03/16/2016 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB216 | |
| HB246 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 247 | TELECONFERENCED | |
| *+ | HB 216 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| *+ | HB 246 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 16, 2016
1:03 p.m.
MEMBERS PRESENT
Representative Benjamin Nageak, Co-Chair
Representative David Talerico, Co-Chair
Representative Bob Herron
Representative Craig Johnson
Representative Kurt Olson
Representative Paul Seaton
Representative Andy Josephson
Representative Geran Tarr
Representative Mike Chenault, Alternate
MEMBERS ABSENT
Representative Mike Hawker, Vice Chair
COMMITTEE CALENDAR
HOUSE BILL NO. 216
"An Act relating to obstruction or interference with a person's
free passage on or use of navigable water; and amending the
definition of 'navigable water' under the Alaska Land Act."
- HEARD & HELD
HOUSE BILL NO. 246
"An Act creating the oil and gas infrastructure development
program and the oil and gas infrastructure development fund in
the Alaska Industrial Development and Export Authority; relating
to the interest rates of the Alaska Industrial Development and
Export Authority; relating to the sustainable energy
transmission and supply development and Arctic infrastructure
development programs of the Alaska Industrial Development and
Export Authority; relating to dividends from the Alaska
Industrial Development and Export Authority; and adding
definitions for 'oil and gas development infrastructure' and
'proven reserves.'"
- HEARD & HELD
HOUSE BILL NO. 247
"An Act relating to confidential information status and public
record status of information in the possession of the Department
of Revenue; relating to interest applicable to delinquent tax;
relating to disclosure of oil and gas production tax credit
information; relating to refunds for the gas storage facility
tax credit, the liquefied natural gas storage facility tax
credit, and the qualified in-state oil refinery infrastructure
expenditures tax credit; relating to the minimum tax for certain
oil and gas production; relating to the minimum tax calculation
for monthly installment payments of estimated tax; relating to
interest on monthly installment payments of estimated tax;
relating to limitations for the application of tax credits;
relating to oil and gas production tax credits for certain
losses and expenditures; relating to limitations for
nontransferable oil and gas production tax credits based on oil
production and the alternative tax credit for oil and gas
exploration; relating to purchase of tax credit certificates
from the oil and gas tax credit fund; relating to a minimum for
gross value at the point of production; relating to lease
expenditures and tax credits for municipal entities; adding a
definition for "qualified capital expenditure"; adding a
definition for "outstanding liability to the state"; repealing
oil and gas exploration incentive credits; repealing the
limitation on the application of credits against tax liability
for lease expenditures incurred before January 1, 2011;
repealing provisions related to the monthly installment payments
for estimated tax for oil and gas produced before January 1,
2014; repealing the oil and gas production tax credit for
qualified capital expenditures and certain well expenditures;
repealing the calculation for certain lease expenditures
applicable before January 1, 2011; making conforming amendments;
and providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 216
SHORT TITLE: NAVIGABLE WATER; INTERFERENCE, DEFINITION
SPONSOR(s): REPRESENTATIVE(s) TALERICO
01/19/16 (H) PREFILE RELEASED 1/8/16
01/19/16 (H) READ THE FIRST TIME - REFERRALS
01/19/16 (H) RES
03/16/16 (H) RES AT 1:00 PM BARNES 124
BILL: HB 246
SHORT TITLE: AIDEA: FUNDS; LOANS; PROGRAMS; DIVIDEND
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/19/16 (H) READ THE FIRST TIME - REFERRALS
01/19/16 (H) RES, FIN
02/12/16 (H) RES AT 1:00 PM BARNES 124
02/12/16 (H) <Bill Hearing Canceled>
03/10/16 (H) RES AT 1:00 PM BARNES 124
03/10/16 (H) -- MEETING CANCELED --
03/16/16 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
JOSHUA BANKS, Staff
Representative David Talerico
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Assisted in presenting HB 216 on behalf of
Representative Talerico, sponsor.
MELVIN GROVE
Alaska Outdoor Access Alliance
Wasilla, Alaska
POSITION STATEMENT: Testified in support of HB 216.
SCOTT OGAN
Wasilla, Alaska
POSITION STATEMENT: Testified in support of HB 216.
WARREN OLSON
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 216 and
suggested some changes.
GARY STEVENS
Chugiak, Alaska
POSITION STATEMENT: Testified in support of HB 216.
STEVE STRAIGHT
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 216.
CEEZAR MARTINSON
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 216.
CHARLES LEAN
Nome, Alaska
POSITION STATEMENT: Testified in support of HB 216.
THOMAS VADEN
Nome, Alaska
POSITION STATEMENT: Testified in support of HB 216.
STEVEN FLORY
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 216.
CRAIG COMPEAU
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 216.
KAREN GORDON
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 216.
RICHARD BISHOP
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 216 and
suggested some amendments.
JOHN STURGEON
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 216.
KENNY BARBER
Palmer, Alaska
POSITION STATEMENT: Testified in support of HB 216.
FRED PARADY, Deputy Commissioner
Office of the Commissioner
Department of Commerce, Community & Economic Development (DCCED)
Juneau, Alaska
POSITION STATEMENT: On behalf of the governor and as a board
member of the Alaska Industrial Development and Export Authority
(AIDEA), introduced HB 246 by way of a PowerPoint presentation,
"AIDEA Oil and Gas Infrastructure Development Fund, HB 246."
GENE THERRIAULT, Energy Policy and Outreach Director
Alaska Energy Authority (AEA)
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: On behalf of the governor, provided a
sectional analysis of HB 246.
JOHN SPRINGSTEEN, Executive Director
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: On behalf of the governor, answered
questions related to HB 246.
ACTION NARRATIVE
1:03:17 PM
CO-CHAIR BENJAMIN NAGEAK called the House Resources Standing
Committee meeting to order at 1:03 p.m. Representatives Herron,
Chenault (alternate), Johnson, Olson, Seaton, Josephson,
Talerico, and Nageak were present at the call to order.
Representative Tarr arrived as the meeting was in progress.
HB 216-NAVIGABLE WATER; INTERFERENCE, DEFINITION
1:03:58 PM
CO-CHAIR NAGEAK announced that the first order of business is
HOUSE BILL NO. 216, "An Act relating to obstruction or
interference with a person's free passage on or use of navigable
water; and amending the definition of 'navigable water' under
the Alaska Land Act."
1:04:41 PM
CO-CHAIR TALERICO, as the sponsor, introduced HB 216. He said
the bill relates to the obstruction or interference with a
person's free passage on or use of navigable water and it would
amend the definition of "navigable water" under the Alaska Land
Act. He paraphrased from the following sponsor statement
[original punctuation provided]:
The "Submerged Lands Act of 1953" recognized each
state as holding the title for any submerged land
under a navigable waterway within the boundaries of
each state. Under Alaska law, this term is defined in
AC 38.05.965(14) and specifies a number of activities
that can be conducted in a body of water in order to
deem the body as navigable. While the list of
activities in statute is lengthy, there are a few
omissions that House Bill 216 will address.
The first change that HB 216 will make is to
insert additional activities to the definition of
"navigable water" in order to ensure that there is no
ambiguity. The bill includes the activities of
harvesting of ice, military training, and operation of
watercraft, hovercraft, snow machines and other
vehicles, and hunting of any type of game. The second
change is to allow all activities under this
definition to be conducted "in any season" to ensure
that these activities may be conducted whether the
navigable body of water is thawed or frozen.
The final change in HB 216 is to combine AS
38.05.128(a)(1) and (2), to eliminate redundancy in
this section regarding a government official blocking
access to navigable waters.
1:06:52 PM
CO-CHAIR TALERICO stated he would like to offer a committee
substitute (CS) that would eliminate the repeal of AS 38.05. It
would instead combine AS 38.05.128(a)(1) and (2) and delete
paragraph (2). This change would have the same effect as the
repeal of (a)(1) by eliminating redundancy regarding obstructing
the free passage on navigable waters. It would also add
activities that are allowed to be conducted on navigable water
in Alaska and would include the operation of all-terrain
vehicles, the storage of vehicles, and the hunting of any form
of game rather than just waterfowl and aquatic animals.
CO-CHAIR TALERICO added that waterways are the highways for the
people who live in his district, particularly in the northeast
part of his district. He further noted he is thinking about the
mining activities in Central and Chicken and how often those
waterways are used during the winter to transport goods and get
materials and equipment back and forth to the communities. A
friend of his began using the Porcupine River as a
transportation corridor with his great grandfather and he still
lives there today, uses the river routinely, and utilizes the
river more in the winter than in the summer. It is incredibly
important to all of the folks in the outlying areas of his
district to be able to utilize those river corridors all of the
time. It is also important to him that the federal government
continue to uphold those things that it passed many years ago
that give Alaskans the right to utilize those navigable
waterways on a year round basis.
1:08:55 PM
JOSHUA BANKS, Staff, Representative David Talerico, Alaska State
Legislature, brought the sponsor's proposed committee substitute
to the attention of the committee.
REPRESENTATIVE JOHNSON moved to adopt the proposed committee
substitute (CS) for HB 216, Version 29-LS0995\E, Bullard,
3/14/16, as the working document.
CO-CHAIR NAGEAK objected for discussion purposes.
1:10:10 PM
REPRESENTATIVE JOSEPHSON asked what the state's modifying of the
definition of "navigability" would mean relative to the federal
government's preeminent role on that question. He further asked
whether he is correct in understanding that the federal
government has the final say over the definition.
CO-CHAIR TALERICO replied that HB 216 would clarify, expand, and
define the definition within Alaska statute. It would assert
the state's right under the Submerged Lands Act, as well as the
Statehood Compact, to have the ability to control and use those
waterways as navigable for transportation.
1:11:16 PM
CO-CHAIR NAGEAK removed his objection to adopting the proposed
CS. There being no further objection, Version E was before the
committee.
1:11:33 PM
MR. BANKS provided a sectional analysis of the proposed CS. He
explained that Section 1 of Version E would combine paragraphs
(1) and (2) in AS 38.05.128(a). This change would serve the
purpose of eliminating redundancy in regard to when a person can
obstruct the free passage of another person on navigable water.
The definition of navigable water in regard to Section 1 is the
definition that is being changed in Section 2. The offense of
obstructing the free passage of navigable water is a Class B
misdemeanor under AS 38.05.128(f). The original version of the
bill repealed (a)(1), but the sponsor feels that this change
could have had the potential for misinterpretation and taken
away the state's power. So instead of repealing (a)(1), Version
E combines (a)(1) and (2), which basically has the same effect
of eliminating the redundancy of this section. Section 2 would
clarify the definition of navigable waters in two ways. First,
Section 2 would make it so that any activity that is allowed on
navigable waters can be done in any season. The changes in are
to make clear what can be done on navigable waters. In regard
to the language, "useful public purpose", on page 2, line 8, of
Version E, the sponsor believes that all these activities would
be allowed even if they were not listed, but the sponsor wants
to make the law very clear with very specific activities that
are allowed as a way to reduce the ambiguity of the law.
Second, Section 2 would add new activities that can be conducted
on navigable waters and those activities are harvesting of ice,
state or federal military training, operation of boats or other
watercraft, hovercraft, snow machines, all-terrain vehicles,
other motorized or nonmotorized vehicles, storage of vehicles,
and the hunting of any type of wild game. Currently, the law
only specifies that a person may hunt for "waterfowl and aquatic
animals"; this language would be deleted to allow for any type
of hunting.
1:14:45 PM
REPRESENTATIVE HERRON drew attention to the analysis by the
Department of Natural Resources (DNR) for the fiscal note dated
3/14/16 [page 2, fourth and fifth sentences], which states,
"Removing the open ended language and instead providing
additional definitions of useful public purposes may create
ambiguity about navigability ...." He noted the sponsor is
saying there will not be ambiguity, but the fiscal note is
saying there will. He requested an explanation.
MR. BANKS replied he is aware of this and has clarified it with
Legislative Legal and Research Services. He said the deletion
of the language "but not limited to" is a drafting preference
that Legislative Legal and Research Services is trying to move
to. The language "including but not limited to" has the same
effect as the language "including" and use of "including" does
not limit the number of activities to just the activities that
are stated in statute. It is just a drafting preference.
REPRESENTATIVE HERRON noted there is a very high profile Alaska
case "in front of the supremes" and said they are going to
decide on it. For purposes of this bill, he asked what is
navigable and who owns the land under the navigable waters.
CO-CHAIR TALERICO responded the State of Alaska recently won a
case for navigability and the ownership of the land underneath
Moose Creek in the Fortymile Mining District on the Taylor
Highway. That case was high profile although not as high
profile as the case mentioned by Representative Herron. He
offered his belief that it was the Bureau of Land Management
that determined the state does not own the land underneath the
waterways, but the courts decided the state does own the land
underneath the waterways. That was a significant decision for
the State of Alaska and was an inspiration behind HB 216.
1:18:09 PM
REPRESENTATIVE SEATON asked whether the language in Section 2
regarding any season and useful purpose year round means that
the waterways, spawning beds, and so forth would no longer be
protected. Many waterways are only used during one season, he
pointed out, such as when the waterway is frozen.
CO-CHAIR TALERICO answered, "The intention of the bill is to be
able to use those vehicles that you cannot traditionally use
when the water is thawed when it's frozen." So, the intention
was to be able to use other vehicles once the water is frozen.
A prime example is trips between Fort Yukon and Central.
Normally trips are done with snow machine and they have been
done with highway vehicles when the river is frozen. That is
the closest connection to a road for those folks and so they
utilize that on a regular basis. Also, there is the new road
going to Tanana and those folks are thinking they will have the
potential for rubber tired vehicular access in winter when the
river is frozen. The idea was to be able to use those vehicles
when the season changes. Obviously, it is easy to use a motor
boat on the upper Yukon and in the Porcupine usually from about
the last week in May until the second week in September. The
rest of the time requires a change in vehicles. So, the
intention is to be able to utilize those vehicles that are
available to those folks for transportation. Just because these
are listed does not mean that dog sleds, skijoring, or other
traditional uses are eliminated.
REPRESENTATIVE SEATON urged the sponsor to investigate refining
the bill to ensure it would not unintentionally specifically
allow all-terrain vehicles to be used in these areas at times
when it would not be appropriate, when it is not frozen, and
therefore causing impact to other resources.
CO-CHAIR TALERICO agreed to do so. He believed there are some
areas in the state where the Alaska Department of Fish & Game
(ADF&G) has the authority and ability to ban the use of any type
of vehicle on a stream. Some areas have horsepower restrictions
on boats and some areas prevent people from entering the
streambed even on foot. He offered his belief that ADF&G will
continue to monitor that very closely.
1:22:01 PM
REPRESENTATIVE JOSEPHSON said the bill seems to expand the
state's definition of navigable water. He asked whether the
federal government might use this to its benefit and say that
the state has a more expanded definition and use the doctrine of
Choice of Law to piggyback on that definition in this statute
and as a consequence have a broader definition of navigability.
CO-CHAIR TALERICO replied he cannot speak for the federal
government, but allowed it is a possibility. He said
navigability is not an issue to him at all, rather the lack of
the ability to be able to navigate on these waterways is his
biggest fear. Whether the federal government would choose to do
that he does not know, but by the federal government's most
recent actions and attitude he would seriously doubt that the
federal government would expand any definition of navigability.
1:23:22 PM
CO-CHAIR NAGEAK opened public testimony on HB 216.
MELVIN GROVE, Alaska Outdoor Access Alliance, testified in
support of HB 216, saying it is critical that the state define
what is navigable and expand the definition. Alaska's rivers
and lakes are much easier to use in the winter than in the
summer, he said, especially by snow machine or track vehicle.
Anything that can be done to protect the access of Alaskans to
their resources is critical because the federal government is
more and more trying to limit that access or taking it away or
making it more difficult.
1:26:13 PM
SCOTT OGAN stated he is a former legislator and formerly worked
for the Department of Natural Resources where he made
determinations of navigability on state waters. He said he
supports HB 216 and what the sponsor is trying to do, but has an
issue with eliminating the words "but not limited to". He
suggested an attorney's opinion be sought. He recounted that he
was asked all the time whether a water was navigable. He had
the delegated authority to make that determination and the
determination for navigability that he made was for state
ownership. Under the Submerged Lands Act and the Equal Footing
Doctrine the state received the title to all the submerged lands
at statehood. However, government did not define which ones
were which, so the state has been in a 50-year battle since
then, and, he added, his team successfully led an action to
quiet title on the Mosquito Fork of the Fortymile. He said the
other portion is navigability for Public Trust Doctrine access,
and the changes in HB 216 address specifically Public Trust
Doctrine navigability. Access to navigable waters is a State of
Alaska constitutional right. Alaska's constitution is the only
one in the U.S. with that protection; the founding fathers knew
that these waters are the highways in undeveloped areas.
MR. OGAN posited that it is important to state for the record
that these proposed changes will not change what rivers and
waterways are owned by the State of Alaska; that is determined
by federal case law. The most recent case, PPL Montana, LLC v.
Montana, 132 S.Ct. 1215 (2012), goes back to a case called
"Daniel Ball," which is a Civil War era case where if a
watercraft is used for commercial activities on a river that
determines that it is navigable; it does not actually have to be
tied to actual use, it could be susceptible to use for
navigability. He recounted that his team tried to lower the bar
- what is the smallest river in the state that was proved in
court as being navigable. That was the Nation River, the river
on which Mr. [John] Sturgeon was threatened with citations for
using his watercraft, a craft that was banned by the National
Park Service Code of Federal Regulations (CFRs). That issue is
more of an issue of whether lands designated under the Alaska
National Interest Lands Conservation Act (ANILCA) are affected
by state sovereign waters. Mr. Ogan held that those are state
sovereign because the state owned them before they were
transferred to the National Park Service under ANILCA. He added
that the National Park Service owns the uplands and clarified
that that is the dispute, not whether the river is navigable.
MR. OGAN suggested that the bill make it a Class A misdemeanor,
rather than Class B, to block access to somebody's right to
access a navigable water, because troopers are not as excited
about prosecuting a Class B misdemeanor as they are a Class A,
and he thinks it is a pretty serious violation. Also, he said,
private landowners do not have the right to block someone who is
using the waterbody on their land. He recounted that many of
the disputes he got involved in were when the water was not
navigable for title purposes but was navigable for public trust
purposes under the statute, and the private property owner was
saying the public could not go on the river and fish there
because the property owner owned the submerged land. He said
[DNR] concurred the private property owner owned the submerged
land, but could not prevent the public from going on the river
because under the delegated authority in the constitution to the
legislature, the legislature has determined that water to be
navigable in this definition of the statute and therefore the
public has a right to access it. That is what is being dealt
with under HB 246.
1:32:05 PM
REPRESENTATIVE JOSEPHSON drew attention to the language "in any
season" on page 2, line 7, of Version E. He noted there have
been two main federal decisions in the last decade that have
looked at navigability, Solid Waste Agency of Northern Cook
County v. United States Army Corps of Engineers, 531 U.S. 159
(2001), and Rapanos v. United States, 547 U.S. 715 (2006). The
state's rights argument was that [the federal government] was
classifying too many things as navigable so the pushback on the
federal government was that that is not navigable here, it does
not have a physical nexus or attachment to some truly navigable
water body. Here, at least as to seasons, it is being said that
the state wants to grow the definition of navigability and, as
far as he can tell, that does not line up with the arguments of
the states in those two cases. He requested Mr. Ogan's
thoughts.
MR. OGAN replied that in his opinion and direct experience, the
bill will not expand the ability to assert title navigability in
federal court. Statute may say a water is navigable, but it is
driven by federal case law because the federal government did
convey the waters that were navigable and the test is the
federal case law. The most recent case law that DNR hung its
hat on when he was there was the PPL Montana, LLC. In that case
the river was broken up into segments, with some segments of the
river that were not navigable and some that were. It was ruled
that the non-navigable segments do not belong to the state.
That dispute was over a dam for generating power that was put in
the river and the state argued that it was a state river so the
company owed the state back rent for use of that dam. He said
he does not know how that case worked out because his interest
was in what sections were navigable and what were not. He
related that on the morning of a summary judgement motion on
DNR's Mosquito Fork case, the federal government came in and
disclaimed 100 percent of the river that DNR was litigating.
1:35:14 PM
WARREN OLSON said he has lived in Alaska for 55 years, is a
member of the Citizens' Advisory Commission on Federal Areas
(CACFA), and has been involved in water issues for 35 years. He
cut his teeth on the "Gulkana case" that was extremely important
to Alaska in regard to navigable waters in the state. He
advised that the term "navigable waters" is a legal term. Each
individual state determines its navigable waters standards and
how wide the law is going to be in each state, how much
influence it causes. So it is a total sovereign issue of each
state to determine navigable waters within the state, so there
are 50 different navigable water laws across the nation. In
regard to Representative Josephson's remarks, he said the
federal government really revolves around navigational servitude
and reserve water rights. Navigational servitude has to do with
someone putting a cable or some other obstruction across the
waterway within the state. No matter how large or how small the
obstruction, that will result in talking with the federal
government because it will be restricting commerce and/or
personal use of the waterway. Reserved water rights have to do
with establishing refuges and/or inholdings of the federal
government and those are determined at the time of establishing
the inholdings or reserves.
MR. OLSON addressed HB 216. He related that when attending
CACFA meetings the departments would describe their work in
regard to navigable water in Alaska and the presentations
usually would be involved with summertime use. This particular
case brought a question to his mind about the five or six months
a year of wintertime use. Alaskans travel tens of thousands of
miles on all waterways during the winter with all different
types of modes of transportation. Additionally, personal use of
those waterways in the wintertime is necessary to move equipment
and so forth to lodges and/or mineral developments for
springtime work. The purpose of [HB 216] is to elevate that
particular portion of the year, when it is frozen, that has not
been shown as an example of use of water for users in Alaska.
1:38:46 PM
MR. OLSON offered several suggestions. He said there is a
question of whether float planes are considered a navigable use.
Regarding the language "landing and takeoff of aircraft"
[original bill version, page 1, line 12, he urged it be specific
and include "wheels, floats, and skis". He suggested that "four
wheelers" be added [to page 1, line 13, in the original bill],
because throughout the Interior and the highway system it is
common in wintertime to see the utility work of four wheelers.
He also urged that the words "but not limited to" remain in the
bill to prevent the exclusion of any particular use. He said
the strength of HB 216 is that each navigable water law
throughout the country is unique to each state and he is a firm
believer in naming specific uses so that when these convocations
go between the federal government and the State of Alaska that
Alaska's law stands right up and Alaska as a sovereign state has
declared that these particular uses are a priority; there may be
others that are practical as well.
MR. OLSON said there are other areas that the state should take
advantage of, such as basin-wide adjudication. This would
assist the state in determining navigable water status, possibly
in more urgent and quicker methods than are being used today.
When referring to navigable water laws, a look must be taken at
each state supreme court in respect to the state that decisions
have come from. The state supreme court is the ultimate
authority on navigable water across the United States. He
thanked the sponsor for introducing the bill.
1:41:32 PM
REPRESENTATIVE SEATON pointed out that Version E, Section 2,
page 2, line 11, specifies all-terrain vehicles and this section
also specifies in any season for any public purpose. He further
noted that Section 2 applies to ponds and estuaries and he knows
of people who have very large tired all-terrain vehicles that
are great going through the mud and those people enjoy that
recreation. He asked whether having this in statute would
override regulations that are effect by ADF&G and whether there
needs to be clarification in this regard.
MR. OLSON answered that in the areas of conservation safety it
would seem to him that the department that has authority in
control and can establish restrictions against particular users.
Today there are four wheel drives and street vehicles out on the
ice, for example they are crossing the ice on Big Lake in
Southcentral Alaska.
1:43:42 PM
GARY STEVENS offered his strong support for HB 216. He said he
is a member of the Alaska Outdoor Council, but is speaking on
behalf of himself. The biggest issue for him is specifying that
snow machines can be ridden in wintertime on frozen navigable
waterways. He said he does not think the committee should be
too concerned about federal law and what the federal government
is going to decide as far as what is navigable. This is more
about the allowed uses - what is being used on that waterway and
when it is being used on that waterway. In regard to
Representative Seaton's concerns, he said he is sure that laws
currently on the books will cover anadromous species.
1:45:01 PM
STEVE STRAIGHT urged the passage of HB 216. As a longtime
Alaskan he said he finds it crazy that there needs to be
discussion about the idea that there is a difference between
summer use of rivers and winter use of rivers because it seems
so logical. He said the reason he urges the bill be passed,
whether in its original form or the CS, is that if the bill is
not passed the legislature is leaving it to a judge to make this
decision, which is not always the wisest place to develop or
make law. He requested the committee put it in writing and get
it right, because if the bill is not passed a judge could then
rule that the legislature did not intend for there to be winter
access on navigable waters.
1:47:24 PM
CEEZAR MARTINSON testified in support of HB 216, saying it is a
critical bill to pass for several reasons. First are the
reasons stated by Mr. Straight and the other is that it is
important for the State of Alaska to expand the definition of
what is navigable waters and what can be used on navigable
waters. In particular, the federal overreach that has been seen
in Alaska with regard to the Sturgeon case and other cases where
the National Park Service has denied Alaskans the ability to use
equipment that is necessary to them to harvest resources. This
bill is a first step for the legislature to assert state
sovereignty and say navigable waters are a state issue and it is
not the place of the federal government to come in and attack
Alaska citizens with unnecessary and burdensome regulations that
impact their ability to feed themselves and their families.
1:49:29 PM
CHARLES LEAN stated he is speaking for himself. He said he is a
member of CACFA and was a fisheries biologist for 40 years, so
he has a great deal of experience in both winter and summer in
Northwest Alaska. He said he is in favor of the bill and likes
many facets of it. The uses that transferred navigability to
the state, although they have changed somewhat, show that the
rivers and navigable waters have not really changed much in that
timespan and they still represent oftentimes the best route or
the best means of transportation. Saying he is particularly
interested in winter transportation, he pointed out that large
rivers like the Yukon are highways in the winter. It is the
side sloughs, straight shots, and what is shallow water in the
summer that is frozen to the bottom in winter and that is what
provides the most stable roadbed. Nome is in the thick of it
with the Iditarod, Iron Dog, and other races. All of these
things occur on the historic Iditarod Trail and the Iditarod
Trail is a network of trails, not a single line, and it is the
historic transportation route that the mail traveled in the
winter. It goes all the way to Eagle and Bethel and north to
Kotzebue; all those trails exist as a network and they are still
in use. [Another example is that] many of the visitors in Nome
for today's basketball game came via snow machine on those
trails. Those trails transit park lands, fish and wildlife
lands, and state lands and they make use of tidewater. The
state owns out to three miles and it also owns internal waters;
those are all part of the Navigable Waters Act and those trails
make high use of the coastal waters of Alaska in the winter when
they are frozen. He said he could speak in great detail about
fisheries management and how to remediate any impacts that
members are concerned about. There are villages in his region,
such as Shishmaref, that still get their water from rivers and
families travel on a weekly basis ten miles from town upriver to
find good clean water in the form of ice that they bring back to
subsist on for the rest of the week. Reiterating his support
for the bill, he said it has a number of things he is grateful
to see acknowledged.
1:54:19 PM
THOMAS VADEN testified he is a lifelong Alaskan and is speaking
to the trail system and roads in Eastern Alaska where he has a
guiding operation. Right now between Nabesna and the White
River he is freighting about 60,000 pounds with snow machines
using several rivers and over very small navigable rivers that
are frozen solid in the winter. That is the only way to get
around, he said. It is a big help to his operation hauling in
horse feed and the like. The village of Shushanna uses the
Sushana River coming upstream from Northway or Tetlin Junction
to supply people with fuel. The bill is very critical to any
kind of operations in rural Alaska. Some of the trails go over
glaciers and they are historic trails from the gold rush in the
1920s and 1930s, but most of those are harder now to navigate
because the glaciers are receding. He said he still gets ice
from rivers to support his operations, as do the residents of
Shushanna, because there are no wells. He closed his testimony
by stating his support for the bill.
1:56:23 PM
STEVEN FLORY spoke in favor of the bill. He pointed out that
many cabins and homes are located on tributaries. These
waterways have been historical highways for generations of
Alaskans, he said, long before all-terrain vehicles and snow
machines. It is not a new issue, it is just the first time it
is being addressed in state law. The bill is a simple and
overdue solution to an oversight. He said he cannot speak
enough in favor of HB 216.
REPRESENTATIVE TARR inquired whether Mr. Flory has had any
circumstances where he was prevented from travel on any
navigable waters.
MR. FLORY replied that the Knik Public Use Area was recently
established by the legislature and there is a push by a small
segment of people to limit the use in the wintertime. He came
to Alaska 26 years ago and trapped in that area, getting around
on the ice. Ice fishing and other activities go on in that area
and certain groups have tried to limit that access. Another
example has to do with a lake that he was trapping nearby and on
which he was using permission from one of the property owners
that abutted the lake. The submerged lands underneath the lake
and to the high water mark belong to the state and he was
trapping those areas. A person who did not want any trappers
out there literally interfered and took his traps and the state
prosecuted her for that.
1:59:16 PM
CRAIG COMPEAU said he is a 55 year resident of Fairbanks and is
testifying on behalf of himself and his family business. He
held that the definition of navigable waters is that they
provide a channel for commerce and transportation of people and
goods. The definition does not say anything about the water
condition, whether it is frozen, thawed, or muddy. Since the
late 1950s his family has sold almost 20,000 snow machines, most
of them to rural villages where they are used for hauling wood
and water and dragging trees along the water. If those
definitions are not commerce and transportation for the people
of Alaska, then he does not know what is. He offered his strong
support for the bill, saying these definitions need to be firmed
up so people can use these waters as was intended, whether or
not they are frozen.
2:01:01 PM
KAREN GORDON thanked Representative Talerico for closing a
loophole in this language by including winter use as well. She
said there are those who would suggest that because it says
water that it would not include winter use, but in Alaska there
is significant wintertime use of navigable waters that are
solid. She urged the bill be passed.
2:02:04 PM
RICHARD BISHOP noted he lives in the Goldstream Valley area
where trails and other access are an important part of people's
daily lives. He said he supports HB 216 and while he has not
seen the proposed committee substitute he thinks it is on the
right track. Alaska's waterways are essential for access by
Alaskans to the vast areas of the state - hiking trails, roads,
or air fields - whether they are open water or frozen. He said
he had mistakenly assumed that Alaskan waterways were considered
navigable or legal public access when frozen, so he was
surprised to learn otherwise. He also recently learned that
federal agencies do not consider frozen waterways navigable,
making the assurances that state waters are navigable all the
more important. He said he supports the bill as the means to
ensure that Alaska's waters are considered navigable and legal
public access year around.
MR. BISHOP recommended several amendments to clear up some of
the text. Referring to the original version before him, he
suggested that "or ice" be added on page 1, line 10, after
"water" to make the intent more clear. On page 1, line 13,
after the word ["vehicles"], he recommended adding "dog teams,
pedestrian uses". He proposed that page 1, line 14, be
rephrased to state "trapping, hunting, fishing, or other lawful
public purposes and activities". Regarding the words "trapping"
and "hunting", he held that those adequately cover the terms
"waterfowl and aquatic animals" as well as other practices, such
as moose hunting, for example, which is very common on the
waterways. He urged the bill be passed to make it clear in
statute that Alaska's frozen waters are considered navigable for
public access. As to potential impacts to salmon spawning areas
or other anadromous fish, he pointed out that there is already a
statute regarding the protection of anadromous streams that is
rigorously enforced.
2:05:41 PM
JOHN STURGEON testified in support of HB 216, saying it should
have been done long ago. He noted that in 2011 he filed a
lawsuit against the federal government on navigability and on
1/20/16 it was heard by the U.S. Supreme Court. During the
lawsuit the issue of uses of navigable water has come up in a
form of whether dog sleds are allowed. Another issue was in
regard to places like the Yukon River that have very large
gravel bars that run for miles. The definition of navigable
waters is ordinary high water to ordinary high water, so it does
include the gravel bars in places like the Yukon and Susitna
rivers. Four wheelers and other things used for moose hunting
are allowed. The National Park Service has chased four wheelers
off those gravel bars on the Yukon, so if his lawsuit is
successful and the state retains its rightful title to the
navigable waters, he wants to ensure that those uses are very
clearly defined.
2:07:23 PM
KENNY BARBER stated his 100 percent support of HB 216,
explaining he is a trapper who uses these waterways. For almost
30 years he trapped using an M37, a rubber tired military
vehicle. He added that he has never had a problem trapping on
rivers. Another reason he supports the bill is that he thinks
there is a lot of overreach by the federal government that is
trying to stop people from using these waterways and he would
like to see the state get the jump on the federal government.
2:08:37 PM
CO-CHAIR TALERICO closed public testimony on HB 216 and opened
committee discussion on the bill.
REPRESENTATIVE HERRON suggested careful consideration be given
to Representative Seaton's concern about having certain vehicles
in salmon streams. For example, a vehicle being able to go
through some streams at any time could cause damage. He said he
would appreciate it if the committee could figure out some sort
of an accommodation to the concern.
REPRESENTATIVE SEATON said his reason for bringing this up is
that subsequent law can override previous law, so there needs to
be some recognition of that interplay. He stated he has not
heard from the department as to how that interplay would go and
whether the specification of all-terrain vehicles in HB 216
would have priority over previous law. He drew attention to
[page 1, line 6, of Version E] which states that a person many
not obstruct or interfere unless that obstruction or
interference falls under the [four] conditions listed in the
bill, the last condition being "authorized by the commissioner
after reasonable public notice." He asked whether that is for a
specific waterway or in general; for example whether it would
cover estuaries in general or each specific [estuary].
2:10:52 PM
REPRESENTATIVE JOSEPHSON suggested the topic is more complicated
than may be thought. For example, one witness, a CACFA board
member, said that the only time the federal government
intervenes is when there is some physical obstruction that
interferes with interstate commerce or that sort of thing. He
recounted an [1824] decision that he used to teach called
Gibbons v. Ogden, 22 U.S. 1 (1824), where the U.S. Supreme
Court, John Marshall, first said navigability is a federal area
and there was not really any discussion of obstruction, although
it did involve a dispute between New Jersey and New York over
who controlled New York Harbor. So, there was not anything
interfering with traffic other than some sort of fee, which he
supposed could be the obstruction.
REPRESENTATIVE JOSEPHSON, regarding Representative Seaton's
concern, said the definition as he reads it seems to liberalize
hunting. There are prohibitions on hunting when game is present
in the water, he noted, but because there are exceptions to that
he does not know whether the bill would impede on that.
Regarding the access issue, he recalled that when he lived in
the Bush the sloughs and rivers were unimpeded highways for
vehicles of all sorts. He presumed that would not be changed
and would be left alone; for example, no one was obstructing any
through traffic between Aniak and Bethel that he saw. He
remarked he has a lot more to learn.
2:13:23 PM
CO-CHAIR TALERICO said HB 216 will be held over while his office
obtains answers to the questions raised by the committee.
2:13:45 PM
The committee took an at-ease from 2:13 p.m. to 2:15 p.m.
HB 246-AIDEA: FUNDS; LOANS; PROGRAMS; DIVIDEND
2:15:28 PM
CO-CHAIR NAGEAK announced that the next order of business is
HOUSE BILL NO. 246, "An Act creating the oil and gas
infrastructure development program and the oil and gas
infrastructure development fund in the Alaska Industrial
Development and Export Authority; relating to the interest rates
of the Alaska Industrial Development and Export Authority;
relating to the sustainable energy transmission and supply
development and Arctic infrastructure development programs of
the Alaska Industrial Development and Export Authority; relating
to dividends from the Alaska Industrial Development and Export
Authority; and adding definitions for 'oil and gas development
infrastructure' and 'proven reserves.'"
2:15:47 PM
FRED PARADY, Deputy Commissioner, Office of the Commissioner,
Department of Commerce, Community & Economic Development
(DCCED), noted he is before the committee as a board member of
the Alaska Industrial Development and Export Authority (AIDEA).
On behalf of the governor, he introduced HB 246 by way of a
PowerPoint presentation entitled, "AIDEA Oil and Gas
Infrastructure Development Fund, HB 246." He said the bill's
purpose is to create an oil and gas infrastructure development
program and fund within AIDEA. Through AIDEA's work with small-
and medium-sized oil and gas developers, AIDEA identified a need
for additional tools to support those developers. The bill
would create an oil and gas infrastructure development program
and fund to make investments in supporting infrastructure,
including roads, pads, gathering systems, camps, and other
facilities. The bill does not propose to make investments in
well and reservoir development. The infrastructures that AIDEA
would support would increase oil and gas production, help bring
new fields on line, attract new investment, increase future
state revenues, and support energy security.
2:17:25 PM
MR. PARADY addressed slide 2, "Current AIDEA Financing Tools,"
stating that AIDEA has 735,000 shareholders, the population of
Alaska, and they are represented by the Alaska State
Legislature. The governor is AIDEA's institutional shareholder
who appoints AIDEA's seven-member board. The staff of AIDEA
manages the day-to-day business. Currently, AIDEA has three
funds [revolving fund, sustainable energy transmission and
supply (SETS) fund, Arctic infrastructure fund] and two special
appropriations projects [Interior energy project, Ambler mining
district industrial access project]. Today, the majority of
AIDEA's core day-to-day business of providing capital and
partnering with industry to help drive the state's economic
engines is done through its revolving fund.
MR. PARADY moved to slide 3, "Geographic Project Diversity," and
pointed out that the revolving fund has investments across the
state, which are relatively aligned with the commerce and
industry across the state. Turning to slide 4, "Industry
Diversification," he noted the revolving fund has a diversified
portfolio of investments in Alaska businesses that operate under
the Prudent Investor Rule. The revolving fund has historically
made select investments that support oil and gas development in
the state. However, he said, AIDEA's opinion is that additional
investments by the revolving fund in projects that support oil
and gas development would overweight what is a currently
diversified portfolio. He specified that the 20 percent of the
revolving fund invested in mining is essentially the DeLong
Mountain Transportation System, Red Dog, but the risk in that
project is actually in the past because the project is
successful. Oil and gas represent about 14 percent of the
revolving fund.
MR. PARADY displayed slide 5, "AIDEA Financing Tools after HB
246, and explained that the concern addressed by HB 246 is to
develop an AIDEA financing tool because the oil and gas industry
sector continues to be a crucial contributor to the state. For
AIDEA to continue to support the industry, AIDEA's executive
director John Springsteen and board believe it would be
beneficial for AIDEA to have a separate tool and fund solely
focused on supporting oil and gas development by making
investments in infrastructure.
2:19:46 PM
MR. PARADY showed slide 6, "Intent of HB 246," and reiterated
that the bill's intent is to continue to support small- and
medium-sized oil and gas developers statewide with a separate
program and fund within the AIDEA family of investments. These
investments would be in infrastructure to: support small- and
medium-sized firms; increase production and help bring new
fields on line; attract new investment; increase future
revenues; and support energy security.
MR. PARADY drew attention to slide 7, "Eligible Oil and Gas
Infrastructure Projects," and defined oil and gas infrastructure
as roads, pads, camps, processing facilities, gathering systems,
and similar above the ground assets. He reiterated that wells,
reservoirs, or other below ground assets are not being talked
about. Amongst the criteria AIDEA would use to qualify projects
for these loan programs would be that the infrastructure
investment must be for a field with proven reserves. The bill
uses the Society of Petroleum Engineers' definition of proven
reserves, but, he allowed, it is possible that that definition
could come under debate before the committee.
MR. PARADY reviewed slide 8, "Financing and Tax Credits,"
explaining that the bill proposes an opt-in/opt-out provision.
If a borrower opts in to using AIDEA financing, then the
borrower is opting out of using the exploration and development
tax credit found in AS 43.20.043.
REPRESENTATIVE OLSON noted that AS 43.20 is now closed to new
participants. He asked whether there is any money left for
someone who was in before the cutoff.
MR. PARADY believed the answer to be yes, but said he will get
back to the committee.
REPRESENTATIVE OLSON understood a participant would have several
years to use that.
MR. PARADY replied yes, but added that he will get back to the
committee with a confirmed answer.
2:21:53 PM
MR. PARADY resumed his presentation and continued to address
slide 8. He noted projects with past tax credits would still be
eligible for AIDEA financing.
REPRESENTATIVE JOHNSON asked why a company eligible for tax
credits would want AIDEA financing. In other words, why borrow
money when credits would basically give the money to a company.
MR. PARADY offered his belief that that decision would rest on
the sources of funds available for the project to balance what
is available under tax credits versus the overall project's
needs for financing it. It would be a calculus that would be
performed by the company's accountants or developers.
REPRESENTATIVE JOHNSON said it seems to him like this statement
is based upon repealing of the tax credits, which is before the
committee. Therefore, he continued, he is uncomfortable with
putting it on the record that a company would be eligible for
something that the committee has not yet made a decision on.
MR. PARADY replied that his best answer is that of course the
legislature holds the decision regarding the oil and gas tax
credits bill. Envisioned in HB 246 is that if a company opts
into credits then it is opting out of AIDEA financing. The bill
is creating a new tool in AIDEA to do project finance.
2:23:29 PM
REPRESENTATIVE SEATON recalled that the Mustang Project has
above ground features financed through AIDEA and tax credits
were allowed for other portions. He understood Mr. Parady to
have stated that no well expenditures would be financed under HB
246 and asked whether that is also a demarcation. He further
understood that a company receiving tax credits would be unable
to get financing through AIDEA.
MR. PARADY understood Representative Seaton's question to be
regarding whether below ground tax credits would preclude above
ground financing. He said he will get back to the committee
with an answer.
2:24:27 PM
REPRESENTATIVE HERRON understood the credits under AS 43.55 to
be the net operating loss (NOL) credit statewide, and the
qualified capital expenditure (QCE) credit and well lease
expenditure (WLE) credit in Cook Inlet. He noted that in HB 247
the governor is proposing to repeal the QCE and WLE. He
surmised that Mr. Parady is saying a company will not use any of
these credits, including the ability to carry forward an annual
loss, if it participates with AIDEA.
MR. PARADY answered yes, depending upon the outcome of HB 247.
2:25:12 PM
CO-CHAIR NAGEAK inquired whether the Mustang Project on the
North Slope has stopped work and, if so, why.
MR. PARADY responded that the Mustang Project has been affected
by the price decline. There was a reworking of the collateral
structure of the waterfall associated with AIDEA's participation
in that project, he said, and he believes it is moving towards
warm storage or warm status as the market turns.
CO-CHAIR NAGEAK asked what the implications are for AIDEA's
investment in this project.
MR. PARADY replied that AIDEA's investment is secure and AIDEA
is continuing to work to keep it so.
CO-CHAIR NAGEAK inquired whether AIDEA's investment is [indisc.]
MR. PARADY responded no, not to his best understanding.
2:26:12 PM
REPRESENTATIVE JOHNSON asked what AIDEA is using for security
for these loans.
MR. PARADY responded that the security involved in each of these
loans that comes before the board can vary with the project that
is being developed. It can be the equipment, it can be
collateral on the underground reserve itself. It depends on how
that is structured for each particular deal.
REPRESENTATIVE JOHNSON surmised AIDEA is going to repossess
leases if the underground reserve is the collateral and a
company defaults.
MR. PARADY replied he will provide a more detailed answer, but
under his present understanding he does not know that repossess
the lease is the right term and it depends on the structure of
the individual deal. He understood that the gas reserves of the
Mustang Project are one of the ultimate collaterals, but a
waterfall of steps would come before that step.
2:27:31 PM
CO-CHAIR NAGEAK asked why a new fund is needed if AIDEA is able
to support projects like Mustang.
MR. PARADY answered that oil and gas is currently at 14 percent
in the balance of the overall AIDEA revolving loan fund. Since
the capital demand of this sector of Alaska's economy is
substantial, it would overweight the portfolio and overrule the
diversification principle that underlies the Prudent Investor
Rule.
REPRESENTATIVE JOSEPHSON addressed the inquiry about the Mustang
lease being relinquished to the state down the series of
waterfall steps. He surmised the leaseholder entered into that
contract probably before the fall of oil prices or even before
the Walker Administration came into being.
MR. PARADY replied yes.
2:28:39 PM
MR. PARADY returned to his presentation and addressed slide 9,
"Market Based Interest Rates." He said that under the structure
of HB 246, AIDEA would base the interest rates based on project
risk. Project risk would be evaluated by looking at the
operating performance of the field, the size of the field, the
projected costs and cash flow, and capabilities of the
operation. Borrower creditworthiness would be looked at, as
well as owner and financing partner commitments - who is backing
the field development, their expectation of financial returns -
and the collateral to be made available to AIDEA. The benefits
to the state would also be looked at, including tax and royalty
revenue and jobs, jobs being a foundation of AIDEA's analysis.
The interest rates may be higher for oil and gas infrastructure
projects, he noted, due to the inherent risks associated with
the industry.
MR. PARADY discussed slide 10, "Other Bill Components." He said
the bill would modify the financing limits of the sustainable
energy transportation and supply (SETS) fund and Arctic
infrastructure development fund. The bill proposes that all
three funds be allowed to loan up to 50 percent of an eligible
project or offer a loan guarantee of up to $25 million. As in
the existing funds, amounts in excess of these limits would
require prior legislative approval. He noted that the current
limits are 33 percent, which the bill would move to 50 percent,
and $20 million, which the bill would move to $25 million. This
is essentially a reflection of a stronger role in trying to
support these activities.
2:30:11 PM
REPRESENTATIVE OLSON asked whether the concept of this expansion
came from an AIDEA board decision or somewhere else.
MR. PARADY responded that the board has had discussion based on
its staff's interaction with the industry and is also based on
discussions within the administration.
REPRESENTATIVE CHENAULT observed that Sections 10 and 11 of the
bill increase the loan size that AIDEA can make in the SETS fund
and in the Arctic infrastructure fund. He asked whether that is
really necessary or is an AIDEA wish list component that has
nothing to do with HB 246.
MR. PARADY answered he would not describe it as a wish list, he
would describe it as an updating of the tools in the AIDEA tool
kit, but it is within the judgement of the legislature whether
to lengthen that leash a little bit or keep it a little tighter.
In the context of the specific fund before the committee, the
oil and gas infrastructure fund, the scale of capital needs in
the oil and gas industry are such that he believes the move
makes clear sense. Also, there was some interest on AIDEA's
part in keeping things standard across the state's statutes.
REPRESENTATIVE HERRON said the way he and his staff read the
bill is that changes would be made and he would think there
would be concern on the legislative side that AIDEA is going to
make decisions that go against what the legislature wanted to
do. He inquired whether HB 246 would allow AIDEA to transfer
earnings from other assets to the oil and gas fund.
MR. PARADY replied correct, but noted that is an authority which
AIDEA already has within its tool kit as a corporate entity and
it is authority that AIDEA has exercised with discretion. He
said AIDEA has not transferred funds between funds and AIDEA has
returned a sustainable dividend to the state over decades.
REPRESENTATIVE HERRON remarked that it is a serious concern.
2:32:34 PM
CO-CHAIR NAGEAK noted that Buccaneer Energy Alaska in Cook Inlet
has left the state. He asked whether AIDEA was a partner in
that venture.
MR. PARADY responded yes, AIDEA had a loan involved in that and
AIDEA recouped its investment from the jack-up rig before it
left the state.
CO-CHAIR NAGEAK asked whether AIDEA was left with unpaid loans
due to the bankruptcy.
MR. PARADY answered zero, AIDEA did not have a write-off
associated with that project and in fact AIDEA earned a return.
Responding further, he confirmed that AIDEA got its money back.
2:33:24 PM
REPRESENTATIVE SEATON recalled that two years ago before the
Mustang Project was underway, there was a proposal to look at a
$200 million separate fund or separate bonding authority so that
it would be separate from the existing bonding authority that
AIDEA is using. He understood the legislature did not end up
passing it, but asked whether it would be the bonding authority
that would be extended to give AIDEA the money to make these
investments or would it be an internal reorganization.
MR. PARADY replied that the current concept of this package, the
$200 million in funding, is associated with HB 247, which is
also before the committee. That funding would be to capitalize
the initial fund and then there is the question of whether
bonding authority would be extended to it, which is not present
in HB 246.
REPRESENTATIVE CHENAULT asked approximately how much money is
currently in those funds.
MR. PARADY responded that the balance sheet of AIDEA has $1.3
billion spread across the revolving loan fund and the other two
funds. He said he will provide the committee with a breakout.
2:35:14 PM
GENE THERRIAULT, Energy Policy and Outreach Director, Alaska
Energy Authority (AEA), Alaska Industrial Development and Export
Authority (AIDEA), Department of Commerce, Community & Economic
Development (DCCED), on behalf of the governor, provided a
sectional analysis of HB 246. He pointed out that most bills
have a small part of new statute and then the remaining pages of
the legislation make conforming amendments to the existing
statute, which is the case with HB 246. The new fund would be
created by Section 12 of the bill; it is a policy call of
members as to whether that new fund is created. In addition to
that policy call, there are two other distinct policy calls, one
being whether the limits on the existing SETS fund and the
Arctic infrastructure fund should be made the same as the
proposal for the new fund. The other policy call is the request
in Section 9 of the bill that AIDEA be given the flexibility to
set the interest rate of its different financial tools so that
it can reflect the risk and reward that is being proposed in a
specific project. He said this is a distinct policy call
because that is a new authority that would be given to AIDEA.
MR. THERRIAULT explained that Sections 1-3 of the bill would add
the new fund to the existing statutes that require yearly
dividend payment from AIDEA to the general fund under the
definition of unrestricted net income. At the bottom of page 2
of the bill is the addition of the new oil and gas
infrastructure fund to the list of AIDEA's investment tools that
pay a dividend should this fund derive revenue.
2:37:37 PM
MR. THERRIAULT said Sections 4-8 of the bill would add
references to the new fund to the existing statutes that detail
the level of interest levied on loans from the SETS fund and
Arctic infrastructure development fund. Both those funds are
relatively new creations of the legislature in AIDEA's
investment portfolio and both were established by the
legislature. He noted that the mechanics of the existing
language would not be altered by the addition of the oil and gas
infrastructure development fund to those sections of statute.
MR. THERRIAULT pointed out that Section 9 would enable AIDEA to
set the initial interest rate by project that takes into
consideration the project risk, creditworthiness, partner
commitments, and benefit to the state. It is one of those
policy calls, a new requested authority of AIDEA to initiate
through regulatory action an interest rate that reflects the
risk that is being proposed by an individual project.
REPRESENTATIVE TARR inquired whether authority to set the
interest rate means that decision would be made by the AIDEA
board or an executive decision by management. For example, she
noted, some people do not feel there is fairness in the process
used regarding the agriculture revolving loan fund.
JOHN SPRINGSTEEN, Executive Director, Alaska Industrial
Development and Export Authority (AIDEA), Department of
Commerce, Community & Economic Development (DCCED), replied that
staff would go through the process of negotiations and working
out what that interest rate would be. All of this would then be
approved by the AIDEA board.
2:39:36 PM
REPRESENTATIVE CHENAULT asked what factors or criteria would be
used for determining who got a loan and at what interest rate.
MR. SPRINGSTEEN responded that the technical due diligence would
include reviews of the field, field performance, the owner, the
operator, the development plan, and the type of infrastructure
being requested for the development. The financial due
diligence would include looking at the creditworthiness of the
other party, the commitments behind the other party in terms of
other financiers and what type of returns that they are
requesting, the collateral that is made available for the
investment, as well as reviewing the project economics and
performing financial stress testing. Equally important when
reviewing these factors are the benefits to the state in terms
of job creation and revenue from taxes and royalties. All of
these would be weighed as AIDEA pursued its negotiation with an
interested developer.
REPRESENTATIVE CHENAULT inquired whether that criteria would
change as AIDEA went from development to development. For
example, of concern to him is a local hire provision where a
company would get a lesser interest rate if it hired more
Alaskans than if it did not.
MR. SPRINGSTEEN answered that through discussions with folks
from the industry, AIDEA is keenly aware of industry's needs for
special expertise for certain projects, so AIDEA will note that
need. Absent that, if there were a comparable Alaska hire in
terms of cost and capability, it is part of AIDEA's role as
stewards of the state to work towards a preference for that type
of a hire.
2:42:04 PM
REPRESENTATIVE JOSEPHSON inquired where AIDEA would get the
information for field performance criteria. For example, would
AIDEA consult with the Department of Natural Resources (DNR) in
some privileged way and keep that confidential.
MR. SPRINGSTEEN replied that AIDEA does collaborate with DNR in
accessing information, as well as accessing technical expertise
that would augment AIDEA's internal team the authority to do a
review. He noted AIDEA has a very lean general staff so it
needs to tap on special expertise from time to time, and that is
the process that AIDEA engages in.
2:43:00 PM
MR. THERRIAULT continued his sectional analysis, explaining that
Sections 10 and 11 propose to make adjustments to the existing
participation limits of the SETS and Arctic infrastructure funds
so that they would be the same levels as is proposed for the new
oil and gas fund. Those two sections are separate, but AIDEA
believes there is some benefit if the criteria is level across
the different financing tools. However, it is a separate and
distinct policy call for the legislature to make.
MR. THERRIAULT said Section 12 is the meat of the bill in that
it would create the new fund. The proposed statutory language
that creates the oil and gas infrastructure development fund is
based on the framework used when the legislature created the
SETS and Arctic infrastructure funds. However, the language on
page 8, lines 3-4, of the bill is specific to this proposed new
fund in that it states the need to investigate the proven
reserves. Bringing attention to page 7, line 17, and the
language, "establish reserves", he noted that for the SETS and
Arctic infrastructure funds, it was very clear that "establish
reserves" was referencing the financial reserves of the fund.
He related that Representative Hawker is concerned about this
language because this fund is involved in oil and gas reserves
and tweaking of the language might needed here to make it clear
that it is talking about financial reserves. Therefore, that is
a bit of a potential difference from the structure that was used
for the other two funds.
2:45:20 PM
REPRESENTATIVE SEATON said he had been of the understanding that
under the oil and gas infrastructure fund the proven reserves
were talked about as collateral, but now he is understanding
that this is financial reserves and not oil and gas reserves.
MR. THERRIAULT explained that the language on page 7 is talking
about the operation of the fund itself, and reserves sometimes
have to be established within the fund.
MR. SPRINGSTEEN elaborated by posing a scenario of AIDEA issuing
a bond that supports a project, for which AIDEA would then need
to establish a financial reserve, a general obligation of the
authority, to backstop the bond issuance and to secure the
project. That is generally what this language relates to - the
establishment of financial reserve for a bond issuance.
MR. THERRIAULT said that points out Representative Hawker's
concern. Because this fund in particular is involved in
development of oil and gas reserves, tweaking the standard
language might be necessary to make that clarification. The
proven reserves is dealt with later on in the bill.
2:47:02 PM
MR. THERRIAULT resumed his sectional analysis, drawing attention
to page 8, lines 3-4, which would require a process for proving
the existence of those proven reserves. He noted that expertise
would be brought in, as discussed earlier, so this would be
different than the standard language that was used for the SETS
and Arctic infrastructure funds.
MR. THERRIAULT explained that page 8, lines 15-22, would require
a project developer to choose between securing infrastructure
financing from this new fund or applying for oil and gas
development credits. This language does not exist in the SETS
and Arctic infrastructure development funds, he noted, it would
be specific to the proposed oil and gas infrastructure
development fund.
REPRESENTATIVE HERRON observed on page 8, lines 23-24, that it
could be a 30-year loan. He asked what the difference is
between a loan and becoming an actual equity owner.
MR. SPRINGSTEEN read from the language on lines 23-24, which
state, "Financing under AS 44.88.880 is limited to the projected
life of the oil and gas infrastructure development but may not
be more than 30 years." Therefore, he explained, the vehicle
could be either a loan or an investment, but when AIDEA makes
investments they are generally preferred equity with collateral
and they act much like a loan.
REPRESENTATIVE HERRON inquired whether it is reported as an
equity or as a long-term debt.
MR. SPRINGSTEEN responded it depends on the nature of the
investment.
2:49:52 PM
REPRESENTATIVE SEATON presumed there would be no liability
through this loan or equity for any of the terminal cleanup,
removal, and rehabilitation.
MR. SPRINGSTEEN offered his belief that if it were a direct
investment as opposed to a loan, AIDEA would still potentially
have responsibility for what it does on the top side. He
reiterated that it is things above ground, such as roads, pads,
camps, and pipe, and not things related to reservoir or field
development below ground.
REPRESENTATIVE SEATON posed a scenario of a loan or an equity
investment where the life of the field is 30 years. He asked
whether the state would have liability for the demobilization
and rehabilitation if anything were to happen to the partners.
That liability could be more than the cost of the loan, he said.
MR. SPRINGSTEEN answered that is why it is very important for
AIDEA to look at the ability of the project partners and the
committed backers for the project to provide the collateral and
commitment. He said he thinks the preference would be for a
loan by AIDEA just because it naturally limits liability.
REPRESENTATIVE SEATON stated he is uncomfortable with that being
a negotiated term because he does not think the state wants to
get into that liability and that this may need to be excluded in
the statute to prevent the state from becoming liable for that
at the payoff of the loan.
CO-CHAIR NAGEAK asked whether Representative Seaton has any
suggestions for language that would resolve his concern.
REPRESENTATIVE SEATON suggested that the sponsor of the bill
provide a proposal to fix that or to limit that liability.
CO-CHAIR NAGEAK requested AIDEA to propose the language.
MR. SPRINGSTEEN agreed to do so.
2:53:11 PM
MR. THERRIAULT recommenced his sectional analysis. He brought
attention to page 8, lines 11-14, which propose the new project
limits. If AIDEA provides financing, he said, the financing
would be limited to up to one-half of the capital cost of the
oil and gas infrastructure development and the guarantee of a
loan is the $25 million. Those would be the limits for this new
fund, and Sections 8 and 9 propose that it be the same for the
SETS and Arctic infrastructure funds. That is a policy call,
but AIDEA believes there is some value to having some continuity
across those different loan funds.
REPRESENTATIVE TARR, regarding the amount authorized in statute
for the other two funds, recalled it being said that raising the
amount from $20 million is in some ways adjusting for inflation.
Regarding the provision for up to 50 percent, she posited that
this transfers a bigger portion of the liability to the state in
terms of providing that guarantee. She inquired whether it is
standard in the industry to go that high and explained she is
asking this question to better understand the why for going from
one-third to 50 percent.
MR. SPRINGSTEEN replied the 50 percent threshold provides an
opportunity for a true type of a partnership structure with
another entity. In terms of obligations of the state versus
obligations of AIDEA, if AIDEA issues a general obligation bond
it is an AIDEA general obligation bond against the assets of
AIDEA and not of the state. This provides AIDEA with some
amount of independence in order to enter into deals with third
party developers and other project financiers.
REPRESENTATIVE TARR surmised there should be a monetary value
associated with that that should be positive in terms of
building AIDEA's asset base. She imagined that would be
preferable as well.
MR. SPRINGSTEEN responded yes.
2:55:43 PM
REPRESENTATIVE HERRON asked why another fund needs to be created
if AIDEA is already able to support projects like Mustang.
MR. SPRINGSTEEN answered that as AIDEA's assets, capacity, and
need for diversity in the revolving fund were reviewed with the
board, it was viewed that additional investments in supporting
oil and gas infrastructure would overweight the revolving fund's
diverse portfolio and potentially have an impact on its credit
rating. But it was also understood that the oil and gas
industry continues to come to AIDEA for support for
infrastructure, and that was the driver behind the ask for a
separate program within AIDEA to work alongside oil and gas
industry developers. Some very important things are done in the
revolving fund, such as project development, backstopping bond
issuances, and supporting AIDEA's loan participation program,
where AIDEA works alongside banks and federal credit unions to
provide reasonable cost financing to all manner of business and
industry in the state.
REPRESENTATIVE HERRON inquired whether the AIDEA board gave any
thought to just staying in the loan guarantee business.
MR. SPRINGSTEEN replied that that is part of the process being
engaged here - AIDEA has an idea that it is bringing forward and
is looking for input and adjustment that is required.
REPRESENTATIVE HERRON asked whether Mr. Springsteen is saying
the AIDEA board thought that a loan program was needed instead
of a loan guarantee program.
MR. SPRINGSTEEN responded it is having the ability to either
guarantee or to make an investment.
2:58:08 PM
REPRESENTATIVE JOSEPHSON said he was struck by Mr. Springsteen's
statement that in AIDEA's world a 50 percent interest warrants
potentially having equity in a project.
MR. SPRINGSTEEN answered he used the term loosely in terms of
partnership, not as a strict legal vehicle, but in reference to
the nature of a relationship where there is a promising project
that has a good and solid committed backer for reservoir
development, and AIDEA would provide funding for this type of
topside infrastructure development with a partner.
REPRESENTATIVE JOSEPHSON remarked that Mr. Springsteen's use of
the word partnership is also interesting because in HB 247 there
is, in one sense, absolutely a partnership, but in another sense
there is not, it is a grant. But, he continued, AIDEA looks at
50 percent investment as possibly warranting some sort of
partnership interest.
MR. SPRINGSTEEN responded that the responsibility of AIDEA staff
is as stewards of funds that are provided to AIDEA. The staff
views funds as a renewable source to take and deploy for project
development, those funds are returned to AIDEA, they provide a
return and also provide a dividend to the state, and the funds
are redeployed for additional project development.
REPRESENTATIVE JOSEPHSON recalled the governor's fiscal plan as
stating that the loans to the oil industry would be more
favorable than commercial rates. He observed that the second
paragraph of the sectional analysis says the loans would be
consistent with what commercial lenders offer. He inquired why
a developer would come to AIDEA if the developer can get a loan
through a commercial lender.
MR. SPRINGSTEEN replied that from time to time there are the
right types of project developers that are providing a
commanding benefit to the state in terms of employment and in
generating royalty and tax revenue for the state, which would
get considered in terms of rate setting. He said AIDEA starts
with the idea of the merits of the project and what type of
other financial partners and commitments there are for the
project, and determines what a market rate is. Then AIDEA has
the ongoing discussion of what additional incremental benefit
does the developer provide to the state that would warrant
preference in terms of a lower rate.
REPRESENTATIVE JOSEPHSON addressed the liability issue raised by
Representative Seaton. He said he is concerned about state
liability, but is more concerned about the subject of
rehabilitation and demobilization. He asked whether the current
system is inadequate to handle issues of after the life of a
field rehabilitation and demobilization and whether there is
something that is not being done to protect Alaska.
MR. SPRINGSTEEN answered that each deal is different but
generally AIDEA's approach is to act in the form of a lender and
to have the other party responsible for addressing those types
of liabilities mentioned.
3:02:15 PM
REPRESENTATIVE SEATON said he is uncomfortable with not more
than 50 percent because he is unsure how much of the project
that is. Whether it is through credits or through loans, it
seems like the state is trying to attempt [to make it] so that
people do not enter into the normal commercial relationships of
having two or three or another partner come in with expanded
balance sheets. In some cases what the state is doing is like
what happened with Buccaneer - the state actually lessened the
need for Buccaneer to have a partner and have a broad balance
sheet due to the state's participation. He said he hopes that
when this is discussed again, AIDEA can provide some assurance
about the state's participation at a 50 percent rate because it
may be leveraging in more financing with the state's 50 percent
and getting into the situation where the state is digging itself
into a hole.
3:03:32 PM
REPRESENTATIVE JOHNSON expressed his concern about the zero
fiscal note because it was stated several times that AIDEA would
have to call in experts from outside or from DNR. Thus, there
needs to either be a fiscal note from DNR or something that is
going to reflect the [reimbursable services agreement (RSA)].
The fiscal note cannot possibly be zero if AIDEA does not have
the expertise in-house, he posited. He requested an updated
fiscal note from the departments from which AIDEA would be
getting the expertise.
MR. SPRINGSTEEN replied that when working with project developer
partners, AIDEA often enters into RSAs with the developer
partner. If a developer is seriously considering financing
through AIDEA, then many times it is worthwhile for the
developer to provide the funds for this type of analysis and the
analysis is done at the control of the authority.
REPRESENTATIVE JOHNSON said he thought he clearly heard that
AIDEA would need to have resource assessments to be able to find
out what is in the ground and DNR is the only one that can do
that, so that is where he was going with that. He understood
that other people might pay for the other things, but someone
from DNR is going to have to step in and there will be a cost
and he would like to accurately reflect the cost of this bill.
MR. SPRINGSTEEN responded that AIDEA often engages other
departments, but they are under RSAs that are paid for
ultimately by the project developer, which is the model that
AIDEA contemplates in this.
[HB 246 was held over.]
3:05:17 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:05 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 216 FiscalNote.php.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |
| CSHB 216( ) - Legislation Ver. E.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |
| CSHB 216( ) - Sectional Analysis.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |
| CSHB 216( ) - Sponsor Statement.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |
| CSHB 216( ) - Summary of Changes (Ver. W to E).pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |
| HB246 Ver A.pdf |
HRES 3/16/2016 1:00:00 PM HRES 5/30/2016 11:00:00 AM HRES 5/31/2016 11:00:00 AM HRES 6/1/2016 11:00:00 AM |
HB 246 |
| HB246 Sectional Analysis.pdf |
HRES 3/16/2016 1:00:00 PM HRES 5/30/2016 11:00:00 AM HRES 5/31/2016 11:00:00 AM HRES 6/1/2016 11:00:00 AM |
HB 246 |
| HB246 Fiscal Note-DCCED-AIDEA-01-14-16.pdf |
HRES 3/16/2016 1:00:00 PM HRES 5/30/2016 11:00:00 AM HRES 5/31/2016 11:00:00 AM HRES 6/1/2016 11:00:00 AM |
HB 246 |
| HSE RES HB 246 - AIDEA Oil and Gas Infrastructure Development Fund presentation.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 246 |
| HB 216 Supporting documentation.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |