Legislature(2013 - 2014)SENATE FINANCE 532
04/02/2013 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB86 | |
| SB59 | |
| SB63 | |
| SB13 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 63 | TELECONFERENCED | |
| + | SB 13 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 86 | TELECONFERENCED | |
| += | SB 59 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
April 2, 2013
9:05 a.m.
9:05:57 AM
CALL TO ORDER
Co-Chair Meyer called the Senate Finance Committee meeting
to order at 9:05 a.m.
MEMBERS PRESENT
Senator Pete Kelly, Co-Chair
Senator Kevin Meyer, Co-Chair
Senator Anna Fairclough, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Joe Balash, Deputy Commissioner, Department of Natural
Resources; Daniel Sullivan, Commissioner, Department of
Natural Resources; William Barron, Director, Division of
Oil and Gas, Department of Natural Resources; James
Sullivan, Southeast Alaska Conservation Council; Laura
Pierre, Staff, Senator Anna Fairclough; Senator Charlie
Huggins; Michael Foster, Chairman, KABATA; David
Livingstone, Managing Director, CITI Corp;
PRESENT VIA TELECONFERENCE
Wend Woolf, Division of Oil and Gas, Department of Natural
Resources; Jack Roderick, Self, Anchorage;
SUMMARY
SB 86 APPROVE FLINT HILLS ROYALTY OIL SALE
SB 86 was REPORTED out of committee with a "do
pass" recommendation and with a "do pass"
recommendation and with previously published
fiscal note: FN2 (DNR).
SB 59 OIL & GAS EXPLORATION/DEVELOPMENT AREAS
SB 59 was HEARD and HELD in committee for further
consideration.
SB 63 CONTRACTS FOR PREPARATION OF BALLOTS
SB 63 (STA) was REPORTED out of committee with a
"do pass" recommendation and with previously
published fiscal note: FN 1 (GOV).
SB 13 KNIK ARM BRIDGE AND TOLL AUTHORITY
SB 13 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."
9:06:47 AM
Senator Olson noted that there were two refineries in the
Fairbanks area. He wondered if the smaller of the two
refineries had established a position on the legislation.
9:07:40 AM
JOE BALASH, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, replied that zero negative comments had been
offered during public comment on the contract terms.
9:08:44 AM
Senator Olson inquired if there was any known opposition to
the legislation.
Mr. Balash restated that no opposition had been recorded
during the public comment period.
9:09:07 AM
Co-Chair Kelly MOVED to report SB 86 out of committee with
individual recommendations and the accompanying fiscal
note. There being no OBJECTION, it was so ordered.
SB 86 was REPORTED out of committee with a "do pass"
recommendation and with a "do pass" recommendation and with
previously published fiscal note: FN2 (DNR).
9:09:36 AM
AT EASE
9:10:52 AM
RECONVENED
SENATE BILL NO. 59
"An Act relating to approval for oil and gas or gas only
exploration and development in a geographical area; and
providing for an effective date."
9:11:14 AM
DANIEL SULLIVAN, COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, provided an overview of the legislation. He
believed that the issue of permitting reform and the effort
to modernize the permitting process was critical for the
future of the state, as well as the issue of Trans-Alaska
Pipeline System (TAPS) throughput. He related that
Department of Natural Resources (DNR) had been focused on a
four part plan to help turn around TAPS throughput: making
the state more competitive; incentivizing and facilitating
the next phases of North Slope development; promoting
Alaska's resources; and making the permitting system more
efficient, timely, and certain. He shared that discussions
with the oil industry had highlighted the need for
permitting reform within the state. He stated that the bill
aimed to provide a statutory change to the Division of Oil
and Gas so that it could provide public notice of oil and
gas exploration and development phases across geographic
areas without regard to lease boundaries. He believed that
this would allow a comprehensive review of oil and gas
activities before exploration or development began, while
protecting the public interest with public notice and an
opportunity to comment during review phases. Additionally,
the project approval process would be streamlined by the
elimination of redundant elements. He offered that DNR
could achieve permitting reform while still maintaining the
highest standards in environmental protection. He addressed
several issues that were raise in prior committee hearings.
He thought that the changes proposed by the legislation
would provide the opportunity for public input at the
beginning of each phase of exploration and development,
which was the time when such input would be most
meaningful. He said that DNR had been working closely with
the North Slope Borough on integrating the permitting
processes and information exchange. He added that the
permitting process would present an initial plan and that
the public would have significant input at that stage;
laying out parameters of exploration and mitigation
measures.
9:15:52 AM
Commissioner Sullivan relayed that is was legally possible
that the department already had statutory authority to
approve the exploration and development; however, the
department decided to come directly to the legislature to
seek direct authority to stave off questions of legality in
the future. He pointed to a recent ruling by the Alaska
Supreme Court in the case of Red Oil v. Sullivan and stated
that he would be glad to answer questions regarding how DNR
viewed the ruling, as well as its effect on the bill; he
offered that the preliminary analysis indicated that the
ruling would not affect the legislation.
9:18:57 AM
Co-Chair Meyer stated that he was unfamiliar with the court
ruling and requested further explanation.
Commissioner Sullivan responded that there had been a
Superior Court ruling dictating that DNR was required to do
a best interest finding at each stage of a project's
development. He stated that the ruling would add years to
the permitting process of undertaking resource development
in the state. He concluded that the group of people that
bought the case forward was against any development in the
state. He related that the Supreme Court reversed the
Superior Court's decision with the caveat the DNR examine
cumulative impacts with regard to the development of oil
and gas areas. He shared that the plaintiffs had wanted DNR
to do a full National Environmental Policy Act (NEPA)
review of cumulative environmental impact; DNR argued that
such a formal review was not necessary. The Supreme Court
agreed that a less formal, "hard look" should be taken. The
Supreme Court had left the details of how the review should
be conducted in the power of the legislature. He thought
the bill was consistent with the court ruling; however, DNR
was still attempting to clarify the ruling.
9:24:27 AM
Co-Chair Meyer noted that he had a copy of the ruling.
9:24:36 AM
Co-Chair Kelly asked which section of the Alaska State
Constitution dictated that DNR had to perform the
cumulative impact study.
Commissioner Sullivan responded that language that spoke to
the cumulative impact requirement held in Article 8.
9:27:03 AM
Senator Hoffman pointed to page 1, lines 7, 8, and 9. He
queried the language on line 7, "without regard to lease
boundaries." He wondered what would be accomplished by the
10 year retroactivity of the leasing program. He noted
that the people of Bristol Bay had similar concerns as the
people on the North Slope because of the value of the Red
Salmon fishery. He asked if DNR had talked with the people
of Bristol Bay about the legislation.
Commissioner Sullivan replied no. He said that the bill
would largely impact the North Slope. He said that DNR had
focused on the North Slope for community outreach and had
not briefed the people of Bristol Bay. He stressed that the
bill would only affect areas where there were current oil
and gas lease sales in the state. He noted that another
area that could be impacted was Cook Inlet.
9:30:18 AM
WILLIAM BARRON, DIRECTOR, DIVISION OF OIL AND GAS,
DEPARTMENT OF NATURAL RESOURCES, offered that the
presentation would provide answers the Senator's questions.
9:30:57 AM
Mr. Barron related that the division was attempting to
approach all projects in a more holistic manner through
program management rather than isolated project management.
9:32:59 AM
WENDY WOOLF, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL
RESOURCES (via teleconference), stated that SB 59 would
allow the Division of Oil and Gas to look at exploration
holistically in a geographic area. She directed committee
attention to the presentation, " SB 59: Oil & Gas
Exploration and Development Approval By Geographical
Area"(copy on file).
9:33:31 AM
Ms. Woolf discussed Slide 2, which illustrated the five
areas that the department offered area-wide oil and gas
lease sales: Beaufort Sea, North Slope, North Slope
Foothills, Cook Inlet, and Alaska Peninsula. She stated
that there was not an area in the Bristol Bay Region
currently under discussion and that the closest would be
the Alaska Peninsula.
9:34:20 AM
Ms. Woolf stated that SB 59 would make a statutory
requirement to provide public notice at the beginning of a
multi-stage project and clarified that DNR would review
each phase across a geographic area, rather than conducting
finite reviews for each individual project. She said that
this would bring certainty to the public and to industry as
to the type of activities that could occur in the
geographic area.
9:35:17 AM
Ms. Woolf spoke to Slide 4:
What does SB 59 do?
•It clarifies the Department of Natural Resources can
authorize oil and gas exploration and development
activities within a geographical area.
•It preserves public notice and review at the
beginning of an exploration or development phase.
•It ensures certainty when an approval has been
granted for exploration or development activities.
What does SB 59 do? How does this benefit the public?
•It allows the public to comprehensively evaluate oil
and gas activities within a geographical area.
•It provides an opportunity for input at the beginning
of an exploration or development phase.
•It safeguards environmental concerns through special
stipulations and conditions.
How does this benefit industry?
•It allows a project to be planned within approved
parameters and conditions.
•It provides certainty that plans of operations
meeting those defined criteria can proceed.
•It ensures predictable project approvals for
subsequent exploration or development activity.
9:36:35 AM
Ms. Woolf Spoke to slide 5 titled "Oil and Gas Lease Sale
Process":
•Proposed Areawide Oil and Gas Lease Sale
Public Notice and Opportunity to Comment Evaluate
Statutory Criteria Develop Mitigation Measures
•Final Finding of the Director to Lease Oil and Gas
•Exploration Phase
Public Notice and Opportunity to Comment
•Development Phase
Public Notice and Opportunity to Comment
•Transportation (Pipelines)
Public Notice and Opportunity to Comment
9:38:11 AM
Ms. Woolf spoke to slide 6 titled "Life of an Oil and Gas
Lease":
Year 0
•Final Finding of the Director - Areawide Oil and Gas
Lease Sale
•Lease Issued (10-Year Term)
Year 3
•Initial Exploration - Seismic Program (multiple
leases)
•Public Notice and Comment Period (30 day public
notice)
Year 5
•Lease Plan of Operations - Exploration Well
•Public Notice and Comment Period (30 day public
notice)
Year 6
•Lease Plan of Operations - Exploration Well
•Public Notice and Comment Period (30 day public
notice)
Year 7
•Lease Plan of Development - Conceptual Development
Plan
Year 8
•Lease Plan of Operations - Initial Development Plans
•Public Notice and Comment Period (30 day public
notice)
•Lease Plan of Operations - Modified Development Plans
•Public Notice and Comment Period (30 day public
notice)
•Pipeline Application (AS 38.05.850 or AS 38.35)
•Public Notice and Comment Period (30 day public
notice)
Year 10
•Production
•Lease Plan of Operations - Additional Development
Plans
•Public Notice and Comment Period (30 day public
notice)
9:41:57 AM
Ms. Woolf continued to Slide 7, "Example Geographical Areas
for Exploration Activities." She related that the types of
activities under discussion were ice roads, ice pads,
portable developing equipment, off-road vehicle use, and
temporary housing. She said that the geographical area
would be defined as including all or a portion of the
statewide lease depending on the type of activity being
considered. She shared that the development of the western
North Slope would be looked at differently than the
development of the area encompassing Prudhoe. She stated
that exploration activities could also be examined in the
undeveloped shale areas so that the public could provide
input before development began.
Ms. Woolf discussed Slide 8, "Example Geographical Areas
for Development Activities." She stated that development
involved more specific activities which would focus on a
small group of leases. She relayed that the decision would
address the development across an entire areas so that the
public could address the entire area that could be
affected. She added that small additions to already
existing larger developments would be subject to public
comment. She stressed that all of the areas were
hypothetical.
9:46:10 AM
Ms. Woolf addressed Slide 9, "Life of an Oil and Gas Lease
under SB 59":
Year 0
•Final Finding of the Director - Areawide Oil and Gas
Lease Sale
•Lease Issued (10-Year Term)
Lessee develops exploration plans
Year 3
•Initial Exploration - Seismic Program (multiple
leases)
•Public Notice and Comment Period (30 day public
notice)
Year 5
•Lease Plan of Operations - Exploration Well
•Public Notice and Comment Period (30 day public
notice)
Year 6
•Lease Plan of Operations - Exploration Well
Exploration Phase Public Notice & Comment Period
(30 day public notice)
Saves 60 to 90 days for each project in the
geographical area
Discovery - Lessee formulates development plan
Year 7
•Lease Plan of Development - Conceptual Development
Plan
Year 8
•Lease Plan of Operations - Initial Development Plans
•Public Notice and Comment Period (30 day public
notice)
•Lease Plan of Operations - Modified Development Plans
•Public Notice and Comment Period (30 day public
notice)
•Pipeline Application (AS 38.05.850 or AS 38.35)
•Public Notice and Comment Period (30-60 day public
notice)
Year 10
•Production
•Lease Plan of Operations - Additional Development
Plans
Development Phase Public Notice & Comment Period
(30 day public notice)
Saves 60 to 90 days for each project in the
geographical area
9:50:55 AM
Ms. Woolf spoke to Slide 10, "Results":
Exploration Phase Public Notice & Comment Period
•SB 59 provides for a comprehensive review before
exploration or development.
•SB 59 preserves public participation in the
process.
•SB 59 allows stipulations to be approved before
a company develops site specific plans for
exploration or development activities.
Development Phase Public Notice & Comment Period
Ms. Woolf reiterated that the bill would give all parties;
public, state, federal, local agencies and industry and
opportunity to review and evaluate oil and gas activities
holistically and across a defined area, which would bring
certainty as to how state lands were developed for oil and
gas. She explained that the division would define a
geographical area for exploration and then prepare public
notice. She relayed that the public notice would include
the type of exploration activities and any special
stipulations, and following public comment, the plan would
be approved. Once the exploration phase was approved the
division could proceed to approve the substantive plans of
operation for exploration activities that were in
compliance with the specified conditions in the exploration
phase approval, without additional public notice. She
shared that all the individual plans of operation could
proceed without public notice, but they would have agency
review and department approval. She explained that the
development phase would follow similar suit.
9:53:15 AM
Co-Chair Kelly noted that the lease plan slides showed
approximately 10 years from exploration to development. He
wondered if the legislation would speed up the process.
Mr. Barron responded that it could take from 1 year on up.
He stated that the drilling seasons on the North Slope
could be accelerated. He explained that the bill would work
across 3x3 leases and that the leases were limited in the
primary term for up to 10 years. He hoped that activities
could be done concurrently between two different companies
in the same geographic area. He thought that the
legislation would save time for every company working
within the specific geographic area.
9:55:03 AM
Commissioner Sullivan interjected that when there was
public notice and comment the companies would need to have
time to respond, which could take some time. He stressed
that DNR was attempting to make the development more
strategic by minimizing the public comment opportunities
after the initial permitting requirements were met.
9:56:10 AM
Mr. Barron replied that the division hoped to develop
projects in a 5 to 7 year period, rather than 10 years.
9:56:47 AM
Senator Bishop surmised that the statutes already allowed
for industry and the department to work together, but that
the bill was expected to offer more certainty for industry.
He understood that the goal was to maximize the state's
assets, while still maintaining due diligence to the public
process and the environment. He discussed his experience on
the North Slope and stressed that time was of the essence
when it came to the work being done in the area.
Commissioner Sullivan agreed, but added that bringing
certainty to the process at the outset would help with the
investment climate. He offered that the timelines and the
uncertainty were limited to the winter season for the most
part and that if you compared Alaska to Texas or North
Dakota, it was a disadvantage. He offered that the bill
would the provide DNR with clear authorization and would
help in the issue.
10:00:31 AM
Co-Chair Kelly noted the state got "slammed" with lawsuits
every time it tried to anything development related. He
thought that the courts had rejected direction from the
legislature. He reiterated for the record that the
committee was trying to collapse the timeframe that it took
to get projects to meet completion. He expressed a lack of
respect for the court system and opined that judges wanted
to be legislators. He contended that it was not the job of
the courts to set public policy.
Commissioner Sullivan suggested that the intent of the
legislation was to define how to expedite the leasing
process, which the courts had stated was in the realm of
the legislature. He said the department would not allow the
REDOIL case to hinder resource development in the state.
10:02:56 AM
Senator Hoffman requested a clarification regarding the
approval of the oil and gas or gas only leases the up to 10
years prior.
Mr. Barron replied that the intent of the 10 years was to
provide a period of time that the director could not
exceeded. He added that there was a 10 year statutory
primary lease term.
10:04:03 AM
Senator Hoffman pointed to page 2 of the bill and the
immediate effective date; however, the fiscal note had a
different date. He inquired why there was a specific date
in the analysis but not in the legislation.
Ms. Barron replied that the intent of the fiscal note was
to give the department the proper resources to establish
the program and regulations.
10:05:00 AM
AT EASE
10:09:40 AM
RECONVENED
Co-Chair Meyer OPENED public testimony.
10:10:07 AM
JAMES SULLIVAN, SOUTHEAST ALASKA CONSERVATION COUNCIL,
expressed concern with the legislation. He acknowledged the
at an exploration stage the intent was that the land be
explored; however the council had problems with only one
comment period at the development stage. He offered that
the council had an issue with the redefining of a
geographic area, particularly multi-use areas. He pointed
out that anytime there was a planned development that would
affect the people living in the area, there should be an
appropriate notice and access to adequate information on
the project. He stated that in Cook Inlet the public the
possible effects of a particular project could not be
projected into the future. He stressed that plans could
change and contended that once a company reached the
development stage it would be impossible to predict
possible disasters. He understood that efficiency was an
important part of the permitting process, but felt that
bill created uncertainty, and put the onus on the public to
speculate what could happen. He added that the state was
planning to move into shale development and that DNR might
have to make changes to its permitting process. He
concluded that the bill did not represent the best approach
for the state.
10:14:53 AM
JACK RODERICK, SELF, ANCHORAGE (via teleconference),
expressed support for SB 59.
10:15:32 AM
Co-Chair Meyer CLOSED the public testimony.
10:15:42 AM
Co-Chair Meyer discussed the fiscal note attached to the
bill.
10:16:17 AM
SB 59 was HEARD and HELD in committee for further
consideration.
AT EASE
10:19:22 AM
RECONVENED
SENATE BILL NO. 63
"An Act relating to contracts for the preparation of
election ballots."
10:20:01 AM
Vice-Chair Fairclough MOVED to ADOPT CS SB 63(STA), 28-
LS0459/C as a working document.
Co-Chair Meyer OBJECTED for the purpose of discussion.
10:20:18 AM
LAURA PIERRE, STAFF, SENATOR ANNA FAIRCLOUGH, introduced SB
63. She explained that the legislation would bring the
preparation of ballots under the state procurement code.
She stated that the intent was to allow for competition in
the process, and that there could be cost savings to the
state.
10:20:49 AM
Ms. Pierre related the changes in the legislation:
Title: Title changed to include reference to the
state procurement code.
* Section 1: Removed language in subsection (3) "may
contract for the preparation of the ballots on a
regional basis if necessary," and inserted the
language, "contract for the preparation of ballots
under AS 36.30 (State Procurement Code).
*Section 2: Replaced all of section 2 with a new
section 2 which removes the reference to preparation
of ballots in AS 36.30850(b)
Co-Chair Meyer WITHDREW his OBJECTION.
Co-Chair Meyer OPENED public testimony.
Co-Chair Meyer CLOSED public testimony.
10:23:20 AM
Vice-Chair Fairclough stated that the intent of the
legislation was to provide opportunities to all Alaska
printers and to move away from a sole source contract.
10:24:10 AM
Co-Chair Kelly MOVED to REPORT SB 63 out of committee with
individual recommendations and the accompanying fiscal
note(s).
SB 63 (STA) was REPORTED out of committee with a "do pass"
recommendation and with previously published fiscal note:
FN 1 (GOV).
10:24:39 AM
AT EASE
10:29:45 AM
RECONVENE
SENATE BILL NO. 13
"An Act relating to bonds of the Knik Arm Bridge and Toll
Authority; relating to reserve funds of the authority;
relating to taxes and assessments on a person that is a
party to an agreement with the authority; and establishing
the Knik Arm Crossing fund."
SENATOR CHARLIE HUGGINS, introduced Mr. David Livingstone
from Citigroup. He stated that the Knik Arm Crossing was
the only strategic pieces of infrastructure for
transportation currently being discussed in the state. He
said that the estimates for widening and improving the
Glenn Highway were approximately $3 billion. He opined that
approximately 20,000 people were traveling from the Mat-Su
to Anchorage daily between the hours of 4am and 9am. He
added that there were three highway safety corridors on the
way from Anchorage to Mat-Su, which was symptomatic of the
population growth. He relayed that records indicated that
in 2012 Knick-Goose Bay Road (KGB) was more dangerous than
driving south out of Anchorage, and that the road from
Wasilla to Palmer was equally dangerous. He said that users
of KGB Road heading toward the Port of Anchorage had grown
by 50 percent in the last 10 years. He pointed out that
there were a significant number of people that would use
the access immediately in order to get into Anchorage.
10:36:23 AM
Senator Huggins related the sponsor statement:
Senate Bill 13 amends the Knik Arm Bridge and Toll
Authority's enabling statute to provide for a
successful procurement for the Knik Ann Crossing
project and to generate the best value for the state.
The Knik Arm Crossing will significantly enhance
Alaska's public infrastructure and further the
movement of goods and people throughout our state.
Passing this legislation this session is important for
moving the Knik Arm Crossing toward a bridge opening
in 2015.
This bill, written in consultation with the Knik Arm
Bridge and Toll Authority (KABATA), which was
established in 2003 by the Alaska Legislature,
accomplishes many items deemed necessary for securing
a successful public-private partnership, including:
> Increases KABATA's bonding authority from $500
million to $600 million:
• The $600 million number represents the same
amount authorized under Private Activity Bonds
(PABs) allocation from FHWA.
• Lowers the cost of capital for the project and
ultimately lowers the cost to end users.
• Private partner is the borrower of any PABs
issued.
> Clarifies that the bridge and associated facilities
are exempt from state and local taxes;
• Like any other transportation project in
Alaska, the roads and bridges are not subject to
property taxation.
• Any private facilities developed outside the
crossing will be taxable.
• Property tax exemption reduces the availability
payment and reduces the toll.
> Establishes a project reserve fund:
• Provides backstop for toll revenue
fluctuations.
• Enhances the credit worthiness of the project
and reduces project costs
• Will be repaid over the life of the project.
• Keeps the tolls affordable to the traveling
public
All of the above language clarifications and additions
lower the capital costs of this much-needed
infrastructure project and deliver benefits in a
timely efficient manner.
SB 13 is a companion bill to House Bill 23, which is
sponsored by Representative Mark Neuman.
Senator Huggins urged the committee to link the bill to its
House counterpart quickly. He stated that there was $500
million available to the project through the Transportation
Finance and Innovation Act (TIFIA), but that time was
limited.
10:37:58 AM
Co-Chair Meyer noted that public testimony would be taken
on the House companion bill, HB 23, once it was received by
the committee.
10:39:59 AM
MICHAEL FOSTER, CHAIRMAN, KABATA, began a presentation on
SB 13 titled "Knik Arm Crossing." He discussed Slide 2,
"Historic and Projected Population Trend 1985 to 2035." He
stated that, according census numbers, between 1985 and
2010 the population of Anchorage grew by 28 percent; Mat-
Su by 140 percent, and the South Central area by 44.5
percent. He relayed that there were several different
models under discussion using numbers from the Department
of Labor (DOL), ISER and KABATA; if all the models were
examined and corrected to the 2010 actual census data,
there was only a 1 percent difference between the ISER and
KABATA models. He said that most of the growth was
occurring in Eagle River and North of Mat-Su. He noted that
44 percent of the total growth in Anchorage was in the
Eagle River area because the bowl area was running out of
land causing the population to move northward.
10:43:04 AM
Mr. Foster spoke to slide 3, "Glenn Highway AADT Counts (no
bridges)." He shared that in 1985 traffic at the Eklutna
Bridge was approximately 16,000, and increased to 30,000 in
2010. He contended that by 2035 the traffic number would
increase to 65,000 at that point on the Glenn Highway. He
pointed out that in 1985, at the point south of Eagle River
that was the combination of all the northbound traffic into
Anchorage, traffic measured approximately 33,000; 53,000 in
2010, and was projected to increase to 110,000 by 2035. He
pointed out that the highlighted two lane road and the
slide carried 62 percent of the traffic on the four lane
highway.
Mr. Foster continued to Slide 4, "Knik-Fairview Fastest
Growing Area":
•Knik-Fairview 2012 population estimate 16,126
-Larger than the incorporated areas of Palmer and
Wasilla combined
-If incorporated, would be fourth largest city in
the state
•Knik-Goose Bay Road traffic statistics:
2000 AADT - 12,590
2010 AADT - 18,308
Increase 5,718
percent 45.4 percent
10:47:23 AM
Mr. Foster stressed the importance of TIFIA for the
project. He explained that the developer would be able to
access federal dollars, at low interest, and would not have
to make a payment on the loan until five years after the
bridge opened. He quoted at letter from Bryan Butcher,
Commissioner, Department Of Revenue:
"Finally, you asked about my confidence in the revenue
projections and financial analysis provided by KABATA
in its March 1 TIFIA letter of interest. KABATA has
retained CITI, one of the largest and most successful
financial services firm in the world, especially as it
relates to government financing of infrastructure
projects, to develop its financial models. KABATA
retained Wilbur Smith, a firm that has advised on many
successful projects to do its traffic and toll models.
I am confident that the revenue projections and
financial analysis are objective and done to the
highest of professional standards. This is the type of
work that will be accepted and relied upon by the
institutional investors that may be interested in
financing this project."
10:49:19 AM
Mr. Foster addressed Slide 5, "What Happens Without the
Bridge?":
•State has to accommodate transportation needs to
maintain existing level of service:
-6 lane improvements on Glenn Highway from Eagle
River to Wasilla
-8 lane improvements on Glenn Highway from South
Eagle River to 5th Avenue
-Parks Wasilla Bypass
-Network improvements in Palmer/Wasilla corridor
•§billion total cost with no toll revenue *
* Estimate per 2008 Statewide LRTP prepared by ADOT&PF
10:49:58 AM
Co-Chair Kelly required a brief explanation of the TIFIA
program.
Mr. Foster replied that TIFIA was a federal loan program
that provided Federal credit assistance in the form of
direct loans, loan guarantees, and standby lines of credit
to finance surface transportation projects of national and
regional significance. TIFIA credit assistance provides
improved access to capital markets, flexible repayment
terms, and potentially more favorable interest rates than
can be found in private capital markets for similar
instruments. TIFIA can help advance qualified, large-scale
projects that otherwise might be delayed or deferred
because of size, complexity, or uncertainty over the timing
of revenues. Many surface transportation projects -
highway, transit, railroad, intermodal freight, and port
access - are eligible for assistance. Each dollar of
Federal funds can provide up to $10 in TIFIA credit
assistance - and leverage $30 in transportation
infrastructure investment. He noted that there were
currently letters of interest from 18 different states and
that the Alaska project was in the "hold mode." He shared
that the program was still being developed and the
application process had yet to be completed. He stated that
the program was waiting for the legislation to move
forward, which would signify the state's commitment in the
project, before inviting Alaska into the pre-application
process. He noted that the state had applied to the program
before and had been turned down. He believed that if the
legislation passed the state would be invited into the
program.
10:53:58 AM
Senator Olson wondered why letters of interest had been
sent out before the financial modeling had been completed.
Ms. Foster replied that that had had several financial
models and that at the time TIFIA had a small financial
capacity.
10:55:24 AM
Senator Olson asked about other TIFIA loans that had been
granted in the United States.
Mr. Foster referred the question to Mr. Livingston.
10:56:09 AM
DAVID LIVINGSTONE, MANAGING DIRECTOR, CITI CORP, introduced
the presentation, "Knik Arm Crossing: Finance Briefing." He
spoke to Slide 1, "Public-Private Partnership Approach":
to build and operate the Crossing
- Alaska legislature authorized and encouraged
use of P3 for project delivery under AS 19.75.111
have been used successfully in the US for:
- East End Bridge (over Ohio River near
Louisville, KY)
- Presidio Parkway (San Francisco)
- I-595 (Fort Lauderdale)
- Denver Eagle "Fastracks"
- Port of Miami Tunnel
deliver and operate major projects worldwide,
including
in the UK, US, Germany, France, Italy, Spain,
Portugal, Australia, Canada, Chile and Brazil
- Concept is so well proven that in Canada any
project over $100M using federal funds must
analyze use of P3 and justify why P3 should NOT
be used
- US road P3's have come in 23 percent to 42
percent lower than the owner's capital cost
estimate1 KABATA's proposed P3 approach has been
tested in numerous projects in the US and around
the world.
(1) For East End Bridge, Presidio Parkway and I-595,
the most recent three availability fee P3's.
10:58:17 AM
Vice-Chair Fairclough requested and all-in cost on the
previous P3 projects and projected traffic counts for the
bridges.
Mr. Livingstone replied that he would try to find the
information.
Vice-Chair Fairclough asked if the projects were of a
similar magnitude as KABATA.
Mr. Livingstone replied that the East End Bridge was almost
identical in size to KABATA in terms of cost.
10:59:44 AM
Mr. Livingstone addressed Slide 2, "Procurement Status":
Procurement is in process with firm bids expected in
2013.
partner with the following international consortia
competing for the Crossing:
- Alaska Infrastructure Access Partners -
Infrared Capital Partners; Bouygues; Colaska; URS
Alaska; Moffatt & Nichol; USKH; R&M Consultants;
Macquarie Capital
- Cook Inlet Passage Partners - Meridiam
Infrastructure; Kiewit; Manson Construction;
Transfield Services; Parsons Transportation
Group; Golder Associates; Dowl HKM; Dan Brown and
Associates; BMT Fleet Technologies; KPMG
Corporate Finance
- North Star Mobility Group - Hochtief; ACS
Infrastructure Development; Iridium; Flatiron
Constructors; Dragados; Traylor Bros.; HNTB; CH2M
Hill Engineers; Alaska Interstate Construction;
Arcadis; Kodiak Map; Hart Crowser; Earth
Mechanics; Bittner-Shen; Denali Drilling; Gregg
Drilling
and the three firms shown were short listed by KABATA
firms and industry leaders in US and worldwide P3s
Mr. Livingstone stated that the firm selection would be
based on which firm would offer the lowest availability
payments.
11:01:42 AM
Mr. Livingstone spoke to Slide 3, "Structure for
Availability Fee P3 Deal", which was a flow chart that
illustrated that private partner provided single point
responsibility for design, construction, financing and
long-term operation and maintenance, all for a pre-
determined annual availability fee.
11:02:50 AM
Mr. Livingstone spoke to Slide 4, "Risk Sharing":
The following summarizes the key risk sharing, where
the private partner takes risks under its control and
KABATA assuming risks of uncontrollable events.
Risk Party Taking Risk
Design deficiencies Private Partner
Construction cost Private Partner
Design/construction integration Private Partner
Construction schedule Private Partner
KABATA discretionary change orders/KABATA acts
KABATA
All other design/construction change orders
Private Partner
Specific conditions/events outside private partner control (see
page 6) KABATA
Debt service Private Partner
O&M cost (for 35 years) Private Partner
Needed renewal capital expenditures (for 35 years)
Private Partner
Future expansions KABATA / Private
Partner
Toll collection cost (for 35 years)
Private Partner
Toll revenue KABATA
Availability payment
KABATA/Project
Reserve/State Moral Obligation
11:04:04 AM
Mr. Livingstone spoke to Slide 5, "Availability Payment":
Private partner bears risk that its costs exceed the
availability fee.
private partner to the extent the Crossing is
"available" to traffic
- No availability payments owed until project is
opened for service
- To the extent the private partner does not keep
lanes open, or does not operate and maintain the
Crossing to detailed operating standards, the
availability payment is reduced
the concession is signed and includes components for:
- Recovery of capital (debt and equity), which
are fixed and not subject to escalation
- Operation, maintenance and repair, which are
fixed, but subject to inflation escalation
- Tolling services, which are fixed fees per
collected toll, but subject to inflation
escalation
11:04:59 AM
Mr. Livingstone addressed slide 6 titled "Events Outside
Private Partner Control":
While KABATA has assumed designated uncontrollable
circumstances risks, steps have been taken to mitigate
those risks to KABATA.
• KABATA retains certain other risks related to KABATA
changes or acts in its control and, listed below,
items out of the control of the private partner
· KABATA Retained Risks Outside of Private Partner
Control
· Mitigation
Discovery of unforeseen subsurface conditions,
hazardous waste, archeological resources, endangered
species
Extensive subsurface investigation completed,
including borings in the Knik Arm and
historical/archeological surveys along the bridge and
roadway alignment
Delays in receipt of certain major permits or right of
way acquisition; costs of changes in state law or
permit conditions
Major permits and right of way should be completed
prior to private partner selection
Delays by utilities
There are not many utilities along right of way and
they are known and mapped
Utility memoranda of understanding, should be executed
prior to private partner selection
Force majeure events, including earthquakes, war,
terrorism, fires, floods
The Crossing is required to be designed to withstand
earthquakes, fires and floods
The private partner is required to carry casualty
insurance
If an event is catastrophic, it is likely to be
covered in part by FHWA, FEMA and/or other federal
disaster aid
11:05:55 AM
Senator Bishop inquired if bedrock had been found as a
result of the soil testing.
Mr. Foster responded that consolidated glacial till had
been found.
11:06:22 AM
Mr. Livingstone addressed Slide 7, "Proposed Legislation":
Passage of SB13 (or HB23) is condition to the project
proceeding under the "availability fee" P3 approach
and obtaining a low cost TIFIA loan from the US
Department of Transportation.
- Ability to establish a Project Reserve and
subject it to a trust arrangement
- Toll revenues collected by KABATA are deposited
into the Project Reserve
- KABATA's availability payment obligation and
KABATA expenses are paid from the Project Reserve
- The KABATA chair must annually certify to the
Governor and Legislature the status of the
Project Reserve and amounts needed, if any, to
restore it to its minimum requirement
- By the time the Crossing opens for traffic, the
project reserve is expected to be funded by State
appropriations totaling $150 million, with a
"down payment" this year
percent of the estimated average availability payment
over next three years plus (2) 120 percent of prior
year KABATA expenses minus (3) prior year toll
revenues
- Provides liquidity to KABATA to make the
availability payments and fund KABATA
administrative costs given the annual legislative
schedule (appropriations can normally only be
made during the 90 day session)
11:07:25 AM
Mr. Livingstone discussed Slide 8, "Purpose of State
Financial Backstop":
The private partner is investing nearly $800 million
of its funds to build the Crossing and needs assurance
that KABATA and the State can pay if the private
partner meets its obligations.
· Request
· Key Purpose
Funding shortfalls if availability payments and other
expenses exceed toll revenues
• Provides funding for early year projected revenue
shortfalls during traffic ramp up on bridge
• Under base case projections there are minimal future
need for State support
Funding "pinhole" risks
• Provides funding for "pinhole" risks assumed by
KABATA
• Pinhole risks proposed to be backstopped by the
State include: (1) termination costs, should the
concession be terminated prior to its maturity for
KABATA fault or convenience ; and (2) compensation for
specific conditions/events outside private partner
control
11:08:44 AM
Mr. Livingstone spoke to slide 9 titled: Assumptions
Provided by Team of Experts":
The financial projections are based on a set of
assumptions carefully prepared by a team of experts in
their respective fields.
• As KABATA's financial advisor, Citigroup has
prepared financial projections to show how the project
will perform under a set of assumptions developed by
national experts in their respective fields:
(The following information is ordered: the assumption,
the firm, and the credentials.)
Construction Cost
HDR1
Fifth-ranked engineering firm for highway design in
the US
Traffic and Revenue
CDM Smith
Foremost Traffic and Revenue consultant with more
studies supporting financings than any other firm
Operations and Maintenance
HDR/PND
Fifth-ranked engineering firm for highway design in
the US and one of the top Alaskan road and bridge
engineers
Toll Collection
CDM Smith
Leading toll system advisor to toll and transportation
agencies
Renewal Capital Expenditures
CDM Smith2
Substantial experience in inspecting bridges and
developing capital maintenance programs for
transportation agencies in the US.
Debt and Equity
Citigroup
One of the world's largest banks and the #1
underwriter of US toll road bonds
(1) HDR was assisted by PND, Armeni, William Ott and
DCS for bridge design and Hydro-Ram and IHC Merwede
for piling
(2) CDM Smith was assisted by PND
11:09:46 AM
Mr. Livingstone addressed Slide 10, "KABATA Projected
Obligations and Toll Revenues." He stated that in the early
years, revenue would be insufficient to cover costs, but in
the later part the project would generate significant
revenue for the state.
11:10:59 AM
Mr. Livingstone discussed Slide 11, "Sensitivities"
Sensitivities prepared to determine upside and
downside impact of the project on KABATA and the
State.
- Base case - Most likely traffic and revenue
projection
- Upside and downside sensitivities at 5 percent
(aggressive upside), 25 percent (upside), 75
percent (downside) and 95 percent (severe
downside) probabilities that traffic will exceed
- Initial Crossing:
four lane foundation
to avoid future neighborhood disruption
- Future Expansions:
initial configuration (estimated 20301 for
base case)
Point MacKenzie Road upgrade to four lanes
(estimated 20251 for base case)
controlled by KABATA and the State based on
traffic, congestion and funding availability
(1) Based on traffic capacity analysis by CDM Smith
and HDR.
11:12:30 AM
Mr. Livingstone discussed Slide 12, "Revenue Sensitivity
Results from Monte Carlo Simulations," which charted that
Citi analyzed the Crossing's revenues under five cases, the
base case previously described and four alternative
probability cases at higher and lower traffic and revenue
volumes. The severe downside, downside, upside and
aggressive upside cases represent 95 percent, 75 percent,
25 percent and 5 percent probabilities that traffic and
toll revenues will be greater, respectively. For instance,
under the severe downside, 95 percent probability case,
there is only a 5 percent probability that toll revenues
will be below the projection.
11:12:59 AM
Mr. Livingstone addressed Slide 13, "Project Cost/Benefit
to State." He explained that the slide illustrated the
expected appropriations that would be expected under the
various scenarios. Slide 13 charted cumulative costs and
financial return to the state and the funding of, and
release from, project reserve over 45 years. He noted that
the grey line on the slide represented the $150 million
initial funding of the reserve. He said that there would be
no request for future appropriations until 2025. The slide
listed dates that expansions could occur under the base
case; under the sensitivities, the expansions occurred
earlier (upside cases) or later (downside cases) based on
when traffic levels warranted expansion. Additionally, the
severe downside, downside, base, upside and aggressive
upside represented 95 percent, 75 percent, 50 percent,
25 percent and 5 percent probabilities that traffic and
toll revenues would be greater, respectively. For instance,
under the severe downside, 95 percent probability case,
there was only a 5 percent probability that toll revenues
would be below the projection.
11:14:32 AM
Senator Olson inquired the date of the projects final year.
Mr. Livingstone replied 2060.
11:14:49 AM
Mr. Livingstone spoke to Slide 14, "Sensitivity Results,"
which was the numeric information charted on the previous
slide. Essentially, under the base case, over 45 years,
ongoing appropriations of $37 million were required, while
the Knik Arm Crossing would generate $2.3 billion of
revenues to fund transportation in the state.
11:16:09 AM
Mr. Livingstone discussed Slide 15 "Conservative
Assumptions Used in the Financial Analysis":
Citigroup's analysis uses conservative, reasonable
assumptions.
current market
- 1.5 percent higher for tax-exempt PABs
- 1.1 percent higher for TIFIA loan
- Using current market interest rates eliminates
any State reserve replenishment in other than the
95 percent probability, severe downside scenario
percent probability scenario from $627 million to
$113 million
if state is paying under "moral obligation" pledge
- If KABATA did not move forward with the
expansions, under the severe downside case, State
reserve replenishment drops from $627 million to
$113 million, but the Crossing would become
congested
modeled
- Recent Federal Highways reauthorization allows
up to 49 percent TIFIA and lower interest rate
for rural projects
considered rural
the public or the resulting economic development
asset unencumbered
Mr. Livingstone believed that all of the assumptions used
in the presentation were very conservative.
11:18:33 AM
Mr. Livingstone spoke to Slides 16 and 17, " Analysis of
Financial Impact of Legislation on State":
State's appropriation pledge is a backup to toll
revenues and would only be triggered if toll revenues
are insufficient to pay costs.
is a "double barreled" credit
- Payable FIRST from toll revenues in the Project
Reserve as the intended primary source of debt
repayment
- Payable SECOND from the appropriated funds in
the Project Reserve, initially equal to $150
million, and a commitment to seek a state
appropriation if the Project Reserve falls short
of minimum requirement
base case financial projections
support feature used by the Alaska Bond Bank and
AIDEA which have good records of debt repayment and
have been credit neutral to the State's own bond
rating
has been carefully crafted as back-up credit
protection that should be viewed as credit neutral to
the State's own bond rating because of the strength of
the overall project plan and strength of the primary
security
The proposed legislation should be credit neutral to
the State, given the minimal projected need for
appropriations and the importance of the project to
the State.
the credit, is likely to be used sparingly
- No availability payments due until the Project
is completed and available for service, which
removes the construction risks (State is not
taking on construction cost overrun or schedule
risk)
State are $36 million; other shortfalls are
covered by the Project Reserve without the need
for further appropriations
probability of exceeding," first Project Reserve
replenishment by State is in 2025 ($9 million)
and maximum annual payment is $38 million in 2043
- Infrastructure projects, like the Knik Arm
Crossing, fill an essential need and spur
economic development
11:19:03 AM
Co-Chair Meyer noted that the committee would adjourn for
floor session and continue the discussion during the
afternoon meeting.
11:19:45 AM
SB 13 was HEARD and HELD in committee for further
consideration.
11:19:48 AM
ADJOURNMENT
The meeting was adjourned at 11:19 a.m.