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." 10:03:57 AM MICHAEL PAWLOWSKI, DEPUTY COMMISSIONER, STRATEGIC FINANCE, DEPARTMENT OF REVENUE, introduced the PowerPoint presentation titled "Response to Question from Representative Edgmon" (copy on file). He discussed Slide 2, which was an example of the opportunities that existed for small-scale use of LNG: "The CIRI Talkeetna Lodge is a 212 room Lodge operating the the tourism season. FNG provides LNG year round for heating, hot water and cooking. There is 10,000 gallons of LNG storage on-site for uninterrupted supply of natural gas. The Lodge receives a delivery of LNG approximately every two weeks." Mr. Pawlowski relayed that very rough estimates by AEA put the cost of equipment currently at $1,000,000. He said that when discussing future deposits to the Affordable Energy Fund it should be noted that the fund is for all energy sources. Mr. Pawlowski turned to Slide 3, "SB 138 Includes AEA energy planning." He noted that the important issue related to the affordable infrastructure and areas not directly on the pipeline route. Section 69 of SB 138 directs the AEA, in consultation with AGDC, AIDEA and DOR to prepare a plan for developing infrastructure to deliver affordable energy to areas of the state that are not expected to have direct access to a North Slope natural gas pipeline. 10:08:15 AM Representative Edgmon hoped that there was substance behind the commitment to provide affordable energy to all parts of the Alaska, and not just the more convenient areas of the state. He wondered if there was a way to tie-in the language in the bill to the existing language pertaining to the energy policy in the uncodified state statutes. 10:09:24 AM Mr. Pawlowski referred to Page 60, section 67 of the H version of the bill. He believed that the uncodified law existed as direction to the state, but a reference in the section to the context of that policy could appropriate. 10:10:28 AM Representative Edgmon requested a statement regarding the offtake points exit points and expense. 10:11:30 AM Mr. Pawlowski replied that the commitment of the offtake points in the HOA was to look for the benefits for Alaskans, with access to reliable and predicable supplies of energy. He said that the trick would be the affordability of access as distance became a factor. He stated that it would need to be examined whether taking at the offtake would be the best option, or whether a localized energy solution would be a better option. He assured the committee that both options would be pursued as part of the development of the agreements. He said that the commitment to the issue was deep and that the section put the right tools in place to build on regional energy work already being done by AEA. 10:12:30 AM JOE BALASH, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES, added that the department had contributed to the work pertaining to the tap in points to the line. He said that pre-installing the takeoff points during the initial build would be cheaper. He relayed that the incremental costs associated with a tap was approximately $1 million. 10:13:37 AM Mr. Pawlowski interjected that in pervious gasline plans, the offtake had potentially been expensive because of the high natural gas liquids content in the proposed plan. He asserted that the current plan involved very clean LNG gas and did not require the expensive equipment necessary for the stripping of liquids. Representative Guttenberg assumed that a takeoff point in Nikiski would have charges based upon the GTP, tariffs and distance sensitive rates. He asked about the Asian market; if the flow was backtracked to the middle of the pipeline, the rate would be relevant to the takeoff point, and not everything else downstream. Mr. Pawlowski responded yes, and that the distinction was critical. He added that under the MOU, the state had already agreed to distance sensitive rates for the areas along the pipeline in three zones: the Nanana Zone, the Big Lake Zone, and the delivery to the LNG plant. Representative Guttenberg asked how the Nanana Zone was defined. Commissioner Balash replied that the zone included everything north of Nanana. 10:17:39 AM Representative Wilson understood the benefits to the owners and TransCanada, but she expressed discomfort with the balance the energy issues in the interior and the bush. She wished to better understand why the project was a good deal for state residents. Commissioner Balash replied that the transportation infrastructure would provide a relatively low-cost means of delivering the commodity either from the North Slope or Cook Inlet. He said at that point options would be examined and that the lowest cost option to get gas to the corridor would be selected. Commissioner Balash referred to Slide 2 from the Black and Veatch presentation, "State Participation on AKLNG Project, April 15, 2014"(copy on file). The slide showed at a $16 dollar commodity price in Asia the state's wellhead value would be approximately $7/MMBtu. He said that taking the $7 price, adding the treatment plan cost of $2, adding the pipeline cost to the interior of $1 would total $10 to get gas to Fairbanks. He furthered that if natural gas was priced a $6 in the Cook Inlet Basin, the backhaul rates, negotiated with TransCanada in the MOU, would mean the benefit of Cook Inlet pricing in Fairbanks without the transportation cost. He predicted that as the market demand in Cook Inlet grew, additional supplies would be proven, and additional opportunities for smaller producers would open up. He asserted that the same thing would occur on the North Slope, as long as a viable third party mechanism was maintained through the state's equity capacity in the pipeline, there would be companies and operators with small amounts of gas that would be looking to make in-state sales and could be willing to sell their gas for less than $7. He said that the biggest distinction between the project and the TAPS scenario was that the states crude oil had to be refined in order to make it useful; natural gas and methane took very little refinement. 10:23:03 AM Representative Wilson understood that all of the language was in the bill. Commissioner Balash replied that it was not in the bill. He said that how transportation charges would be priced was in the MOU with TransCanada. He said that in 2015 there would be a piece of legislation approving the Firm Transportation Services Agreement (FTSA) with the specific terms laid out. Representative Wilson said she would prefer to see the terms before voting on the legislation. Co-Chair Stoltze discussed housekeeping. 10:24:58 AM Mr. Pawlowski stated that he appreciated the guidance about the technical amendments on the bill. CSSB 138(FIN) am was HEARD and HELD in committee for further consideration.