02/05/2013 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB37 | |
| SB23 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 37 | TELECONFERENCED | |
| += | SB 23 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
February 5, 2013
1:30 p.m.
MEMBERS PRESENT
Senator Mike Dunleavy, Chair
Senator Peter Micciche, Vice Chair
Senator Donald Olson
Senator Bert Stedman
Senator Johnny Ellis
COMMITTEE CALENDAR
SENATE BILL NO. 37
"An Act extending the termination date of the Statewide Suicide
Prevention Council; and providing for an effective date."
- MOVED SB 37 OUT OF COMMITTEE
SENATE BILL NO. 23
"An Act relating to development project financing by the Alaska
Industrial Development and Export Authority; relating to the
dividends from the Alaska Industrial and Export Authority;
authorizing the Alaska Industrial Development and Export
Authority to provide financing and issue bonds for a liquefied
natural gas production system and natural gas distribution
system; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 37
SHORT TITLE: EXTEND SUICIDE PREVENTION COUNCIL
SPONSOR(s): SENATOR(s) FAIRCLOUGH
01/25/13 (S) READ THE FIRST TIME - REFERRALS
01/25/13 (S) L&C, FIN
02/05/13 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
BILL: SB 23
SHORT TITLE: AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/16/13 (S) READ THE FIRST TIME - REFERRALS
01/16/13 (S) L&C, FIN
01/31/13 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
01/31/13 (S) Bills Previously Heard/Scheduled
02/05/13 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
SENATOR ANNA FAIRCLOUGH
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Sponsor of SB 37.
KATE BURKHART, Executive Director
Statewide Suicide Prevention Council
Juneau, AK
POSITION STATEMENT: Reported on the council's progress on the
recommendations made by Legislative Audit and answered questions
about the fiscal note for SB 37.
TED LEONARD, Executive Director
Alaska Industrial Development and Export Authority
Department of Commerce, Community and Economic Development
Anchorage, AK
POSITION STATEMENT: Introduced SB 23 on behalf of the
administration.
MARK DAVIS, Deputy Director
Alaska Industrial Development and Export Authority
Department of Commerce, Community and Economic Development
Anchorage, AK
POSITION STATEMENT: Provided a sectional analysis for SB 23.
GENE THERRIAULT, Deputy Director
Alaska Energy Authority
Department of Commerce, Community and Economic Development
Anchorage, AK
POSITION STATEMENT: Provided supporting information related to
SB 23.
ACTION NARRATIVE
1:30:43 PM
CHAIR MIKE DUNLEAVY called the Senate Labor and Commerce
Standing Committee meeting to order at 1:30 p.m. Present at the
call to order were Senators Stedman, Micciche, Ellis, and Chair
Dunleavy. Senator Olson arrived soon thereafter.
SB 37-EXTEND SUICIDE PREVENTION COUNCIL
1:30:55 PM
CHAIR DUNLEAVY announced the consideration of SB 37.
SENATOR ANNA FAIRCLOUGH, sponsor of SB 37, said the Statewide
Suicide Prevention Council was created in 2001 and changed
numerous times since then. Over the last four years, the
legislature has added different voices to the council and
created a strategic plan to look at the issue of suicide. For
many years Alaska has had the unfortunate distinction of being
number one in the nation for suicide; it's a plague in both
urban and rural areas. SB 37 proposes to extend the Statewide
Suicide Prevention Council until 2019.
1:38:21 PM
KATE BURKHART, Executive Director, Statewide Suicide Prevention
Council, said her testimony was to inform the committee of the
Council's progress on the recommendations made by Legislative
Audit and to answer questions about the fiscal note for SB 37.
She expressed appreciation for the work that Legislative Audit
did last year to inform the legislature about the council's
work, which led to improvements on the council.
Legislative Audit's first recommendation was to rectify the fact
that the council had not previously appointed or evaluated her
as executive director/coordinator. The council participated with
the executive committees of the Alaska Mental Health Board
(AMHB) and the Advisory Board on Alcoholism and Drug Abuse
(ABADA) late last year to conduct her evaluation and establish a
process by which to do it every year in December.
Legislative Audit also recommended that the council memorialize
its current leadership and resource sharing arrangement with the
Alaska Mental Health Board and the Advisory Board on Alcoholism
and Drug Abuse to ensure that when leadership changes those
practices continue in order to support the council. Early in
2013 the three entities executed a memorandum of agreement to
memorialize how business is done and to reiterate the council's
commitment to assume responsibility for its financial needs to
the greatest extent possible. She noted that the other two
boards currently support much of the council's operations.
The third recommendation was for the council to develop
performance measures that support the council's statutory duties
and submit annual progress reports. She said the council is
working toward complying with that recommendation. The council
has performance measures clearly articulated in the state plan
and will report on those in the implementation report that is
due in several weeks. The council is working with the Department
of Health and Social Services (DHSS) to translate those into
similar language for use by the Office of Management and Budget
(OMB).
MS. BURKHART pointed out in the fiscal note that $415,000 goes
directly to the Department of Education and Early Development
(DEED) each year to support school-based suicide prevention.
1:37:22 PM
At ease
1:38:22 PM
CHAIR DUNLEAVY noted that Senator Olson arrived at 1:35. Finding
no public testimony, he asked the will of the committee.
SENATOR MICCICHE commented on the heartbreak of suicide and
expressed appreciation for the work the council does helping
people that previously had few places to turn.
1:39:03 PM
SENATOR MICCICHE moved to report SB 37 from committee with
individual recommendations and attached fiscal note(s).
CHAIR DUNLEAVY announced that without objection SB 37 moved from
the Senate Labor and Commerce Committee.
1:39:34 PM
At ease
SB 23-AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
1:41:12 PM
CHAIR DUNLEAVY announced the consideration of SB 23.
1:41:28 PM
TED LEONARD, Executive Director, Alaska Industrial Development
and Export Authority (AIDEA), Department of Commerce, Community
and Economic Development (DCCED), explained that SB 23 would
allow AIDEA to provide development project financing to all or
portion of a project that it does not intend to own. This will
allow AIDEA to serve as a catalyst to leverage more funds from
the private sector. The bill also amends the statute to expand
the definitions of "net income" [and "unrestricted net income"]
to accommodate changes required by the Government Accounting
Standards Board (GASB). AIDEA also requests the ability to
calculate dividends on each of its two funds separately to try
to maximize the dividend to the state. Finally, SB 23 authorizes
AIDEA to participate in the financing and developing of the
liquefaction plant and distribution system with the goal of
reducing energy costs in Interior Alaska.
MR. LEONARD said Mr. Davis would explain the technical aspects
of the bill.
1:44:50 PM
SENATOR OLSON asked what AIDEA would use as collateral on large
projects it doesn't own.
MR. LEONARD explained the three components in project financing:
the term loan or first tier, the second or mezzanine tier, and
equity. In these projects, he said, AIDEA's best position is in
the mezzanine tier, where it can promote a bank's involvement in
a project. The asset and cash flows are the collateral, which
would be calculated by going through the deal structure. The
collateral is the same under a lending structure as it would be
if AIDEA owned the project.
For example, on the jack-up rig there is a $55 million term loan
through an overseas Chinese bank, a $23 million preferred
ownership loan with AIDEA, and about $30 million equity
investment by Buccaneer and Ezion Holdings, Ltd. The collateral
is the rig itself, valued at about $127 million. In a worst-case
scenario the overseas Chinese bank would have the first lien and
take $66 million, AIDEA would take $23 million, and Ezion and
Buccaneer would get what was left.
He noted that AIDEA was able to move forward with the jack-up
rig project due to Senate Bill 300, which allowed AIDEA to be a
limited liability corporation (LLC) in order to protect its
assets. The $23.6 million is second to the term loan and before
the equity and has none of the risks because AIDEA was just the
banker.
Sometimes, he said, it is advantageous to be in an ownership
position. The road to the Red Dog Mine is an example. More than
one owner is using that road and it's good that AIDEA [through
DeLong Mountain Transportation System] is there to control fair
access to the asset. However, there are times in project
development where it would be better to be a lender and be able
to leverage the investment with money from a banking syndication
and require equity by the project sponsors.
1:49:14 PM
SENATOR OLSON asked if it might affect cash flow if AIDEA
doesn't have ownership status. He cited the Red Dog Mine.
MR. LEONARD clarified that this is one more tool to leverage
private sector investment for specific projects. It does not
remove the ability for AIDEA to have ownership in a project.
1:50:55 PM
SENATOR STEDMAN referenced page 10, lines 16-18, relating to "a
liquefied natural gas production plant, system, and affiliated
infrastructure on the North Slope and a natural gas distribution
system and affiliated infrastructure within the Fairbanks North
Star Borough." He asked why the bill is restricted to just
within the North Star Borough.
MR. LEONARD deferred to Mr. Davis.
1:51:55 PM
MARK DAVIS, Deputy Director, Alaska Industrial Development and
Export Authority (AIDEA), Department of Commerce, Community and
Economic Development (DCCED), said he would review the bill and
then address the question. First, the bill amends the statute to
allow AIDEA to provide development project financing; language
on page 3 adds that goal to the goals of AIDEA.
The substantive change in Section 7 on page 9 proposes an
amendment to AS 44.88.172(a), the economic development account
of AIDEA. The money in the revolving fund, which has a current
balance of approximately $480 million, is used to own projects
or a portion of a project. For example, AIDEA owns just part of
the jack-up rig and 100 percent of the Red Dog DeLong Mountain
Transportation System port and road.
The proposed change authorizes AIDEA to finance a project at the
mezzanine level with security. The reasons for authorizing
project financing relate primarily to liability. The jack-up
rig, for example, is structured like a loan, but because AIDEA
has an ownership interest it is exposed to certain liabilities
such as a death during normal operations. By comparison, lenders
are traditionally not liable. He cited the explosion in the Gulf
of Mexico and pointed out that the owners have been sued, but
the banks that financed the project have not. He described this
as a tool that AIDEA wouldn't use in every instance.
1:54:56 PM
MR. DAVIS said the proposed change [in Section 4] on pages 7-8
would allow AIDEA to calculate the dividends separately for the
revolving loan fund and the sustainable energy transmission and
supply (SETS) development fund that was created last year
through passage of Senate Bill 25
The proposed change [in Section 5] on page 8 relates to changes
required by the Government Accounting Standards Board (GASB).
[It updates the definitional language for "net income" and
"unrestricted net income" in compliance with GASB.] This change
was at the request of the chief financial officer of AIDEA.
Section 10 amends the uncodified law of the state by adding a
new section. It waives the one-third lending cap in the SETS
fund for the proposed development of an LNG plant on the North
Slope that would truck gas to Fairbanks. It would also allow
AIDEA to issue a loan for this project at 3 percent. AIDEA
selected 3 percent to lower the cost of the debt service on the
project to achieve the target rate of $10.33 per [mcf] on gas
delivered to Fairbanks. That interest rate should approximately
track inflation over the 10-year period. This section also gives
AIDEA up to $150 million in bonding authority, whereas current
statute requires legislative approval to issue bonds in excess
of $10 million. The bonds in this particular scenario would
probably be used for the distribution system in the Fairbanks
area.
MR. DAVIS explained, in response to Senator Stedman's question,
that the Fairbanks North Star Borough is mentioned specifically
because the bill is designed to provide distribution to the core
and "medium" areas within that borough. The project may be
expanded once it is in operation, but the core project will
cover only those two areas. The project design is to do the
distribution of the gas at the same time as the build out of the
plant. The reason is that it is difficult to finance a
distribution system without a gas source, and similarly
difficult to build a gas delivery project without a distribution
system.
He summarized that the bill asks for legislative permission to
make a 3 percent SETS loan to the project of up to $125 million
and gives AIDEA $150 million in bonding authority to support the
distribution system. There is also a $50 million general funds
request to AIDEA for the LNG plant itself. It is designed to
lower the cost of gas delivered to consumers, which now is
handled by the Alaska Energy Authority (AEA).
2:00:35 PM
SENATOR STEDMAN questioned the use of such restrictive language
when access to the funds could be controlled through the
process. He acknowledged that it was reasonable to concentrate
distribution initially, but expressed concern with the
definitive language on page 10, line 18, that says, "within the
Fairbanks North Star Borough." He said he was struggling with
the concept that people in the general area, particular going
south towards Anchorage, would not have access to gas.
MR. DAVIS clarified that the language on page 10, lines 17-18,
refers to the distribution system and does not say that AIDEA
could not deliver LNG gas anywhere else. The LNG plant is
designed to be moveable so in the future LNG could potentially
be supplied to other areas by truck. The gas could be sold but
the distribution system would be within the borough. The
Regulatory Commission of Alaska would probably issue the
certificates of need within the borough, which would account for
the language in the bill.
MR. DAVIS said the propane that would be stripped off at the LNG
plant would supply about 2,200 homes, and one of AIDEA's goals
in working with AEA is to sell that propane at a reasonable rate
to the homes outside the gas distribution system.
SENATOR STEDMAN asked if a community that was outside the
borough boundaries could get the same financing from AIDEA to
develop a distribution system.
MR. DAVIS answered no.
2:03:51 PM
SENATOR STEDMAN warned the committee to consider carefully the
restrictive nature of the bill, because all Alaskans have equal
access to the wealth of the state.
SENATOR OLSON asked for confirmation that these AIDEA funds
would not be available to someone living in Clear, Anderson, or
Nenana.
MR. DAVIS responded that, under the terms of the bill, gas could
be trucked to all those communities.
SENATOR OLSON said he was talking about a distribution system.
MR. DAVIS responded that the distribution system would probably
be limited to inside the borough boundaries given the density
issues and financing the distribution system. With help from the
Alaska Energy Authority, AIDEA is exploring a way to deliver LNG
and propane to other communities. However, there isn't that
capability with the first build out of the plant.
2:05:37 PM
CHAIR DUNLEAVY agreed with the thrust of members' questions; the
capital focus is within the borough.
MR. DAVIS confirmed that the capital focus is in the borough for
distribution.
SENATOR MICCICHE highlighted that it is a small capacity plant
and that Fairbanks would most likely use all of the estimated 24
mcf/day capacity.
MR. DAVIS confirmed that the micro plant could be expanded in
the future depending on demand. The current goal is to get it up
and running in 30 months.
2:07:39 PM
SENATOR OLSON asked if he would agree that lending at 3 percent
is tantamount to giving free money to the project.
MR. DAVIS disagreed that it would be free, because the loan has
to be paid back.
SENATOR OLSON asked what commercial lending institutions think
about this sort of project financing.
MR. DAVIS said AIDEA has a letter of interest from a consortium
of banks, some of which are local, that would lend on the
project.
2:09:48 PM
MR. LEONARD added that the $150 million bonding authority is
based on market rate plus 25 basis points for AIDEA to run the
bonds and work with the project. There is a $125 million SETS
loan at 3 percent and in actuality the market for long-term
rates on bonds is projected to be in the 2.88 percent to 3
percent range as well. That was part of the discussion in
selecting 3 percent. This isn't unique; in the past AIDEA has
kick-started projects with a lower fixed interest rate.
2:11:35 PM
SENATOR MICCICHE asked if he would agree that AIDEA and SETS
exists philosophically to reduce residual lending risk for
projects that are of value to Alaskans and may not be
commercially competitive.
MR. DAVIS said yes.
2:13:02 PM
CHAIR DUNLEAVY asked if the language would have to be modified
if the model were to be used in the future.
MR. DAVIS agreed it would.
SENATOR MICCICHE clarified that distribution under the bill
would be the smaller diameter pipelines that run from the
transmission line to the home.
MR. DAVIS agreed.
2:14:07 PM
GENE THERRIAULT, Deputy Director, Alaska Energy Authority,
Department of Commerce, Community and Economic Development
(DCCED), explained that the language specific to the Fairbanks
North Star Borough recognizes that to get the product flowing in
the state it is necessary to ensure sufficient aggregated demand
to justify building the plant. The governor has stated that he
envisions the plant ultimately being an asset for a much larger
geographic area of the state.
Regarding the questions about distribution outside the borough,
he said the SETS fund has an additional $125,000 million that
any entity could make application to for the build out of the
energy infrastructure. The language of the bill would not have
to be modified.
2:16:57 PM
SENATOR OLSON asked what he envisions in 5-10 years for
distribution of energy to small communities like Tanana, Galena,
Ruby, and Nulato.
MR. THERRIAULT replied there have been expressions of interest,
but it's the volume operation that will potentially reduce the
price enough that it would be affordable to those rural
settings.
He added that the plant does not produce propane; it separates
the propane. He explained that roughly 2 percent of the raw gas
that comes to the plant for processing is propane and that
volume rises and falls relative to the volumes of LNG.
2:20:28 PM
SENATOR OLSON asked if there were any provisions to provide
energy relief to small communities like Wiseman when gas is
trucked from the North Slope, realizing there is no distribution
system.
MR. THERRRIAULT discussed the mechanics of distributing bottled
propane and a small-scale piped distribution system for LNG to
serve residential needs. He said it would be important to look
at the economics of the system compared to the volume served,
and AIDEA could help the community with those calculations.
SENATOR OLSON asked if the propane would be separated from the
gas on the North Slope and trucked separately from the LNG
trucks.
MR. THERRIAULT confirmed that the propane would be shipped
separately from the LNG. He noted that propane had been shipped
in volume for decades.
SENATOR OLSON asked when he could tell the mayor of Wiseman that
he could take delivery of the first shipment of propane.
MR. THERRIAULT said he would encourage the mayor to be in touch
with himself or Mr. Strandberg.
2:24:34 PM
SENATOR MICCICHE asked if he would be correct in assuming that
communities up and down the river but not on the river system
would be limited to propane.
MR. THERRIAULT agreed that was basically correct but that the
technology was developing rapidly.
2:25:41 PM
CHAIR DUNLEAVY announced that he would hold SB 23 in committee.
2:25:56 PM
There being no further business to come before the committee,
Chair Dunleavy adjourned the Senate Labor and Commerce Standing
Committee meeting at 2:25.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 37 Sponsor Statement.pdf |
SL&C 2/5/2013 1:30:00 PM |
SB 37 |
| SB023 Sectional Analysis.pdf |
SL&C 2/5/2013 1:30:00 PM |
SB 23 |
| SB023 Full Bill_version A.pdf |
SL&C 2/5/2013 1:30:00 PM |
SB 23 |
| SB 37.pdf |
SL&C 2/5/2013 1:30:00 PM |
SB 37 |
| SB023 Transmittal Letter.pdf |
SL&C 2/5/2013 1:30:00 PM |
SB 23 |
| SB0023-1-2-011613-CED-Y.pdf |
SL&C 2/5/2013 1:30:00 PM |
SB 23 |