Legislature(2013 - 2014)BUTROVICH 205
03/29/2013 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB71 | |
| SR5 | |
| Presentation: Agdc Financing and Ownership Models Associated with Gas Megaprojects | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SR 5 | TELECONFERENCED | |
| = | SB 71 | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 29, 2013
3:32 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Fred Dyson, Vice Chair
Senator Peter Micciche
Senator Anna Fairclough
MEMBERS ABSENT
Senator Click Bishop
Senator Lesil McGuire
Senator Hollis French
COMMITTEE CALENDAR
PRESENTATION: AGDC FINANCING AND OWNERSHIP MODELS ASSOCIATED
WITH GAS MEGAPROJECTS
- HEARD
SENATE BILL NO. 71
"An Act relating to the filing date for the final quarterly
payment of, and to the assessment of penalties under, the
fishery resource landing tax."
- MOVED SB 71 OUT OF COMMITTEE
SENATE RESOLUTION NO. 5
Requesting that the North Pacific Fishery Management Council
take action to reduce the quantity of Chinook salmon by-catch in
the Gulf of Alaska and Bering Sea trawl fisheries by setting new
limits in the Gulf of Alaska trawl fisheries and lowering the
existing limits in the Gulf of Alaska and Bering Sea pollock
fisheries to at least half of the current limits.
- MOVED CSSR 5(RES) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB 71
SHORT TITLE: PAYMENT OF FISHERY RESOURCE LANDING TAX
SPONSOR(s): SENATOR(s) MICCICHE
03/11/13 (S) READ THE FIRST TIME - REFERRALS
03/11/13 (S) RES, FIN
03/27/13 (S) RES AT 3:30 PM BUTROVICH 205
03/27/13 (S) Heard & Held
03/27/13 (S) MINUTE(RES)
03/29/13 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SR 5
SHORT TITLE: CHINOOK BY-CATCH LIMITS
SPONSOR(s): SENATOR(s) MICCICHE
03/18/13 (S) READ THE FIRST TIME - REFERRALS
03/18/13 (S) RES
03/29/13 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
ANGIE WHITMAN, representing herself
Bethel, Alaska
POSITION STATEMENT: Supported SR 5.
PETE WEDIN, Advocate
Alaska Marine Conservation Council
Homer, Alaska
POSITION STATEMENT: Supported SR 5.
JULIE BONNEY, Executive Director
Alaska Groundfish Data Bank
Kodiak, Alaska
POSITION STATEMENT: Did not voice a position statement on SR 5.
She suggested that changes be made to SR 5.
STEVEN BRANSON, Advocate
Crewmembers Association
Kodiak, Alaska
POSITION STATEMENT: Supported SR 5.
TERRY HAINES, representing himself
Kodiak, Alaska
POSITION STATEMENT: Supported SR 5.
BECCA ROBBINS GISCLAIR, Senior Fisheries Advisor
Yukon River Drainage Fisheries Association
Anchorage, Alaska
POSITION STATEMENT: Supported SR 5.
DAVE BEEBE, representing himself
Kupreanof, Alaska
POSITION STATEMENT: Supported SR 5.
TIM SMITH, President
Nome Fisherman's Association
Nome, Alaska
POSITION STATEMENT: Supported SR 5.
STEPHANIE MADSEN, Executive Director
At-sea Processors Association
Juneau, Alaska
POSITION STATEMENT: Did not provide a position on SR 5.
RICKY GEASE, Executive Director
Kenai River Sportfishing Association
Soldotna, Alaska
POSITION STATEMENT: Supported SR 5.
JOE DUBLER, Vice President and CFO
Alaska Gasline Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Presented an overview on the financing and
ownership models associated with megaprojects.
ANGELA RODELL, Deputy Commissioner
Alaska Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Presented an overview on the financing and
ownership models associated with megaprojects.
ACTION NARRATIVE
3:32:12 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:32 p.m. Present at the call to
order were Senators Dyson, Micciche, Fairclough, and Chair
Giessel.
SB 71-PAYMENT OF FISHERY RESOURCE LANDING TAX
3:32:36 PM
CHAIR GIESSEL announced SB 71 to be up for consideration. She
stated that public testimony had been completed and asked for
concluding comments from members or the bill's sponsor.
SENATOR DYSON moved to report SB 71, [labeled 28-LS0594\A], from
committee with attached fiscal note(s) and individual
recommendations.
CHAIR GIESSEL announced that without objection, SB 71 moved from
the Senate Resources Standing Committee.
3:33:17 PM
CHAIR GIESSEL announced that the committee would stand at ease.
SR 5-CHINOOK BY-CATCH LIMITS
3:33:27 PM
CHAIR GIESSEL announced that SR 5 was up for consideration.
SENATOR MICCICHE moved to adopt Committee Substitute (CS),
[labeled 28-LS0568\C], as the working document. He asked prior
to adoption that one change be made on page 3, line 21, to
delete the word "require" and insert the word "encourage."
CHAIR GIESSEL, hearing no objection, stated that the CS was
adopted. She asked if Senator Micciche would like to present the
resolution.
SENATOR MICCICHE, speaking as prime sponsor, introduced the
resolution with the following statement:
Our recreational, subsistence, and commercial
fisheries had faced dramatic short falls of Chinook
salmon in recent years, it has caused a lot of
hardships for Alaska residents. The economic loss is
due to a low abundance of Chinook salmon, in 2012
alone in sport and commercial fisheries in Alaska were
over $34 million, not including the significant
effects on subsistence and personal-use resource
users.
An example, in your district and mine, and last summer
I was the mayor of a sport fishing town of Soldotna,
I'm also a commercial fisherman in Cook Inlet, but it
began as a very promising year throughout the state,
and ended in an economic disaster, many not knowing
how they would get through the winter. They pulled a
symposium together last year and they are working on a
lot of the gaps on understanding how to maintain
sustainable stocks of Chinook salmon throughout the
state. But, one of the problems facing us is salmon
by-catch in the Bering Sea and Gulf of Alaska trawl-
fisheries. According to a 2013 report by the North
Pacific Fisheries Management Council, the five year
average total for Chinook salmon by-catch in these
fisheries was 40,621 fish. I am not blaming the
failure of our Chinook salmon fisheries on the
trawlers, I want that perfectly clear. But those fish
if they had not intercepted would have returned to
Alaska waters and provided harvest opportunities as
well as the escapement we need.
This resolution simply asks the North Pacific
Fisheries Management Council to take action to reduce
the level of Chinook by-catch in the Bering Sea and
the Gulf of Alaska trawl fisheries to at least half of
the current limits. In this time of low king salmon
abundance, it is critical that unintended mortality be
reduced and this resolution is an attempt to address a
known cause of substantial mortality and help restore
strong king salmon runs in our rivers. In a state
where folks seem to really enjoy fighting over fish,
support of this resolution represents one of the rare
incidences of an issue where all fishing Alaskans are
united. In your packets you will see support from
commercial support and subsistent users form around
the state including the Association of Village Council
Presidents, the Tanana Chiefs Conference, the Yukon
River Drainage Fisheries Association, Kenai Peninsula
Borough Assembly, Cooper Landing Advisory Committee,
Alaska Marine Conservation Council, the Kenaitze
Indian Tribe, and I have a list of individuals that
have also commented favorably.
Madam Chair, this resolution is not about blame, since
I do not believe any type of gear-type of commercial
fishing, sport fishing, or subsistence fishing is
responsible for the low abundance of Chinook
fisheries. I honestly believe that trawl fisheries
have worked very hard to reduce Chinook by-catch. This
resolution is simply about returning as many Chinook
to our river systems to spawn as possible to hopefully
allow our natural cycles to return to our river
systems and return them to systems of abundance, every
fish matters. While our constituents suffer from
sport, commercial, and subsistence closures, and our
lodges suffer from cancelations or simply asking for
the trawl fisheries and individual trawl fishing boats
to do better, the best they can. For example, the
highest boat so far this year has reported catching
980 Chinook salmon, which is eight times more King
salmon then all of the fish catch by sport fisherman
on the Kenai River system last summer, and there are
three quarters left to go in the year. This resolution
is about spreading the effort.
Madam Chair, you and I faced 450 of the commercial
fishing families in our two districts on the Kenai
that were out of work last summer. While sport
fishing, subsistence, and commercial fisherman were
severely restricted throughout the state, the trawl
fisheries were fishing as usual without absorbing much
of the economic challenge of the other fisheries and
fishermen. This resolution simply asks more fisheries
to share the burden of the road to recovery for
Alaska's coastal runs of Chinook salmon.
CHAIR GIESSEL opened public testimony.
3:39:08 PM
ANGIE WHITMAN, representing herself, Bethel, Alaska, said the
issue was one of injustice with one group allowed to legally
waste Alaska's salmon resource while the Kuskokwim region's
residents were severely restricted, issued citations, made to
appear in court, and paid fines. She continued that it was great
to have the resolution and thanked Senator Micciche, because the
Bethel region needed the reduction in salmon by-catch. She
stated that it was too bad that other areas of the state were
affected by the incredible by-catch numbers. She said the Bethel
region had to fight for reduction of interception of their
salmon resources back in 2004 regarding Area-M, and a few years
later for the high seas trawl fisheries waste termed "by-catch."
She stated that it was too bad that so much attention had to be
placed on the by-catch problem when so many other problems
require attention; such as the high cost of living expenses,
drug abuse, and school educational. She stressed that she was
trying to word her statement in such a way that it would
resonate with the legislators until the injustice was corrected.
She said she was trying to assure that the Bethel region had
their dried fish and other subsistence which Chinook salmon
provided. She emphasized that a dollar value could not be placed
on the Chinook salmon and noted that regional grocery stores did
not sell the bounty that Chinook salmon provided the Bethel
region. She explained that fisheries disaster declarations only
replaced business associated losses, but not the losses incurred
by hundreds of individuals who went without Chinook salmon last
summer. She said while her region's salmon resources were wasted
on the high seas, the Bethel area was told to conserve and not
to fish. She noted that there were low numbers of returning
Chinook salmon and asked that the Bethel region's resources be
returned to them. She stated that SR 5 was a worthy resolution
and asked the legislature to put an end to the waste of the
region's precious salmon resource.
3:43:19 PM
PETE WEDIN, Advocate, Alaska Marine Conservation Council (AMCC),
Homer, Alaska, said AMCC was a family of seafood harvesters from
all over Alaska, including: fishermen, subsistence harvesters,
marine scientists, small business owners, and families. He said
our ways of life, livelihoods, and local economies depend on
productive ocean. He said AMCC believed that the coastal
residents have a valuable and unique perspective on marine
ecosystem with a right to meaningful and influential
participation in fishery management decisions. He stated that
AMCC thanked Senator Micciche for introducing SR 5.
He said the Gulf of Alaska non-pollock trawl fishery operated
without a Chinook salmon by-catch-cap. He noted that the North
Pacific Fisheries Management Council (NPFMC) set a 2012 by-
catch-cap on the Pollock fishery that was higher than the ten
year average. He explained that a 25,000 Chinook salmon cap
would prevent the high by-catch of 54,000 in 2010, but the cap
still would not represent a meaningful reduction. He indicated
that a 5,000 fish-cap on the non-pollock fleet would be the best
choice to reduce the waste of the Chinook salmon. He said SR 5
addressed what AMCC believed to be the best alternative, given
the motion before NPFMC, by placing a cap on the non-pollock
trawl fishery in the Gulf of Alaska. He noted that SR 5 further
advocates for NPFMC to explore ways to reduce all by-catch in
the other trawl fisheries in the Bering Sea and the Gulf of
Alaska. He summarized that the Chinook salmon were important to
his region and asked the committee to pass SR 5.
3:46:30 PM
JULIE BONNEY, Executive Director, Alaska Groundfish Data Bank
(AGDB), Kodiak, Alaska, explained that AGDB members were both
shore-side processors and trawl catcher vessels that supported
fishery economies in Alaska coastal communities. She stated that
AGDB was sympathetic to the Chinook salmon directed users due to
the recent poor Chinook salmon runs. She asserted that the
entire topic of salmon by-catch was extremely complicated, an
issue that stakeholders in the federal fisheries and NPFMC had
spent time to reduce and mitigate by-catch impact.
MS. BONNEY said it was important for the committee to understand
that the Gulf of Alaska and Bering Sea trawl industries were
completely different, both in terms of the Chinook salmon that
were caught and the fishery management pools available for the
fleet to reduce Chinook salmon by-catch.
She explained that Chinook salmon by-catch taken in the Gulf of
Alaska trawl fisheries were not coastal Western Alaska stock, 99
percent of the 2011 genetic samples were from the Gulf of Alaska
and Pacific coast region. She specified that the Chinook salmon
by-catch in the Gulf of Alaska was as follows:
· 40 percent from British Columbia,
· 26 percent from the Pacific Northwest,
· 14 percent from Southeast Alaska.
She indicated that the three regions previously noted had a huge
amount of hatchery production with 200 to 250 million fry a
year. She explained that AGDB's environmental findings indicated
that Chinook salmon survival was high in the Pacific Northwest
and Canada. She said fishermen represented by AGDB were seeing
greater numbers of Chinook salmon on the fishing grounds from
British Columbia, Pacific Northwest, and Southeast Alaska
stocks.
She stated that the other part that was important to understand
was that fishermen in the Gulf of Alaska operated under a race
for fish, which is a perverse environment for by-catch
reductions. She explained that the guy that catches the most by-
catch potentially catches the most target fish and makes the
most money.
She summarized that by-catch was a very complicated issue and
the Gulf of Alaska and the Bering Sea were not the same.
CHAIR GIESSEL asked if Ms. Bonney opposed SR 5.
MS. BONNEY responded that there was a lot of information in SR 5
that was not correct and offered to go line-by-line to make
corrections. She stated that she preferred [HR 6] where the
trawl industry and NPFMC were complemented for all of the
efforts they made. She said AGDB would continue to make efforts.
SENATOR MICCICHE commented that he was aware of the facts that
Ms. Bonney had brought up. He noted that the CS was identical to
the House version and stated that the changes made might make
AGDB more comfortable.
3:50:06 PM
STEVEN BRANSON, Advocate, Crewman's Association, Kodiak, Alaska,
said the Crewman's Association, Kodiak, Alaska, represented 1200
intermittent members and the largest faction of the fishing
force and the largest labor force in the state. He said he
supported SR 5 and addressed the incorrect information NPFMC was
receiving.
He noted being in contact with trawl crewman who mentioned deck
loads of by-catch King Salmon. He asserted that one does not
report by-catch all the way and compared the practice to drivers
of cars having to ticket themselves for speeding. He asserted
that there would be a lot fewer speeding tickets if drivers had
to self-ticket.
He noted the new observer program they have seen through random
choosing of boats to observe a reduction in the amount of trawl
observation and an increase in the amount of small boat pot-
fishing that are less damaging fisheries. He said with a large
net you could make large mistakes in a short amount of time. He
pointed out that laws made regarding fisheries should be
accompanied by increased observer coverage. He said his colleges
recommended 100 percent observer coverage on the low-dollar,
high by-catch fisheries that would give the scientific and
statistical committee better ammunition to inform NPFMC. He
summarized that laws and limits mean nothing without observer
coverage.
3:52:37 PM
TERRY HAINES, representing himself, Kodiak, Alaska, said he was
a local commercial fisherman and served on the Kodiak City
Council. He asserted that one resource should never be traded
for another. He noted concern for high levels of by-catch in
species that were experiencing decreasing abundance. He said it
was important to increase the observer coverage in fisheries
where high levels of by-catch were already being observed for
decreased-abundance species. He stated that 100 percent observer
coverage would provide a much better baseline to increase the
understanding of what was going on. He advised that genetic
sampling would provide a better look at where the salmon were
coming from and going. He said he supported SR 5.
3:54:20 PM
BECCA ROBBINS GISCLAIR, Senior Fisheries Advisor, Yukon River
Drainage Fisheries Association (YRDFA), Anchorage, Alaska, said
YRDFA was a group of subsistence and commercial fishermen that
encompassed the length of the Yukon River in Alaska. She said
YRDFA supported SR 5. She explained the Bering Sea Chinook
salmon by-catch as follows:
· Severe declines on the Yukon River over the past five
years;
· Federal fishery disasters have been declared for every year
since 2008;
· No commercially directed Chinook salmon fishery for the
past five years;
· Unable to provide the annual amounts necessary for
subsistence which is designated by the Alaska Board of
Fisheries;
· The 2012 subsistence harvest was roughly half of the
historic average.
She stressed that the information was more than numbers, but the
impact extended to people's culture and food on their tables.
She said the cause for the decline was not known, but YRDFA was
faced with controlling what they were able to react to. She
pointed out that there were reductions in river-run fisheries in
order to enable fish to reach spawning grounds. She stressed
that it was important to reduce the [salmon] mortality from by-
catch as well. She commented that the most recent genetic
studies indicated that over 70 percent of the Chinook salmon
taken as by-catch was from Western Alaska's stocks, virtually
all of which were declining and struggling. She stressed that
maintaining the by-catch limit at 60,000 fish as an upper limit
would be absolutely devastating. She summarized that YRDFA
supported SR 5 and asked for by-catch reduction.
3:56:39 PM
DAVE BEEBE, representing himself, Kupreanof, Alaska, said he was
a commercial fisherman for Individual Fishing Quota (IFQ)
halibut, Dungeness crab, and sea cucumbers. He noted that he was
a member of the advisory committee to the North Pacific
Anadromous Fish Commission (NPAFC). He stated that his position
with NPAFC had provided him with an opportunity to receive
information directly from individuals such as Eric Volk and
others who were following [by-catch in Alaska]. He pointed out
that Mr. Volk and others were profoundly struck by the decline
in Alaska's Chinook salmon populations. He stated that he
strongly supported the reductions of Bering Sea and Gulf of
Alaska trawl fisheries. He said he supported SR 5 and HR 6 in
regards to by-catch reduction. He said that one of the state's
primary obligations was to subsistence cultures and their
extreme resource dependence upon Chinook salmon. He explained
that due to profound population decline, it was incumbent upon
everyone to look particularly closely at by-catch and waste that
was well documented in the trawl fisheries.
SENATOR FAIRCLOUGH asked for Mr. Beebe to restate his
affiliation.
MR. BEEBE answered that he was speaking for himself.
SENATOR FAIRCLOUGH replied that she thought he mentioned NPFMC
and asked if he served on the council.
MR. BEEBE answered that he was on the advisory committee to
NPAFC.
3:59:21 PM
TIM SMITH, President, Nome Fisherman's Association (NFA), Nome,
Alaska, said NFA was a group of sport, commercial and
subsistence fishermen in the Norton Sound Region. He said he
fully supported SR 5.
He indicated that SR 5 was something Alaska needed to do and
commended the legislature for putting it forward. He said he
attended the meetings where NPFMC set the King salmon by-catch-
caps for both the Bering Sea and the Gulf of Alaska. He stated
that he was really discouraged and disappointed with the Alaska
delegates to NPFMC for not being more active in getting a
reasonable cap set. He noted that the resolution's calling for a
[by-catch] reduction from 60,000 to 30,000 was fully
biologically supportable.
He asserted that Norton Sound had been forgotten until the
important fisheries started to experience the same problems that
Norton Sound had been experiencing for 30 years. He stated that
the northern Norton Sound region had three King salmon
population. He said in 2012, the three salmon runs were below
100 individuals and noted as follows:
· Pilgrim River had 64 King salmon;
· Boston Creek had not been counted since 2005, the last
count was 29 King salmon;
· Kwiniuk River had 36 King salmon.
MR. SMITH explained that the Alaska Department of Fish and Game
(ADFG) said it takes 200 pairs of King salmon to be a viable
stock. He noted that the three runs he had mentioned were
biologically extinct and were as endangered as any King salmon
or salmon population in the U.S. He said for some reason Norton
Sound's low salmon runs was being missed. He said the situation
with salmon management was a real constitutional issue and what
was happening in Norton Sound with King salmon could not be
called sustained yield. He asserted that the Alaska Constitution
required management for sustained yield. He stated that Norton
Sound was at a point where the King salmon populations were not
even going to survive, let alone produce any kind of yield.
He said he did not think it was possible to currently harvest
pollock without destroying King salmon runs and stressed that
another way be found. He asserted that he would be fine with not
taking the entire population tact every year. He noted that
pollock were long-lived fish and would be available for
harvesting a year later. He summarized that the Alaska
Constitution required that King salmon stocks had to be
preserved.
4:02:52 PM
STEPHANIE MADSEN, Executive Director, At-sea Processors
Association (APA), Juneau, Alaska, said APA was one of four
sectors in the Bering Sea pollock fishery. She explained that
APA was the offshore component for a fleet that was only allowed
to fish in the Bering Sea.
She informed the committee that the Bering Sea's four sectors
included the Community Development Quota (CDQ) Program which
received 10 percent "off the top," and the remaining sectors
split between the catcher-processor fleet that APA represented.
She explained that the catcher-vessels that delivered to mother-
ships received 10 percent and catcher-shoreside vessels that
encompassed the inshore-sector received 50 percent of the quota.
She concurred that NPFMC established a high cap of 60,000 [King
salmon]. She detailed that if APA violated the level of 47,000
[by-catch] in any seven years, APA would have to abide with a
47,000 [by-catch-cap] for the remaining life of that action. She
explained that a cap was a way to shut down a fishery. She
asserted that the unique by-catch-cap proposal did not provide
incentive for the fleet and individual vessels to do their best
in every instance, every day.
MS. MADSEN explained the NPFMC by-catch-cap would allow APA
access to 60,000 in very unusual years with expectations that
APA could live with a much lower cap by reducing by-catch in
every level of pollock and salmon abundance. She said APA had to
annually meet with NPFMC and demonstrate how its incentives were
working. She stated that APA's incentives were approved by the
National Marine Fisheries. She said APA was meeting with NPFMC
the following week to address how their incentives were working
and noted that APA's second annual report to NPFMC was due April
1.
She explained that APA's Bering Sea program for catcher-process
was a by-catch avoidance area. She detailed that APA monitored
pollock and Chinook catches and identified by-catch avoidance
areas. She said APA shared information with its fleet. She noted
that vessels that performed below a certain level were excluded
from the avoidance area. She reported that vessels that failed a
test were out of the designated area for one week, a second
failed test meant a two week exclusion. She said excluding
vessels would have a huge impact on catch-and-process platforms
that required a constant flow. She reiterated that [Bering Sea
by-catch] was complex and she dealt with its challenges on a
daily basis.
4:05:58 PM
SENATOR DYSON asked beyond avoiding areas with high King salmon
activities, what practical practices were used to avoid King
salmon by-catch.
MS. MADSEN explained that APA used salmon-excluders that
separated salmon from pollock.
SENATOR DYSON asked if there were any other methods used.
MS. MADSEN answered increased communication between the fleet.
She noted that a vessel could be shut down if it exceeded its
limit.
SENATOR DYSON asked if the feedback loop was shared with the
managers.
MS. MADSEN answered yes.
SENATOR DYSON asked if King salmon information was shared with
ADFG.
MS. MADSEN responded that the information was certainly
available, but conceded that she was not sure if ADFG was on a
weekly e-mail list.
SENATOR MICCICHE thanked Ms. Madsen for her presentation. He
said he was hesitant to add the praises that were put in the
resolution, but conceded to being happy to now having them
included. He asserted that SR 5 was not a blame game and
remarked that APA had done a good job. He emphasized that the
situation with King salmon was an emergency with thousands of
Alaskans out of work or wondering what was going to fill their
freezers. He stated that SR 5 was a strong request for everyone
to work together better to further reduce by-catch. He
emphasized that SR 5 should not be viewed as an intent to shut
down Alaska's trawl fisheries. He noted that the trawlers played
an important role in getting Alaska's seafood to global markets,
a role that he wanted to see continue. He said he would work
with APA to make sure APA continued fishing in addition to
getting every possible King salmon back to the rivers and
restore normalcy.
MS. MADSEN replied that Senator Micciche could rest assured that
her capacity for dealing with the skippers and vessels that
salmon would remain on their minds every day.
4:09:01 PM
RICKY GEASE, Executive Director, Kenai River Sportfishing
Association (KRSA), Soldotna, Alaska, said KRSA was a 501(c)3
fishery conservation organization representing some of the over
100,000 anglers who liked to fish for King salmon throughout
Southcentral Alaska and the rest of Alaska. He said just a
decade ago, the Kenai River King salmon fishery was rated as the
number one sport fishery in North America, an impressive
statement for all of the different sport fisheries all across
the country including: Florida, the [Gulf of Mexico], San Diego,
and all of the other places. He said Field and Stream stated
that the Kenai was the "top dog" for fisheries. He disclosed
that the Kenai, Norton Sound, Yukon, Kuskokwim, Cook Inlet,
Kodiak, Copper River, had all seen dramatic declines in Chinook
salmon.
He divulged that ADFG recently dealt with the Chinook salmon
problem in the Cook Inlet by reducing the escapement goal by one
third for late run Kenai River King salmon. He stated that KRSA
did not agree with ADFG's decision because KRSA believed the
problem was further exasperated in the long term. He asserted
that management plans were developed in times of high abundance
and reevaluation was required to address low abundance. He
stated that NPFMC should take the same approach and reevaluate
by-catch limits for the Bering Sea and the Gulf of Alaska.
MR. GEASE said the Bering Sea had many more tools to reduce
Chinook salmon by-catch that could be used in the Gulf of
Alaska. He suggested that catch-shares could be introduced into
the Gulf of Alaska. He conceded that catch-shares would be
controversial in the Gulf of Alaska fisheries. He emphasized
that the time had come to bite the bullet due to the King
salmon's rapid decline in Southcentral Alaska. He explained that
King salmon from Southcentral Alaska accounted for 30 percent of
the Gulf of Alaska's catch. He stressed that even thousands of
fish could make a difference.
He recommended that three points be added to SR 5 as follows:
1. Encourage NPFMC to obtain by-catch research data from the
observer program for: age, size, length, fat content,
stomach content to identify food source, and how robust the
salmon were at the one to three year old stages.
2. Ascertain harvest data from the observer program in the
Gulf of Alaska. He conceded that people would have to be
placed on vessels and that was not desired. He suggested
using time-stamped video data to develop hot-spot
capabilities that was used in the Bering Sea.
3. Initiate incentives used in the Bering Sea by trading
quotas between vessels to discourage racing to fish and not
being rewarded for having high King salmon by-catch.
SENATOR MICCICHE said he would talk to Mr. Gease on some of the
specific data possibilities on a limited basis to see what might
fit. He pointed out that SR 5 had a zero fiscal note.
CHAIR GIESSEL stated that finding no further comments, public
testimony was closed.
4:13:04 PM
SENATOR DYSON moved that the committee move CS for SR 5, version
C, from committee with individual recommendations with attached
fiscal note(s).
CHAIR GIESSEL announced that without objection, CSSR 5(RES)
moved from the Senate Resources Standing Committee.
4:13:33 PM
CHAIR GIESSEL announced that the committee would stand at ease.
^Presentation: AGDC Financing and Ownership Models associated
with gas megaprojects
Presentation: AGDC Financing and Ownership Models Associated
With Gas Megaprojects
4:15:36 PM
CHAIR GIESSEL called the committee back to order and announced
the next order of business on the agenda would be a presentation
by the Alaska Gasline Development Corporation (AGDC) on the
financing and ownership models associated with megaprojects.
4:15:58 PM
JOE DUBLER, Vice President and Chief Financial Officer, Alaska
Gasline Development Corporation (AGDC), Anchorage, Alaska,
stated that he would provide a brief overview of tariffs. He
said there were three basic factors that affected tariffs:
capital expenditures, operating expenditures, and throughput
volume. He explained that the tariff calculation itself was
quite complicated, but the concept was simple. He emphasized
that tariffs were forward-looking projections. He said the
intent was to figure out the following:
· How much the line was cost to operate and build;
· How much was going through the line in order to allocate
cost to the throughput.
He said the throughput volume was the most self-explanatory and
was defined as the amount of gas that was anticipated to be
shipped through the line.
He stated that the capital expenditure number was the allowable
non-operating cost of construction and included: engineering,
permitting, pipe purchase and facilities purchase cost. The
capital expenditures were the pre-operational costs incurred in
order to get the facilities and the pipeline up and running.
He explained that the operating expenditures included:
operations, maintenance, capital expenditures depreciation over
the depreciable life, taxes, and interest expenses.
He explained that the robust tariff model used for AGDC's Alaska
Stand Alone Pipeline (ASAP) was simply a forward looking pro
forma income statement that calculated the project's projected
net income. He specified that the net income equaled the equity
capital contribution times the return on equity. The process was
iterative where the calculation ran multiple iterations to come
up with a tariff that covered all costs and return on equity to
equity investors in the pipeline. He summarized that the tariff
model was a pretty simple concept derived from a fairly complex
spreadsheet.
4:18:46 PM
MR. DUBLER explained that his presentation, "Financing
Megaprojects," would provide the committee with an idea of how
large projects were financed. He said the objective of financing
any project was to achieve the lowest possible cost. He stated
that his strategy was to formulate financing from the investor's
standpoint since investors were the people that would buy the
bonds. He explained that a better price was achieved when
selling something that a buyer wanted rather than selling
something you wanted to sell. He said AGDC tried to structure a
financing package to make it as attractive to investors as
possible by meeting with investors and bankers to find out who
was out there and what they were looking for.
He said there were typically two sources of funding for a
project, equity and debt. Equity was normally the first dollars
into a project, followed up by debt on the backside. He
explained that both equity and debt had advantages and
disadvantages. Rates of return for both equity and debt were
determined based upon several factors that essentially rewarded
investors for taking risk. The old classic financial model for
risk-reward: you increase your risk, you increase your reward.
He said the formula he used was the investment yield equaled the
inflation rate, which was a baseline that compensated people for
the time-value of money, plus a risk factor, plus a liquidity
factor, and that provided what an investor was looking for in a
yield on a security. He said the estimated inflation rate was a
benchmark based upon Treasury bills (T-bill); considered a risk
free and highly liquid security. The interest rate on a T-Bill
was considered roughly equivalent to the inflation rate that the
market was estimating.
4:21:26 PM
He said the inflation-component of an interest rate represented
the time-value of money; a dollar today was worth more than a
dollar tomorrow. The second factor was risk and the component
represented the risk that a borrower would default or not repay
the debt as agreed with the issuer. He said a good example was
an individual's personal credit score, the higher the score the
lower their mortgage rate.
He said the liquidity factor was a component representing the
risk that an investor would not be able to readily exchange
their investment for cash if needed. Investments traded on
normal exchanges and investment-grade bonds were usually fairly
liquid. Some stocks could be liquid, junk bonds and equity
shares in projects such as ASAP were not very liquid. He
referred to the recent meltdown in the auction rate securities
market and the effect on liquidity. He explained that auction
rate securities did not have any definite liquidity and relied
upon frequent auctions for investors to bid on bonds. He said
liquidity issues occurred when people quit bidding on bonds and
the market crashed.
MR. DUBLER said equity financing was riskier and costlier than
debt financing because equity investors typically are the first
ones to put dollars into a project. Long term bond holders do
not want to take a lot of completion risk. For example, he noted
the "Whoops Bonds" in Washington where a project was completed
but the facility was never actually operated. Investors in the
project lost everything and there may have been bondholders that
never got anything out of their investment, either. Equity
shares unfortunately are not very liquid and are much more
difficult to sell than a bond issued for the same project. He
explained that bonds could be traded on most markets.
4:25:52 PM
It is advantageous to keep the equity portion of the financing
as small as possible and the debt portion as large possible,
within reason; it's more of a balancing act than a science,
depending on the project. Equity financing options (not 100
percent of the whole project) could go anywhere from 100 percent
state-ownership to 100 percent private-ownership (a 75/25 split
would equate to 75 percent state-ownership and 25 percent
private ownership).
MR. DUBLER said one of the advantages to a state-owned pipeline
was that the state would have more control over its components
and would be able to dictate the structure, type of gas, and
everything to do with the pipeline. But some might say that a
totally stated-owned AGDC project would be a disadvantage due to
incidences in the past where state-run projects did not turn out
so well.
4:27:34 PM
MR. DUBLER noted that from the beginning, the customers would
determine what goes through the pipeline and that the private
sector was a little better at judging customers, because that
was the business they were in. He said the private sector would
determine how big the pipe was, the throughput required for
customers, and off-take placements.
SENATOR DYSON asked if control over components also meant how
the construction was done and project management.
MR. DUBLER answered yes. He said the private sector would
control all aspects of a project.
SENATOR DYSON stated that the final important component was
whether or not the gasline would be a common carrier pipeline
and asked who controls who can get on the on-ramp and off-ramp
for the project.
MR. DUBLER replied that if the state owned the pipeline, subject
to the state laws that were in place at the time, they would be
able to control the inputs or outputs.
SENATOR DYSON replied that he understood common versus contract
carriage, but he was worried about a de facto monopoly for the
pipeline.
MR. DUBLER answered that any type of utility or transportation
of gas or electricity would typically have a monopoly. He
explained that two electric lines would not run to the same
house and that was why some type of regulation was fairly
common. He continued that interstate pipelines are regulated by
the Federal Energy Regulatory Commission (FERC) and intrastate
pipelines were typically regulated by the Regulatory Commission
of Alaska (RCA).
SENATOR DYSON noted that the RCA did not control the Trans-
Alaska Pipeline System (TAPS) and asked if the pipeline was
considered a utility. He suggested that Mr. Dubler was thinking
that the pipeline would be in the category of supplying energy
to Alaskans and not exporting gas.
4:31:23 PM
MR. DUBLER answered that the ASAP would just be a transmission
line transporting gas from the North Slope to Fairbanks and
Southcentral, but that he was instructed to not comment on
regulatory issues.
SENATOR DYSON said he talked about the advantages of state and
private owned, but he didn't see the bullet that says whether it
is open or restricted access.
MR. DUBLER said the main advantage to a privately owned pipeline
is that the private sector is probably best equipped to own and
operate them, because they do it for a living. That is why there
is some hesitation to get the state involved, but then the
disadvantage to that would be that the state loses control over
most aspects of the operation and construction of the line that
aren't regulated by current laws.
SENATOR MICCICHE clarified that there would be a federal
jurisdictional component to any "192 Line," as well, even if
FERC is not involved in the regulation.
MR. DUBLER agreed that there are a lot of regulations and
permits on this pipeline; it's actually mind-numbing. He then
turned the debt financing portion of the presentation over to
Ms. Rodell.
ANGELA RODELL, Deputy Commissioner, Alaska Department of Revenue
(DOR), Juneau, Alaska, said that a number of different vehicles
are available for the debt portion of a project and she would
focus on three of the most common: general obligation bonds
(GO), project finance or revenue bonds, and the state's moral
obligation.
She said the general obligation bonds would obviously benefit
from the state's rating, which is AAA from all three rating
agencies. Under this scenario the state would enjoy an extremely
low cost of funds with a very straight forward credit analysis,
because the rating agencies would be looking straight to the
state coffers for debt repayment. The downside to GO bonds is
the requirement for voter approval and that makes them more
challenging to get in the first place. If they are approved,
theoretically, any appropriations for debt could potentially be
offset by creating an entity with the agreement to return
revenues back to the state general fund to cover the debt
service.
She explained that project financing with revenue bonds
typically has no direct impact on the state and was looked at
for a standalone project. Revenues would be estimated using the
shipper contracts and a rating would be assessed. The bonds
would be issued up to the amount of risk, leverage, and coverage
that investors would be willing to take. The revenues received
would be used to directly repay to the bond investors.
4:34:58 PM
MS. RODELL said that state moral obligation bonding is actually
credit enhancement to the revenue bond project finance construct
and that the term "moral obligation" does not exist in
legislation or state statutes. "Moral obligation" is a legal
construct that the state used to create a capital reserve fund,
to be maintained above a certain dollar amount, so that it could
be made available to an entity. Should the fund fall below the
required amount, the issuer (the state) would be obligated to go
back to the legislature and request replenishment. The
obligation to request replenishment is, in fact, the "moral
obligation."
There is no legal or binding requirement on the legislature to
fund the replenishment request, Ms. Rodell explained, but there
would be an expectation by the investors for the state to step
up and honor its request and show evidence of support for the
project. The result would be for investors to pay more or take
lower interest rates in return for the credit enhancement. It is
a definite financial benefit to the issuers, but it does affect
the state's credit rating, because it was viewed as a real
obligation.
SENATOR FAIRCLOUGH stated that the committee did not have a bill
in front of it and noted that the Knik Arm Bridge and Toll
Authority (KABATA) was going to be before the Senate Finance
Committee with "state moral obligation" listed in its financing
package. She asked if the KABATA financing package could affect
the state's bond rating.
MS. RODELL answered that KABATA's financing package would not
affect the state's ratings at present, but "moral obligation"
would come into play as state debt when an appropriation was
made to honor an obligation. She said the Department of Revenue
(DOR) kept track of exactly how much outstanding moral
obligation debt the state had and its potential impact on
overall finances in order to explain to rating agencies that
they know exactly what was going on with state assets and debt
capacity.
4:38:26 PM
SENATOR MICCICHE clarified that the project financing would
technically not have an impact on the state and asked if she
meant it would use the state's credit rating to obtain GO bond
financing like a toll bridge with cars paying the toll. It would
be standalone credit that doesn't hit the general fund?
MS. RODELL answered that was correct and that investors would
only allow a project to issue no more debt that they think the
revenues will support. You may have authorization to issue $1
billion for a pipeline, but if all the revenue assessments point
to raising enough to support only $200 million in debt, the
market would only allow $200 million worth to be sold.
The presentation came back to Mr. Dubler who said project
finance optimization as about coming up with the lowest overall
cost of funds to finance a project and the goal is to strike an
appropriate balance between debt and equity. The quandary with
these projects is that investors wanted more debt and debt
people want more equity; and having either of those situations
makes the other feel more secure. The balance is needed, because
of the different yields. A typical yield on a pipeline project
similar to ASAP is in the 10 to 13 percent range and debt is in
the 4.5 to 7 percent range, so there is a very large difference
in the costs. And because of that difference, one wants to
minimize the 10 to 13 percent range and maximize to 4.5 to 7
percent range.
4:40:58 PM
MR. DUBLER said they had debated ownership models and concluded
that it will probably end up with each of the entities having a
pro-rata share of ownership commensurate with the amount of gas
they are shipping. For example, if the state has an eighth
percent (its royalty percentage of the gas) contribution, then
it would be contributing an eighth to the equity of the line. If
the builder, the owner-operator, or one of the other shippers
would participate, that would allow them a percentage of control
in the line equal to the amount of gas they are committing to
the project. But when they commit their gas to the project, they
are taking a risk; if the preliminary tariff is projected to be
$9 and it comes back at $12, that is a problem. So they are
taking a risk in committing their gas and they want to have some
control over that process.
MR. DUBLER concluded that the target capital structure for both
the All-Alaskan Pipeline (APP) and the Denali pipelines is 75/25
debt-to-equity and that seems to be a balance that works.
CHAIR GIESSEL thanked the presenters.
4:43:39 PM
There being no further business to come before the committee,
Chair Giessel adjourned the Senate Resources Standing Committee
meeting at 4:44 p.m.