Legislature(2013 - 2014)Anch Temporary LIO
11/28/2014 02:00 PM Senate LEGISLATIVE BUDGET & AUDIT
| Audio | Topic |
|---|---|
| Start | |
| Executive Session | |
| Presentation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE BUDGET AND AUDIT COMMITTEE
Anchorage, Alaska
November 28, 2014
2:06 p.m.
MEMBERS PRESENT
Senator Anna Fairclough, Chair
Representative Mike Hawker, Vice Chair
Senator Cathy Giessel
Senator Kevin Meyer
Senator Mike Dunleavy (alternate)(via teleconference)
Representative Kurt Olson
Representative Bob Herron (via teleconference)
MEMBERS ABSENT
Senator Click Bishop
Senator Donald Olson
Representative Alan Austerman
Representative Andy Josephson
Representative Scott Kawasaki
Representative Bill Stoltze
OTHER LEGISLATORS PRESENT
Senator Peter Micciche
Representative Lindsey Holmes
Representative Mia Costello
Representative Lynn Gattis
COMMITTEE CALENDAR
EXECUTIVE SESSION: ALASKA LIQUEFIED NATURAL GAS BRIEFING
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOE BALASH, Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint on the Alaska
Liquefied Natural Gas Project (AKLNG).
ANGELA RODELL, Commissioner
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Assisted with the PowerPoint on the Alaska
Liquefied Natural Gas (AKLNG) Project.
REPRESENTATIVE LINDSEY HOLMES
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified during the presentation on the
AKLNG Project; Legislative Update.
ACTION NARRATIVE
2:06:51 PM
CHAIR ANNA FAIRCLOUGH called the Legislative Budget and Audit
Committee meeting to order at 2:06 p.m. Senators Giessel,
Meyer, Dunleavy (via teleconference) and Fairclough and
Representatives Hawker, Olson, and Herron (via teleconference)
were present at the call to order. Also present were Senator
Micciche (via teleconference), Representative Holmes, Costello
and Gattis.
^Executive Session
Executive Session
2:08:27 PM
CHAIR FAIRCLOUGH announced that the only order of business today
would be an executive session to receive a briefing on the
Alaska Liquefied Natural Gas Project by Commissioner Joe Balash,
Department of Natural Resources; and Commissioner Angela Rodell,
Department of Revenue. She stated that the Legislative Budget
and Audit Committee (LB&A) is facilitating two meetings today in
order to provide a confidentiality briefing from the current
administration on the Alaska Liquefied Natural Gas (AKLNG)
Project. Everyone participating in today's meetings has signed
a confidentiality agreement required to receive the briefing.
The Alaska State Legislature passed SB 138 and in doing so
anticipated that the legislature would need to be briefed on
sensitive information to protect Alaska's interests in the AKLNG
Project on behalf of the citizens of Alaska. It is critical
that this information remain confidential so the legislature and
the state doesn't provide information to the producers or other
partners on the state's strategy and thereby undermine the
state's interest. It is the legislature's job to be informed
and understand the reasons certain decisions and commitments
have been made. Further, it is important to understand the work
that has been done to date for the future development of the
AKLNG Project [the Alaska Liquefied Natural Gas (AKLNG) Project,
as well as to provide input on the process and decision-making.
CHAIR FAIRCLOUGH informed members that a confidentiality
agreement is meant to share confidential information,
information that some may not receive by choice; however, those
who do receive the confidential information will need to
determine how to use the information to make decisions on behalf
of Alaskans. She informed members that this briefing will take
place in executive session to protect the confidential
information that will be shared with us.
2:09:43 PM
REPRESENTATIVE HAWKER made a motion to move into executive
session as provided under Uniform Rule 22(b)(1) and (3) since
the meeting will involve a discussion of matters that the
immediate knowledge of which would adversely affect the finances
of a government unit. There being no objection, the committee
went into executive session at 2:10 p.m.
4:26:40 PM
CHAIR FAIRCLOUGH brought the committee back to order at 4:26
p.m. She reported that those members and staff who had signed
the confidentiality agreement were allowed to remain in the room
and on teleconference during executive session.
CHAIR FAIRCLOUGH named the staff who participated during the
executive session, including Meridon Boario, staff,
Representative Nageak (via teleconference) until 3:56 p.m.; Pete
Fellman, staff, Senator Bishop (via teleconference) until 4:05
p.m.; Jane Pierson, staff, Representative Thompson (via
teleconference); Robert Ervine, staff, Representative Holmes;
John Wood, staff, Senator Dunleavy, and Larry Semmens, staff,
Senator Micciche (via teleconference).
^Presentation
Presentation
4:28:24 PM
CHAIR FAIRCLOUGH announced that Commissioner Joe Balash and
Commissioner Angela Rodell would provide the public with a
briefing on the Alaska Liquefied Natural Gas (AKLNG) Project.
4:28:50 PM
JOE BALASH, Commissioner, Department of Natural Resources,
offered to provide an update on the Alaska Liquefied Natural Gas
Project (AKLNG). The Alaska Gas Development Corporation (AGDC)
represents a key part of carrying Alaska's interest in the AKLNG
project. He reported, on behalf of the administration, that the
project is on track to maintain the schedule in effect when SB
138 passed the legislature. The state's AKLNG project team's
top priorities are to ensure that the state's interests are
fully protected and that the complete spectrum of opportunities
and benefits, as well as the costs and risks are appropriately
understood, thoroughly assessed, and well communicated to
decision-makers, including the legislature [slide 2].
COMMISSIONER BALASH reported that the administration has
assembled a highly-experienced "leadership team" to manage and
direct current efforts, which has accelerated the project's
pace. The potential contributions and expertise of the team
will serve the next administration and the legislature very
well, he stated. The team is now well positioned to guide and
influence the project from a technical perspective. The
producers are working in good faith with all parties, with major
capital and "A-team" resource commitments clearly evident.
There isn't any good reason to slow down or otherwise derail
this project. He said, "We have a good project. We have a
fundamentally sound project and the opportunities in front of
the state are tremendous."
4:31:56 PM
COMMISSIONER BALASH directed attention to the Alaska LNG project
highlights [slide 3]. The AKLNG Project is now in Phase 2 -
Pre-FEED [Pre-Front End Engineering Design Engineering
Development], which is anticipated to go through the end of
calendar year 2015. Most of the work plan and budget for 2015
has been identified and approved. The administration has been
moving forward with all the parties on a work plan and schedule
that will facilitate the legislature's approval of key decision
points to enable phase-gate review for a FEED decision in the
first quarter of 2016 (1Q 2016). Significant work will need to
take place over the next 15 months, he said. He offered to walk
the committee through the work, in a general sense that can be
conveyed to the public. The schedule is feasible, workable, and
the administration has the right resources available. The other
parties have resourced their respective teams appropriately and
as long as the current alignment is maintained, the AKLNG
project should be on track and move forward in early 2016.
4:33:26 PM
REPRESENTATIVE HAWKER reiterated the importance of maintaining
alignment. He acknowledged that the AKLNG project schedule is
an ambitious one, noting significant challenges loom ahead. The
commissioners have given a public briefing on the project this
morning that outlines very well how the state got to this point
and where it is heading. In addition, in a confidential
legislative briefing, the administration has given the
legislature the critical "granular" information that backs up
the process, which is very important for legislators to
understand in order to move this project forward.
REPRESENTATIVE HAWKER, with respect to the transition of the
administration, asked whether the commissioner has had an
opportunity to give the incoming administration an orientation
briefing.
COMMISSIONER BALASH answered that he has not yet done so, but he
will continue to make himself available to the incoming
administration. He stated that Governor-elect Walker has
indicated his desire to keep the AKLNG project on track. The
purpose of today's legislative briefing is to identify what "on
track" looks like.
4:35:40 PM
COMMISSIONER BALASH directed attention to the project schedule
entitled, "Alaska LNG - Work Plans/Key Decision Points" that
represents the project schedule the legislature has previously
seen in presentations [slide 4]. This identifies the
"beginning, the middle, and the end" starting with the Point
Thomson settlement joint work agreements that occurred at the
start of the Parnell administration, continuing with concept
selection and the decision to go into Pre-FEED, which occurred
with passage of SB 138 and the signing of documents in late June
2014. Currently, the AKLNG Project is in the Pre-FEED stage.
The total work plan and budget will consist of $500 million by
the end of calendar 2015. An opportunity to move into FEED
[Front-End Engineering & Design] will occur in the first quarter
2016 [1Q 2016]. The FEED decision will be an approximate $2
billion decision between the parties. Since the "price tag" is
so large, it is very likely to be treated very similar to an FID
[final investment decision], he said. In other words, the
[parties] are unlikely to move forward unless they know the
project will result in an FID.
COMMISSIONER BALASH, in terms of timing, said it could take two
or three years to complete the federal permitting process. Once
the FEED phase - the permitting phase - is done, the actual
construction should be completed in just over five years,
depending on the commencement date. It may take longer due to
the seasonal windows associated with movement of modules for the
gas treatment plant into the North Slope. The state could see
first gas as soon as 2023, but 2025 would still be within a
reasonable "on-time" window.
4:38:13 PM
COMMISSIONER BALASH turned to the calendar entitled, "Alaska LNG
- Anticipated Timelines in Pre-FEED" that highlights the next 15
months [slide 5]. This timeline can help the administration and
the legislature determine whether the pace is being kept and if
the project is on track. A number of enabling agreements will
allow the parties to move into FEED, including durability, also
known as the fiscal agreement, property tax, expansion
principles, gas supply, service agreements, and disposition -
the sale of the LNG. The state must have these service
agreements in place with TransCanada and/or Alaska Gas
Development Corporation (AGDC) to provide project services for
the state's 25 percent equity in the AKLNG project.
COMMISSIONER BALASH directed attention to the line on slide 5
above the timeline, to a parallel process in which the DNR will
make certain decisions related to oil leases and the rights and
prerogatives that the state enjoys under those leases. He
reported that SB 138 enabled the commissioner to alter those
leases and limit the state's ability to switch from royalty-in-
value (RIV) to royalty-in-kind (RIK), or vice-versa, noting
there are valid commercial reasons to do so. A section of
statutes was created within SB 138 that doesn't' become
effective until January 1, 2015. Therefore, in early 2015 he
anticipated a proposal will collectively be brought forward by
the lessees. The [DNR] commissioner will make certain
determinations with respect to long-term LNG prices, project
costs, and an evaluation of what the NPSL [net profit share
lease] and sliding-scale royalties would have provided for the
state, converted to a flat value that will be added to the
specific leases. This will provide a fixed royalty amount for
those specific leases to provide predictability as to what the
state's share of gas will be once the AKLNG project is in
operation.
4:40:47 PM
COMMISSIONER BALASH anticipated that a special legislative
session will need to be scheduled for October 2015. In
addition, a window of approximately 60 days prior to the special
session - beginning in early August - is necessary for the
legislature, its consultants, and the public to review the
documents and the agreements that the legislature will be asked
to approve. The agreements will need to be finalized by July
2015, he said. He cautioned that getting closure on agreements
at the working level is one thing, but obtaining corporate
reviews and approvals in Dallas and London [by the producers]
will also take time. Thus, having term sheets by the end of
March or early April is a sign that the project is on track.
COMMISSIONER BALASH directed attention to Municipal Advisory Gas
Project Review Board (MAGPR), noting some aspects of the fiscal
system, specifically property taxes will need to be determined
as well. He anticipated that the MAGPR will issue a report in
mid-December. The MAGPR will continue to hold meetings and
provide another forum for discussions on certain aspects of the
project. He characterized the calendar as "a busy calendar" and
one that he felt confident can be met, in particular, if the
incoming administration will rely on the team that this
administration has assembled.
4:43:31 PM
COMMISSIONER BALASH discussed the summer field season [slide 6].
He pointed out the accomplishments to date, which were
concentrated in an area between Livengood and Big Lake. The
final route for the last leg of the pipeline to Nikiski has yet
to be determined although this corridor has been studied by the
AGDC in support of the work. He commended the cooperation and
data-sharing between AGDC and the AKLNG Project, which has
benefitted both parties.
COMMISSIONER BALASH pointed out the Denali State Park doesn't
have any purpose to serve the needs of either project. He
envisioned statutory changes will likely be necessary in order
to obtain rights-of-way and permits in the park.
4:45:13 PM
COMMISSIONER BALASH directed attention to the "NEPA Pre-File
Update" on slide 7, which is intended to identify the ongoing
regulatory work that the AKLNG has with the Federal Energy
Regulatory Commission (FERC). The AKLNG has submitted the pre-
file NEPA documents and draft resource reports, numbers 1 and 10
of the 13 reports required, for a Section 3 project. Prior to
submittal of the remaining reports to the FERC by the end of
January 2015, each of the project sponsors, including the state,
will have an opportunity to review and comment on the reports.
This process is laid out in the flags and boxes on slide 7. The
agencies must abide by the short review periods of the draft
reports to essentially identify any major "red flags" since the
draft documents can be revised over the course of the next year.
If everything goes according to schedule and the draft resource
reports are submitted to the FERC timely, it will allow the FERC
and other federal agencies to provide meaningful feedback to the
project. In turn, this will shape the scope of activities to be
undertaken during the 2015 summer field season. Any delays in
filing the resource reports will, in turn, cause delays to the
feedback process, and could adversely impact the summer field
work, which is necessary for a complete application by Spring
2016. He suggested that the administration's transition team
must meet the FERC deadlines.
4:48:04 PM
ANGELA RODELL, Commissioner, Department of Revenue, stated that
resource report number 5 will outline all of the socio-economic
impacts on the state and the communities as a result of the
AKLNG project. Developing this report presents an opportunity
for Alaskans and communities to make their voice heard. The
Municipal Advisory Gas Project Review Board (MAGPR) is working
to determine impact payments and the AKLNG project will also do
so. It's important that communities participate at this
juncture since it will become an important part of how the
project proceeds and any impacts the construction will have on
Alaskans.
4:49:56 PM
COMMISSIONER BALASH directed attention to the state agency gas
team organization chart that depicts the DNR and DOR [slide 8].
He said the organization chart does not include any TransCanada
or Alaska Gas Development Corporation (AGDC) personnel, but it
does include contractors. Although he and Commissioner Rodell
are transitioning out with the change in administration, the
remaining team, including the leadership team and sub-teams can
help keep the project on track. He cautioned that any
significant changes to the project personnel could adversely
impact the overall schedule.
COMMISSIONER BALASH turned to the SOA AKLNG's working teams and
sub-teams [slide 9]. Per the Heads of Agreement (HOA) and SB
138, which continue to be the guiding documents for the
activities of the state, the parties are actively progressing
the principles and agreements necessary to make a decision to
proceed to the FEED stage of the project. The parties are
negotiating in specific groups [fiscal, upstream, project,
governance, expansion, and TransCanada/SOA bilateral
agreements]. In addition, several working groups or subgroups
were formed to work on the finer points, including regulatory,
midstream technical, finance, and tax. Each of these groups has
been meeting regularly to identify tasks, deliverables, and plan
the work, conduct the work, and continue planning.
4:52:08 PM
COMMISSIONER RODELL directed attention to the terms of finance
and property tax [slide 10]. She informed the committee in
terms of the financing plan, the DOR has an interim draft report
due to the legislature on the first day of the upcoming
legislative session. She advised that report is underway, with
Lazard, the consultant, hired to prepare the report. In
accordance with federal rules, the administration retained an
Independent Registered Municipal Advisor (IRMA), FirstSouthwest,
who has been working on putting together the spectrum of options
for the state in terms of state financing, as well as
identifying the risks and possibilities of other parties within
the state participating, whether it is individuals, Native
Corporations, or other parties identified under SB 138. The
final financing report will be submitted at the same time the
agreements come to the legislature for approval and will be
based on some of the feedback received. In terms of property
tax and impact payments, the MAGPR Board continues to meet, with
the first recommendations due on December 15, in accordance with
the administrative order and SB 138. Further, the department
has a tremendous amount of information on the DOR website with
respect to the work done to date. She wished to publically
commend the MAGPR on its outstanding performance, in speaking
collegially, and in recognizing the varied interests each of the
communities - within the project's geographical area and outside
the geographical area. She predicted that the legislature will
be pleased to observe the level of detail and significant amount
of work by the MAGPR.
4:54:29 PM
COMMISSIONER BALASH, in closing, commented on confidentiality.
He thanked the Legislative Budget & Audit Committee's Chair for
the committee's efforts with the administration to get an
agreement in place that has allowed the departments to make this
presentation today.
COMMISSIONER BALASH related that the State of Alaska is
endeavoring to take on an equity role in a very big project that
is important to the state's future. The administration and the
legislature provide some unique solutions to move the AKLNG
project forward, including how SB 138 contemplates the
negotiation of agreements by the executive branch and the
ratification of those agreements by the legislature.
COMMISSIONER BALASH emphasized the administration's desire to
include the legislature in the development of these agreements.
Rather than provide the legislature with a complicated agreement
to consider, provisions in SB 138 allow for confidential
briefings by the executive branch to the legislative branch,
providing essential dialogue and input between the
administration and the legislature. This legislative input is
critical in order for the administration to make a decision, or
a series of decisions, which will result in a product the
legislature and ultimately the public can have confidence in.
COMMISSIONER BALASH characterized this process as being unique
and critical since the producers are essentially negotiating
with the people of Alaska through their respective legislators,
who are the elected representatives of the people of Alaska.
Further, being able confer across branches of government to
discuss matters of the state without any of the counter parties,
project sponsors, leaseholders at Prudhoe Bay and Point Thomson,
or prospective buyers being a party to the discussions is
important since the goal is to maximize the value for Alaskans.
Every dollar that the state can make on gas is important today,
especially given the current dollar value of oil. He said, "We
have to be vigilant and vicious in those negotiations, keeping
in mind, of course, the need to be aligned and working to find
'win-win' solutions to the challenges this project does face."
COMMISSIONER BALASH said he hoped the progress that has been
started here can continue. He thanked members for the work the
legislature has done to get the state to this point.
4:59:16 PM
CHAIR FAIRCLOUGH, on behalf of the Legislative Budget & Audit
Committee, extended gratitude for the work the AKLNG project
team has put forth to benefit Alaskans. She wished to
personally thank Commissioner Balash, Commissioner Rodell, and
Deputy Commissioner Pawlowski. She also identified Deputy
Commissioner Bob Swenson for participating in the morning
session and to have the AKLNG project team member, Vasilios
"Akis" Gialopsos in the audience this afternoon. She said, "I
just wanted to say a public thank you, and Alaskans can benefit
from your hard work."
5:00:22 PM
REPRESENTATIVE LINDSEY HOLMES, Alaska State Legislature,
emphasized some of the things Commissioner Balash mentioned.
She acknowledged that substantial comments from the public with
respect to confidentiality; however, she observed that this is
an Alaska project for the people of Alaska. Certainly, the
legislature wants to avoid the mistakes made during the Stranded
Gas Act, in which the substantial proposal came before the
legislature, was deliberated during a special legislative
session, but ultimately was declined and went "back to ground
zero." Further, the legislature went through the lengthy Alaska
Gasline Inducement Act (AGIA) process.
REPRESENTATIVE HOLMES offered her belief that the legislature
wants the AKLNG project to move forward. In fact, the two-way
dialogue was requested by the legislature and offered by the
administration to allow producers to go "hand-in-hand" with the
state and the administration to go "hand-in-hand" with the
legislature. Certainly, this project will take a lot of moving
parts all working together for the state to get to first gas in
the next 12 years. She cautioned that without complete candor
between the administration and the legislature at every step of
the way, the state faces the risk of putting all this time and
money into the proposed AKLNG project and the legislature and
the administration not being in synch. Thus, she applauded the
administration's efforts to keep the legislature completely
informed, which is why confidentiality is necessary. She said
confidential briefings are not an attempt to hide information
from Alaskans, but represent a process to ensure that the
legislature and the administration continues to go "hand-in-
hand" but also cautioning that these briefings should be limited
to information that is truly confidential. Confidential
briefings provide an important tool, which is why she chose to
sign the agreement and attend today's hearing. She observed
that the AKLNG project is lengthy and will undergo several
administrations before gas is flowing [in 2023-2025], as well as
numerous changes in the legislature and in industry.
Communication will be key and confidentiality is one small part
of that, she stated. She thanked the team for working so openly
with the legislature in the past several years, noting this may
be her last legislative hearing in her tenure as an elected
official.
5:05:00 PM
REPRESENTAIVE HAWKER commended Commissioner Balash, Commissioner
Rodell, and Deputy Commissioner Pawlowski on their service to
the state and for all the work their agencies have put forth on
the AKLNG Project. He said he has worked for 12 years with
Commissioner Balash, noting he has sometimes agreed and
sometimes disagreed with him. The administration and the
legislature, along with the people they represent, have
converged on a solution to a long-held dream of getting Alaska's
North Slope natural gas to market in the most efficient and
effective manner for the greatest benefit of Alaskans. He
acknowledged that the AKLNG project can go wrong in so many
ways; however, in working together the administration and the
legislature have developed primary and back-up options to move
forward in an organic way to allow this AKLNG project to
develop. In closing, he again thanking the commissioners and
their teams for the work they have done for Alaska.
5:07:59 PM
ADJOURNMENT
There being no further business before the committee, the
Legislative Budget and Audit Committee meeting was adjourned at
5:07 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AKLNG Legislative Briefing 11-28-2014.pdf |
JBUD 11/28/2014 2:00:00 PM |