CS FOR SENATE BILL NO. 138(FIN) am "An Act relating to the purposes, powers, and duties of the Alaska Gasline Development Corporation; relating to an in-state natural gas pipeline, an Alaska liquefied natural gas project, and associated funds; requiring state agencies and other entities to expedite reviews and actions related to natural gas pipelines and projects; relating to the authorities and duties of the commissioner of natural resources relating to a North Slope natural gas project, oil and gas and gas only leases, and royalty gas and other gas received by the state including gas received as payment for the production tax on gas; relating to the tax on oil and gas production, on oil production, and on gas production; relating to the duties of the commissioner of revenue relating to a North Slope natural gas project and gas received as payment for tax; relating to confidential information and public record status of information provided to or in the custody of the Department of Natural Resources and the Department of Revenue; relating to apportionment factors of the Alaska Net Income Tax Act; amending the definition of gross value at the 'point of production' for gas for purposes of the oil and gas production tax; clarifying that the exploration incentive credit, the oil or gas producer education credit, and the film production tax credit may not be taken against the gas production tax paid in gas; relating to the oil or gas producer education credit; requesting the governor to establish an interim advisory board to advise the governor on municipal involvement in a North Slope natural gas project; relating to the development of a plan by the Alaska Energy Authority for developing infrastructure to deliver affordable energy to areas of the state that will not have direct access to a North Slope natural gas pipeline and a recommendation of a funding source for energy infrastructure development; establishing the Alaska affordable energy fund; requiring the commissioner of revenue to develop a plan and suggest legislation for municipalities, regional corporations, and residents of the state to acquire ownership interests in a North Slope natural gas pipeline project; making conforming amendments; and providing for an effective date." 9:56:26 AM Co-Chair Austerman requested an understanding of the state's responsibility regarding the gas pipeline and the accompanying infrastructure. He noted that roads and bridges would provide important components of the project. He requested that Department of Transportation and Public Facilities provide input regarding Article 10 of the Heads of Agreement (HOA) and additional state support for the Alaska Liquefied Natural Gas (LNG) project. He pointed to Article 10.1 (c) "appropriations permitting for the construction of necessary instate infrastructure [roads, bridges] including drafting and introducing supporting legislation." He asked if the HOA reflected that the state would be responsible for all infrastructure and improvement costs throughout the project. He interpreted the HOA to read that the state would be responsible for construction of all necessary infrastructures. 9:58:31 AM PAT KEMP, COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES introduced himself, Jeff Ottesen and David Bloom. JEFF OTTESEN, DIRECTOR, DIVISION OF PROGRAM DEVELOPMENT, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES provided a historical background related to Alaska and pipeline construction. He stated that the department was not yet informed about the precise infrastructure needs required for the gasline project. He knew the general route established for the gas pipeline, but specifics had not been determined. He compared the project to Trans-Alaska Pipeline System (TAPS) and noted that current population and traffic was triple that of the 1970s. He wished to maintain safety standards and statistics on the Dalton Highway. 10:02:36 AM Mr. Ottesen commented that the natural gas pipeline would be buried leading to additional earth work as compared to TAPS. He mentioned the need to replace the Tanana River Bridge as it presented a weak link between the Lower 48 and Alaska. He stated that both a large and medium diameter pipeline was proposed for the Parks Highway, which was parallel to the Alaska Railroad. He expected that the railroad would provide a major component of any logistics plan. The Richardson, Alaskan and Haines highways would have minimal improvements as well. He provided a handout "Parks Highway Planned Construction Information - 2014" (copy on file). He pointed out that many of the projects addressed features that would prove helpful to the pipeline construction such as 14 new passing lanes built on the Parks Highway in the summer of 2014. 10:06:53 AM Mr. Ottesen discussed maintenance expenses ineligible for federal contribution. He expected the department to ask the legislature for general funds for the relatively small costs averaging $12-$15 million annually. He stated that the department would provide more information when the logistics plan was determined. Highways were blessed with a dedicated source of federal funds that allowed for adaptation to the possibility of new pipelines. The Federal Aviation program was specific in its funding, which led the department to spend funds in areas disconnected from pipeline plans. 10:09:40 AM DAVID BLOOM, P.E., GASLINE LIAISON, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, stated that he had very little exposure to the project via the sponsors. He mentioned a high-level overview provided to state and federal agencies offered by the project sponsors in February 2014. He mentioned another meeting in Fairbanks related to the permits required for the summer 2014 field season. He noted that upcoming information such as access and egress points for the laydown yard, and safety lanes on the highway would prove essential to the department. He pointed out that airports and their service needs also required consideration. He noted substantial improvements to the Dalton and Parks Highways with approximately $120 million allocated to the Parks Highway maintenance for the summer of 2014. 10:13:00 AM Co-Chair Austerman asked if the state would be expected to pay for the large module accommodation and road maintenance. Mr. Kemp replied that highways and roadways within the right-of-way must accommodate legal or permit able loads. He stated that the highway must be strong enough to accommodate a permitted load. He believed that the department was responsible for the majority of the work. He stated that an intersection requiring an access road to the pipeline should be assigned to the developer. A similar arrangement was often embarked on with a large store requiring an intersection. He explained that some portions of the project allowed for federal participation, while others did not. The department would request some help from the legislature for those portions ineligible for federal funding. He stated that the Parks Highway required repairs whether the pipeline was constructed or not. He added that the Parks Highway was not free of weight restrictions. Understanding the Alaska Railroad's level of responsibility would help the department to better understand theirs. 10:16:50 AM Co-Chair Austerman asked if layout yards or pull-off areas for larger modules would be constructed by and paid for by the producers. Commissioner Kemp replied that passing lanes would be an improvement addressed by the department, while the pull-off area for a module would be covered by the developer. Co-Chair Austerman asked about the federal funds. He expressed concern that the Dalton and Parks Highways could use up the federal funds needed elsewhere in the state. 10:18:02 AM Mr. Otteson replied that the many projects on the Parks and Dalton Highways were underway despite the potential pipeline. The work was prioritized because of the connection to Prudhoe Bay. The revenue from the oil resources fueled the Alaskan economy. He acknowledged the tension between projects and provided an example of such tension. 10:20:08 AM Co-Chair Austerman agreed in reference to the importance of the North Slope, but noted that the benefit extended to the producers making the profit. He asked if any of the three testifiers helped draft the language in the HOA. Commissioner Kemp replied no. 10:21:09 AM Vice-Chair Neuman asked Mr. Ottesen about each proposed gasline. He wondered about Port Mackenzie as a staging area for either pipeline. 10:22:01 AM Mr. Otteson replied yes; he expected Port Mackenzie to be a key staging area as part of the rail extension. Completing the extension was an important component of the project. 10:22:34 AM Representative Guttenberg noted the $800 million deferred maintenance budget on the Dalton Highway. The state was asked to fund the agreement in general terms. Massive amounts of heavy-walled pipe would compromise the asphalt and shoulders of the highway. He asked about the state's obligation entering into the project. 10:23:51 AM Commissioner Kemp replied that the information would become available later. He questioned the deferred maintenance quote offered by Representative Guttenberg. He wondered if deferred maintenance was not confused with routine maintenance. He agreed that the questions must be answered, but stressed that the state's roadways were in better shape than they were in the time of TAPS construction. He noted the department's focus on safety in addition to accommodation of the increased industry traffic. 10:25:02 AM Representative Gara noted that Governors Murkowski and Palin approached the legislature with infrastructure costs during their gasline proposals dependent on the size of the chosen pipeline. He recalled estimates of approximately $2 billion worth of infrastructure increases. The legislators were able to incorporate the information into the Net Present Value calculations. Co-Chair Austerman concurred. CSSB 138(FIN) am was HEARD and HELD in committee for further consideration.