Legislature(2013 - 2014)SENATE FINANCE 532
04/01/2013 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB49 | |
| SB47 | |
| SB86 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 47 | TELECONFERENCED | |
| + | SB 59 | TELECONFERENCED | |
| *+ | SB 86 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 49 | ||
SENATE FINANCE COMMITTEE
April 1, 2013
9:07 a.m.
9:07:58 AM
CALL TO ORDER
Co-Chair Meyer called the Senate Finance Committee meeting
to order at 9:07 a.m.
MEMBERS PRESENT
Senator Kevin Meyer, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
Senator Anna Fairclough, Vice-Chair
ALSO PRESENT
Senator John Coghill; Rynnieva Moss, Staff, Senator John
Coghill; Michael Hanley, Commissioner, Department of
Education and Early Development; Elizabeth Sweeney
Nudelman, Director, School Finances and Facilities,
Department of Education and Early Development; Joe Balash,
Deputy Commissioner, Department of Natural Resources; Jeff
Cook, Regional Director, External Affairs, Koch Industries
Public Sector, Flint Hills Resources
PRESENT VIA TELECONFERENCE
Steve Noonkesser, Director of Instruction, Southwest Region
School District, Dillingham; David Piazza, Southwest Region
School District, Dillingham; Jerry Covey, Education
Consultant, Cook Inlet Tribal Council, Citizens for the
Educational Advancement of Alaska's Children, Barrow; Chris
Ritan, Superintendent, Galena City School District, Galena;
Eric Gebhart, Superintendent, Nenana School District,
Nenana; Dr. Norman Eck, Superintendent, North West Arctic
Borough School District, Kotzebue; Lisa Rieger, General
Council, Cook Inlet Tribal Council, Anchorage;
SUMMARY
SB 47 STIPEND FOR STATEWIDE BOARDING SCHOOL
SB 47 was HEARD and HELD in committee for further
consideration.
SB 49 MEDICAID PAYMENT FOR ABORTIONS; TERMS
SB 49 was REPORTED out of committee with a "do
pass" recommendation and with a previously
published indeterminate fiscal note: FN1(DHS).
SB 59 OIL & GAS EXPLORATION/DEVELOPMENT AREAS
SB 59 was SCHEDULED but not HEARD.
SB 86 APPROVE FLINT HILLS ROYALTY OIL SALE
SB 86 was HEARD and HELD in committee for further
consideration.
SENATE BILL NO. 49
"An Act defining 'medically necessary abortion' for
purposes of making payments under the state Medicaid
program."
9:10:30 AM
SENATOR JOHN COGHILL, regretted that he had been unable to
sit in on the previous public testimony. He offered that he
had instructed his staff to write up the six main points
generated from public testimony in the Senate Judiciary
Committee. He said that SB 49 would attempt to define the
term "medically necessary" for the purpose of Medicaid
payments for abortions. He cited his six main points:
Rebuttal to Planned Parenthood and Testimony from
Saturday, March 30, 2013
1. The testimony was broad and, at times, emotional.
That is generally a common trait when debating issues
involving abortion.
2. Sen. Coghill wants to correct some
misunderstandings about the bill including some
misunderstandings that come from its opponents.
POINT 1 - PLANNED PARENTHOOD STILL COULD NOT CEARLY
DEFINE WHAT AN ELECTIVE ABORTION WAS OR THAT ELECTIVE
ABORTIONS EVEN EXIST.
a. Of course, a reasonable person could argue
that Planned Parenthood cannot openly clearly
admit that elective abortions exist because that
would make them elective procedures.
i. As we are all aware elective
procedures are not covered under Medicaid.
ii. Paying for elective procedures would
therefore be an open abuse of Medicaid.
POINT 2 - SB 49 DOES SATISFY EQUAL PROTECTION.
1. The 2001 Supreme Court Opinion stated that
the State has to provide medically necessary care
for women seeking to give birth to a child.
2. The court also stated that the State has to
provide medically necessary care for women
seeking an abortion.
a. What some opponents, even to this day,
fail to recognize is the Supreme Court
directed that a definition for a medically
necessary abortion can be crafted as long as
we base it on neutral criteria directly
related to the health care program. See tab
4c, Page 16 highlighted portion. That is
what SB 49 does. It was based on the very
language of the 2001 Planned Parenthood
decision and includes direct language found
in the federal Hyde Amendment. The
conditions are neutral and taken
specifically from doctors in the field.
i. One doctor disagreed with the
conditions on Saturday. What she may
or may not know is that the conditions
were overwhelmingly directly taken from
the 2001 Planned Parenthood decision.
POINT 3 - SB 49 UNFAIRLY TARGETS POOR WOMEN?
1. The US Supreme Court, long ago ruled that
the Federal Constitution does not require a State
to pay for the costs of elective abortions just
because it pays for the costs of childbirth
related medical care. See Maher v. Roe, 432 US
464, 474 (1977)
2. Additionally, the United States Supreme
Court, in 1980, ruled that the Hyde Amendment
(which is the foundation for SB 49) does not
violate women with lower incomes right to obtain
a medically necessary abortion. The case was
Harris v. McRae, 448 US 297 (1980). The State
has no obligation to remove obstacles that it did
not create (namely the woman's status of being of
little means).
POINT 4 - OTHER ATTEMPTS TO LIMIT ABORTIONS SINCE 2001
MAY OR MAY NOT HAVE BEEN SUCCESSFUL.
1. SB-49 has nothing to do with those attempts.
We cannot comment on the reasons they may or may
not have been successful. This is a total
different focus. SB-49 is a "lean muscle" bill.
We have high confidence in how thorough and
specific the bill is drafted.
POINT 5 - SURVIVAL OF FETUS IS NOT CONSIDERED?
1. That is simply incorrect. We've heard
testimony as to the "floating tomb" and the child
being "brainless." We considered that option and
incorporated Paragraph 4, B, 22 (See Tab 1).
"Another physical disorder…arising from the
pregnancy….that would be a major bodily
impairment."
POINT 6 - AN OPPONENT OF THE BILL STATED THAT YOU
CANNOT SEPARATE "PHYSICAL HEALTH" AND "MENTAL HEALTH."
1. With all due respect, President Obama via
Executive Order 13535, case law, and the very
existence of the Hyde Amendment prove otherwise.
Sen. Coghill invites you to look at tab 7 in your
binders. The language is clear to emphasize
"physical disorder", "physical injury", or
"physical illness." It specifically does not
include mental or psychological disorders.
2. In addition, SB 49 supporters, including 3
national doctors and 7 Alaskan doctors
fundamentally disagree with that presumption.
There is a genuine disagreement in the medical
community that mental and psychological
conditions should be included under the
definition of "medically necessary abortion."
9:15:28 AM
Co-Chair Meyer recalled that there had been testimony
suggesting that the legislation could result in a savings
for the state.
Senator Coghill replied that possible savings to the state
were indeterminate.
9:15:50 AM
Co-Chair Meyer wondered about possible cost to the state
for litigating the legislation.
Senator Coghill replied that possible litigation was out of
his control.
9:16:14 AM
Co-Chair Kelly MOVED to REPORT SB 49 out of committee with
individual recommendations and the accompanying fiscal
note. There being NO OBJECTION, it was so ordered.
9:16:29 AM
SB 49 was REPORTED out of committee with a "do pass"
recommendation and with a previously published
indeterminate fiscal note: FN1(DHS).
SENATE BILL NO. 47
"An Act increasing the monthly stipend available for
students attending a statewide boarding school
operated by a school district; and providing for an
effective date."
9:16:58 AM
Senator Coghill testified that the bill would remove the
sunset provision for providing stipends to boarding
schools. He said that there were many burgeoning small
boarding and trade schools that had been helping young
people in rural Alaska to receive an education that they
might not otherwise experience. He asserted that boarding
schools not only raised the bar for educational standards
but also created work and college ready members of society.
9:19:31 AM
RYNNIEVA MOSS, STAFF, SENATOR JOHN COGHILL, discussed the
sectional analysis:
*Sec. 1. This section removes narrow applicability to
schools operating before June 1, 2005. Currently
three school districts are receiving the stipend:
Nenana, Bethel and Galena. The Department of
Education is currently soliciting applications for
three additional boarding schools statewide.
Sec. 1 also adds magnet schools that have
variable-length terms but have a 180-day school year.
*Sec. 2. Section 2 increases the monthly stipend rate
based on the region of the state the boarding school
is located.
*Sec. 3. Section 4 allows school districts to
contract room and board.
*Sec. 4. This section repeals AS 14.17.200(c) which
limited DOE to approving three additional boarding
school applications.
Sec. 4 also repeals AS 14.16.200(d)(2), the definition
for "district-operated statewide residential program"
as Section 1 now included both statewide and district-
wide residential schools.
*Sec. 5. This Act has an immediate effective date.
Co-Chair Meyer observed that part of the fiscal note for
the bill needed to be included in the 2013 Supplemental
Budget.
Ms. Moss replied that the administration could speak to the
fiscal note.
9:22:55 AM
Co-Chair Meyer asked about the Jesse Lee Home in Seward. He
wondered about the qualifications needed to be labeled a
boarding school.
Ms. Moss replied that boarding school qualifications were
determined by the public school system. She thought that a
public school could contract with the Jesse Lee Home for
room and board.
9:23:25 AM
Co-Chair Meyer noted that it sounded like a charter school.
Ms. Moss informed the committee that charter schools are
public schools.
9:23:36 AM
Senator Bishop pointed to Section 3. He requested an
example of the kind of school intended in the section.
Ms. Moss replied that the example would be a non-profit
organization that was providing room and board for students
attending a public school.
9:24:17 AM
Senator Dunleavy stated that all charter schools in the
state were public schools under the district of their
location.
9:24:48 AM
Co-Chair Meyer inquired whether the administration
supported the bill.
MICHAEL HANLEY, COMMISSIONER, DEPARTMENT OF EDUCATION AND
EARLY DEVELOPMENT, stated that the department appreciated
the cost of housing and monitoring students 24 hours a day,
7 days per week. He believed that the increase in the
funding represented true costs. He supported shifting from
a statewide to a district-wide component, which would allow
programs to bring in students from outlying schools and
provide them the intensives for qualification in the Alaska
Native Science and Engineering Program (ANSEP). He
explained that the variable term component meant that
although the school would run for the full school year,
students participating in the ANSEP intensive could cycle
through and return to their home schools within the school
year.
9:27:33 AM
Co-Chair Meyer understood that boarding schools boasted
high test scores and academic achievement.
Commissioner Hanley replied that comparisons in graduation
and achievement rates between the boarding schools and the
student's home schools in the state had revealed positive
results on the boarding school side.
9:28:00 AM
Co-Chair Meyer asked how many boarding schools in the state
would apply and receive the stipend.
Commissioner Hanley responded four. He noted that Mount
Edgecumbe was unique as it was a state-run private school.
9:28:31 AM
Co-Chair Meyer pointed out to the committee that passage of
the legislation would result in an additional $1.6 million
in the supplemental budget.
9:28:46 AM
ELIZABETH SWEENEY NUDELMAN, DIRECTOR, SCHOOL FINANCES AND
FACILITIES, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT,
agreed that additional funding would need to be added to
the supplemental budget to support the legislation.
9:29:08 AM
Commissioner Hanley interjected that the stipend increase
that was awarded two years ago would sunset this year. He
said that the lack of the additional funds would make
future funding of the state's private schools, except for
Mount Edgecumbe, challenging.
9:29:35 AM
Co-Chair Meyer relayed that the state paid for students to
fly several times per year to Mount Edgecumbe in Sitka. He
wondered if boarding schools saved the state money.
Commissioner Hanley replied that boarding school students
still received the BSA, but that the added boarding
component allowed each student one, round-trip ticket to
and from school. He believed that boarding schools were
more expensive than traditional neighborhood schools, but
that tickets would be based on the number of beds the
school housed, rather that the number of students who came
and went.
9:31:56 AM
Co-Chair Kelly queried whether a boarding school had been
planned for Kotzebue.
Commissioner Hanley replied that the department had
recently begun an open application period to allow
districts to apply for schools. He stated that the Star of
the Northwest boarding school was considering allowing high
school students to register.
9:32:58 AM
Co-Chair Kelly inquired what communities the department
would target for boarding schools.
Commissioner Hanley replied that he would do regional
research. He said he would consider Barrow, Kotzebue,
Bethel and Southeast Alaska.
Co-Chair Kelly asked about Dillingham and McGrath.
Commissioner Hanley said that the Bristol Bay area,
Dillingham, King Salmon and Naknek had all been considered.
He stressed the importance of building schools in the
region of need so that students still felt connected to
home.
Co-Chair Kelly queried the lack of roads as a barrier to
the success of a boarding school in Kotzebue.
Commissioner Hanley responded that road access was a
barrier. He said that currently there were no roads to any
of Alaska's boarding schools. He believed that greater
access would be beneficial.
9:35:48 AM
Senator Olson stated that Nenana had a road.
Commissioner Hanley said that the road was relatively far
removed from other communities; most of the student still
had to fly to the school.
9:36:17 AM
Senator Olson asked whether there had been requests from
certain school districts for a boarding school.
Commissioner Hanley replied that requests had been made. He
said that local communities should make their need known to
the department. He stated that four areas had applied:
Kotzebueu, Nome, Chugach, and Anchorage.
9:37:27 AM
Senator Olson referred to earlier testimony that some
students became homesick during Christmastime visits which
resulted in students dropping out of boarding school. He
wondered if it would be best to not allow them to return
home at Christmastime.
Commissioner Hanley said that experience had shown that
when students were away from home for too long it became a
problem. He recognized that being away from home could be a
challenge for teenagers.
9:38:25 AM
Senator Olson commented that he came from a long line of
people that had attended boarding school. He wondered what
the options would be for these students if the boarding
schools did not exist.
Commissioner Hanley responded that the option would be the
neighborhood school; a school with 10-20 students and two
teachers. He noted that it was difficult to offer a broad
ranged curriculum at a very small school.
9:39:22 AM
Co-Chair Kelly queried what the cost would be to make the
boarding school model work for the state across the board.
Commissioner Hanley responded that the answer was to
provide more opportunities for students throughout the
state.
Co-Chair Kelly asserted that he was seeking a dollar
number.
Commissioner Hanley replied that if you looked at the four
schools that had applied and several that had not applied,
the department would have to add the cost of access to the
schools. He stressed that an exact number was difficult to
pencil in. He hypothesized that if you added 1000 rural
Alaskan student to full or part-time variable term
programs, the total cost would be approximately $10
million.
Co-Chair Kelly queried what the capital costs would be,
once there was an additional $10 million added to the
operating budget.
Commissioner Hanky relayed that the state did not currently
build residential facilities; if the state were to do so,
the capital cost could be as high as $50 million per
school.
9:42:53 AM
Senator Bishop noted that there were assets that could be
utilized for room and board components. He cited the work
in Galena where the Air Force facility was being used for
culinary classes. He stressed that there were existing hard
assets that could be utilized to stretch state funding.
9:44:04 AM
Senator Dunleavy asked what kind of school the if the
commissioner would send his children to given the choice of
a small, two teacher, school or a comprehensive, boarding
home, high school.
Commissioner Hanley replied that he would be tempted by the
greater options of a boarding school but would ultimately
choose the school that was best for the individual child.
9:44:52 AM
Senator Dunleavy restated the question.
Commissioner Hanley asserted that his fist inclination as a
parent would be to keep his children close to home.
9:45:09 AM
Senator Dunleavy asked what if the schools were both two
blocks away from the commissioner home.
Commissioner Hanley replied that he would send them to the
school with the greater opportunity.
9:45:34 AM
Senator Hoffman noted that Akiak, Akiachak and Tuluksak had
been contemplating a sub-regional high school for over a
decade. He said that sub-regional schools should be
considered before taking half of the student population of
a small town and relocating them to boarding schools. He
expressed concern that the children left behind could
suffer reduced educational opportunities.
Commissioner Hanley agreed that the problem should be
considered. He stressed that with the variable term program
the funding would stay with the home schools.
9:48:07 AM
Co-Chair Kelly believed that information should be gathered
concerning the cost of building boarding schools and that
the Commissioner of Transportations and Public Facilities
should be probed for the costs of road they may need to be
built to ensure access. He thought that information about
the impact of more boarding schools on home schools should
be examined.
Commissioner Handley responded that he would gather the
information.
9:50:24 AM
Senator Dunleavy asked if there was a current waiting list
for Mount Edgecumbe.
Commissioner Handley said yes.
9:50:37 AM
STEVE NOONKESSER, DIRECTOR OF INSTRUCTION, SOUTHWEST REGION
SCHOOL DISTRICT, DILLINGHAM (via teleconference), spoke in
support of SB 47. He stated that declining enrollment had
caused the district to close two schools in seven years.
He added that the economy of the region did not afford
parents the ability to move their family for schooling,
which had resulted in elementary school student moving in
with other families of other schools in the district. He
discussed a proposed amendment that removed the word
"secondary" from statute which would provide an avenue to
financially assist the house-parents that took in boarding
students for communities that no longer had a school. He
did not believe that the amendment would increase the
fiscal note to an unreasonable level.
9:53:17 AM
DAVID PIAZZA, SOUTHWEST REGION SCHOOL DISTRICT, DILLINGHAM
(via teleconference), testified in support of SB 47 and
echoed the comments of the previous testifier.
9:53:37 AM
JERRY COVEY, EDUCATION CONSULTANT, COOK INLET TRIBAL
COUNCIL, CITIZENS FOR THE EDUCATIONAL ADVANCEMENT OF
ALASKA'S CHILDREN, BARROW (via teleconference), expressed
support for SB 47. He testified that short-term variable
and district residential programs worked and were cost
effective. He stated that they had minimal negative impact
on the student's home schools because they were gone for a
short period of time. He believed that the increase of the
stipend amount was warranted based on the cost of delivery.
He believed that the benefit of the proposed programs would
greatly outweigh the costs. He urged support of the bill.
9:57:15 AM
Senator Olson asked about the ultimate cost of students
dropping out of school in underserved areas.
Mr. Covey responded with a history of Bureau of Indian
Affairs (BIA) Schools in the state. He pointed out that the
capital costs would need to be addressed in terms of the
construction of a residential facility, and that the state
would also need to determine that existing facilities were
being used to their maximum extent. He said that there was
space in Kotzebue High School that could accommodate an
additional 150 students. He believed existing facilities
should be maximized in the effort to keep costs at a
minimum. He estimated that a new, 50 student dorm in
Kotzebue would be approximately $12 million. He stated that
as the population shifted, the rural schools were getting
smaller and smaller and were among the lowest achieving
schools in the state. He stressed that one of the best
things for students in small schools was to provide them
with access to a comprehensive high school located in a
rural community.
10:02:01 AM
CHRIS RITAN, SUPERINTENDENT, GALENA CITY SCHOOL DISTRICT,
GALENA (via teleconference), spoke in favor of SB 47 and
discussed some of the history of Galena school district. He
stated that the district started a boarding in 1997 after
gaining access to old Air Force buildings. He explained
that the district had grown each year thereafter. He shared
that there were 213 students currently enrolled. He said
that the main focus of the school was vocational programs.
He shared that a 2005 bill had provided funding to offset
room and board costs, which up until that time had been
paid for through the BSA and federal funding. He said that
the extra money saved through the room and board stipend
would give the school the ability to expand its already
high quality programs for students in the state.
10:05:04 AM
ERIC GEBHART, SUPERINTENDENT, NENANA SCHOOL DISTRICT,
NENANA (via teleconference), testified in support of SB 47.
10:05:48 AM
DR. NORMAN ECK, SUPERINTENDENT, NORTH WEST ARCTIC BOROUGH
SCHOOL DISTRICT, KOTZEBUE (via teleconference), spoke in
support of SB 47. He stressed the importance of finishing
high school with specific job skills and the ability to
enter into post-secondary schooling. He said that smaller
regional schools were necessary as a part of school choice
in rural Alaska. He stated 9th and 10th graders in the 9
high schools in his district had a 27 percent proficiency
rate on state standardized tests. He said that the
percentage was higher in Kotzebue, 51 percent, because it
had a comprehensive high school in a regional hub. He said
Northwest Arctic had a 53 percent graduation rate for
native students; however, each student that took 2 classes
in career technical education had an 83 percent graduation
rate. He stressed that innovative and instructional
programs of practical application to students brought
success. He said that the dormitory should be considered an
integral part of the school in terms of major maintenance
and school construction.
10:09:05 AM
Senator Olson inquired the testifier thoughts regarding
homesickness among students.
Mr. Eck responded that the hope was to have wireless
internet in the dorm. He shared that in the ten outlying
villages in Northwest Arctic over 65 percent of the homes
had internet access and could use SKYPE. He stressed the
importance that students have a strong cultural base.
10:11:21 AM
Senator Olson acknowledged that the state was dealing with
a budget shortfall. He asked whether Dr. Eck believed that
the limited funds should be dedicated to boarding schools
or early childhood education.
Dr. Eck replied that both were needed, and that his
district believed so strongly in early childhood education
that it had a program for 4 year-olds. He asserted that the
program was so important that it was conducted without any
dedicated funding. He stressed the importance that all
children learn to read at grade level by the 3rd grade. He
thought early childhood was the key to future academic
success. He added that students who graduated from school
had to be career and job ready. He opined that too many
students that graduated from the district could be found
unemployed six months later. He concluded that it was the
districts obligation to provide the programs necessary in
order for students to be successful.
10:14:19 AM
Senator Bishop wondered if elder mentors in the magnet
schools could help ease homesickness among displaced
students.
Dr. Eck replied in the affirmative. He noted that the
district planned to use elders as part of its advisory
group in the dormitory.
10:15:49 AM
LISA RIEGER, GENERAL COUNCIL, COOK INLET TRIBAL COUNCIL,
ANCHORAGE (via teleconference), spoke in support SB 47 and
echoed earlier testimony.
10:19:10 AM
Co-Chair Meyer CLOSED public testimony.
10:19:28 AM
SB 47 was HEARD and HELD in committee for further
consideration.
SENATE BILL NO. 86
"An Act approving and ratifying the sale of royalty
oil by the State of Alaska to Flint Hills Resources
Alaska, LLC; and providing for an effective date."
10:20:20 AM
JOE BALASH, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, stated that the bill would grant legislative
approval for the sale of royalty oil to Flint Hills
Resources by the Department of Natural Resources (DNR). He
began with Slide 2 of the presentation, "Royalty In-Kind
Sale to Flint Hills Resources" (copy on file):
The state has a choice to take its royalty in-value
(RIV) or in-kind (RIK).
•When the State takes its royalty as RIV, the
lessees who produce the oil also market the
State's share along with their own production and
pay the State the value of its royalty share.
•When the State takes its royalty share as RIK,
the State assumes ownership of the oil, and the
commissioner disposes of it through the sale
procedures prescribed by AS 38.05.183.
10:22:13 AM
Mr. Balash spoke to Slide 3, "Non-Competitive RIK Sale
Process":
•Statute presumes State's Best Interest is met by
-Taking royalty in-kind-AS 38.05.182(a)
-With sale to in-state buyer-AS 38.05.183(d)
-Accomplished through a competitive process-AS
30.05.183(a)
•August 13, 2012 Informal Solicitation of Interest
sent to:
-North Slope Producers
-In-state Refiners
-Industry specific & general media
10:24:04 AM
Mr. Balash addressed Slide 4, "RIK Contract Terms":
•Proposed 2013 contract is similar to 2004 contract
•Proposed 2013 contract, like 2004 contract, does not
directly reference RIV valuation in RIK price
calculations
•Key Contract provisions
-Price
-Quantity
-Term
-Special Commitments
-In-State Processing and Local Hire
10:24:59 AM
Mr. Balash discussed Slide 5, "RIK Contract Price":
ANS Spot Price - $2.15 - Tariff Allowance ± Quality
Bank Adjustment - Line Loss
•ANS Spot Price = Average US West Coast Price for
Alaska North Slope oil.
-Reported by industry trade publications: Platts,
Telerate, Reuters
•$2.15 = RIK Differential
-Destination Value - Marine Costs so RIK •5,9
-Subject to a one-time adjustment of no more than
± $0.15 per barrel.
-This amount = $1.65 per barrel in the current
2004 contract.
•Tariff Allowance = TAPS and Pipelines Upstream of PS-
1.
•Quality Bank Adjustment = as reported by the TAPS
Quality Bank Administrator
•Line Loss = 0.0009 times the netback price
10:25:53 AM
Mr. Balash pointed to Slide 6, "RIK Contract Quality":
•Initial Quantity Range
-18,000 - 30,000 barrels per day
-May be adjusted after 12 months, with
Commissioner approval
•Termination of Contract
-No or zero nomination for 3 months terminates
contract
-Contract terms comparable to the private market
•Refinery Turnaround
-Contract allows FHR the flexibility to cease
royalty oil purchases during maintenance
•Guarantees, reserves and proration clauses included
-24,000 barrels per day with 15 percent reserves
for other RIV or RIK interests
10:27:31 AM
Mr. Balash addressed Slide 7, "2013 RIK Contract Term":
•FHR initially sought a ten-year contract
-Creates supply and price risk
-Increases counterparty risk
-Limits the State's ability to supply other RIK
buyers
•DNR negotiated a five year term
-April 1, 2014 to March 31, 2019
-Possible extension condition for:
•Large capital improvement at the North Pole
Refinery
•Binding support for a North Slope natural
gas transportation system
10:29:47 AM
Mr. Balash discussed Slide 8, "2013 RIK Contract Quantity",
which was a bar graph that illustrated the total expected
royalty oil and liquid natural gas volume and the expected
share committed to Flint Hills Resources.
10:30:54 AM
Mr. Balash spoke to Slide 9, "Commissioner's Decision
Criteria":
AS 38.05.183(e) states that the commissioner must sell
the State's royalty oil to the buyer who offers
"maximum benefits to the citizens of the state." In
making this determination the commissioner must
consider:
1)The cash value offered
2)The projected effects of the sale on the
economy of the state
3)The projected benefits of refining or
processing the oil in state
4)The ability of the prospective buyer to provide
refined products for distribution and sale in the
state with price or supply benefits to the
citizens of the state
5)The eight criteria listed in AS38.06.070(a), as
reviewed by the Royalty Board
Mr. Balash addressed Slide 10, "Royalty Board's Decision
Criteria":
AS 38.06.070(a) states that the Alaska Royalty Oil and
Gas Development Advisory Board must consider:
1)The revenue needs and projected fiscal
condition of the state
2)The existence and extent of present and
projected local and regional needs for oil and
gas products
3)The desirability of localized capital
investment, increased payroll, secondary
development and other possible effect of the sale
4)The projected social impacts of the transaction
5)The projected additional costs and
responsibilities which could be imposed upon the
state and affected political subdivisions by
development related to the transactions
10:32:09 AM
Mr. Balash continued with Slide 11, "Royalty Board's
Decision Criteria":
AS 38.06.070(a) states that the Alaska Royalty Oil and
Gas Development Advisory Board must consider:
6)The existence of specific local or regional
labor or consumption markets or both which should
be met by the transaction
7)The projected positive or negative
environmental effects related to the transactions
8)The projected effects of the proposed
transaction upon existing private commercial
enterprise and patterns of investment
10:32:32 AM
Mr. Balash addressed Slide 12, "Royalty In-Kind Sales." He
noted that it was difficult to read. He relayed that over
the course of the last 30 years the state had been engaged
in the continuous sale of royalty oil. He noted that there
were a variety of sales in the early 1980s and that there
had been a lot more oil during that time. He said that the
price crash of 1986 had caused the department to reconsider
how royalty oil was sold and to limit the number and
variety of sales.
10:33:58 AM
Mr. Balash spoke to Slide 13, "Best Interest of the State
Served by the RIK Contract with Flint Hills Resources (FHR)
":
•Cash Value Offered with Contract
-Cash value of $3.5-5.9 Billion over 5 years
•Analyzed for Consistent value between RIK
and RIV
•Volume weighted average of current reported
netback price (11 AAC 03.026(b))
-Anticipated increases in marine transportation
allowance will favor RIK contract
•Positive effect on the State
-Maintain stability in in-state refining and
distribution of refined products.
-Support jobs and economy of Fairbanks North Star
Borough
10:35:00 AM
Mr. Balash addressed Slide 14, "FHR's North Pole Refinery":
•Strategically located on TAPS
•Current throughput of 82,000-84,000 barrels per day
of ANS crude
•Producing approximately 22,000-25,000 barrels of
refined product
•All crude and constituents that are not transformed
into refined product are injected back into TAPS (with
a penalty paid)
10:35:44 AM
Mr. Balash continued to Slide 15, "FHR's North Pole
Refinery":
•FHR produces approximately
-672,000 gallons of jet fuel per day
-143,000 gallons of gasoline per day
-41,000 gallons of home heating fuel per day
-68,000 to 194,000 gallons per day of product
consisting of HAGO, LAGO, naphtha, asphalt,
refining fuel, and a small volume of high-sulfur
diesel
•680,000 gallons per day shipped to Anchorage via the
Alaska Railroad
•230,000 gallons of ultra-low sulfur diesel and
gasoline on the backhaul to Fairbanks
•FHR owns 50 million gallons of storage facilities
-30.7 million in Anchorage and 19.3 million in
Fairbanks
10:36:42 AM
Mr. Balash addressed Slide 16, "Proposed Contract
Benefits":
•Proposed contract is expected to:
-Maintain status quo of in-state refining
behavior
-Produce 330 million gallons of refined product
or 18% of gasoline and 26% of jet fuel consumed
in Alaska
-Provide approximately $140 million per year in
gross regional product sales for the Fairbanks
North Star Borough (FNSB)
-Support 1,300 direct and indirect jobs in the
FNSB
-Sustain $100 million in annual earnings in FNSB
-Provide socio-economic stability against energy
costs
10:37:53 AM
Mr. Balash discussed Slide 17, "Projected Impacts if not
Approved":
•If FHR stops refining, anticipated effects include:
-Loss of approximately 1,300 direct and indirect
jobs in the Fairbanks North Star Borough
-State could experience increased utilization of
the social safety net
-Possibility of population redistribution
-Increased and decreased infrastructure
utilization and maintenance with population shift
-Impact to the fuel supply for the Fairbanks and
Anchorage airports, affecting trade and tourism
and the Alaska Railroad
-Loss of heat source for warming low flow in TAPS
10:39:14 AM
Senator Hoffman pointed to Slide 9. He requested further
explanation of bullet four:
4)The ability of the prospective buyer to provide
refined products for distribution and sale in the
state with price or supply benefits to the citizens of
the state
Mr. Balash responded that the criteria had been examined
during the evaluation. He said that FHR distribution
patterns had been examined. He said that FHR had been able
to sell locally, in the interior at the refinery, as well
as the Port of Anchorage area. He stated that there was a
special contract commitment provision relative to the
pricing of gasoline in the Fairbanks market that help to
provide price discipline for the transportation segment of
the business line in the interior.
10:41:23 AM
Senator Hoffman wondered how that equated to "the citizens
of the state" versus "the citizens of Fairbanks."
Mr. Balash responded that that question encompassed the
tension that was embedded throughout the body of the statue
and regulations. He said it would be one thing if DNR were
to sell royalty oil at a steep discount to any refinery in
that region of the state that resulted in a lower price for
consumers of the region. He said that DNR worked to ensure
that one community was not benefitting at the expense of
others by getting at least royalty and value equivalent for
the price offered in the sale of the royalty oil itself. He
said that the price available in Fairbanks was a wholesale
price that was being offered to the retail outlets in the
area.
10:43:12 AM
Senator Olson asked what were the possibly penalties to the
state for not honoring the guarantees provided to FHR.
Mr. Balash turned to Slide 6. He said that the steepest
penalty could be grounds for termination of the contract
itself. He said that the refinery was required to maintain
a letter of credit in good standing. He said that the
credit quality of the parent company would be scrutinized
as well.
10:44:34 AM
Senator Olson restated the question.
Mr. Balash responded that he did not think there were any
specific penalties to the state. He said that the contract
itself would obligate the state to no more than 85 percent
of the total royalty volume. He assured the committee that
the state was protected to a certain degree.
10:45:24 AM
Senator Olson queried the future of the refinery in the
North Pole area that had been in decline.
Mr. Balash responded that both the refineries in North Pole
served distinct markets. He said that FHR was in the
business of making jet fuel for sale at Ted Stevens
International Airport; however, some products were sold in
the interior. He shared that the other refinery largely
supplied fuel to military installations and home heating
fuel in the residential market. He thought that if the
refineries could fire their plants with a cheaper fuel
product than was currently being used, overall business
would improve.
10:47:57 AM
JEFF COOK, REGIONAL DIRECTOR, EXTERNAL AFFAIRS, KOCH
INDUSTRIES PUBLIC SECTOR, FLINT HILLS RESOURCES, spoke in
support of SB 86.
10:53:46 AM
Senator Bishop inquired whether the bill could bring about
growth opportunities in jet fuel.
Mr. Cook responded in the affirmative.
10:54:52 AM
Senator Dunleavy requested a hard copy of the public
testimony.
10:55:07 AM
Co-Chair Meyer CLOSED public testimony.
SB 86 was HEARD and HELD in committee for further
consideration.
SB 59 was SCHEDULED but not HEARD.
10:55:27 AM
ADJOURNMENT
The meeting was adjourned at 10:55 a.m.