Legislature(2017 - 2018)SENATE FINANCE 532

03/22/2018 09:00 AM FINANCE

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Audio Topic
09:02:18 AM Start
09:03:48 AM Department of Revenue's Role in the Alaska Lng Project
11:00:27 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Dept. of Revenue's Role in the Alaska LNG Project TELECONFERENCED
Commissioner Sheldon Fisher, Dept. of Revenue
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 SENATE FINANCE COMMITTEE                                                                                       
                      March 22, 2018                                                                                            
                         9:02 a.m.                                                                                              
                                                                                                                                
9:02:18 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair MacKinnon called the Senate Finance Committee                                                                          
meeting to order at 9:02 a.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Anna MacKinnon, Co-Chair                                                                                                
Senator Click Bishop, Vice-Chair                                                                                                
Senator Peter Micciche                                                                                                          
Senator Donny Olson                                                                                                             
Senator Gary Stevens                                                                                                            
Senator Natasha von Imhof                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Sheldon Fisher, Commissioner, Department of Revenue; Maria                                                                      
Tsu, Specialist, Alaska Gasline Project Financing; Mike                                                                         
Barnhill, Deputy Commissioner, Department of Revenue.                                                                           
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
^DEPARTMENT OF REVENUE'S ROLE IN THE ALASKA LNG PROJECT                                                                       
                                                                                                                                
9:03:48 AM                                                                                                                    
                                                                                                                                
SHELDON FISHER, COMMISSIONER, DEPARTMENT OF REVENUE,                                                                            
discussed the presentation, "DOR Update on Alaska LNG                                                                           
Project State as Potential Investor/Owner" (copy on file).                                                                      
                                                                                                                                
9:04:45 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:05:17 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
9:06:07 AM                                                                                                                    
                                                                                                                                
Commissioner Fisher highlighted slide 2, "Presentation                                                                          
Outline":                                                                                                                       
                                                                                                                                
     DOR Role                                                                                                                   
          ? Legislative role as project advances                                                                              
                                                                                                                                
          ? DOR deliverables under SB 138                                                                                     
                                                                                                                                
               o Property tax/Payment-In-Lieu-of-Tax (PILT)                                                                     
                                                                                                                                
               o Report on plan for State/Alaskan equity                                                                        
               ownership                                                                                                        
                                                                                                                                
          ? Anticipated timing for legislative approval                                                                       
                                                                                                                                
     State as potential investor/owner and DOR Role                                                                             
                                                                                                                                
          ? DOR evaluation process for potential state                                                                        
          ownership                                                                                                             
                                                                                                                                
          ? Interface with AGDC                                                                                               
                                                                                                                                
               o DOR staff positions/time commitments                                                                           
                                                                                                                                
               o DOR consultants                                                                                                
                                                                                                                                
Commissioner Fisher addressed slide 3, "Legislative Role on                                                                     
DOR Lead Items":                                                                                                                
                                                                                                                                
     PAYMENT-IN LIEU- OF TAX (PILT)                                                                                             
                                                                                                                                
          Property Tax Proposal and Property Tax Allocation                                                                     
         and Disbursement Proposal/Recommendations                                                                              
                                                                                                                                
          MAGPR/DOR                                                                                                             
                                                                                                                                
          Alaska LNG Project Entity Owners                                                                                      
                                                                                                                                
          Legislative Approval                                                                                                  
                                                                                                                                
               Sec.   74,  SB   138:  Payment-in-lieu-of-Tax                                                                    
               (PILT)  needs  to  be analyzed  in  light  of                                                                    
               anticipated   equity  ownership   mix  (AGDC,                                                                    
               State, Private).                                                                                                 
                                                                                                                                
     SOA PARTICIPATION                                                                                                          
                                                                                                                                
          Finance   options   for    State   ownership   and                                                                    
          participation in Alaska LNG project                                                                                   
                                                                                                                                
          AGDC/DOR                                                                                                              
                                                                                                                                
          Alaska LNG Project Company                                                                                            
                                                                                                                                
          Authorization of Funding                                                                                              
                                                                                                                                
     ALASKAN PARTICIPATION                                                                                                      
                                                                                                                                
          Plan   to    allow   a    municipality,   regional                                                                    
          corporation  or state  resident to  participate as                                                                    
          co-owner in  Alaska LNG project  AGDC/DOR In-State                                                                    
          Investors  Review  Plan,   Provide  Feedback,  and                                                                    
          Possible Legislation                                                                                                  
                                                                                                                                
               Sec. 76, SB 138: requires DOR to present                                                                         
               plan to Legislature.                                                                                             
                                                                                                                                
9:10:57 AM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon wondered  when the  administration would                                                                    
advance  the  detailed numbers  on  the  advancement of  the                                                                    
project. Commissioner Fisher replied  that he would separate                                                                    
whether  the project  was good  for Alaska  and whether  the                                                                    
state would choose  to invest in the  project. He understood                                                                    
that they may  be the same or different  questions. He noted                                                                    
that the statute was created at  a time when the concept was                                                                    
different  that  the  current concept.  He  stated  that  as                                                                    
Alaska Gasline Development  Corporation (AGDC) developed its                                                                    
financing structure  would result in a  process. He remarked                                                                    
that  there was  work to  develop a  financial model,  which                                                                    
would be the foundation for  any investment. The model would                                                                    
be central to  all future decisions of the  viability of the                                                                    
project. As that  model is finalized, there  would be points                                                                    
of equity  investments. He remarked  that it was  typical to                                                                    
receive  the  investments in  stages.  He  noted that  there                                                                    
would  be  a series  of  decisions,  and  on each  stage  of                                                                    
financing the valuation increased.                                                                                              
                                                                                                                                
9:14:52 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  wondered how a model  would be developed                                                                    
without  knowing  whether  the legislature  was  willing  to                                                                    
invest in the  project. She asked whether it  was assumed by                                                                    
the governor that the state  would not financially invest in                                                                    
the project.  Commissioner Fisher  replied in  the negative.                                                                    
He sensed  that the  governor and AGDC  would be  pleased in                                                                    
state participation at any level.                                                                                               
                                                                                                                                
Co-Chair MacKinnon  wondered whether there was  a request to                                                                    
pledge  resources   to  the  project.   Commissioner  Fisher                                                                    
replied in  the affirmative.  He explained that  the current                                                                    
model included required financial  investments and assumed a                                                                    
certain profile based in costs  and revenues. The result was                                                                    
a return profile to model assumptions about the investment.                                                                     
                                                                                                                                
Co-Chair  MacKinnon stressed  that  there  was some  concern                                                                    
about the financial aspect of  the project, specifically the                                                                    
rate  of return  for  the state's  investment. She  stressed                                                                    
that there  was a desire  to provide the stable  resource to                                                                    
Alaskans,  and   there  as  an  expectation   of  a  blended                                                                    
diversified portfolio. She expressed  concern that there was                                                                    
not an  internal rate  of return hurdle  for the  state. She                                                                    
requested  the  Alaska  rate  of  return  and  the  risk  of                                                                    
ownership by someone other  than Alaska. Commissioner Fisher                                                                    
replied  that  he could  not  know  at  this stage.  He  was                                                                    
defaulting to a process rather than an answer.                                                                                  
                                                                                                                                
9:21:18 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  stressed that people wanted  to know the                                                                    
terms  of the  project. She  wondered whether  there was  an                                                                    
unacceptable rate of return  for Alaska. Commissioner Fisher                                                                    
stated that he  could not make that  determination until the                                                                    
model was completed.                                                                                                            
                                                                                                                                
Co-Chair  MacKinnon  wondered   whether  the  administration                                                                    
would  take a  project  without revenue.  She requested  the                                                                    
internal  rate of  return. She  appreciated the  legislative                                                                    
role in  the department.  She queried  any legal  binding to                                                                    
allow the legislature to weigh  in on accepting to much risk                                                                    
on the  project. Commissioner Fisher replied  that there was                                                                    
a  certain amount  of  risk  that the  state  had taken.  He                                                                    
remarked that  there had  been meaningful  investments, that                                                                    
were sunk. He understood that  there was a concern about the                                                                    
return based on the current investments.                                                                                        
                                                                                                                                
9:26:36 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  wondered whether  the proposal  would be                                                                    
shared  with  the  legislature.  She  wondered  whether  the                                                                    
administration  represented to  potential partners  the need                                                                    
to receive any information  to the legislature. Commissioner                                                                    
Fisher  replied that  he did  not  know the  answer to  that                                                                    
question.                                                                                                                       
                                                                                                                                
Senator von  Imhof understood that  a financial  model would                                                                    
be created.  She asked  whether a  confidentiality agreement                                                                    
was  signed  and  whether  he   had  seen  the  AGDC  model.                                                                    
Commissioner  Fisher  responded that  he  had  not seen  the                                                                    
model.                                                                                                                          
                                                                                                                                
Senator von Imhof understood that  there would be close work                                                                    
with the  AGDC model. Commissioner Fisher  agreed. He stated                                                                    
that the model was currently under development.                                                                                 
                                                                                                                                
Senator    von   Imhof    wondered   whether    there   were                                                                    
confidentiality  agreements  signed  in  order  to  see  the                                                                    
models.  Commissioner Fisher  replied that  that he  had not                                                                    
signed a confidentiality agreement.                                                                                             
                                                                                                                                
9:29:59 AM                                                                                                                    
                                                                                                                                
MARIA  TSU, SPECIALIST,  ALASKA  GASLINE PROJECT  FINANCING,                                                                    
replied that  she worked for  the department, but  there was                                                                    
an  agreement  with  the  president of  AGDC  that  to  best                                                                    
address the  goals of the  state was  to imbed her  into the                                                                    
team and be  given full access to the other  AGDC staff were                                                                    
granted access. She  stated that she had full  access to the                                                                    
model.                                                                                                                          
                                                                                                                                
Senator von Imhof wondered whether  there was a conversation                                                                    
about what  could be shared  with the legislature  about the                                                                    
model.  Ms. Tsu  replied that  she was  operating under  the                                                                    
assumption that  she would  maintain the  confidentiality of                                                                    
the  information presented  in  the model.  She shared  that                                                                    
there was an exploration  of potential information protocol,                                                                    
because the model was quite fluid.                                                                                              
                                                                                                                                
Senator von Imhof felt that  there should be an inclusion of                                                                    
the acceptable  rate of  return within  the model.  She felt                                                                    
that  Alaska  should  be  considered  an  "early  investor."                                                                    
Commissioner Fisher agreed.                                                                                                     
                                                                                                                                
9:35:49 AM                                                                                                                    
                                                                                                                                
Senator Micciche would wait to ask his questions.                                                                               
                                                                                                                                
Co-Chair MacKinnon stated that the committee was attempting                                                                     
to do its fiduciary responsibility.                                                                                             
                                                                                                                                
Commissioner Fisher stated that the PILT was important to                                                                       
the model, because it was a cost-driver.                                                                                        
                                                                                                                                
9:37:02 AM                                                                                                                    
                                                                                                                                
MIKE BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,                                                                      
looked at slide 4, "DOR Deliverables: Payment-in-lieu-of-                                                                       
Tax":                                                                                                                           
                                                                                                                                
     DOR has direct responsibility under SB 138 for the                                                                         
     following:                                                                                                                 
                                                                                                                                
          Section  74  of  SB 138:  Requests  that  governor                                                                    
          establish  an advisory  planning  group to  advise                                                                    
          governor  on  municipal  involvement  in  a  North                                                                    
          Slope    natural    gas     project    and    make                                                                    
          recommendations related  to property tax  under AS                                                                    
          43.56 and AS 29.45                                                                                                    
                                                                                                                                
               ? Municipal Advisory Gas Project Review                                                                        
               Board (MAGPR) - established by AO 269 in                                                                         
               2014   to   discuss   property   tax   issues                                                                    
               associated with the project and recommend                                                                        
               possible options                                                                                                 
                                                                                                                                
               ? Last meeting was in February 2016                                                                            
                                                                                                                                
               ? Tentative decisions regarding Payment-in-                                                                    
               lieu-of-Taxes (PILT) were reached, but more                                                                      
               work is required                                                                                                 
                                                                                                                                
               ? DOR intends to start up MAGPR Board                                                                          
               meetings again shortly                                                                                           
                                                                                                                                
                                                                                                                                
Mr. Barnhill discussed slide 5, "Payment-in-lieu-of-Tax                                                                         
(PILT)":                                                                                                                        
                                                                                                                                
     The MAGPR Board last met February 2016. Board members'                                                                     
     terms have expired and board needs to be re-                                                                               
     constituted.                                                                                                               
                                                                                                                                
     While additional discussions must occur prior to a                                                                         
     final recommendation, the board agreed to the                                                                              
     following:                                                                                                                 
                                                                                                                                
          Construction PILT  (C-PILT) should  be distributed                                                                    
          based  on the  merit of  applications by  impacted                                                                    
          communities.                                                                                                          
                                                                                                                                
          Operations PILT (O-PILT) should  be allocated on a                                                                    
          formula-driven calculation based  on two criteria:                                                                    
          Physical location  of the project's  real property                                                                    
          and a per-capita distribution.                                                                                        
                                                                                                                                
     The board left several unresolved issues for both C-                                                                       
     PILT and O-PILT. These issues (see next slide) remain                                                                      
     unresolved.                                                                                                                
                                                                                                                                
9:41:02 AM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman wondered  whether it  was normal  PILT was                                                                    
levied  during   the  construction  process.   Mr.  Barnhill                                                                    
replied that he  did not know what was normal.  He agreed to                                                                    
provide further information. He  stated that in the property                                                                    
tax  statute,   there  was  a   tax  exemption   during  the                                                                    
construction period.                                                                                                            
                                                                                                                                
Mr. Barnhill addressed slide 6, "Unresolved Issues for C-                                                                       
PILT and O-PILT":                                                                                                               
                                                                                                                                
     The unresolved issues for C-PILT include the                                                                               
     following:                                                                                                                 
                                                                                                                                
          ?  Will the  state pay  into the  C-PILT fund  the                                                                  
          same as private-sector  partners, given that State                                                                    
          is not a taxable entity?                                                                                              
                                                                                                                                
          ?  How exactly  will impacted  municipalities draw                                                                  
          on  the  fund,  and  how will  their  requests  be                                                                    
          decided?                                                                                                              
                                                                                                                                
          ? Will  the state be  allowed to draw on  the fund                                                                  
          the same as municipalities?                                                                                           
                                                                                                                                
          ?   And  will   municipalities   outside  of   the                                                                  
          footprint  of the  project be  allowed to  draw on                                                                    
         the fund for direct and indirect impacts?                                                                              
                                                                                                                                
9:44:41 AM                                                                                                                    
                                                                                                                                
Senator  von Imhof  noted that  the PILT  was a  significant                                                                    
component  of the  financial model.  She  remarked that  the                                                                    
components  and  elasticity  of PILT.  She  asked  for  more                                                                    
information  about the  determination of  what was  put into                                                                    
PILT. She was  pleased, but stressed that she  wanted to see                                                                    
the underlying  assumptions and factors into  PILT and their                                                                    
effects.  Mr.  Barnhill replied  that  he  did not  want  to                                                                    
ascribe any  of the  work of  the Municipal  Advisory Review                                                                    
Board to Department  of Revenue (DOR). He  stressed that DOR                                                                    
facilitated  that board,  but it  was  not work  in DOR.  He                                                                    
stated that  the computation and  derivation of  the numbers                                                                    
was absolutely important. He noted  that a PILT that was too                                                                    
high  could produce  a  negative net  present  value of  the                                                                    
project.                                                                                                                        
                                                                                                                                
9:54:02 AM                                                                                                                    
                                                                                                                                
Mr. Barnhill continued to discuss slide 6:                                                                                      
                                                                                                                                
     The unresolved issues for O-PILT include the                                                                               
     following:                                                                                                                 
                                                                                                                                
          ? Will the  state pay into the O-PILT  the same as                                                                  
          private-sector partners?                                                                                              
                                                                                                                                
          ?   How   will   the  fund   be   distributed   to                                                                  
          municipalities? Strictly based  on project mileage                                                                    
          or  value within  each municipality's  boundaries?                                                                    
          Or based  on some hybrid formula?  What amount, if                                                                    
          any, should  be assigned to a  statewide municipal                                                                    
          per-capita sharing of the PILT money?                                                                                 
                                                                                                                                
          ? Will  the state  receive funds from  the account                                                                  
          for  the   project  mileage/value  not   within  a                                                                    
          municipal tax jurisdiction?                                                                                           
                                                                                                                                
9:55:32 AM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon  wanted  to   be  able  to  examine  the                                                                    
expenses to make a competitive project.                                                                                         
                                                                                                                                
Senator Micciche  expressed concerns with PILT.  He stressed                                                                    
that many Alaskans  were concerns. He felt that  there was a                                                                    
high  level of  fanfare  with the  Chinese partnerships.  He                                                                    
wanted DOR to bring the project back to the people.                                                                             
                                                                                                                                
Senator von  Imhof stressed that the  model included factors                                                                    
like thresholds. She stressed that  it was the hope that DOR                                                                    
would be  objective, and  use financial  lens to  create the                                                                    
model.                                                                                                                          
                                                                                                                                
10:05:35 AM                                                                                                                   
                                                                                                                                
Senator Micciche  understood that forced  political projects                                                                    
may not be able to conclude.                                                                                                    
                                                                                                                                
Commissioner Fisher  looked at  slide 7,  "DOR Deliverables:                                                                    
State/Alaskan Participation":                                                                                                   
                                                                                                                                
     Section  76  of  SB  138:  DOR  to  provide  report  on                                                                    
     financing     options,     including    options     for                                                                    
     municipalities, residents, or  regional corporations to                                                                    
     invest in the project and proposed legislation.                                                                            
                                                                                                                                
          ?  In  2015,  DOR  engaged Lazard  to  prepare  an                                                                  
          interim draft  report, which was delivered  to the                                                                    
          legislature.                                                                                                          
                                                                                                                                
          ? DOR is working  with AGDC to update/revise draft                                                                  
          report (1)  to reflect  new project  structure and                                                                    
          financing  options, and  (2)  evaluate options  to                                                                    
          provide  mechanism  for Alaskan  participation  in                                                                    
          ownership.                                                                                                            
                                                                                                                                
          ?    Regarding    options   for    municipalities,                                                                  
          residents,  or   regional  corporations,  Lazard's                                                                    
          summary assessment stated:                                                                                            
                                                                                                                                
          "Although  Regional  Corporations,  Municipalities                                                                    
          and Individual  Residents may  provide potentially                                                                    
          viable   funding   sources  that   align   Project                                                                    
          stakeholder    incentives,    certain    practical                                                                    
          constraints  (e.g.,  potentially  limited  overall                                                                    
          availability  of   funds,  liquidity  preferences,                                                                    
          investment  mandates,  and structuring,  marketing                                                                    
          and monitoring costs) may be prohibitive."                                                                            
                                                                                                                                
Co-Chair MacKinnon  wondered whether Lazard was  still under                                                                    
contract  with the  state.   Commissioner Fisher  replied in                                                                    
the negative.                                                                                                                   
                                                                                                                                
10:10:12 AM                                                                                                                   
                                                                                                                                
Co-Chair MacKinnon wondered whether Black and Veatch was                                                                        
still under contract with the state. Commissioner Fisher                                                                        
replied in the affirmative.                                                                                                     
                                                                                                                                
10:10:25 AM                                                                                                                   
                                                                                                                                
Commissioner Fisher introduced Ms. Tsu.                                                                                         
                                                                                                                                
Ms. Tsu discussed her background.                                                                                               
                                                                                                                                
10:17:29 AM                                                                                                                   
                                                                                                                                
Ms. Tsu highlighted slide 8, "Evaluation Process for                                                                            
Potential Equity Stake":                                                                                                        
                                                                                                                                
     DOR is responsible for evaluating whether State should                                                                     
     take equity interest in Alaska LNG.                                                                                        
                                                                                                                                
     DOR has hired Maria Tsu as Alaska Gasline Project                                                                          
     Financing Specialist to lead effort.                                                                                       
                                                                                                                                
          ?  Ms.   Tsu  has   20+  years   of  institutional                                                                  
          investment  experience,  including nine  years  at                                                                    
          the Alaska  Permanent Fund Corporation,  where she                                                                    
          was  most  recently  Director of  Investments  for                                                                    
          Private     Markets     (private    equity     and                                                                    
          infrastructure).  She  also  worked  for  the  SOA                                                                    
          Treasury   Division,  for   the  Municipality   of                                                                    
          Anchorage,  and for  the  North Pacific  Fisheries                                                                    
          Management Council.  Prior to moving to  Alaska in                                                                    
          early  2000, Ms.  Tsu worked  at Goldman  Sachs in                                                                    
          New  York.  She holds  B.S.  and  M.S. degrees  in                                                                    
          Chemical  Engineering   from  the   University  of                                                                    
          Washington,  and  a  Masters degree  in  economics                                                                    
          from Virginia Tech.                                                                                                   
                                                                                                                                
     Evaluation steps include:                                                                                                  
                                                                                                                                
          1. Understand all aspects of Alaska LNG project                                                                       
                                                                                                                                
          2.  Develop   financial  model  needed   to  guide                                                                    
          decision                                                                                                              
                                                                                                                                
          3. Conduct in-depth due diligence                                                                                     
                                                                                                                                
          4. Assist AGDC in identifying sources of equity                                                                       
          funding                                                                                                               
                                                                                                                                
          5. Assist AGDC in obtaining approvals from                                                                            
          relevant entities                                                                                                     
                                                                                                                                
          6. Assist AGDC in equity fundraising                                                                                  
                                                                                                                                
10:19:00 AM                                                                                                                   
                                                                                                                                
Ms. Tsu discussed slide 9, "Evaluation Steps (continued)":                                                                      
                                                                                                                                
     1.   Review:  Understand   project  scope,   timelines,                                                                    
     underlying  economics,   cash  flows,   funding  needs,                                                                    
     capital sources, opportunities and risks.                                                                                  
                                                                                                                                
     2.  Financial Modeling:  Model project  financials plus                                                                    
     other  State  revenues  (royalties,  taxes)  and  other                                                                    
     economic  benefits  to  Alaska  (jobs,  growth,  fiscal                                                                    
     stability).                                                                                                                
                                                                                                                                
     3. Due  Diligence: In-depth  review of  project aspects                                                                    
     most  relevant  to   investment  decision:  sources  of                                                                    
     returns  and risks  (both financial  and non-financial,                                                                    
     including  impact  to   State's  bonding  capacity  and                                                                    
     credit rating). Draft due diligence report.                                                                                
                                                                                                                                
     4.  Funding Sources:  Identify equity  funding sources,                                                                    
     including      state,       Alaskans      (individuals,                                                                    
     municipalities, Alaska  Native corporations),  and non-                                                                    
     Alaskan third-party sources.                                                                                               
                                                                                                                                
     5.   Obtain  Approvals:   Assist   AGDC  in   obtaining                                                                    
     necessary approvals from State and national entities                                                                       
     (e.g., CFIUS).                                                                                                             
                                                                                                                                
     6.   Fundraising:    Assist   with    fundraising   and                                                                    
     documentation of investment merits and risks.                                                                              
                                                                                                                                
10:24:39 AM                                                                                                                   
                                                                                                                                
Senator von  Imhof felt reassured  that Ms. Tsu was  part of                                                                    
the  team.  She  noted  that AGDC  was  asking  for  receipt                                                                    
authority. She assumed that the  funding sources would occur                                                                    
in the upcoming summer. She  wondered whether summer was the                                                                    
time to bring the model  to the communities. Ms. Tsu replied                                                                    
in the affirmative.                                                                                                             
                                                                                                                                
10:28:03 AM                                                                                                                   
                                                                                                                                
Senator  von Imhof  understood that  there was  some current                                                                    
money to  complete FERC,  but the  question was  whether $60                                                                    
million was  sufficient. She felt  that there  was knowledge                                                                    
about  questions to  make informed  decisions. She  imagined                                                                    
that  there  would  be  great detail  to  make  an  informed                                                                    
decision.  She  wondered  whether the  third  party  funding                                                                    
sources  would  sign   nondisclosure  agreements,  including                                                                    
municipalities,  individual investors,  and  the state.  Ms.                                                                    
Tsu  replied that  securities laws  were in  place to  limit                                                                    
work with individuals.  She stated that there  was work with                                                                    
Hilltop Securities  to understand all the  requirements. She                                                                    
stated that  there were some  concerns about offering  it to                                                                    
unsophisticated   investors  and   the  risk   without  full                                                                    
understanding.                                                                                                                  
                                                                                                                                
10:34:54 AM                                                                                                                   
                                                                                                                                
Senator Micciche understood that  there were various factors                                                                    
in  determination.  He wondered  whether  the  value of  the                                                                    
peripheral benefits  could replace  the pure  economics, and                                                                    
bring the  state to a zero  rate of return. Ms.  Tsu replied                                                                    
that  it  was  not  her starting  point.  She  distinguished                                                                    
between the stage  of the project, the  financing needs, and                                                                    
the  return potential  for that  equity capital  investment.                                                                    
She stressed that  the early needed capital  was to finalize                                                                    
much  of  the  critical  work  to  proceed  with  the  final                                                                    
investment decision and construction.                                                                                           
                                                                                                                                
10:40:40 AM                                                                                                                   
                                                                                                                                
Senator Micciche  requested assurance  that there  would not                                                                    
be an  overplay of the  less quantifiable benefits.  Ms. Tsu                                                                    
replied that she hoped to address what could be quantified.                                                                     
                                                                                                                                
Co-Chair MacKinnon  queried the process of  the Committee on                                                                    
Foreign  Investment.  Ms.  Tsu explained  intention  of  the                                                                    
committee was to evaluate foreign investment in the U.S.                                                                        
                                                                                                                                
10:46:35 AM                                                                                                                   
                                                                                                                                
Co-Chair MacKinnon explained that  there was a trade deficit                                                                    
with a partner  on the opportunity. She  remarked that China                                                                    
had a different structure.  Commissioner Fisher replied that                                                                    
the group was less involved in those discussions.                                                                               
                                                                                                                                
Ms.  Tsu furthered  that in  addition to  helping the  trade                                                                    
balance and  deficit with China,  the project  would provide                                                                    
access  to  a  critical  natural resource  that  would  grow                                                                    
China's economy.                                                                                                                
                                                                                                                                
10:50:04 AM                                                                                                                   
                                                                                                                                
Co-Chair MacKinnon stressed that she did not provide risk                                                                       
to the state with the conduit of financing.                                                                                     
                                                                                                                                
Commissioner Fisher discussed slide 10, "DOR Deliverables:                                                                      
Tax As Gas (TAG)":                                                                                                              
                                                                                                                                
     AS 43.05.010(17): DOR commissioner directs disposition                                                                     
     of revenue from TAG                                                                                                        
                                                                                                                                
          ?  If  DNR   elects  Royalty-In-Kind  (RIK),  then                                                                  
          producers  have  the  option to  elect  Tax-As-Gas                                                                    
          (TAG),  although there  are other  triggers for  a                                                                    
          TAG election.                                                                                                         
                                                                                                                                
          ?  Under current  AGDC-led  project structure,  if                                                                  
          DNR elects  RIK, State could sell  royalty gas and                                                                    
          Tax-as-Gas to AGDC                                                                                                    
                                                                                                                                
          ?   DNR  is   actively   engaged   with  AGDC   on                                                                  
         discussions regarding Gas Sales Agreement                                                                              
                                                                                                                                
          ?  Contract for  sale of  State's royalty  and TAG                                                                  
          gas   by   DNR    will   require   royalty   board                                                                    
          recommendation and legislative approval                                                                               
                                                                                                                                
          ? If DNR  elects RIK and the  producers elect TAG,                                                                  
          then DOR  will establish regulations to  support a                                                                    
          TAG election.                                                                                                         
                                                                                                                                
Commissioner Fisher highlighted slide 11, "Anticipated                                                                          
Timeline for DOR Deliverables":                                                                                                 
                                                                                                                                
     Final Report(s) to legislature on:                                                                                         
                                                                                                                                
          ? Financing options for  State of Alaska ownership                                                                  
          in Alaska  LNG project  (as noted  above, DOR/AGDC                                                                    
          working  on  interim   reports  regarding  whether                                                                    
          State invests and options to do so)                                                                                   
                                                                                                                                
          ? Plan for Municipalities, Regional Corporations,                                                                   
          and residents to participate in ownership of                                                                          
          project                                                                                                               
               Anticipated timeline:  SB 138  requires these                                                                    
               to   be  submitted   at   time  DNR   submits                                                                    
               agreements,  e.g.  RIK gas  sales  agreement,                                                                    
               for    legislative    approval    under    AS                                                                    
               38.05.020(b)(11)                                                                                                 
                                                                                                                                
    Property tax proposal, allocation and disbursement:                                                                         
                                                                                                                                
          Payment-in-lieu-of-Tax     (PILT)     is     under                                                                    
          consideration for construction period (C-PILT)                                                                        
         and once project is operational (O-PILT)                                                                               
                                                                                                                                
               Anticipated timeline: must be resolved                                                                           
               before equity fund raising for bulk of                                                                           
               construction costs.                                                                                              
                                                                                                                                
Commissioner Fisher looked at slide 12, "DOR Interaction                                                                        
with AGDC":                                                                                                                     
                                                                                                                                
     DOR has  one full-time RSA/staff position  (Maria Tsu),                                                                    
     reporting  to  Commissioner  Fisher, assigned  to  work                                                                    
     with  AGDC.  Ms. Tsu  splits  time  between Atwood  (20                                                                    
     percent) and AGDC's office (80 percent).                                                                                   
                                                                                                                                
          ? Embedded into AGDC financial modeling group                                                                       
                                                                                                                                
          ? Fully integrated into team                                                                                        
                                                                                                                                
          ? Participates in meetings with other AGDC teams                                                                    
          (commercial, technical)                                                                                               
                                                                                                                                
          ? Interacts with other Anchorage-based DNR and                                                                      
          DOR staff                                                                                                             
                                                                                                                                
     Ms. Tsu works closely with Commissioner Fisher and                                                                         
     Deputy Commissioner                                                                                                        
     Barnhill in coordinated effort to address issues.                                                                          
                                                                                                                                
     As project ramps up, DOR may need to add resources to                                                                      
     ensure expertise and work-load demands are satisfied.                                                                      
                                                                                                                                
10:54:03 AM                                                                                                                   
                                                                                                                                
Senator Micciche shared that he had been seconded in the                                                                        
private sector. He requested that there be alliance to DOR.                                                                     
Ms. Tsu replied that she worked for the commissioner.                                                                           
                                                                                                                                
Commissioner Fisher discussed slide 13, "DOR Consultants":                                                                      
                                                                                                                                
     DOR has two consultants (Greengate LLC and Hilltop                                                                         
     Securities) under contract.                                                                                                
                                                                                                                                
     Greengate LLC is tasked with the following:                                                                                
                                                                                                                                
          ?  Provide  high-level  review of  AGDC  financial                                                                  
          model and suggest improvements                                                                                        
                                                                                                                                
          ?  Validate  final  AGDC  financial  model,  which                                                                  
          serves  as  basis  for  equity  investor  and  DOR                                                                    
          models                                                                                                                
                                                                                                                                
          ? Assist/provide  input on  DOR model  to consider                                                                  
          benefits  to   Alaska  more   broadly  (royalties,                                                                    
          taxes,  jobs, economic  growth, fiscal  stability,                                                                    
          etc.)                                                                                                                 
                                                                                                                                
          ? Review/validate DOR model                                                                                         
                                                                                                                                
     Hilltop Securities is tasked with the following                                                                            
                                                                                                                                
          ? Provide expertise and  advice on project finance                                                                  
          and underwriting                                                                                                      
                                                                                                                                
     DOR may engage additional consultants or advisors as                                                                       
     project develops to provide independent expert advice                                                                      
     in other areas.                                                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
11:00:27 AM                                                                                                                   
                                                                                                                                
The meeting was adjourned at 11:00 a.m.                                                                                         

Document Name Date/Time Subjects
032218 Greengate_LNG Experience_Jun2016AK.pdf SFIN 3/22/2018 9:00:00 AM
AKLNG
032218 SFC DOR Presentation AKLNG.pdf SFIN 3/22/2018 9:00:00 AM
AKLNG
032218 DOR Org Chart for Alaska LNG (1).pdf SFIN 3/22/2018 9:00:00 AM
AKLNG
032218 DOR Response to S FIN 4-12-18.pdf SFIN 3/22/2018 9:00:00 AM
AKLNG
032218 PILT letter to governor legislators.pdf SFIN 3/22/2018 9:00:00 AM
AKLNG