Legislature(2009 - 2010)HOUSE FINANCE 519
03/15/2010 09:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB369 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 369 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 369
"An Act relating to an in-state natural gas pipeline,
the office of in-state gasline project manager, the
Joint In-State Gasline Development Team, and the In-
State Gasline Steering Committee; and providing for an
effective date."
SPEAKER MIKE CHENAULT, presented his synopsis of the in-
state gas pipeline legislation by reading the Sponsor
Statement for the Committee Substitute for House Bill
369(RES).
Committee Substitute for House Bill 369(RES) was
introduced as an effort to expedite the process for an
in-state natural gas pipeline. The in-state gas line
has been a topic of discussion in the Legislature and
the Administration for a number of years. Currently,
there are two separate state entities, the Alaska
Natural Gas Development Authority and the in-state gas
line coordinator, working on a project. House Bill
369 combines these two entities along with the
Department of Transportation and Public Facilities and
the Alaska Railroad Corporation to create a Joint In-
state Gas line Development Team within the Office of
the Governor. The Development Team is to ensure the
in-state gas line is construction ready by July 1,
2011 with gas flowing by 2015. It is my hope the
Development Team will be able to focus the state's
efforts in putting a construction plan together and
leverage the best ideas and data to get a gas line
built.
The Department of Transportation and Public Facilities
and the Alaska Railroad Corporation were included as
members of the team due primarily to their having
existing rights of way which could speed up any
permitting process that may need to be undertaken.
The Alaska Railroad Corporation also has bonding
ability which could be an answer in financing a gas
line.
The Development Team will cover all aspects of the
line's development and are to select the most
economically sound route that will deliver gas to
Alaskans, plan permitting and construction by using
existing rights of way and take any action necessary
to get the project underway as soon as possible.
Additional duties of the Joint Development Gasline
Development Team are also spelled out within the
legislation.
The bill provides for an expedited review and action
process and the sharing of information that may
already have been accumulated or completed. The bill
also requires that state agencies or entities
cooperate with and give priority to requests for
information from the Development Team.
Co-Chair Hawker emphasized that Alaskans think it is time
for action on in-state gas providing energy security and
jobs. He stated his intention is not to interfere with the
AIGA process but to create and swiftly implement an option
for gas development if none exists.
9:10:58 AM
Representative Gara expressed concern about the bill
language on Page 3, lines 23-24, "take [all] actions
necessary to enable natural gas to flow down the pipeline
by 2015." He wondered if that language precluded a best
option scenario, [development of a major export gas
pipeline]. He asked if the sponsor would consider inserting
language in the bill stipulating that this plan would only
proceed if it was the best option available. Speaker
Chenault stressed that the state must have a ready-to-go
project with a set timeline. He asserted that a timeline
gets the job done. The state has spent countless millions
of dollars and many years looking at gas development
without fruition. He felt that the process always gets
sidetracked and delayed by other uncharted possibilities.
He determined that there is a known quantity of natural gas
(35 tcf trillion cubic feet) in Prudhoe Bay, gas is rapidly
declining in Cook Inlet, and those consumers will be left
without gas in the near future. He concluded that
legislation that contains timelines addresses those needs.
9:14:41 AM
Representative Gara asked if the legislation would force
the state to proceed if evidence proves the in-state gas-
line is more expensive for consumers than other options
such as the development of a major export pipeline.
Speaker Chenault replied that there are many options under
discussion but the state limited its own options for in-
state gas development when the legislature entered into an
agreement to prohibit participation in any projects
producing over 500 million cubic feet (mcf) of gas. He felt
that action was not correct; the state needs to give
Alaskans every opportunity to have in-state gas. He does
not think anyone has an accurate idea of the cost of gas
with any line or importation of liquefied natural gas.
Estimates exist but not factual information. It is the
intent of the legislation to develop a project based on
factual cost information.
9:16:55 AM
Representative Doogan asked if the goal was to establish a
plan to build a pipeline from the North Slope to an
undetermined southern terminus by the middle of next year.
Speaker Chenault affirmed. He did not want to decide the
gas-line route prematurely. One goal of the bill is to
allow the In-state Gas-line Development Team to determine
the best economical route.
Representative Doogan inquired about the cost of planning
for the in-state gas line. Speaker Chenault noted that he
does not know all of the set costs. He is waiting for
fiscal notes. He guessed that the cost could be in the tens
of millions or hundreds of millions of dollars.
Representative Doogan asked what happens in July 2011 when
the planning is complete. Speaker Chenault offered that
either a private corporation could carry out the project or
the legislature could decide to build the gas-line.
9:20:00 AM
Representative Kelly asked if any future discovered gas
reserves could connect to the proposed line. Speaker
Chenault stated that projects will bid in an open season.
Representative Kelly asked if the gas-line would be a
common carrier. Speaker Chenault affirmed.
9:21:45 AM
Representative Gara expressed that his biggest concern was
cost to the consumer. Evidence suggests that natural gas is
cheaper through a larger line. An obligated 20-30 year
contract is necessary in order to build a pipeline. A
scenario could develop that consumers are obligated to the
more expensive smaller in-state gas-line even if cheaper
gas flows through a major line at some point in the future.
Speaker Chenault believed that a larger concern was
depleted Cook Inlet gas reserves in 2015 or 2018. The state
needs to be ready with a viable project. He agreed that a
bigger line means a cheaper price, but that gas-line might
not start until 2025 or later, if ever. He warned that
without the certainty of gas Alaska will not move forward.
Representative Gara shared that facts reveal Cook Inlet gas
will still be available but more difficult to extract
therefore, more expensive. He wondered if the sponsor
considered subsidizing natural gas while waiting for
completion of a larger line. Speaker Chenault agreed that
was an option but that historically incentives have not
increased gas production in Cook Inlet. Approximately 500
natural gas related jobs have been lost and more are being
threatened due to a diminishing supply of gas in Cook
Inlet. A gas storage facility may also be lost. He argued
that although the legislation might not be a perfect
solution the legislature must make a decision to move
forward for energy security and opportunity.
9:26:48 AM
Co-Chair Stoltze wondered how expensive a natural gas
subsidy to Anchorage and south central Alaska would be. He
guessed that it would be controversial.
Speaker Chenault acknowledged that there is more gas in
Cook Inlet, possibly up to 1.8 tcf according to the
Department of Natural Resources. However, the cost of
recovery and increased costs to the consumer remain
undetermined. The legislation is an attempt to develop an
option and provide all of the facts without guesses and
estimates.
9:28:29 AM
Representative Kelly commented that the state will still
need a gas-line to south central Alaska even if a major
line is developed. He assumed that the in-state line would
be designed to fall within the 500 mcf limit on natural gas
imposed on the state by AGIA if the line is built. Speaker
Chenault agreed.
9:29:40 AM
Representative Austerman believed in taking care of
Alaskans first via an in-state line. He opined that gas
might not be less expensive for Alaskans through takeoff
lines from a big export line. He inquired if the Resources
Committee addressed the concerns of the bill's legal issues
by the Department of Law. He referenced their memo (March
3, 2010 copy on file). Representative Chenault reported
that CS HB 369 (RES) attempted to address those issues.
9:31:21 AM
ROBERT SWENSON, INSTATE GASLINE PROJECT MANAGER, OFFICE OF
THE GOVERNOR, agreed with Representative Chenault and
believed the state needs to be committed to in-state gas.
He relayed that the Governor is also very committed to
development of in-state gas. He reported on his project
goals. A report of cost estimates will be presented to the
legislature on July 1, 2010 for multiple scenarios for a
stand alone in-state gas-line. The administration is
working diligently on state and federal right-of-way
permits and expects to have them completed by the first
quarter of 2011. He added that, a complete information
package describing the risks and cost assessments will be
available to private entities who are interested in
partnering in the pipeline.
Mr. Swenson noted that the Governor agreed with the
majority of the provisions in HB 369 with some exceptions.
Mr. Swenson is working with the sponsor to resolve the
differences. Specifically, the bill sanctions construction
before the costs are known.
9:34:41 AM
Representative Gara reiterated his concerns regarding
completed construction of a big gas-line for export versus
a smaller in-state line.
Co-Chair Stoltze asked Representative Gara to clarify what
he is referring to by "big" gas-line. He answered that he
is referring to the 4tcf export line via Trans-Canada or
Valdez.
Mr. Swenson stated that the work going on now associated
with an in-state gas pipeline is insurance for Alaskans. He
felt that the cost to the state is a reasonable investment
for that insurance. The results from the work will provide
the costs for gas transportation infrastructure and service
to the consumer. The Governor is focused on getting the
work done in a timely manner in order to analyze,
understand, and compare all of the in-state and major gas-
line options. Representative Gara repeated his concern with
the language of the legislation, forcing the state to
commit to construction of an in-state line if a major line
was going to be built providing cheaper gas. Mr. Swenson
stated that the bill language enacting start up
construction in July 2011 is problematic in that context.
He added that the Governor will review all of the necessary
data before moving forward on the in-state pipeline.
Representative Gara restated his question, "If the big gas
line were going to go ahead would you want the small gas
line to go ahead also?" Mr. Swenson acknowledged that
current analysis suggests that spur lines from a major line
would cost much less than a single stand alone in-state gas
line. However, their development would be specifically
related to development of a large diameter gas line from
Prudhoe Bay. In order for the Governor to make an informed
decision he felt it was important to move forward in the
present direction, considering all of the unresolved issues
around development a major Prudhoe Bay gas line. He
repeated his concern with HB 369 mandating construction of
the in-state line in 2010 prior to completion of the cost
analysis.
9:40:31 AM
Representative Austerman noted that during the AGIA process
gas-line startup dates were estimated at 2018 and now they
are being discussed at 2024. The dates keep moving up
giving him more reason to support the in-state line. He
reported that he read that the administration is planning
the in-state gas line as a back-up to the main gas line
through Canada. He asked Mr. Swenson to estimate when the
administration will determine, during the planning process,
if the in-state line is a viable option, will be
constructed, and at what point is the in-state planning
process itself worth continuing? Mr. Swenson explained that
he did not want to cause confusion by the term back-up line
in reference to the smaller in-state gas line versus
progress on the large diameter main gas line. Their current
work on planning and cost estimates for the in-state line
is proceeding on schedule. He identified two issues for the
large gas-line that must still be resolved: timing and
completion. He indicated that along with costs those will
be determined by the end of open season. In addition, the
administration's work will be completed on the in-state
line by that time. The information will then be available
to make decisions on viable options. He revealed that North
Slope natural gas resources are much larger than the 35tcf
of proven reserves at Pt. Thompson and Prudhoe Bay. It is
possible both lines could co-exist.
Representative Austerman explained that the producer's bids
come with conditions and asked at what point open season
will be finalized.
9:45:27 AM
Mr. Swenson declared that he is not an expert on AIGA and
is narrowly focused on the in-state gas line. The in-state
line he is working on will not have an open season and will
not be regulated by FERC (Federal Energy Regulatory
Commission). He understands that the initial open season
process will allow the state to find out what entities and
companies are interested in purchasing Alaska gas.
Representative Austerman assumed that the open season could
go on for years, and suggested that the administration's
plan contingent on a finalized open season could hold up
development of an in-state gas-line for years. He suggested
that an expert on AGIA could answer the timeframe question.
9:47:14 AM
Co-Chair Hawker announced that he monitored the process of
the bill through the Resources committee hearings. He
alleged that during the meetings the administration was
referring to an in-state gas line as "plan B" or the fall
back plan. He asked where the legislative authority for his
work comes from. Mr. Swenson answered that the authority
was enacted in Section 19, of the FY 2010 appropriations
bill [HB 81]. Co-Chair Hawker confirmed and added that the
authority came from intent language, not statutory language
and the administration is not legally obligated to comply.
He asked if the intent language suggested that the project
could be considered a fall back plan. Mr. Swenson replied
that he considered the in-state gas line project a co-
commitment along with the large diameter line. The
administration is moving forward with all aspects of the
project and progress is not being held hostage to any
developments with the larger line.
Co-Chair Hawker queried if it would be better if the
administration's current project was operating under
statutory language. Mr. Swenson responded that if the
legislature believes the project is not on the correct
pathway, then clarification would be appreciated. He stated
that he was providing updates by his team and thought the
project was diligently moving forward on the correct track.
Co-Chair Hawker wondered if statutory authority would
protect the project from being sidetracked. Mr. Swenson did
not feel that statutory authority was necessary.
9:51:43 AM
Representative Doogan asked who was involved in the in-
state gas line process and to what extent. Mr. Swenson
answered that the administration's current gas line team,
was composed of himself, an assistant, and contractors. His
team works with the Department of Transportation on right-
of-way issues and acquisitions. Permitting, pipe line
engineering and costs are being handled through
contractors. The cost of service analysis will be done
through the Department of Natural Resources and AIGA models
that were done last year.
Representative Doogan wondered if the Alaska Railroad
Corporation (ARRC) was involved in the process. Mr. Swenson
stated that the ARRC is not currently involved.
Representative Doogan asked if the Alaska Natural Gas
Development Authority (ANGDA) was involved. Mr. Swenson
replied that the project has had numerous consultations
with ANGDA to ensure that work was not being duplicated and
to provide cost estimations of the right-of-way and
Environmental Impact Statement [EIS] work.
Representative Doogan guessed that Mr. Swenson's position
as current instate gas line project manager is similar to
the position created in the legislation. Mr. Swenson
affirmed.
Representative Doogan asked if the Joint In-state Gasline
Development Team defined by HB 369 would be a policy making
group. Mr. Swenson explained that the development team was
not a policy making group, rather a managing and decision
making entity. Representative Doogan queried how Mr.
Swenson envisions the team working as defined by the bill.
Mr. Swenson answered that the legislation provides
statutory language defining that the team will be lead by a
group of four people and clarifies their joint
communication effort.
Representative Doogan asked what the differences were
between his current project and the project defined by the
legislation. Mr. Swenson explained that his current project
was to specifically focus on the development of an in-state
stand alone 24 inch diameter gas line originally called the
"bullet line." The language in the bill broadens the in-
state gas line effort from tidewater to the North Slope.
He noted that ANGDA's efforts were focused on a spur line
feeding off of the large diameter 48 inch gas line [AGIA]
project.
9:57:50 AM
Representative Doogan concluded that there will be three
pipeline efforts in progress including the proposed
legislation. He wondered what would happen to the
administration's current project if HB 369 passes. He asked
how it would work to have three separate pipeline efforts
simultaneously. Mr. Swenson related that his project would
continue. He believed that the legislation would provide
improved communication and information sharing between the
entities and avoid duplicated effort. The statutory mandate
would ensure continued action.
Representative Kelly shared his frustration with the
uncertainty of the route the in-state gas line would take.
He identified two possible routes: Glenn/Richardson Highway
or the Parks Highway. He wondered which route was the best
option. Mr. Swenson responded that the best route would be
the shortest. This equates to cost. The Glenallen route
would be the shortest but is contingent upon the large
diameter line being built. The Parks Highway route starting
in the North Slope to Livengood with a feeder line into
Fairbanks is the preferred route for a standalone gas-line.
Representative Kelly asked when the route will be decided.
Mr. Swenson replied that he cannot make that determination
yet. He expected to have an answer by July 1, 2010 when the
first phase of his project is completed. He added that as
the project continues more information will become
available.
10:04:59 AM
Representative Gara asked if Mr. Swenson could estimate the
cost of gas to consumers from an in-state gas line. He felt
he could not wait for an answer until July 1, 2010 with HB
369 pending. Mr. Swenson replied that without the cost
estimates for the pipeline available he was not able to
speculate the cost of service. There are so many variables
that still must be known before this could be determined.
KEITH MEYER, ENGINEERING MANAGER, MICHAEL BAKER ASSOCIATES,
COST ESTIMATION SERVICES, added that the cost estimation
services are currently ongoing under his direction. He
offered that the engineering specifications were now
available to help determine cost estimates. Once the
[construction] cost estimates are finished the information
will be provided to the Department of Natural Resources to
determine the cost of service. The cost estimates will be
ready by July 1, 2010. He furthered that part of their
contractual duties was to develop a schedule to feed into
the department's cost model. He explained the schedule as
follows: procurement by the middle of 2012, pre-
construction services in 2013, construction would continue
into 2015. He elaborated on the implications of a July 1,
2011 construction start. He defined "construction ready"
[language contained in HB 369] as building the pipeline. He
expounded on the difficulties of meeting this deadline. He
argued there would be no time to complete the bid or for
the orderly transition of information from the Gasline
Development Team to the outside entity. In addition,
engineering needs to be complete, major permits are
required, right-of-way acquisitions finalized, construction
camps, line pipe, and facilities material orders in place.
A 24 month lead in period is required to order the line
pipe. He speculated that unfinished engineering would be
disregarded if an outside entity took over the project.
Finally, an implied warranty would have to be addressed if
construction began under the auspices of the state and an
outside entity stepped in.
10:10:40 AM
Representative Austerman asked Mr. Meyer to elaborate on
the schedule. Mr. Meyer recapped the schedule. In 2012 the
line pipe will be ordered. In 2013 preconstruction will
begin. This involves preparing the material sites,
surveying, and preparing the right of way. In 2014 start
construction which would last 2 years over the summer and
winter seasons. He estimated opening the construction bid
in 2013. Representative Austerman deduced that the flow of
gas would begin in 2016. Mr. Meyer affirmed.
10:12:47 AM
Representative Gara understood that an anchor consumer is
needed to move forward with an in-state gas pipeline. He
wondered how long a purchase commitment with the anchor
consumer would obligate consumers to purchase gas under the
contract. Mr. Swenson guessed it would be a significant
number of years. He stated he would provide the information
at a later date.
Representative Gara gathered that under the timeline of the
bill the state would have to make costly and inefficient
decisions regarding engineering the pipeline that would
have to be redone by the private third party entity. Mr.
Meyer answered that in order to be construction ready by
2011 they need engineering to supply information.
Engineering is necessary to collect information for design,
regulatory, and environmental stipulations. However, a
prudent third party who takes over would supplant the
previous design engineering effort with their own. There
may be some previous data used, but the engineering would
have to be specific to their own needs.
Mr. Swenson added that an early construction date would
challenge promoting the project to an interested private
entity because of the detailed engineering required.
10:18:17 AM
Representative Gara inquired if the early timeline in the
bill would affect the choice of routes the in-state line
would take. Mr. Swenson replied that length equates to
cost. The Parks Highway route was longer but the shorter
Glenallen route would depend on development of a large
diameter line.
Co-Chair Stoltze relayed that in previous administration
testimony the Glenallen route was reported to be more
expensive. He requested clarification. Mr. Meyer responded
that in the first briefing led by Harry Noah, Alaska Mental
Health Land Trust Resource Manager, Department of Natural
Resources, an alternative analysis was offered. The
findings concluded that for a standalone in-state gas line
the Parks Highway Route was a less expensive route by $480
million. He concurred that the difference in cost was the
difference in length. Each mile costs approximately five
million dollars.
10:20:38 AM
Representative Gara reiterated his concern that the time
line in the legislation would force the state to pick a
less than optimal route. Mr. Swenson felt that from a cost
stand point the correct route would be chosen.
Representative Gara deduced that the Parks Highway Route
would be chosen. Mr. Swenson offered that the legislation
requires choosing the most economical route. That would
mean the shortest route. Glenallen was the shortest if the
terminus was in Valdez. The Parks Highway Route is the
shortest to south central Alaska.
10:22:12 AM
Representative Doogan mentioned that right-of-way's can be
difficult to obtain. He wondered how acquisition of right-
of-way's will proceed on either route.
MIKE SOTAK, ASRC ENERGY SERVICES, INC. (via
teleconference), responded that both routes will have to
find right-of-way access. The gas line cannot use the same
right-of-ways as the TransAlaska Pipeline. Much of the
Parks Highway route right-of-ways were joint use on state
roads and power lines routes. Approximately ten percent of
rights-of-ways are located on state land on the Parks
Highway route. He felts that if problems arise in
acquisition they can be resolved within the project's
timeframe. Representative Doogan inquired if right of way
acquisition difficulties were expected on the Glenallen
route. Mr. Sotak expected the process to be the same as the
Parks Highway route.
10:26:51 AM
Mr. Swenson concluded that the administration's in-state
gas pipeline project was committed to working in parallel
with all other gas line projects in the state. He agreed
with Speaker Chenault that all in-state gas pipeline
options must keep moving forward in order to develop the
state's natural gas resources in the near future.
Representative Austerman commented that he strongly
supports HB 369 so Alaskan's can have access to natural gas
as soon as possible. He alleged that the AGIA process will
take many years and might never result in a gas line. He
felt that the administration's current project was tied to
the outcome of AGIA.
10:30:36 AM
Representative Kelly wondered if construction of the
pipeline could begin south to north and who would decide
that. Mr. Swenson could not address construction issues. He
guessed that the legislature would make the decision.
Co-Chair Stoltze noted that a committee substitute for this
legislation would be offered in the near future.
HB 369 was HEARD and HELD in Committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AS 39.20.180.docx |
HFIN 3/15/2010 9:00:00 AM |
HB 369 |
| AS 39.25.110.docx |
HFIN 3/15/2010 9:00:00 AM |
HB 369 |
| Dept of Law re Statute Authority 4-09.pdf |
HFIN 3/15/2010 9:00:00 AM |
HB 369 |
| HB369-OOG-EO-03-01-10 fiscal note attachments.pdf |
HFIN 3/15/2010 9:00:00 AM |
HB 369 |
| HB 369 ADN Article 2.14.10[1].pdf |
HFIN 3/15/2010 9:00:00 AM |
HB 369 |
| Sectional Analysis-RES.pdf |
HFIN 3/15/2010 9:00:00 AM |
HB 369 |
| Sponsor Statement-RES.pdf |
HFIN 3/15/2010 9:00:00 AM |
HB 369 |
| HB 369 Resources Changes Summary.docx |
HFIN 3/15/2010 9:00:00 AM |
HB 369 |
| HB 369 OOG Fiscal Note NEW.pdf |
HFIN 3/15/2010 9:00:00 AM |
HB 369 |
| HB369-CED-ARR-3-12-10.pdf |
HFIN 3/15/2010 9:00:00 AM |
HB 369 |