Legislature(2015 - 2016)BARNES 124
03/16/2016 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB216 | |
| HB246 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 247 | TELECONFERENCED | |
| *+ | HB 216 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| *+ | HB 246 | TELECONFERENCED | |
HB 246-AIDEA: FUNDS; LOANS; PROGRAMS; DIVIDEND
2:15:28 PM
CO-CHAIR NAGEAK announced that the next order of business is
HOUSE BILL NO. 246, "An Act creating the oil and gas
infrastructure development program and the oil and gas
infrastructure development fund in the Alaska Industrial
Development and Export Authority; relating to the interest rates
of the Alaska Industrial Development and Export Authority;
relating to the sustainable energy transmission and supply
development and Arctic infrastructure development programs of
the Alaska Industrial Development and Export Authority; relating
to dividends from the Alaska Industrial Development and Export
Authority; and adding definitions for 'oil and gas development
infrastructure' and 'proven reserves.'"
2:15:47 PM
FRED PARADY, Deputy Commissioner, Office of the Commissioner,
Department of Commerce, Community & Economic Development
(DCCED), noted he is before the committee as a board member of
the Alaska Industrial Development and Export Authority (AIDEA).
On behalf of the governor, he introduced HB 246 by way of a
PowerPoint presentation entitled, "AIDEA Oil and Gas
Infrastructure Development Fund, HB 246." He said the bill's
purpose is to create an oil and gas infrastructure development
program and fund within AIDEA. Through AIDEA's work with small-
and medium-sized oil and gas developers, AIDEA identified a need
for additional tools to support those developers. The bill
would create an oil and gas infrastructure development program
and fund to make investments in supporting infrastructure,
including roads, pads, gathering systems, camps, and other
facilities. The bill does not propose to make investments in
well and reservoir development. The infrastructures that AIDEA
would support would increase oil and gas production, help bring
new fields on line, attract new investment, increase future
state revenues, and support energy security.
2:17:25 PM
MR. PARADY addressed slide 2, "Current AIDEA Financing Tools,"
stating that AIDEA has 735,000 shareholders, the population of
Alaska, and they are represented by the Alaska State
Legislature. The governor is AIDEA's institutional shareholder
who appoints AIDEA's seven-member board. The staff of AIDEA
manages the day-to-day business. Currently, AIDEA has three
funds [revolving fund, sustainable energy transmission and
supply (SETS) fund, Arctic infrastructure fund] and two special
appropriations projects [Interior energy project, Ambler mining
district industrial access project]. Today, the majority of
AIDEA's core day-to-day business of providing capital and
partnering with industry to help drive the state's economic
engines is done through its revolving fund.
MR. PARADY moved to slide 3, "Geographic Project Diversity," and
pointed out that the revolving fund has investments across the
state, which are relatively aligned with the commerce and
industry across the state. Turning to slide 4, "Industry
Diversification," he noted the revolving fund has a diversified
portfolio of investments in Alaska businesses that operate under
the Prudent Investor Rule. The revolving fund has historically
made select investments that support oil and gas development in
the state. However, he said, AIDEA's opinion is that additional
investments by the revolving fund in projects that support oil
and gas development would overweight what is a currently
diversified portfolio. He specified that the 20 percent of the
revolving fund invested in mining is essentially the DeLong
Mountain Transportation System, Red Dog, but the risk in that
project is actually in the past because the project is
successful. Oil and gas represent about 14 percent of the
revolving fund.
MR. PARADY displayed slide 5, "AIDEA Financing Tools after HB
246, and explained that the concern addressed by HB 246 is to
develop an AIDEA financing tool because the oil and gas industry
sector continues to be a crucial contributor to the state. For
AIDEA to continue to support the industry, AIDEA's executive
director John Springsteen and board believe it would be
beneficial for AIDEA to have a separate tool and fund solely
focused on supporting oil and gas development by making
investments in infrastructure.
2:19:46 PM
MR. PARADY showed slide 6, "Intent of HB 246," and reiterated
that the bill's intent is to continue to support small- and
medium-sized oil and gas developers statewide with a separate
program and fund within the AIDEA family of investments. These
investments would be in infrastructure to: support small- and
medium-sized firms; increase production and help bring new
fields on line; attract new investment; increase future
revenues; and support energy security.
MR. PARADY drew attention to slide 7, "Eligible Oil and Gas
Infrastructure Projects," and defined oil and gas infrastructure
as roads, pads, camps, processing facilities, gathering systems,
and similar above the ground assets. He reiterated that wells,
reservoirs, or other below ground assets are not being talked
about. Amongst the criteria AIDEA would use to qualify projects
for these loan programs would be that the infrastructure
investment must be for a field with proven reserves. The bill
uses the Society of Petroleum Engineers' definition of proven
reserves, but, he allowed, it is possible that that definition
could come under debate before the committee.
MR. PARADY reviewed slide 8, "Financing and Tax Credits,"
explaining that the bill proposes an opt-in/opt-out provision.
If a borrower opts in to using AIDEA financing, then the
borrower is opting out of using the exploration and development
tax credit found in AS 43.20.043.
REPRESENTATIVE OLSON noted that AS 43.20 is now closed to new
participants. He asked whether there is any money left for
someone who was in before the cutoff.
MR. PARADY believed the answer to be yes, but said he will get
back to the committee.
REPRESENTATIVE OLSON understood a participant would have several
years to use that.
MR. PARADY replied yes, but added that he will get back to the
committee with a confirmed answer.
2:21:53 PM
MR. PARADY resumed his presentation and continued to address
slide 8. He noted projects with past tax credits would still be
eligible for AIDEA financing.
REPRESENTATIVE JOHNSON asked why a company eligible for tax
credits would want AIDEA financing. In other words, why borrow
money when credits would basically give the money to a company.
MR. PARADY offered his belief that that decision would rest on
the sources of funds available for the project to balance what
is available under tax credits versus the overall project's
needs for financing it. It would be a calculus that would be
performed by the company's accountants or developers.
REPRESENTATIVE JOHNSON said it seems to him like this statement
is based upon repealing of the tax credits, which is before the
committee. Therefore, he continued, he is uncomfortable with
putting it on the record that a company would be eligible for
something that the committee has not yet made a decision on.
MR. PARADY replied that his best answer is that of course the
legislature holds the decision regarding the oil and gas tax
credits bill. Envisioned in HB 246 is that if a company opts
into credits then it is opting out of AIDEA financing. The bill
is creating a new tool in AIDEA to do project finance.
2:23:29 PM
REPRESENTATIVE SEATON recalled that the Mustang Project has
above ground features financed through AIDEA and tax credits
were allowed for other portions. He understood Mr. Parady to
have stated that no well expenditures would be financed under HB
246 and asked whether that is also a demarcation. He further
understood that a company receiving tax credits would be unable
to get financing through AIDEA.
MR. PARADY understood Representative Seaton's question to be
regarding whether below ground tax credits would preclude above
ground financing. He said he will get back to the committee
with an answer.
2:24:27 PM
REPRESENTATIVE HERRON understood the credits under AS 43.55 to
be the net operating loss (NOL) credit statewide, and the
qualified capital expenditure (QCE) credit and well lease
expenditure (WLE) credit in Cook Inlet. He noted that in HB 247
the governor is proposing to repeal the QCE and WLE. He
surmised that Mr. Parady is saying a company will not use any of
these credits, including the ability to carry forward an annual
loss, if it participates with AIDEA.
MR. PARADY answered yes, depending upon the outcome of HB 247.
2:25:12 PM
CO-CHAIR NAGEAK inquired whether the Mustang Project on the
North Slope has stopped work and, if so, why.
MR. PARADY responded that the Mustang Project has been affected
by the price decline. There was a reworking of the collateral
structure of the waterfall associated with AIDEA's participation
in that project, he said, and he believes it is moving towards
warm storage or warm status as the market turns.
CO-CHAIR NAGEAK asked what the implications are for AIDEA's
investment in this project.
MR. PARADY replied that AIDEA's investment is secure and AIDEA
is continuing to work to keep it so.
CO-CHAIR NAGEAK inquired whether AIDEA's investment is [indisc.]
MR. PARADY responded no, not to his best understanding.
2:26:12 PM
REPRESENTATIVE JOHNSON asked what AIDEA is using for security
for these loans.
MR. PARADY responded that the security involved in each of these
loans that comes before the board can vary with the project that
is being developed. It can be the equipment, it can be
collateral on the underground reserve itself. It depends on how
that is structured for each particular deal.
REPRESENTATIVE JOHNSON surmised AIDEA is going to repossess
leases if the underground reserve is the collateral and a
company defaults.
MR. PARADY replied he will provide a more detailed answer, but
under his present understanding he does not know that repossess
the lease is the right term and it depends on the structure of
the individual deal. He understood that the gas reserves of the
Mustang Project are one of the ultimate collaterals, but a
waterfall of steps would come before that step.
2:27:31 PM
CO-CHAIR NAGEAK asked why a new fund is needed if AIDEA is able
to support projects like Mustang.
MR. PARADY answered that oil and gas is currently at 14 percent
in the balance of the overall AIDEA revolving loan fund. Since
the capital demand of this sector of Alaska's economy is
substantial, it would overweight the portfolio and overrule the
diversification principle that underlies the Prudent Investor
Rule.
REPRESENTATIVE JOSEPHSON addressed the inquiry about the Mustang
lease being relinquished to the state down the series of
waterfall steps. He surmised the leaseholder entered into that
contract probably before the fall of oil prices or even before
the Walker Administration came into being.
MR. PARADY replied yes.
2:28:39 PM
MR. PARADY returned to his presentation and addressed slide 9,
"Market Based Interest Rates." He said that under the structure
of HB 246, AIDEA would base the interest rates based on project
risk. Project risk would be evaluated by looking at the
operating performance of the field, the size of the field, the
projected costs and cash flow, and capabilities of the
operation. Borrower creditworthiness would be looked at, as
well as owner and financing partner commitments - who is backing
the field development, their expectation of financial returns -
and the collateral to be made available to AIDEA. The benefits
to the state would also be looked at, including tax and royalty
revenue and jobs, jobs being a foundation of AIDEA's analysis.
The interest rates may be higher for oil and gas infrastructure
projects, he noted, due to the inherent risks associated with
the industry.
MR. PARADY discussed slide 10, "Other Bill Components." He said
the bill would modify the financing limits of the sustainable
energy transportation and supply (SETS) fund and Arctic
infrastructure development fund. The bill proposes that all
three funds be allowed to loan up to 50 percent of an eligible
project or offer a loan guarantee of up to $25 million. As in
the existing funds, amounts in excess of these limits would
require prior legislative approval. He noted that the current
limits are 33 percent, which the bill would move to 50 percent,
and $20 million, which the bill would move to $25 million. This
is essentially a reflection of a stronger role in trying to
support these activities.
2:30:11 PM
REPRESENTATIVE OLSON asked whether the concept of this expansion
came from an AIDEA board decision or somewhere else.
MR. PARADY responded that the board has had discussion based on
its staff's interaction with the industry and is also based on
discussions within the administration.
REPRESENTATIVE CHENAULT observed that Sections 10 and 11 of the
bill increase the loan size that AIDEA can make in the SETS fund
and in the Arctic infrastructure fund. He asked whether that is
really necessary or is an AIDEA wish list component that has
nothing to do with HB 246.
MR. PARADY answered he would not describe it as a wish list, he
would describe it as an updating of the tools in the AIDEA tool
kit, but it is within the judgement of the legislature whether
to lengthen that leash a little bit or keep it a little tighter.
In the context of the specific fund before the committee, the
oil and gas infrastructure fund, the scale of capital needs in
the oil and gas industry are such that he believes the move
makes clear sense. Also, there was some interest on AIDEA's
part in keeping things standard across the state's statutes.
REPRESENTATIVE HERRON said the way he and his staff read the
bill is that changes would be made and he would think there
would be concern on the legislative side that AIDEA is going to
make decisions that go against what the legislature wanted to
do. He inquired whether HB 246 would allow AIDEA to transfer
earnings from other assets to the oil and gas fund.
MR. PARADY replied correct, but noted that is an authority which
AIDEA already has within its tool kit as a corporate entity and
it is authority that AIDEA has exercised with discretion. He
said AIDEA has not transferred funds between funds and AIDEA has
returned a sustainable dividend to the state over decades.
REPRESENTATIVE HERRON remarked that it is a serious concern.
2:32:34 PM
CO-CHAIR NAGEAK noted that Buccaneer Energy Alaska in Cook Inlet
has left the state. He asked whether AIDEA was a partner in
that venture.
MR. PARADY responded yes, AIDEA had a loan involved in that and
AIDEA recouped its investment from the jack-up rig before it
left the state.
CO-CHAIR NAGEAK asked whether AIDEA was left with unpaid loans
due to the bankruptcy.
MR. PARADY answered zero, AIDEA did not have a write-off
associated with that project and in fact AIDEA earned a return.
Responding further, he confirmed that AIDEA got its money back.
2:33:24 PM
REPRESENTATIVE SEATON recalled that two years ago before the
Mustang Project was underway, there was a proposal to look at a
$200 million separate fund or separate bonding authority so that
it would be separate from the existing bonding authority that
AIDEA is using. He understood the legislature did not end up
passing it, but asked whether it would be the bonding authority
that would be extended to give AIDEA the money to make these
investments or would it be an internal reorganization.
MR. PARADY replied that the current concept of this package, the
$200 million in funding, is associated with HB 247, which is
also before the committee. That funding would be to capitalize
the initial fund and then there is the question of whether
bonding authority would be extended to it, which is not present
in HB 246.
REPRESENTATIVE CHENAULT asked approximately how much money is
currently in those funds.
MR. PARADY responded that the balance sheet of AIDEA has $1.3
billion spread across the revolving loan fund and the other two
funds. He said he will provide the committee with a breakout.
2:35:14 PM
GENE THERRIAULT, Energy Policy and Outreach Director, Alaska
Energy Authority (AEA), Alaska Industrial Development and Export
Authority (AIDEA), Department of Commerce, Community & Economic
Development (DCCED), on behalf of the governor, provided a
sectional analysis of HB 246. He pointed out that most bills
have a small part of new statute and then the remaining pages of
the legislation make conforming amendments to the existing
statute, which is the case with HB 246. The new fund would be
created by Section 12 of the bill; it is a policy call of
members as to whether that new fund is created. In addition to
that policy call, there are two other distinct policy calls, one
being whether the limits on the existing SETS fund and the
Arctic infrastructure fund should be made the same as the
proposal for the new fund. The other policy call is the request
in Section 9 of the bill that AIDEA be given the flexibility to
set the interest rate of its different financial tools so that
it can reflect the risk and reward that is being proposed in a
specific project. He said this is a distinct policy call
because that is a new authority that would be given to AIDEA.
MR. THERRIAULT explained that Sections 1-3 of the bill would add
the new fund to the existing statutes that require yearly
dividend payment from AIDEA to the general fund under the
definition of unrestricted net income. At the bottom of page 2
of the bill is the addition of the new oil and gas
infrastructure fund to the list of AIDEA's investment tools that
pay a dividend should this fund derive revenue.
2:37:37 PM
MR. THERRIAULT said Sections 4-8 of the bill would add
references to the new fund to the existing statutes that detail
the level of interest levied on loans from the SETS fund and
Arctic infrastructure development fund. Both those funds are
relatively new creations of the legislature in AIDEA's
investment portfolio and both were established by the
legislature. He noted that the mechanics of the existing
language would not be altered by the addition of the oil and gas
infrastructure development fund to those sections of statute.
MR. THERRIAULT pointed out that Section 9 would enable AIDEA to
set the initial interest rate by project that takes into
consideration the project risk, creditworthiness, partner
commitments, and benefit to the state. It is one of those
policy calls, a new requested authority of AIDEA to initiate
through regulatory action an interest rate that reflects the
risk that is being proposed by an individual project.
REPRESENTATIVE TARR inquired whether authority to set the
interest rate means that decision would be made by the AIDEA
board or an executive decision by management. For example, she
noted, some people do not feel there is fairness in the process
used regarding the agriculture revolving loan fund.
JOHN SPRINGSTEEN, Executive Director, Alaska Industrial
Development and Export Authority (AIDEA), Department of
Commerce, Community & Economic Development (DCCED), replied that
staff would go through the process of negotiations and working
out what that interest rate would be. All of this would then be
approved by the AIDEA board.
2:39:36 PM
REPRESENTATIVE CHENAULT asked what factors or criteria would be
used for determining who got a loan and at what interest rate.
MR. SPRINGSTEEN responded that the technical due diligence would
include reviews of the field, field performance, the owner, the
operator, the development plan, and the type of infrastructure
being requested for the development. The financial due
diligence would include looking at the creditworthiness of the
other party, the commitments behind the other party in terms of
other financiers and what type of returns that they are
requesting, the collateral that is made available for the
investment, as well as reviewing the project economics and
performing financial stress testing. Equally important when
reviewing these factors are the benefits to the state in terms
of job creation and revenue from taxes and royalties. All of
these would be weighed as AIDEA pursued its negotiation with an
interested developer.
REPRESENTATIVE CHENAULT inquired whether that criteria would
change as AIDEA went from development to development. For
example, of concern to him is a local hire provision where a
company would get a lesser interest rate if it hired more
Alaskans than if it did not.
MR. SPRINGSTEEN answered that through discussions with folks
from the industry, AIDEA is keenly aware of industry's needs for
special expertise for certain projects, so AIDEA will note that
need. Absent that, if there were a comparable Alaska hire in
terms of cost and capability, it is part of AIDEA's role as
stewards of the state to work towards a preference for that type
of a hire.
2:42:04 PM
REPRESENTATIVE JOSEPHSON inquired where AIDEA would get the
information for field performance criteria. For example, would
AIDEA consult with the Department of Natural Resources (DNR) in
some privileged way and keep that confidential.
MR. SPRINGSTEEN replied that AIDEA does collaborate with DNR in
accessing information, as well as accessing technical expertise
that would augment AIDEA's internal team the authority to do a
review. He noted AIDEA has a very lean general staff so it
needs to tap on special expertise from time to time, and that is
the process that AIDEA engages in.
2:43:00 PM
MR. THERRIAULT continued his sectional analysis, explaining that
Sections 10 and 11 propose to make adjustments to the existing
participation limits of the SETS and Arctic infrastructure funds
so that they would be the same levels as is proposed for the new
oil and gas fund. Those two sections are separate, but AIDEA
believes there is some benefit if the criteria is level across
the different financing tools. However, it is a separate and
distinct policy call for the legislature to make.
MR. THERRIAULT said Section 12 is the meat of the bill in that
it would create the new fund. The proposed statutory language
that creates the oil and gas infrastructure development fund is
based on the framework used when the legislature created the
SETS and Arctic infrastructure funds. However, the language on
page 8, lines 3-4, of the bill is specific to this proposed new
fund in that it states the need to investigate the proven
reserves. Bringing attention to page 7, line 17, and the
language, "establish reserves", he noted that for the SETS and
Arctic infrastructure funds, it was very clear that "establish
reserves" was referencing the financial reserves of the fund.
He related that Representative Hawker is concerned about this
language because this fund is involved in oil and gas reserves
and tweaking of the language might needed here to make it clear
that it is talking about financial reserves. Therefore, that is
a bit of a potential difference from the structure that was used
for the other two funds.
2:45:20 PM
REPRESENTATIVE SEATON said he had been of the understanding that
under the oil and gas infrastructure fund the proven reserves
were talked about as collateral, but now he is understanding
that this is financial reserves and not oil and gas reserves.
MR. THERRIAULT explained that the language on page 7 is talking
about the operation of the fund itself, and reserves sometimes
have to be established within the fund.
MR. SPRINGSTEEN elaborated by posing a scenario of AIDEA issuing
a bond that supports a project, for which AIDEA would then need
to establish a financial reserve, a general obligation of the
authority, to backstop the bond issuance and to secure the
project. That is generally what this language relates to - the
establishment of financial reserve for a bond issuance.
MR. THERRIAULT said that points out Representative Hawker's
concern. Because this fund in particular is involved in
development of oil and gas reserves, tweaking the standard
language might be necessary to make that clarification. The
proven reserves is dealt with later on in the bill.
2:47:02 PM
MR. THERRIAULT resumed his sectional analysis, drawing attention
to page 8, lines 3-4, which would require a process for proving
the existence of those proven reserves. He noted that expertise
would be brought in, as discussed earlier, so this would be
different than the standard language that was used for the SETS
and Arctic infrastructure funds.
MR. THERRIAULT explained that page 8, lines 15-22, would require
a project developer to choose between securing infrastructure
financing from this new fund or applying for oil and gas
development credits. This language does not exist in the SETS
and Arctic infrastructure development funds, he noted, it would
be specific to the proposed oil and gas infrastructure
development fund.
REPRESENTATIVE HERRON observed on page 8, lines 23-24, that it
could be a 30-year loan. He asked what the difference is
between a loan and becoming an actual equity owner.
MR. SPRINGSTEEN read from the language on lines 23-24, which
state, "Financing under AS 44.88.880 is limited to the projected
life of the oil and gas infrastructure development but may not
be more than 30 years." Therefore, he explained, the vehicle
could be either a loan or an investment, but when AIDEA makes
investments they are generally preferred equity with collateral
and they act much like a loan.
REPRESENTATIVE HERRON inquired whether it is reported as an
equity or as a long-term debt.
MR. SPRINGSTEEN responded it depends on the nature of the
investment.
2:49:52 PM
REPRESENTATIVE SEATON presumed there would be no liability
through this loan or equity for any of the terminal cleanup,
removal, and rehabilitation.
MR. SPRINGSTEEN offered his belief that if it were a direct
investment as opposed to a loan, AIDEA would still potentially
have responsibility for what it does on the top side. He
reiterated that it is things above ground, such as roads, pads,
camps, and pipe, and not things related to reservoir or field
development below ground.
REPRESENTATIVE SEATON posed a scenario of a loan or an equity
investment where the life of the field is 30 years. He asked
whether the state would have liability for the demobilization
and rehabilitation if anything were to happen to the partners.
That liability could be more than the cost of the loan, he said.
MR. SPRINGSTEEN answered that is why it is very important for
AIDEA to look at the ability of the project partners and the
committed backers for the project to provide the collateral and
commitment. He said he thinks the preference would be for a
loan by AIDEA just because it naturally limits liability.
REPRESENTATIVE SEATON stated he is uncomfortable with that being
a negotiated term because he does not think the state wants to
get into that liability and that this may need to be excluded in
the statute to prevent the state from becoming liable for that
at the payoff of the loan.
CO-CHAIR NAGEAK asked whether Representative Seaton has any
suggestions for language that would resolve his concern.
REPRESENTATIVE SEATON suggested that the sponsor of the bill
provide a proposal to fix that or to limit that liability.
CO-CHAIR NAGEAK requested AIDEA to propose the language.
MR. SPRINGSTEEN agreed to do so.
2:53:11 PM
MR. THERRIAULT recommenced his sectional analysis. He brought
attention to page 8, lines 11-14, which propose the new project
limits. If AIDEA provides financing, he said, the financing
would be limited to up to one-half of the capital cost of the
oil and gas infrastructure development and the guarantee of a
loan is the $25 million. Those would be the limits for this new
fund, and Sections 8 and 9 propose that it be the same for the
SETS and Arctic infrastructure funds. That is a policy call,
but AIDEA believes there is some value to having some continuity
across those different loan funds.
REPRESENTATIVE TARR, regarding the amount authorized in statute
for the other two funds, recalled it being said that raising the
amount from $20 million is in some ways adjusting for inflation.
Regarding the provision for up to 50 percent, she posited that
this transfers a bigger portion of the liability to the state in
terms of providing that guarantee. She inquired whether it is
standard in the industry to go that high and explained she is
asking this question to better understand the why for going from
one-third to 50 percent.
MR. SPRINGSTEEN replied the 50 percent threshold provides an
opportunity for a true type of a partnership structure with
another entity. In terms of obligations of the state versus
obligations of AIDEA, if AIDEA issues a general obligation bond
it is an AIDEA general obligation bond against the assets of
AIDEA and not of the state. This provides AIDEA with some
amount of independence in order to enter into deals with third
party developers and other project financiers.
REPRESENTATIVE TARR surmised there should be a monetary value
associated with that that should be positive in terms of
building AIDEA's asset base. She imagined that would be
preferable as well.
MR. SPRINGSTEEN responded yes.
2:55:43 PM
REPRESENTATIVE HERRON asked why another fund needs to be created
if AIDEA is already able to support projects like Mustang.
MR. SPRINGSTEEN answered that as AIDEA's assets, capacity, and
need for diversity in the revolving fund were reviewed with the
board, it was viewed that additional investments in supporting
oil and gas infrastructure would overweight the revolving fund's
diverse portfolio and potentially have an impact on its credit
rating. But it was also understood that the oil and gas
industry continues to come to AIDEA for support for
infrastructure, and that was the driver behind the ask for a
separate program within AIDEA to work alongside oil and gas
industry developers. Some very important things are done in the
revolving fund, such as project development, backstopping bond
issuances, and supporting AIDEA's loan participation program,
where AIDEA works alongside banks and federal credit unions to
provide reasonable cost financing to all manner of business and
industry in the state.
REPRESENTATIVE HERRON inquired whether the AIDEA board gave any
thought to just staying in the loan guarantee business.
MR. SPRINGSTEEN replied that that is part of the process being
engaged here - AIDEA has an idea that it is bringing forward and
is looking for input and adjustment that is required.
REPRESENTATIVE HERRON asked whether Mr. Springsteen is saying
the AIDEA board thought that a loan program was needed instead
of a loan guarantee program.
MR. SPRINGSTEEN responded it is having the ability to either
guarantee or to make an investment.
2:58:08 PM
REPRESENTATIVE JOSEPHSON said he was struck by Mr. Springsteen's
statement that in AIDEA's world a 50 percent interest warrants
potentially having equity in a project.
MR. SPRINGSTEEN answered he used the term loosely in terms of
partnership, not as a strict legal vehicle, but in reference to
the nature of a relationship where there is a promising project
that has a good and solid committed backer for reservoir
development, and AIDEA would provide funding for this type of
topside infrastructure development with a partner.
REPRESENTATIVE JOSEPHSON remarked that Mr. Springsteen's use of
the word partnership is also interesting because in HB 247 there
is, in one sense, absolutely a partnership, but in another sense
there is not, it is a grant. But, he continued, AIDEA looks at
50 percent investment as possibly warranting some sort of
partnership interest.
MR. SPRINGSTEEN responded that the responsibility of AIDEA staff
is as stewards of funds that are provided to AIDEA. The staff
views funds as a renewable source to take and deploy for project
development, those funds are returned to AIDEA, they provide a
return and also provide a dividend to the state, and the funds
are redeployed for additional project development.
REPRESENTATIVE JOSEPHSON recalled the governor's fiscal plan as
stating that the loans to the oil industry would be more
favorable than commercial rates. He observed that the second
paragraph of the sectional analysis says the loans would be
consistent with what commercial lenders offer. He inquired why
a developer would come to AIDEA if the developer can get a loan
through a commercial lender.
MR. SPRINGSTEEN replied that from time to time there are the
right types of project developers that are providing a
commanding benefit to the state in terms of employment and in
generating royalty and tax revenue for the state, which would
get considered in terms of rate setting. He said AIDEA starts
with the idea of the merits of the project and what type of
other financial partners and commitments there are for the
project, and determines what a market rate is. Then AIDEA has
the ongoing discussion of what additional incremental benefit
does the developer provide to the state that would warrant
preference in terms of a lower rate.
REPRESENTATIVE JOSEPHSON addressed the liability issue raised by
Representative Seaton. He said he is concerned about state
liability, but is more concerned about the subject of
rehabilitation and demobilization. He asked whether the current
system is inadequate to handle issues of after the life of a
field rehabilitation and demobilization and whether there is
something that is not being done to protect Alaska.
MR. SPRINGSTEEN answered that each deal is different but
generally AIDEA's approach is to act in the form of a lender and
to have the other party responsible for addressing those types
of liabilities mentioned.
3:02:15 PM
REPRESENTATIVE SEATON said he is uncomfortable with not more
than 50 percent because he is unsure how much of the project
that is. Whether it is through credits or through loans, it
seems like the state is trying to attempt [to make it] so that
people do not enter into the normal commercial relationships of
having two or three or another partner come in with expanded
balance sheets. In some cases what the state is doing is like
what happened with Buccaneer - the state actually lessened the
need for Buccaneer to have a partner and have a broad balance
sheet due to the state's participation. He said he hopes that
when this is discussed again, AIDEA can provide some assurance
about the state's participation at a 50 percent rate because it
may be leveraging in more financing with the state's 50 percent
and getting into the situation where the state is digging itself
into a hole.
3:03:32 PM
REPRESENTATIVE JOHNSON expressed his concern about the zero
fiscal note because it was stated several times that AIDEA would
have to call in experts from outside or from DNR. Thus, there
needs to either be a fiscal note from DNR or something that is
going to reflect the [reimbursable services agreement (RSA)].
The fiscal note cannot possibly be zero if AIDEA does not have
the expertise in-house, he posited. He requested an updated
fiscal note from the departments from which AIDEA would be
getting the expertise.
MR. SPRINGSTEEN replied that when working with project developer
partners, AIDEA often enters into RSAs with the developer
partner. If a developer is seriously considering financing
through AIDEA, then many times it is worthwhile for the
developer to provide the funds for this type of analysis and the
analysis is done at the control of the authority.
REPRESENTATIVE JOHNSON said he thought he clearly heard that
AIDEA would need to have resource assessments to be able to find
out what is in the ground and DNR is the only one that can do
that, so that is where he was going with that. He understood
that other people might pay for the other things, but someone
from DNR is going to have to step in and there will be a cost
and he would like to accurately reflect the cost of this bill.
MR. SPRINGSTEEN responded that AIDEA often engages other
departments, but they are under RSAs that are paid for
ultimately by the project developer, which is the model that
AIDEA contemplates in this.
[HB 246 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 216 FiscalNote.php.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |
| CSHB 216( ) - Legislation Ver. E.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |
| CSHB 216( ) - Sectional Analysis.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |
| CSHB 216( ) - Sponsor Statement.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |
| CSHB 216( ) - Summary of Changes (Ver. W to E).pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |
| HB246 Ver A.pdf |
HRES 3/16/2016 1:00:00 PM HRES 5/30/2016 11:00:00 AM HRES 5/31/2016 11:00:00 AM HRES 6/1/2016 11:00:00 AM |
HB 246 |
| HB246 Sectional Analysis.pdf |
HRES 3/16/2016 1:00:00 PM HRES 5/30/2016 11:00:00 AM HRES 5/31/2016 11:00:00 AM HRES 6/1/2016 11:00:00 AM |
HB 246 |
| HB246 Fiscal Note-DCCED-AIDEA-01-14-16.pdf |
HRES 3/16/2016 1:00:00 PM HRES 5/30/2016 11:00:00 AM HRES 5/31/2016 11:00:00 AM HRES 6/1/2016 11:00:00 AM |
HB 246 |
| HSE RES HB 246 - AIDEA Oil and Gas Infrastructure Development Fund presentation.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 246 |
| HB 216 Supporting documentation.pdf |
HRES 3/16/2016 1:00:00 PM |
HB 216 |