Legislature(2023 - 2024)BARNES 124
04/03/2024 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB394 | |
| HB393 | |
| HB388 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 393 | TELECONFERENCED | |
| *+ | HB 394 | TELECONFERENCED | |
| += | HB 388 | TELECONFERENCED | |
| += | HB 359 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 388-COOK INLET RESERVE-BASED LENDING
[Contains discussion of HB 393.]
2:33:27 PM
CHAIR MCKAY announced that the final order of business would be
HOUSE BILL NO. 388, "An Act relating to state loans for oil and
gas projects in the Cook Inlet sedimentary basin; relating to
the Alaska Energy Authority; relating to the Alaska Industrial
Development and Export Authority; and providing for an effective
date." [Before the committee, adopted on 3/22/24 as a working
document, was the proposed committee substitute (CS) for HB 388,
Version 33-LS1237\U, Nauman, 3/15/24 ("Version U)".]
2:33:42 PM
The committee took a brief at-ease at 2:33 p.m.
2:34:26 PM
REPRESENTATIVE RAUSCHER made a motion and corrected the motion
following the upcoming at-ease.
2:35:03 PM
The committee took a brief at-ease at 2:35 p.m.
2:35:57 PM
REPRESENTATIVE RAUSCHER moved to adopt the proposed CS for HB
388, Version 33-LS1237\R, Nauman, 3/30/24, as a working
document. There being no objection, Version R was before the
committee.
2:36:41 PM
TREVOR JEPSEN, Staff, Representative Tom McKay, Alaska State
Legislature, on behalf of the sponsor, the House Resources
Standing Committee, on which Representative McKay serves as
chair, presented the summary of changes for Version R of HB 388
[copy included in the committee packet], which read as follows
[original punctuation provided]:
Sec. 1 New section which conforms the Cook Inlet
reserve-based lending fund to current AIDEA dividend
policy.
Sec. 2 New section which allows the creation of
subsidiaries under AIDEA to handle reserve-based
lending projects.
Sec. 3 Amends section 1 of 33-LS1237\U to remove the
projected rate of return and AIDEA recommendation on
whether to pursue projects from the reporting
requirements associated with reserve-based lending
projects identified by AIDEA. Adds a reporting
requirement on the amount necessary to be appropriated
by the legislature for projects.
Sec. 4 Amends section 2 of 33-LS1237\U to conform
44.88.850(a) with other AIDEA investment funds,
allowing flexibility regarding the transfer of funds
into and out of the account instead of designating the
fund consist solely of appropriations made by the
legislature. Adds an additional subsection (c) which
requires the authority to set the interest rate for
reserve-based loans and allows them to be less than
the cost of funds to the authority. Provides for a
definition of "cost of funds".
Sec. 5 Same as section 3 in 33-LS1237\U
Sec. 6 Same as section 4 in 33-LS1237\U
2:39:38 PM
CHAIR MCKAY stated that the proposed legislation would set up a
fund within the Alaska Industrial Development and Export
Authority (AIDEA) to invest in oil and gas development projects,
of which the legislature could incentivize.
MR. JEPSEN, in response to Chair McKay, stated that the intent
of HB 388, Version R, would be to set up a designated fund for
Cook Inlet reserve-based lending. He stated that the loans
would be based on the gas reserves in Cook Inlet, with the value
of a specific loan based on the size of the reservoir. He
explained this in more detail, stating that the high costs
associated with big development projects, along with the fact
the gas cannot be sold as needed, has hampered projects
economically. He stated that the proposed legislation was
designed to set up the fund under AIDEA to allow it to invest in
Cook Inlet gas projects. He further discussed the economics of
the proposed legislation.
CHAIR MCKAY added that Version R would not direct the state to
appropriate money; it would only set up the regulatory framework
for this to happen if the legislature decides to proceed with
projects. He stated that AIDEA would then be allowed to manage
the investment.
MR. JEPSEN concurred. He added that there is a reporting
requirement proposed under the bill, so AIDEA would report back
to the legislature on prospective projects.
2:42:58 PM
RANDY RUARO, Executive Director, Alaska Industrial Development
and Export Authority, in response to a question from
Representative McCabe, estimated that there are 200 billion
cubic feet (Bcf) of crude reserves in [the Cosmopolitan Oil and
Gas Field].
REPRESENTATIVE MCCABE questioned the amount of proven reserves
in Cook Inlet.
MR. JEPSEN responded that, per the Department of Natural
Resources (DNR), there are 800 Bcf of proven reserves in Cook
Inlet, which equals approximately a 10-year supply.
REPRESENTATIVE MCCABE suggested that HB 388, Version R, and [HB
393] would create tools to go forward. He stated that [HB 393]
would provide an incentive for investors, while HB 388, Version
R, would create a loan program. He suggested that these pieces
of legislation would incentivize the free market to find more
gas for the energy needs in Southcentral.
MR. JEPSEN concurred that these House Resources Standing
Committee Bills would work together to provide an alternate
pathway and improve project economics.
CHAIR MCKAY interjected that HB 388 would not create a tax
credit, but companies would pay back AIDEA. He requested that
Mr. Ruaro comment on this.
2:46:33 PM
MR. RUARO explained that AIDEA has broad authority. He
explained that previous legislation has been passed giving AIDEA
specific authority to provide investments and loans. He stated
that AIDEA supports Version R, as it would provide a tool to do
this.
REPRESENTATIVE SADDLER questioned the contradiction in funding
between the Alaska Energy Authority (AEA) and AIDEA in the two
fiscal notes.
MR. RUARO answered that the fund would be established in AIDEA.
REPRESENTATIVE SADDLER suggested that the fiscal note provided
by AEA be changed.
MR. JEPSEN interjected that this fiscal note would be removed
once Version R passed from committee.
2:48:35 PM
REPRESENTATIVE SADDLER expressed the understanding that Version
R would first create a reserve-based lending fund in AIDEA, and
then the legislature would capitalize this with an
appropriation. He continued that AIDEA would then lend the
money to finance production. He questioned whether oil and gas
reserves would be the collateral for the loans.
MR. RUARO answered that this would be a form of credit AIDEA
could take; however, Version R would not limit AIDEA to only
this collateral. In response to a follow-up question, he stated
that 25 percent of the fund would pay the AIDEA dividend. He
explained that this would conform with other AIDEA programs. He
clarified that this would be from the net income of the fund,
not the net value of the fund.
2:50:59 PM
REPRESENTATIVE SADDLER requested an explanation on the
collateral and loan process.
2:51:08 PM
MARK DAVIS, Special Counsel, Alaska Industrial Development and
Export Authority, explained that this reserve-based lending
would be based on the reserve value of the well, which can be
monetized. In response to a follow-up question, he stated that
there would be other collateral taken, such as equipment a
company may own. He added that there would need to be assurance
that AIDEA would be paid back.
2:52:26 PM
REPRESENTATIVE MEARS pointed out that these loans may be
significantly larger than other loans AIDEA has provided, adding
that these loans would be less expensive. She questioned how
this would affect AIDEA's other projects in the state.
MR. RUARO expressed the understanding that Version R would not
require a below market interest rate; rather, this would be at
the discretion of AIDEA. He continued that individual decisions
on each application would be made.
2:53:32 PM
MR. DAVIS explained Interior Natural Gas Utility (IGU) loans, as
defined in the uncodified section of House Bill 105 [passed
during the Twenty-Ninth Alaska State Legislature]. In this
instance, the legislature directed AIDEA to make the loan lower
than the market rate, with some conditions; however, Version R
would not do this. He stated that the proposed legislation
would allow AIDEA to see the reserves as collateral rather than
only using the cash flow. He noted that in startup situations
often the cash flow is less than the value of the company, so
the proposed legislation would allow the reserves to hold the
value to secure the loan.
2:54:42 PM
REPRESENTATIVE MCCABE questioned whether AIDEA had paid back $11
million to the state general fund last year.
MR. RUARO responded in the affirmative.
2:54:59 PM
REPRESENTATIVE SADDLER questioned the size and scope of the
proposed loans.
MR. RUARO expressed uncertainty whether there would be a minimum
or maximum amount of the loans, as there are large and small
producers in Cook Inlet. In response to a follow-up question
concerning the largest investment AIDEA has made, he gave the
example of a $90 million loan and a $40 million loan.
2:56:16 PM
MR. DAVIS stated that another way of looking at this would be
the cost of drilling a well in Cook Inlet, and the last time
AIDEA provided a loan was for the Endeavor rig, which cost an
estimated $20 million.
2:56:52 PM
MR. JEPSEN provided the example that a new platform in Cook
Inlet would be $500 million. He expressed the opinion that
AIDEA would not be the sole funder of this.
MR. RUARO added that AIDEA is often not the only financing
entity involved.
MR. DAVIS interjected that a few years ago the Endeavor had cost
$144 million, with AIDEA's investment being $23 million, so
there were other partners.
2:57:44 PM
REPRESENTATIVE MCCABE referenced the $11 million that AIDEA paid
to the general fund and suggested that AIDEA is like a "state
bank," and the state is earning money from this.
MR. RUARO responded in the affirmative. He stated that AIDEA
has provided dividends to the state of around $500 million. He
noted that this is just a part of the net income.
2:58:44 PM
CHAIR MCKAY commented that, other than making a state-run oil
company, all avenues are being looked at to help Cook Inlet. He
pointed out that using the private sector is a benefit because
it "knows how to do this work."
2:59:29 PM
REPRESENTATIVE MEARS questioned whether the uniqueness of the
proposed program prohibits these types of loans to be issued
through existing programs in AIDEA.
MR. RUARO answered that AIDEA has a very broad discretion, but
the details and specificity helps "sharpen the tool in the
toolbox." He stated that it is not uncommon for the legislature
to provide specific tools. He expressed the opinion that AIDEA
could do this without the proposed legislation; however, having
specific definitions and details would be helpful.
3:00:44 PM
CHAIR MCKAY announced that HB 388 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB0394A.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 394 |
| HB 394 Sponsor Statement ver. A.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 394 |
| HB 394 Sectional Analysis ver. A.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 394 |
| HB 394 Presentation ver. A.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 394 |
| HB 394 Fiscal Note DCCED-RCA.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 394 |
| HB 394 RCA Presentation to HRES 4.3.24.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 394 |
| HB0393A.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 393 |
| HB 393 Sponsor Statement Version A.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 393 |
| HB 393 Sectional Analysis Version A.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 393 |
| HB 393 Presentation Version A.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 393 |
| HB 393 Fiscal Note #1 DNR-DOG.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 393 |
| HB 393 Fiscal Note #2 DOR-TAX.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 393 |
| CSHB 388(RES) LS-1237R Summary of Changes.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 388 |
| CSHB 388(RES) LS-1237R.pdf |
HRES 4/3/2024 1:00:00 PM |
HB 388 |