberative process that
the full board participated in, and there was no gamesmanship in
any way."
9:17:29 AM
REPRESENTATIVE HERRON recalled that AGDC has done a great job
presenting testimony, but there is a lack of leadership,
although some "vagueness" may be desired by some. He expressed
his belief that House Bill 4 and Senate Bill 138 statutes are
not being utilized, due to a disappointing lack of leadership
from the administration, and buying the assets of TransCanada
has become a relatively small factor in the debate.
REPRESENTATIVE TARR noted Mr. Burns' longevity on the AGDC
board, having served during two administrations. She recalled
that AGDC and legislators worked primarily with Mr. Balash and
Mr. Pawlowski on Senate Bill 138 to develop the infrastructure
needed to advance an LNG project. She asked how Mr. Burns would
compare of that work to the project structure now, because there
was not one single person in charge then, pointing out that Mr.
Balash presented on resource issues, and Mr. Pawlowski presented
financial issues on behalf of DOR. This was a team effort, as
compared to that of a single person.
MR. BURNS said, "What you've described is precisely what, what
should happen and, I think, can happen." He stressed that AGDC,
under no circumstances, should be vested with the authorities
that reside within DNR and DOR. What needs to happen, is that
the parties must work collaboratively and cooperatively to
achieve the collective goal. Further, those decisions cannot be
made in a vacuum because impacts on the project are great. Mr.
Burns suggested AGDC could encourage a collaborative effort by
convening regular meetings with the commissioners and the
various teams, and said he was unsure whether there is value in
creating another body or position. The problem is now known,
and the testimony during this legislative session has been an
embarrassment.
9:24:02 AM
REPRESENTATIVE TARR asked whether it is possible to communicate
all of the parties' needs and desires to the administration and
receive an update in January [2016] that addresses the
legislature's concerns.
MR. BURNS assured the committee that as a result of the
testimony heard, AGDC and its board will be actively
participating in ensuring that concerns will be addressed to the
legislature's satisfaction; however, if concerns are not
addressed, he urged that the legislature consider modifying
Senate Bill 138 during the [Second Session of the Twenty-Ninth
Alaska State Legislature].
9:25:20 AM
The committee took an at ease from 9:25 a.m. to 9:40 a.m.
9:41:18 AM
CO-CHAIR TALERICO expressed his appreciation to Mr. Burns for
testifying before the committee.
CO-CHAIR NAGEAK noted the value of the discussion.
REPRESENTATIVE SEATON asked whether further information is
needed by the committee to understand the progress of the
project, or any impediments to the timeframe.
MR. BURNS said the presentation has shown that the project is
moving well and once there is a coordinated effort, it will
continue to advance. At this time there have been no big
surprises, and the competency level of the AGDC team is
tremendous.
9:44:05 AM
MR. DUBLER directed attention to slide 30, which illustrated
off-take facility cost estimates. Preliminary engineering was
designed for four different sizes of off-take to accommodate the
different sizes of the communities along the route of the
pipeline. The largest is a macro sled sized to process a volume
of gas from 80-330 MMSCF/D, and estimated to cost $38 million,
and the smallest is a nano sled sized to process a volume of gas
from 0.04-0.25 MMSCF/D, and estimated to cost $14 million. He
restated that this equipment, on a per capita basis, is very
expensive, and how it will be paid for is unknown.
CO-CHAIR NAGEAK informed the committee that AGDC provided the
committee a document entitled, "FY2016 Organizational Chart
Alaska Gasline Development Corporation (AGDC) & Alaska LNG
Participation (combined)," and dated 10/29/2015.
REPRESENTATIVE SEATON observed that there is an existing
integrated pipeline system throughout the Kenai Peninsula and
Anchorage Matanuska-Susitna; he asked whether AGDC has
considered not having a separate off-take plant, but accessing
gas at the LNG plant for this area.
MR. DUBLER stated that South Cook Inlet off-take would come
directly from the LNG plant. The ENSTAR system is a loop, and
AGDC has designed one off-take at each end of the loop so that
the system is not compromised "if there's a disruption in the
middle."
MR. DUBLER turned to the progress AGDC has made to date. As an
aside, he noted a future presentation at the next meeting of the
board of directors will reveal AGDC's plan for the communities
along the route of the pipeline, and subsequent to that meeting,
the plan will be available to the public and the committee.
Approximately 20 potential interconnection points - capable of
taking off or adding gas to the pipeline - have been identified
along the pipeline corridor. Some communities, such as
Fairbanks would require an off-take and a lateral line, as
engineered in the ASAP project. He pointed out that the
conceptual cost estimates for off-take facilities do not include
local distribution or consumer appliance conversion costs.
Again, the preliminary analysis highlights significant economic
challenges for small communities on a per capita basis [slide
31].
9:48:44 AM
CO-CHAIR TALERICO questioned whether Denali National Park and
Preserve, National Park Service, U.S. Department of the
Interior, an entity that has the wherewithal to establish a
distribution system within the park, has been engaged in the
project.
MR. DUBLER responded that AGDC has had discussions with the
National Park Service about Denali National Park and Preserve;
in fact, the National Park Service is interested in a gas supply
to its buildings, and in converting its buses from diesel to
compressed natural gas (CNG).
CO-CHAIR TALERICO mentioned that Nenana, although a small
community, has rail, river, and roads, all of which are
transportation corridors.
MR. DUBLER agreed, adding that Anderson is also well-suited for
a distribution system. He summarized, restating that no final
decisions have been made on the location of off-takes, and no
public money has been appropriated for in-state off-take
facilities or for distribution systems beyond preliminary
analysis. The state's plan will evolve as the project matures,
policymakers weigh in, funding sources - beyond user fees and
tax assessments - are addressed, and a phased approach is
considered [slide 32].
9:52:02 AM
MR. RICHARDS provided a status update on the ASAP project. He
recalled that ASAP was the initial project, with which AGDC was
tasked by the legislature, for the purpose of providing energy
relief for Alaskans in response to the decline of the Cook Inlet
natural gas reserves for home heating and power generation.
Referred to as the back-up plan for the Alaska LNG project, AGDC
concluded ASAP FEED in December 2014, which culminated in a
Class 3 estimate; a Class 3 estimate incorporates engineering
design advanced to the 25 percent level and a high level of
confidence. The $10 billion estimate is for GTP and a pipeline
to deliver North Slope gas to Fairbanks and Southcentral Alaska.
With the Class 3 estimate, the next phase would have been
completing a recourse tariff, filing to RCA, and open season,
but AGDC has withheld the process awaiting the outcome of the
Alaska LNG project. However, AGDC is currently advancing the
U.S. Army Corps of Engineers Supplemental EIS to secure federal
permits and the right-of-way across federal land. The right-of-
way across state lands has been provided, and when both state
and federal right-of-way leases are secured, AGDC will hold
leases representing approximately 85 percent of the pipeline
route from Prudhoe Bay to Southcentral Alaska [slide 34].
9:54:55 AM
REPRESENTATIVE SEATON asked whether the ASAP supplemental EIS is
also applicable to the Alaska LNG project.
MR. RICHARDS responded that the lead federal agency for ASAP is
the U.S. Army Corps of Engineers because wetlands are affected,
and there is no liquefaction plant associated with ASAP;
conversely, the Alaska LNG project, because it is an LNG
project, falls under the purview of FERC, which is acting as its
lead federal agency. However, the data gleaned for the ASAP EIS
is of keen value to the Alaska LNG project because of their
common route and common alignment.
MR. RICHARDS then directed attention to slide 35, which
illustrated the status of the In-State Natural Gas Pipeline Fund
capitalized in House Bill 4 [passed in the Twenty-Eighth Alaska
State Legislature]. The original appropriation was $355
million, which was estimated to be the cost to advance the in-
state pipeline project through pre-FEED, FEED, and open season,
to a final investment or sanctioning decision. Spending to date
by major category is as follows [all amounts are approximate]:
· AGDC corporate operating and ASAP project development:
$135 million
· 2015 legislative re-appropriation to the public education
fund: $157 million
· DNR North Slope gas commercialization component fiscal year
2016 (FY 16): $9 million
· Estimated outflow as of October 2015: $301 million
· Current balance: $54 million
· Maintaining ASAP project viability and readiness: $12
million
· Contractual and FY 16 operating component: $10 million
· Estimated available balance as of FY 17 budget cycle: $32
million
9:59:11 AM
REPRESENTATIVE JOSEPHSON asked about the circumstances of the
re-appropriation and its effect on the advancement of the ASAP
project.
MR. FAUSKE expressed his understanding that the money was
removed from the fund and re-appropriated to education during
the [Second Special Session of the Twenty-Ninth Alaska State
Legislature].
REPRESENTATIVE JOSEPHSON further questioned why AGDC originally
needed the $157 million that was re-appropriated.
MR. RICHARDS explained the fund was established to provide AGDC
with the necessary funds to advance the ASAP project through to
a sanctioning decision, which includes open season, subsequent
negotiations, and the redesign of the project to shippers'
requirements.
REPRESENTATIVE HAWKER expressed his appreciation for Mr.
Dubler's participation. He said his perception is that his
frustration is shared with AGDC, state agencies, and business
partners, regarding a lack of leadership and clear lines of
authority. Representative Hawker stressed that his remarks
should not be misinterpreted, as he has the upmost respect for
state agencies, in particular DNR, which is the state agency
tasked with the duty of obtaining the maximum value of resource
wealth for the benefit of all Alaskans. Recalling his long
working relationship with DNR, he said the discussion is not
about agency versus agency, but that all parties need to come
together for this project, as it is critical to the economic
security of the state in the future. He restated his deepest
respect for DNR and its employees.
10:05:30 AM
REPRESENTATIVE SEATON reminded AGDC of his request for a
document that officially and clearly defines that if the state
buys out TransCanada, its ownership percentage would go to them.
10:07:10 AM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 10:07 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 10.29.15 HSE RES AGDC Presentation.pdf |
HRES 10/30/2015 8:00:00 AM |
|
| 10.30.15 HSE RES AGDC Org Chart w Names.pdf |
HRES 10/30/2015 8:00:00 AM |