Legislature(2015 - 2016)BUTROVICH 205
10/29/2015 03:00 PM Senate RESOURCES
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| Start | |
| Overview: Alaska Gasline Development Corporation (agdc) | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
October 29, 2015
3:01 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Mia Costello, Vice Chair
Senator John Coghill
Senator Peter Micciche
Senator Bert Stedman
Senator Bill Stoltze
Senator Bill Wielechowski
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
OVERVIEW: ALASKA GASLINE DEVELOPMENT CORPORATION (AGDC)
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
FRANK RICHARDS, Vice President
Engineering and Program Development
Alaska Gasline Development Corporation (AGDC)
Department of Commerce, Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided information and participated in the
overview of the Alaska Gasline Development Corporation.
JOE DUBLER, Vice President
Commercial Operations
Alaska Gasline Development Corporation (AGDC)
Department of Commerce, Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided information and participated in the
overview of the Alaska Gasline Development Corporation.
KEN VASSAR, General Counsel
Alaska Gasline Development Corporation (AGDC)
Department of Commerce, Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided information and participated in the
overview of the Alaska Gasline Development Corporation.
DAN FAUSKE, President
Alaska Gasline Development Corporation (AGDC)
Department of Commerce, Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided information and participated in
the overview of the Alaska Gasline Development Corporation.
LIEZA WILCOX, Commercial Advisor
Alaska Gasline Development Corporation (AGDC)
Department of Commerce, Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided information and participated in the
overview of the Alaska Gasline Development Corporation.
ACTION NARRATIVE
3:01:16 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:01 p.m. Present at the call to
order were Senators Stedman, Stoltz, Coghill, Costello,
Wielechowski, and Chair Giessel.
^Overview: Alaska Gasline Development Corporation (AGDC)
Overview: Alaska Gasline Development Corporation (AGDC)
3:01:40 PM
CHAIR GIESSEL announced an overview by the Alaska Gasline
Development Corporation (AGDC) and showed old newspaper articles
from 1977 about building the TransAlaska Pipeline (TAPS) and a
proposed 48-inch ALCAN gas pipeline.
SENATOR STEDMAN reflected that the state could not have gotten a
permit to offtake the gas at that time because it would have
left billions of dollars of wealth in the oil fields. He opined
that the industry gets a bad rap for not building a pipeline 10,
20, or 30 years ago, but it was in the state's and its
residents' best interest to wait until this moment in time.
3:04:14 PM
SENATOR MICCICHE joined the committee.
CHAIR GIESSEL agreed. She continued that yesterday the Attorney
General rolled out a plan centered around Alaska operating more
of a conventional wealth-type fund and today's presentation is
an extension of how that might be done: grow the pie of the
state's fossil fuel economy in a commercially viable way. She
said AGDC will answer questions about how the state will step
into TransCanada's role from a practical and mechanical
perspective.
3:05:04 PM
FRANK RICHARDS, Vice President, Engineering and Program
Development, Alaska Gasline Development Corporation (AGDC),
introduced himself.
JOE DUBLER, Vice President, Commercial Operations, Alaska
Gasline Development Corporation (AGDC), introduced himself.
MR. RICHARDS said the state's objectives in creating the AGDC
were to provide for a stable, affordable, long-term supply of
energy for Alaskans utilizing the natural resources available -
proven resources on the North Slope of Alaska. With that they
will maximize the value of those resources, generate revenue,
jobs and economic growth for the state, and facilitate further
oil and gas development.
He shared the origins of AGCD, which was created by the
legislature under House Bill 4 [2011] as a response to concerns
over declining Cook Inlet natural gas supplies and high energy
costs in Interior Alaska, as well as taking into account the
health impacts due to poor air quality in Fairbanks during the
winter. Collectively, this created a sense of urgency to get
North Slope natural gas to Alaskans, and AGDC was able to move
forward on an instate natural gas pipeline to access almost 33
tcf of proven gas reserves in the North Slope.
In 2011, Governor Parnell called for a joint effort by the
producers and the state to look at an LNG export facility.
Previously, an over-land route through Canada had been
considered. After the explosion of shale commercialization, it
was acknowledged that an LNG project might be the best way to go
forward, therefore, concept selection work was done and a
Nikiski site was selected for the liquefaction plant. Heads of
Agreement (HOA) were negotiated between the producers and the
state, which culminated in 2014 with passage of Senate Bill 138.
He related that Senate Bill 138 provided for state participation
in the AKLNG Project and the Joint Venture Agreement (JVA) that
initiated the Pre-Front End Engineering and Design (Pre-FEED).
3:08:17 PM
MR. RICHARDS listed the authorities granted under Senate Bill
138: AGDC has the primary responsibility for developing an
Alaska LNG project on the state's behalf, AGDC may acquire a
direct ownership interest in any component of an Alaska LNG
project, AGDC may enter into contracts relating to treating,
transporting, liquefying, or marketing of gas - in consultation
with the Departments of Natural Resources (DNR) and Revenue
(DOR).
It was also provided that AGDC shall assist those agencies to
maximize the value of the gas resources and provide economic
benefits and revenues to the state.
CHAIR GIESSEL asked if AGDC has a mandate to look at expansion.
MR. DUBLER said that is not explicit in the statutes, but AGDC
is developing expansion principles for the project with the co-
venturers.
SENATOR COGHILL stated that AGDC was first put together to get
gas to Alaskans, then the AKLNG project came along and it looks
like AGDC is to work with that project. He asked Mr. Dubler for
clarification on the two different authorities.
MR. DUBLER responded that AGDC was originally created in 2011 as
a result of a study done by a group put together by the
legislature in House Bill 369. That directed AGDC to prepare a
report on the feasibility of a bullet line, the Alaska Stand
Alone Pipeline Project (ASAP). The impetus for that was the
projected shortfall of natural gas in Cook Inlet. An initial
study was for a 737-mile 24-inch pipeline to delivery gas to
Alaskans from the North Slope. The mission to deliver gas to
Alaskans won't change regardless of which project AGDC is
working with.
MR. DUBLER explained that a lot work has been done on the
instate line. An analysis was done on demand and supply in Cook
Inlet that shows supply will decline, not just drop off. This
information can be used for the AKLNG Project as AGDC works to
make up the difference in supply and provide natural gas, at
least to Fairbanks and other communities along the route, to the
extent of the appropriations. He said the offtakes are very
expensive, given the number of people in the communities.
SENATOR COGHILL summarized that the original operative language
was primarily for instate gas and it got trumped by Senate Bill
138.
3:13:33 PM
SENATOR COSTELLO asked if the Alaska Gasline Development
Corporation Board ("Board") is taking a new direction. She said,
in looking at a transcription of the September 23 meeting, it
sounds like a subcommittee requested $10 million to study a 48-
inch pipe. A discussion followed in which one Board member
questioned where the authority to authorize the $10 million
would come from. In a further discussion, Mr. Fauske said the
Board didn't have a vote on it, but supported the concept.
TransCanada represents the state's portion of the midstream
(pipe) and TransCanada had voted to spend $40 million, $10
million of which is the state's portion.
SENATOR COSTELLO remarked that the decision-making process on
the AGDC Board is confusing. She said she wants to understand
why the decision to evaluate a 48-inch pipeline never came
before the Board. She inquired if there was a change in
direction and how people and the legislature can have confidence
that decisions made by AGDC are made by the Board and not
filtered through a committee.
MR. DUBLER explained that the work for the 48-inch study was not
done by AGDC; it was done by the Project Management Team (PMT)
of the AKLNG Project. That PMT was the midstream project portion
over which AGDC has no oversight; AGDC is in the liquefaction
portion of the project only. The state's interest in the
midstream (pipeline) portion is represented by TransCanada. The
Board was not asked about those expenditures because AGDC is not
involved in that segment of the project. TransCanada is and they
voted in the affirmative.
SENATOR COSTELLO asked if the legislature votes to go separate
ways from TransCanada, does the state take up the portion of the
study and the resulting decision.
MR. DUBLER answered yes; $40 million would be under the changes
in scope identified as a differential in the work program and
budget for the calendar year 2016.
CHAIR GIESSEL recognized Senator Dunleavy.
SENATOR COGHILL remembered that Governor Walker wrote a five-
point letter in June and one point was pushing the PMT to
incorporate the 48-inch line.
MR. DUBLER said Senator Coghill was correct.
3:17:59 PM
CHAIR GIESSEL commented that a 48-inch line would accommodate
more gas. She asked what AGDC would have to do to prepare for
expansion when it takes over from TransCanada because they have
the Gas Treatment Plant (GTP).
MR. DUBLER answered that an expansion to an integrated LNG
project won't occur until first gas and probably much later when
the true throughput is known. An expansion might not be needed
for a small amount of gas; minor improvements called
"debottlenecking" could be made to increase the throughput of a
project. If more gas is found, the four parties would have to
initiate the expansion from the company that is running the
project. A company, on behalf of the owners, will be set up to
manage the AKLNG Project similar to Alyeska Pipeline that runs
TAPS. That company would do a study to see what is required to
expand for the amount of gas coming into the project and come up
with a cost. Then a decision would be made on whether to proceed
with the expansion or not.
CHAIR GIESSEL said she understood that the producer companies
formed an Alyeska consortium and they control the pipeline. She
has also heard AGDC talking about the owner/builder/operator
model and asked if Mr. Dubler envisions forming a consortium to
operate the pipeline.
MR. DUBLER replied it would be the three producer parties and
AGDC, not the State of Alaska. It would be an operating company
that is created with ownership identical to the parties'
participating interest in the project. So, if the state elects
to take royalty in kind (RIK) and the producers elect to pay
their tax as gas (TAG), it would be approximately 25 percent
state ownership of that company and the related assets.
CHAIR GIESSEL asked, when it comes to a vote to expand, what
happens if the three producers vote no.
MR. DUBLER answered that those agreements are currently being
negotiated. The position that the state and AGDC has taken is
that no party can block an expansion.
3:22:13 PM
CHAIR GIESSEL asked whether the party making the expansion pays
for the cost.
MR. DUBLER said that is another one of the negotiating points.
SENATOR STEDMAN said the expansion point has been argued during
the proposed transcontinental line and now during the LNG
project and has never been resolved.
MR. DUBLER turned to AGDC's role in Alaska LNG. He said that
AGDC has signed the Joint Venture Agreement, which puts it in
partnership with the three producers and TransCanada. AGDC holds
the state's 25 percent equity interest in the LNG facility
(downstream component) of the integrated project. It has members
on the Sponsor Group, Management Committee, and the Project
Steering Committee. It participates in integrated project
decisions and in commercial negotiations related to marketing,
expansion, third-party access, and domestic gas supply. AGDC is
planning and developing off-takes for in-state gas deliveries.
SENATOR COGHILL asked how the Board will deal with industry
negotiations and confidentiality issues once TransCanada exits
and AGDC becomes the negotiator for mid-stream, liquefaction,
and the conditioning plant.
MR. DUBLER answered that two of the Board members have signed
confidentiality agreements, John Burns and Dave Cruz.
SENATOR COGHILL asked for the names of the other Board members.
MR. RICHARDS listed them: Hugh Short, Chris Hladick, Heidi
Drygas, Richard Halford, and Joey Merrick.
SENATOR COGHILL asked if all members would be signing
confidentiality agreements.
MR. DUBLER answered that AGDC is gathering public comments as to
how confidential negotiations should be handled.
SENATOR COGHILL asked if other members of the AKLNG team have
commented on that issue.
MR. DUBLER said yes.
3:28:20 PM
SENATOR COSTELLO stated that she is surprised that the
representative to the Project Management Team (PMT) hasn't been
decided.
MR. DUBLER explained that the PMT is made up of secondees from
all co-venturers.
MR. RICHARDS offered to describe the PMT structure.
CHAIR GIESSEL wished to hear more about the confidentiality
agreements. She asked who drafted those regulations.
KEN VASSAR, General Counsel, Alaska Gasline Development
Corporation (AGDC), related that the evolution of
confidentiality with AGDC began with a private industry model
where everything is confidential. He said that AKLNG signed
several agreements that followed that model. He reported that
Governor Walker's view is that public business should be open
and transparent and believes that only those things that need to
be kept confidential should be the subject of confidentiality
agreements.
He said the regulations were drafted in close discussion and
cooperation with the Office of the Attorney General and, in
particular, with Jerry Juday, Assistant Attorney General, Labor
and State Affairs Section in the Department of Law, to represent
AGDC. He pointed out that Senate Bill 138 altered AGDC's laws
for negotiations related to AKLNG. The regulations are still in
draft form and have been through a hearing process. The
producers have offered many comments. The plan is to review
those comments, formulate responses, and take those
recommendations to the Board at the next meeting. The Board will
then determine whether to adopt the regulations.
3:34:39 PM
CHAIR GIESSEL said Mr. Vassar presented a contrast of
confidentiality models, the private industry model and an
administrative view that things should be more open. She assumed
AGDC adopted the more open model. She inquired what would
happened if the companies don't agree with the more open model.
MR. VASSAR answered that it's safe to say that the producers
don't like the more open model, but they have submitted
comments. He predicted there would be further discussion on it.
He clarified that the private industry model goes back to
creation of AGDC. It included a provision to seek information
from private industry, which has no obligation to provide that
information. State government takes an opposite approach to
confidentiality and includes the Public Records Act and the Open
Meetings Act. It starts with the premise that the public's work
should be done in the open and the current administration is a
strong advocate of that premise. He concluded that a decision
point is coming up as to how to reach an accord with private
industry and find common ground.
CHAIR GIESSEL commented that companies keep certain data
confidential in order to maximize the value of the state's
resources when selling gas to consumers. She offered that the
State of Alaska might adopt Norway's model of becoming a
business.
3:39:48 PM
MR. DUBLER showed a picture of AKLNG project participation by
owner and interest. He highlighted governance-related issues
such as equity alignment with TransCanada. The state's share of
gas in the project is not equal to its current equity in the
integrated project. Currently, the state does not have full
voting participation in all project decisions. If TransCanada
exits, AGDC would have full voting rights on each project
component and in all integrated project decisions.
CHAIR GIESSEL asked how many times there have been voting
conflicts under the partnership with TransCanada.
MR. DUBLER replied that there have been none yet, but there is
potential for cost-related conflicts.
3:42:54 PM
SENATOR MICCICHE clarified that TransCanada's spending might be
directed more toward their interests, not less cost conscious.
MR. DUBLER agreed.
SENATOR COGHILL asked what other issues besides the 48-inch
expansion might be voted on soon.
MR. DUBLER explained that immediate issues are the work program
budget and the overall budget for 2016. After those will come
all agreements currently being worked on.
SENATOR COGHILL wanted a short list of what items make up the
budgets, both due in December.
MR. DUBLER answered the work program budget is a detailed
description of work that will be done in the next calendar year,
including all engineering work.
SENATOR COGHILL asked about scope changes.
MR. Dubler said those have been proposed by the PMT to the
management committee and will be voted on in early December.
SENATOR COGHILL asked if the voting methodology is by unanimous
consent.
MR. DUBLER said that was correct for the work program budget and
all other budgets.
SENATOR WIELECHOWSKI asked about additional risks the state
might incur by taking a larger equity share, such as abandonment
and environmental liabilities.
3:47:26 PM
MR. DUBLER answered that in the agreement with TransCanada, all
such costs are passed directly to the state, so the state would
be taking on no additional risk by buying out TransCanada. He
said there would be the same risk, but twice the reward.
SENATOR WIELECHOWSKI requested clarification regarding
TransCanada's equity costs in the case of abandonment in the
future.
MR. DUBLER understood that TransCanada would be liable. He
offered to find out for sure.
CHAIR GIESSEL asked for Mr. Vasser's position.
MR. DUBLER answered that Mr. Vasser is AGDC's general counsel,
not the counsel on the AKLNG Project.
CHAIR GIESSEL asked what Mr. Vasser's role would be if the state
buys out TransCanada.
MR. DUBLER replied that he would remain AGDC's general counsel.
The work of drafting agreements and documents is the statutory
obligation of the Attorney General's Office.
3:50:44 PM
DAN FAUSKE, President, Alaska Gasline Development Corporation
(AGDC), Department of Commerce, Community and Economic
Development (DCCED), clarified that AGDC is not a signator to
the present agreement. That is under the domain of the
Department of Natural Resources (DNR) and the Office of the
Attorney General.
MR. DUBLER discussed AKLNG Project governance. In the Sponsors
Group there are seven project sponsors which undertake high
level project reviews, advance project enabling agreements, and
deal with fiscal and commercial issues. Both DNR and DOR are
included in this group. The Management Committee consists of
joint venture agreement partners, equity investors and overall
oversight and control of project development. It does not have
any state agency representation. The project steering committee
is a group of engineers who provide guidance and technical
oversight of the PMT and advises the Management Committee on
technical issues. He stated that AGDC sits on all three
committees.
MR. RICHARDS showed a chart that depicts the makeup of the
Project Management Team (PMT). He said ExxonMobil holds the lead
position with Steve Butt as the Senior Project Manager. The
functional leads for all of the major projects report to Mr.
Butt. He noted that TransCanada currently has two individuals
in the leadership structure of the PMT.
In response to Senator Costello's question regarding who would
fill TransCanada's role after they exit, Mr. Richards reported
that the two individuals would remain in their positions until
May. He noted that PMT hires engineering and specialist
contractors to advance design efforts. He said that AGDC will
fill positions that become available within the PMT across the
spectrum of functional leads. He described the process of
filling vacancies.
3:56:36 PM
SENATOR COSTELLO inquired if the qualifications for the "best
player" to fill a vacancy can change as the project progresses.
She also asked if AGDC is ready to take on the project because
their budget for it pales in comparison to their budget for the
Alaska Stand Alone Pipeline (ASAP) work.
MR. RICHARDS answered that AGDC has just completed the Pre-FEED
and the FEED efforts for ASAP and most of their work is
finished. Those employees are qualified to fill the positions
vacated by TransCanada.
SENATOR COSTELLO asked whether those positions can be
interchanged or changed as time goes on.
MR. RICHARDS answered that the person hired will stay in the
position until the job is done.
SENATOR COSTELLO asked how the Board's vote is transmitted to
that individual.
MR. DUBLER answered that the Board does not vote on PMT-level
appointments; that is done at the management level.
SENATOR COSTELLO asked who will be the decision-makers when the
state has a voice.
MR. DUBLER answered that the state currently has a voice on
AGDC. The reason there is not a state manager in the top two
tiers is because in 2014 ASAP was in full force and there were
no extra bodies to put into the project. When an opening comes
up in the PMT, AGDC and the other co-venturers would recommend
persons to fill it. If it is a lower-level position, the top two
tiers would get together and decide who to hire. If the position
was in the top two tiers, the resumes would go to the Management
Committee for a vote. There is a healthy tension between
producers every time there is an opening, but the process has
been working well so far.
MR. RICHARDS reported that they just received a nomination
request from AGDC for a position on the PMT.
CHAIR GIESSEL inquired if the position was for the liquifaction
facility.
MR. RICHARDS said it was.
SENATOR COSTELLO commented that finding out who is in charge is
very complicated.
4:05:04 PM
SENATOR COGHILL asked if the seconded employees serve at AGDC's
pleasure.
MR. DUBLER said yes. They would be employees of AGDC, but also
remain employees of their original companies. They report to the
PMT and are paid by the co-venturers who submit a monthly bill
to the project and are reimbursed for their costs.
SENATOR COGHILL said he appreciates that TransCanada engineers
will remain on the project.
MR. DUBLER pointed out that AGDC is back in the pipeline
business - the AKLNG project.
CHAIR GIESSEL asked for an explanation of the various chart
handouts.
MR. RICHARDS referred to AGDC's FY 2016 organizational chart
which identifies the executive level down to the Position
Control Numbers (PCN) that were afforded to the corporation by
the legislature.
CHAIR GIESSEL recalled a conversation where Dan Fauske,
President of AGDC, said he could fire Attorney Rigdon Boykin.
She asked where Mr. Boykin could be found on the chart. She also
recalled that the Board approved his continued contract.
MR. RICHARDS pointed out that the chart represents AGDC's
employees and there are many contractors who don't show up on
the chart.
MR. FAUSKE related that Mr. Boykin is a contractor, chief
negotiator for AGDC, and liaison to the Office of the Governor,
and to date, he has done a great job working on negotiated
contracts for AGDC. Mr. Fauske stressed that there is an
unbelievable amount of work behind the scenes at AGDC. He
related that Mr. Boykin's contract is authorized until the end
of the year and will be reevaluated at that time.
4:12:24 PM
CHAIR GIESSEL asked if Mr. Boykin was hired mid-year and his
contract lasts until the end of December.
MR. FAUSKE said yes.
CHAIR GIESSEL stated that Mr. Boykin is paid $120,000 a month.
She compared that to DNR's request for $840,000 for an important
marketing position. She asked if the DNR position would be paid
out of the AKLNG fund.
MR. FAUSKE responded that Mr. Boykin's contract will be reduced
to $100,000 for the last two months. The DNR position will be
paid by a combination of the AKLNG and ASAP in-state gasline
funds at a rate of 85 percent ASAP and 15 percent AKLNG. He
added that that ratio is how a lot of contracted costs are
allocated. The whole corporate mechanism is using a cost
allocation formula in order to keep track of where the funds go.
CHAIR GIESSEL questioned the 85 percent ASAP allocation since
that project was nearly finished.
MR. DUBLER explained that the cost allocation method was
approved by the Board of directors last year. He clarified that
the dollar amounts that are spent by the AKLNG project are
rather large, but the actual volume of invoices is small. He
explained how various costs are allocated.
SENATOR STOLTZE asked whether Mr. Boykin was hired in
consultation with the Board or unilaterally.
MR. FAUSKE related that the negotiation took place with him
advising the Board. He said he has the authority to do this
himself, but wanted the Board's involvement also. There was not
a technical vote and the Board allowed him to make the decision.
He added that Mr. Boykin originally started in the Governor's
Office.
SENATOR STOLTZE requested the minutes of AGDC's Board meeting.
MR. FAUSKE agreed to provide them.
4:17:36 PM
SENATOR STOLTZE asked for information on the Request for
Proposal (RFP) process when hiring Mr. Boykin in order to
explain high salaries to his constituents.
MR. FAUSKE agreed to do so. He commented that Mr. Boykin started
with a negotiated salary in the Governor's Office and his salary
was in place when he asked Mr. Boykin to take on AGDC's contract
and there was no negotiation of his salary. He stressed that
AGDC does not abuse this method. He noted that AGDC is exempted
from the Administrative Procedures Act, but tries to administer
all contracts through an RFP process. This situation was unique,
but in compliance with the process in place.
SENATOR STOLTZE he reiterated the method of hiring Mr. Boykin.
MR. FAUSKE said that was one way to put it. It was moved out of
the Governor's Office to AGDC.
4:21:12 PM
SENATOR COSTELLO referred to AGDC's September 23 meeting and
requested when the Board makes decisions that they are
transparent. She gave an example of when the Board came out of
executive session and voted to create two subsidiaries of AGCD.
She suggested the Board cite their authority and explain the
rationale behind decisions so the public can better understand
their reasoning. She requested the reason the Board created the
two subsidiaries.
MR. VASSAR responded that it is part of the evolution of the
AKLNG Project because AGDC needs to prepare for instate
distribution of the gas. This was discussed at a previous Board
meeting a year ago, but the time wasn't ripe then. The creation
of AGDC's gas aggregator company is intended to be the
subsidiary of AGDC that will provide for the gas that is to be
distributed in-state. He pointed out that it is common to
discuss those things in executive sessions because of AKLNG's
confidentiality agreements.
SENATOR COSTELLO said she understood AGDC's power to set up
subsidiaries. She requested an explanation of the second
subsidiary corporation.
MR. VASSAR replied the second corporation is an asset holding
company, which is related to a TransCanada buyout. Both
subsidiaries are simply in place for when and if they are
needed.
CHAIR GIESSEL commented that the TransCanada buyout has been in
process for a while.
4:29:31 PM
SENATOR COGHILL asked if the holding company mirrors a current
TransCanada holding company.
MR. DUBLER answered that the holding company was set up to hold
all assets from the AKLNG Project, not just those from
TransCanada. Additional subsidiaries will most likely be set up.
It is a typical arrangement for corporations to segregate
businesses so that if one runs into the snag it doesn't affect
others.
SENATOR COGHILL said it is apparent AGDC is working from ASAP
into AKLNG Project delivery. He asked if AGDC anticipates any
more scope changes.
MR. DUBLER said no.
SENATOR COGHILL asked whether the idea to create subsidiaries
came to the Board from the Governor's Office or from within the
Board.
MR. DUBLER answered that it was recommended by Mr. Boykin to the
Board, which had already considered the idea. It seemed the
right time to do it.
CHAIR GIESSEL commented that Senator Costello's statement
related to confidentiality agreements and transparency issues.
4:33:12 PM
SENATOR WIELECHOWSKI asked if Board meetings are open to the
public.
MR. DUBLER said yes.
MR. RICHARDS turned to the topic of AGDC's responsibility for
developing pipelines and other mechanisms for delivering natural
gas in-state. He said AGDC has completed a forecast of in-state
natural gas demand and a preliminary cost estimate for gas off-
take facilities. It has developed a framework to assist policy
makers in evaluating in-state off-take infrastructure. It has
also authorize the formation of a subsidiary capable of
aggregating in-state gas demand.
CHAIR GIESSEL recognized Representative Vazquez.
CHAIR GIESSEL asked for clarification whether AGDC was funded to
provide for the off-takes.
MR. RICHARDS explained that AGDC has not been funded for any
construction activities, but has done cost studies regarding
them.
CHAIR GIESSEL referred to the uncodified portion of Senate Bill
138 that instructs AGDC to collaborate with the Alaska Energy
Authority (AEA) to consider infrastructure to deliver a North
Slope gas pipeline. She asked if the state would be expected to
fund the infrastructure and actual offtake points to
communities.
MR. RICHARDS replied that the AKLNG Project envisioned five
offtake points and AGDC has looked at the spectrum of offtake
volumes and the facilities needed and all related components. He
said AGDC has come up with four discreet offtake kits - Macro,
mini, macro, micro, and nano - with cost estimates.
MR. DUBLER addressed the costs of the various off-take facility
sizes. He assumed there would be some form of subsidies,
especially for very small communities. He said the Enstar system
in Anchorage and in the Mat-Su Valley has been funded through
Enstar and ratepayers. The difference between that system and
small communities is volume of people and density of population.
4:40:17 PM
SENATOR WIELECHOWSKI asked what the tariffs would be for each
size of facility.
MR. DUBLER said they have that information in a planned
presentation at the next Board meeting and they would be happy
to make it available to the legislature. He added that it would
be about a $100 tariff for small communities.
SENATOR COGHILL asked if the aggregator corporation would look
at this.
MR. DUBLER replied the aggregator function wouldn't be providing
the utility services; a state or private entity would. The
aggregator would sit between the three producers, DNR, and the
utilities. The Regulatory Commission of Alaska (RCA) would have
oversight if the producers have to deal with more than ten
entities; if the aggregator sits in the middle, that would not
be the case and the Federal Energy Regulatory Commission (FERC)
would have oversight.
4:43:27 PM
SENATOR COGHILL asked if the subsidiary would come under the
direction of the Board and need a firewall.
MR. DUBLER understood that both could have the same Board, but
would need a different staff.
SENATOR COSTELLO asked if communities are required to go through
the aggregator corporation or whether they have the flexibility
to make agreements with another entity.
MR. DUBLER answered that they could to it on their own. He
pointed out that small communities would want to use the
aggregator in order to get a better deal.
SENATOR COSTELLO suggested that, conceptually, the aggregator
corporation could be competing with another corporation for the
business.
MR. DUBLER said, in theory, yes.
SENATOR COSTELLO observed that the minutes state that the Board
would serve both corporations.
MR. DUBLER agreed.
SENATOR WIELECHOWSKI asked if AGDC has had any success in
negotiating gas prices with the producers.
MR. DUBLER answered no. The delivery price is dependent on many
factors.
CHAIR GIESSEL said the state won't have to pay a tariff as part
owner of the pipeline.
MR. DUBLER explained that communities would pay the state a
transportation charge and cost of gas. The state's plan is to
have all parties to provide a pro rata share for gas for in-
state use.
CHAIR GIESSEL asked what the state's priority would be if it
could get a higher price for exported LNG than for in-state use.
MR. DUBLER replied that AGDC is not the gas owner; the gas
owners are DNR and the three producers. The owners would
determine the price of gas either through negotiations with the
aggregator, Enstar, or other utilities. The in-state gas portion
is a concept that the producers and the state are behind, but
the pricing will not be a public discussion. He stated that in-
state gas will be delivered regardless. He explained the concept
of netback pricing.
MR. FAUSKE added that House Bill 4 mandates the delivery of gas
to Alaskans at the lowest possible cost and Senate Bill 138 says
to maximize the state's resources. He emphasized the difficulty
of gas pricing, noting that the method of gas delivery has not
been determined. He noted that a lot of pre-engineering has been
done. He said he cannot envision a pipeline not getting gas to
citizens.
CHAIR GIESSEL commented that AGDC and DOTPF have done studies
related to transportation of gas. She used a Yukon River bridge
as an example.
MR. RICHARDS said one study was for a new bridge on a new
alignment as part of the pre-FEED work. He gave several
examples.
4:55:35 PM
MR. RICHARDS said the next discussion would be about in-state
gas demand forecasting.
4:56:22 PM
LIEZA WILCOX, Commercial Advisor, Alaska Gasline Development
Corporation (AGDC), explained that AGDC has completed a demand
forecast for the period of 2015 to 2040 for natural gas use in
Alaska. They did this to ensure that AGDC, DNR, and the state
could fulfill statutory and corporate obligations to provide
instate gas to Alaskans and to provide a precise picture of what
the model and design would look like. The number that has been
used - 500 million standard cubic feet per day (500 MMSCCF/D)
was too broad and equates to a high monthly winter use of gas,
but there are many other variables.
She reported that AGDC analyzed historical natural gas
production and consumption data, identified existing and
potential demand segments, developed a range of demand
assumptions, and identified the most likely forecast scenarios
through 2040. She termed the analysis a broad economic method.
4:59:34 PM
MS. WILCOX showed a graph of base case estimates for in-state
natural gas demand by gas providers, utilities, and other users,
and which includes population growth predictions. The graph
shows a steady increase into the future. The study assumes that
Cook Inlet would continue to produce gas.
She showed a numerical summary of the previous chart. She
concluded that the project volumes are more than adequate to
meet the state demand growth.
5:04:38 PM
MS. WILCOX explained how the new gas demands in small
communities would be developed and supplied.
MR. RICHARDS related that the purpose of AKLNG is not only to
meet revenue needs but also to provide long-term gas to meet
energy needs. He pointed out that the state's financial
commitment to the project should also consider off-take
facilities, transmission lines and other in-state distributions
systems, as well as home conversion costs. He said AGDC and DNR
are developing a framework to assist policymakers in evaluation
options and working with AEA to evaluate alternative means of
delivery.
5:05:57 PM
He provided information about AGDC's evaluation framework which
was built on work done for the Alaska Stand Alone Pipeline
(ASAP). They identified the facilities required to meet the
existing in-state demand, to include off-take areas, and are
assessing the technical and economic feasibility of communities
within close proximity to access gas. They are also evaluating,
with AEA, alternative means of delivery.
He reviewed the schematic of gas supply to export and off-take
points to service districts and homes. AGDC is looking at costs
to provide for that total picture, and is trying to identify
project-related and non-project-related costs.
CHAIR GIESSEL said one of the complexities is the two different
grades of gas needed, one for export and one for consumers.
MR. RICHARDS agreed. He added that for ASAP, utility grade gas
is needed, but for AKLNG, export grade gas is needed. He said
more work is needed on this issue.
5:09:56 PM
He reported on the progress to date on the in-state gasline
project. He said about 20 potential interconnection points have
been identified along the pipeline corridor. Some communities
would be best served from a common access point, off-take
facility, and lateral distribution lines. AGDC has developed
cost estimates for off-take facilities, excluding local
distribution and appliance conversion costs.
5:11:09 PM
MR. RICHARDS concluded that AGDC has made no final decisions and
no public money has been appropriated for the construction of
in-state off-take facilities or distribution systems. User fees
and tax assessments alone will not be sufficient to finance the
new gas distribution systems. It may be a phased approach with
some facilities built during construction and others at a later
date based on demand.
CHAIR GIESSEL asked which resource report this was from.
MR. RICHARDS said it was from report five.
CHAIR GIESSEL asked if AGDC's work will mesh with the AKLNG
work.
MR. RICHARDS said AGDC is part of AKLNG.
5:12:29 PM
SENATOR COSTELLO asked if AGDC is aware of the new vision that
Governor Walker has regarding the gasline.
MR. DUBLER requested clarification.
SENATOR COSTELLO referenced the Board minutes from September 23,
where there was a discussion of a proposed constitutional
amendment.
MR. DUBLER deferred to Mr. Vassar to answer.
MR. VASSAR responded that this relates to the concept of fiscal
stability. The producers want as much certainty as possible
regarding the tax climate in Alaska if they are going to invest
a great deal of money in the pipeline. The producers would like
a set rate or a limitation on the amount of the tax over the
period of financing for the project. The state cannot contract
away its taxing ability, hence the need for a constitutional
amendment.
MR. DUBLER added that future legislatures cannot be bound by a
fixed tax rate into the future.
CHAIR GIESSEL noted a time constraint in that the legislature
would have to approve of the constitutional amendment before it
is put on the ballot for the November election.
SENATOR COSTELLO requested a copy of proposed regulations on
confidentiality.
5:18:00 PM
SENATOR STOLTZE suggested that the administration should define
the project more clearly for consumers.
CHAIR GIESSEL said legislators from Mat-Su Valley are having
difficulty explaining that the economics of the project make a
gas-line unlikely in parts of that area. She requested help from
AGDC to help explain the reasoning for that. She noted that a
private company is looking at barging gas to the area and she
thought private sector innovation might help meet their gas
needs.
CHAIR GIESSEL noted she has confidentiality regulations in her
binder which she will distribute to the committee.
She thanked the presenters.
5:23:31 PM
CHAIR GIESSEL adjourned the Senate Resources Standing Committee
meeting at 5:23 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 10.29.15 SRES Governor's 10-14-15 Coordination Letter for Special Session.pdf |
SRES 10/29/2015 3:00:00 PM |
ak lng |
| 2015 10 29 AGDC Sen Resources Committee.pdf |
SRES 10/29/2015 3:00:00 PM |
|
| 10.29.15 SRES AGDC Org Chart.pdf |
SRES 10/29/2015 3:00:00 PM |
|
| 10.29.15 SRES AGDC Gas Aggregator Co. paperwork.pdf |
SRES 10/29/2015 3:00:00 PM |
|
| 10.29.15 SRES Governor's 10-26-15 ltr AGDC's Authority to acquire TransCanada's Interest in AKLNG.pdf |
SRES 10/29/2015 3:00:00 PM |