Legislature(2013 - 2014)HOUSE FINANCE 519
03/27/2013 09:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB4 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 4 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 4
"An Act relating to the Alaska Gasline Development
Corporation; making the Alaska Gasline Development
Corporation, a subsidiary of the Alaska Housing
Finance Corporation, an independent public corporation
of the state; establishing and relating to the in-
state natural gas pipeline fund; making certain
information provided to or by the Alaska Gasline
Development Corporation exempt from inspection as a
public record; relating to the Joint In-State Gasline
Development Team; relating to the Alaska Housing
Finance Corporation; relating to judicial review of a
right-of-way lease or an action or decision related to
the development or construction of an oil or gas
pipeline on state land; relating to the lease of a
right-of-way for a gas pipeline transportation
corridor, including a corridor for a natural gas
pipeline that is a contract carrier; relating to the
cost of natural resources, permits, and leases
provided to the Alaska Gasline Development
Corporation; relating to procurement by the Alaska
Gasline Development Corporation; relating to the
review by the Regulatory Commission of Alaska of
natural gas transportation contracts; relating to the
regulation by the Regulatory Commission of Alaska of
an in-state natural gas pipeline project developed by
the Alaska Gasline Development Corporation; relating
to the regulation by the Regulatory Commission of
Alaska of an in-state natural gas pipeline that
provides transportation by contract carriage; relating
to the Alaska Natural Gas Development Authority;
relating to the procurement of certain services by the
Alaska Natural Gas Development Authority; exempting
property of a project developed by the Alaska Gasline
Development Corporation from property taxes before the
commencement of commercial operations; and providing
for an effective date."
9:06:58 AM
Co-Chair Stoltze discussed the meeting's agenda and related
that members had submitted questions in advance for HB 4's
sponsors, as well as for the staff members of the Alaska
Housing Finance Corporation (AHFC) and the Alaska Gasline
Development Corporation (AGDC) to address.
REPRESENTATIVE MIKE HAWKER, related that the technical
expertise that had been working for 2 years to assemble HB
4 was present at the meeting and available for questions.
Co-Chair Stoltze inquired if the members had the list of
pre-submitted questions in their packets.
9:11:59 AM
RENA DELBRIDGE, STAFF, REPRESENTATIVE MIKE HAWKER,
addressed a document containing committee members' pre-
submitted questions titled "HB 4 Questions Member's General
Questions" (copy on file). She addressed the first
question: "What is included in yearly reporting
requirements to the legislature?" She pointed out that the
list of the requirements under HB 4 was rather long.
Co-Chair Stoltze offered that Ms. Delbridge could summarize
the yearly reporting requirements to legislature under HB
4. Ms. Delbridge reported that under the legislation, AGDC
needed to annually review its assets and present to the
legislature each year a complete accounting of those
assets, including the money in the In-State Natural Gas
Pipeline Fund; all of this accounting would be audited by
an independent outside auditor. Furthermore, within 45 days
of adopting any regulations, AGDC had to submit those
regulations to the Administrative Regulation Review
Committee. Additionally, following an open season, AGDC had
10 days to disclose to the Speaker of the House, the
President of the Senate, and to the public the name of
prospective shippers on the gas pipeline, including the
capacity that they had contracted to ship, as well as the
duration of those contracts. For each board meeting, AGDC
needed to keep minutes and submit certified copies to the
governor and the Legislative Budget and Audit Committee.
Ms. Delbridge continued to address HB 4's reporting
requirements to the legislature and noted that AGDC's board
was subject to the open meetings portion of the
Administrative Procedures Act, which meant that it needed
to meet in public, provide reasonable public notice of
board meetings, and provide members of the public the
opportunity to be heard, keep minutes, etc.; she thought
that while this was not an annual reporting requirement, it
played into the context of the question. She stated that if
a capital reserve fund was created and used, AGDC must
annually certify the sum, if any, required to replenish the
capital reserve fund. She stated that AGDC had to submit to
the governor an annual report accounting for the efficient
discharge of all responsibility assigned by law or
directive to the corporation and that the legislature
needed to be notified of that report's availability; this
was another annual report that must include a financial
statement that was audited by an outside auditor. The
Regulatory Commission of Alaska (RCA) would be required to
include in its annual report a review of any regulatory
activities undertaken under the new AS 42.08 chapter
regulation for instate gas pipeline contract carriers. She
stated that a pipeline that was regulated under AS 42.08
would be required to submit a report every 3 years once
pipeline operations had begun that contained updated cost
data and a calculation of the 3-year average actual return
on equity to the RCA.
9:14:27 AM
Representative Gara thought that the written questions that
members had submitted were supposed to have been questions
that the committee did not think that presenters would be
able to answer. He had hoped that members would be able to
ask additional questions.
Co-Chair Stoltze elaborated that the committee would be
able to ask questions and explained that some of the
written questions were detailed or complex; he wanted to
the give the sponsors of HB 4, as well as members of AHFC
and AGDC time to prepare, so that they would not have to
come back to the committee with a response. He opined that
all questions were relevant in the committee, but that
submitted written questions were meant to better serve the
public process and the transmission of information. He
concluded that there would a very robust engagement
involving all the members of the committee.
Ms. Delbridge continued to address the members' pre-
submitted questions regarding HB 4 and addressed the second
question: "Why are there no commissioners on the Board of
AGDC?" She requested that Representative Hawker be able to
address the question because it generally detailed the
sponsors' desire to separate politics from gasline
development.
Co-Chair Stoltze requested that the sponsor delineate which
issues were policy issues and which were legal issues in
order to aid the committee in its understanding.
Representative Hawker addressed the second question in the
document and replied that it was a policy call. He
explained that the Finance Committee could have been the
board of directors for AGDC, but that he and Speaker
Chenault had made a policy call throughout the entire
process of the bill's formulation to attempt set up a very
functional entity that was as far removed as possible from
political influence. He stated that the concept behind the
board of directors of the Alaska Permanent Fund was looked
at as an entity that was removed political influence. He
pointed out that HB 4 had definite and defined requirements
that AGDC's board members must have expertise and knowledge
in gaslines rather than having the board being composed of
commissioners. He observed that the concern regarding there
being no commissioners on the board had been raised by
others, including the executive branch. He opined that if
the executive branch was writing a similar bill it would
make the board members all commissioners and that if it was
written by the Department of Corrections, they would want a
lot of corrections officers on the board; however, he
understood the need for balance and was working with Co-
Chair Stoltze's staff regarding a solution to the concern.
9:18:07 AM
Vice-Chair Neuman addressed the first question,
particularly regarding the report on the average return on
equity and inquired what would be included in the report;
he further inquired if it would show who was shipping how
much gas and at what value to the state so that the
committee would have a report on the state's royalty shares
and that "type" of reporting of the individual shippers
into the pipeline. Ms. Delbridge replied that the report
would go the RCA as part of the its regulation, but that it
would be filed in a public way in order to allow the
legislature and the public to have access to it;
furthermore, the only return on equity involved would be
that of the pipeline itself and not necessarily of people
that were selling gas on the North Slope for transport in
the pipeline. She stated that there was an expressed
provision in the regulatory section that nothing the RCA
did would usurp the ability of revenue and natural
resources to determine things that related to royalty value
of the gas and the reasonable transportation tariff of the
gas that was used for calculating production tax purposes.
Vice-Chair Neuman wanted to know who was shipping gas down
the pipeline, as well what the volumes, rates, and costs
were, so that people would know where the gas was coming
from. Ms. Delbridge replied that every contract that the
pipeline had with a shipper of gas would be public record
once it became a firm transportation service agreement
before AGDC started operations; one would be able to see
all of the contracts through the filings of the RCA. She
noted that there was a provision that commercially
sensitive information could be withheld if the RCA agreed
that it was commercially sensitive. She noted that the
information Vice-Chair Neuman was requesting would
certainly be made available.
Vice-Chair Neuman inquired if the information would be
submitted in a report to the legislature. Ms. Delbridge
replied that the firm transportation shipping agreements
would be filed with the RCA through the regulatory process
and that there was no provision that it also must be filed
with the legislature.
Ms. Delbridge continued to address the members' pre-
submitted questions regarding HB 4 and discussed question
3: "How are spur lines off the main pipeline handled?" She
noted that this question had been directed particularly at
how the 37 mile lateral into Fairbanks would be handled and
whether or not it was included as part of AGDC's plan, as
well as who would pay for the spur line. She requested that
Mr. Richards be able to respond to the question.
FRANK RICHARDS, MANAGER, PIPELINE ENGINEERING, ALASKA
GASLINE DEVELOPMENT CORPORATION, related that in the
current design that had gone through the environmental
impact statement (EIS), there was a lateral that had been
developed based on the access to provide gas to Fairbanks;
He stated that the lateral would be 35 miles and would be a
12 inch, lower pressure line that would be paid for by the
residents of Fairbanks and the North Star Borough; the
lateral would equate to about 50 cents to 70 cents on their
tariff. He concluded that the cost of future spur lines
would be borne by the entities that would be using them. He
noted that the CS had the requirement that upon the
commencement of construction of an instate gasline, that
AGDC analyze the potential natural gaslines connecting to
industrial or utility users in other parts of the state;
based on this analysis, if it was in the state's best
interest, AGDC would proceed forward with the design and
financing of additional spur lines to those entities.
9:22:53 AM
Vice-Chair Neuman asked who decided if the information was
in the best interest of the state and further inquired if
the information would be something that would be in a
report to the legislature. Mr. Richards responded that the
best interests finding was conducted by AGDC under the
legislation.
Representative Hawker noted that concept of analyzing
additional connecting lines around the state was a
provision added by the House Resources Committee. He
understood that the process involved many views, but that
HB 4's sponsors had originally wanted to keep "that" type
of analysis and determination in the hands of other
agencies, such as the Alaska Energy Authority and other
others that were really the analytical agencies; however,
the sponsors understood the need to work with colleagues
and felt that AGDC could handle the added responsibility of
the best interest findings.
Representative Gara observed that there had been a
statement in the presentation that HB 4 was primarily for
Alaskan use, while the "other project that we are talking
about" would be primarily for Asian use; however, both
projects would meet the Alaskan demand first and then
export the excess. He offered that there was no provision
in the other effort to deliver less gas to Alaskans and
inquired if that was correct. Ms. Delbridge replied the
Alaska Gasline Inducement Act (AGIA) pipeline project did
not provide for any spur lines, but provided for
connections; the connections would essentially be capped
holes in the pipe and would require that someone build the
spur lines at some point to connect the gas to Alaskans.
Representative Gara noted that the AGIA pipeline did
guarantee in-state gas use and pointed out that the tariff
rates under that pipeline were supposed to be distance
sensitive; in other words, the shorter the distance, the
shorter the tariff. Ms. Delbridge responded that AGIA
guaranteed the offtake points only; however, the gas and
pipeline that connected Alaskans was something that was
left undetermined in that project and was not part of the
duty of the AGIA licensee. She believed that distance
sensitive rates would be used with the AGIA project, but
offered that AGDC was also proposing to use distance
sensitive rates.
Ms. Delbridge continued to address the members' pre-
submitted questions regarding HB 4 and spoke to question 4:
"How is royalty gas handled under the current AGDC
legislation?" She pointed that currently, HB 4 did not
address Alaska's royalty gas, except to allow that AGDC
could create a subsidiary corporation that would market
natural gas; this included natural gas, but did not have
to.
Co-Chair Stoltze asked about an earlier iteration. Ms.
Delbridge replied that there was an earlier iteration that
allowed an AGDC subsidiary to pledge royalty gas to meet
certain commitments contingent upon the commissioner of the
Department of Natural Resources (DNR) approval; this had
been removed and the current procedure for managing royalty
gas was in AS 38.05.183, which laid out the existing
procedures for how the DNR commissioner and the state
royalty board would address royalty sales of gas or oil.
Co-Chair Stoltze noted that some of the questions were
asked before people had the bill in their possession.
9:27:32 AM
Vice-Chair Neuman opined that the state having more control
over its royalty share would be an important provision in
HB 4. He wanted to see military bases have an opportunity
to receive part of the state's royalty gas in order to
reduce costs and thought that there was no comparison
between the small value to the General Fund of the 12.5
percent to $2 gas and the value of having the state's
military bases. He wanted to see the state offer its
royalty share to the military free of charge for heating
and electrical generation.
Co-Chair Stoltze understood that any discussion of the
royalty would be handled in other legislation.
Vice-Chair Neuman thought that Ms. Delbridge had stated
that how the state would handle its royalty had been in the
bill at one time, but had been removed; he inquired if that
was correct. Ms. Delbridge responded that the bill had
never directed how the state should handle its royalty gas
and how it should be manage it, but only provided that it
could be shipped in an AGDC pipeline. She noted that there
had been some concern on the part of some of the state
attorneys that the language was not drawing a far enough
line in terms of not trying to usurp the DNR commissioner's
and the state royalty board's ability to manage the state's
royalty gas as they saw fit per statute; this certainly
could include, if someone were applying or requesting, some
kind of a finding that took into account those other
values.
Vice-Chair Neuman clarified that Alaska, through DNR and
the royalty board, would have the opportunity to look at
its royalty share and provide that it could be used as the
state desired. Ms. Delbridge responded in the affirmative
and related that AS 38.05.183 laid out precisely how "they"
would go about that.
9:30:08 AM
Ms. Delbridge continued to respond to the members' pre-
submitted questions regarding HB 4 and addressed question
5: "Do the legislative findings in Section 1 apply to
Regulatory Commission of Alaska findings?" She pointed out
that in Section 1 of the bill, it specified that an AGDC
project was in the best interest of the state and was
required for the public convenience and necessity. She
noted that in the RCA section, a pipeline was required to
obtain a certificate of public convenience and necessity
(CPCN), which was a building permit from the RCA. She
pointed out that part of what the RCA looked at when
deciding whether to issue a CPCN was whether or not the
project was in the public convenience and necessity. She
stated that the intent was that the legislative finding in
Section 1 of the bill would reinforce the finding that the
state was making on behalf of the RCA that this project was
necessary for state's interest and in the public
convenience and necessity. She pointed out that the sense
was that it would be very duplicative for the RCA to go and
make "that finding" again if legislature had already
essentially made the determination by passing HB 4 and
charging a state entity with this mission.
Ms. Delbridge continued to address members' pre-submitted
questions regarding HB 4 and discussed question 6: "Page 4,
lines 16-18 states that "the corporation cannot be
terminated as long as it has bonds, notes or other
obligations outstanding" what happens if the corporation
goes into the red and obligations cannot be honored?" She
relayed that the question was what happened in a worst-case
scenario if AGDC goes into the red and obligations cannot
be honored. She offered that Mr. Richards was prepared to
answer the question.
Mr. Richards deferred the question to Mr. Dubler.
9:32:06 AM
JOE DUBLER, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
ALASKA GASLINE DEVELOPMENT CORPORATION AND DIRECTOR OF
FINANCE, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF
REVENUE, pointed out that question involved bankruptcy laws
and what happened when entities were "underwater". He
believed that Mr. Vassar, who was AGDC's general counsel,
would be better suited to answer the question.
KEN VASSAR, ALASKA GASLINE DEVELOPMENT CORPORATION,
ANCHORAGE (via teleconference), responded that the primary
intent of the provision was to protect the bond holders and
explained that when AGDC issued bonds, the holders were
purchasing them with the belief that AGDC would be around
long enough to be able to repay them. The provision was an
added benefit to the bond holders and helped AGDC market
the bonds. He expounded that it helped AGDC market and sell
bonds if it could say that the legislation said that AGDC
would be around for as long as it had bonds outstanding;
however, AGDC going in the red and not being able to pay
its debts represented a separate question that related to
the kind of bonds that AGDC planned to issue, which were
revenue bonds that were supported by the revenues that the
pipeline would generate. He explained that the bonds would
be marketed as revenue bonds and the purchasers would know
that the only source of revenue to back the bonds from and
get paid from were the revenues of the project; if, despite
best forecasts, it turned out that these revenues were
insufficient, the bond holders simply did not get paid. He
concluded that unpaid bondholders would pursue what
remedies they could, but that it would be clear that the
only source of payment available to them were the revenues
that AGDC had pledged.
Co-Chair Stoltze interjected that the administration would
address the issue at a later hearing because they were
involved in the state's bonds.
Representative Gara asked if the state had the moral
obligation to pay the bonds off if the project was unable
to. He noted that the state being unable to pay off the
bonds would affect its credit rating. Ms. Delbridge
responded that the sponsors of HB 4 understood that the
ability of AGDC to create a capital reserve fund and have
that backed by the moral obligation of the state was of
great concern to some committee members and others in the
Capitol Building; furthermore, through discussions with
AGDC and Co-Chair Stoltze's staff, the sponsors were
prepared to offer an amendment to the bill that would
essentially leave the ability and the intent to do a
capital reserve fund that was backed by state moral-
obligation debt in the bill, but make it contingent on
future legislative action that expressively gave the
authorization to AGDC to create that reserve fund backed by
moral obligation debt. She stated that the amendment would
allow AGDC to give the legislature hard information that
explained what kind of shippers and what kind of credit
worthiness that it was actually trying to backstop with
that capital reserve fund, if one was required, in order to
give the legislature information that it needed to decide
whether to authorize the fund, including the moral
obligation piece and whether there should be a limit on
that.
9:36:40 AM
Representative Gara asked Mr. Dubler if it would risk the
state's credit rating if the state put in its moral
obligation and neither the pipeline nor the state was able
to meet the bond requirements. Mr. Dubler responded in the
affirmative and explained that the way a moral obligation
worked was through the creation of a reserve fund that was
similar to the one that was in HB 4. He explained that the
bonds were 30-year bonds and that to the extent that the
project drew on that reserve fund, AGDC would be required
to request of the state that the fund be recapitalized and
brought back up to the minimum amount; furthermore, the
state failing to do this for any reason would be a big
problem regarding its credit rating. He relayed that he had
spoken a lot with DOR regarding the impact of just having
the bonds as a moral obligation to the state. He pointed
out that the debt portion of "this financing at about $8
billion, at about a quarter of it would be $2 billion with
a moral obligation of the state"; "even that" could impact
the state's credit rating. He stated that AGDC did not
currently anticipate needing the capital reserve fund, but
that it was offered as a tool. He pointed out that the more
tools one had availability when marketing, the better
chance there was of a successful financing.
Representative Gara recalled hearing the bill being
presented at the Anchorage Legislative Information Office
in December and offered that one of the sponsors had stated
that HB 4's project should be viewed as a public works
project and something that would require a state subsidy;
he inquired if this was part of the current plan.
Representative Hawker noted that he took exception to
having statements made about the sponsors' intent that were
inaccurate.
Representative Gara asserted that there had been a
statement made in December that the bill's project should
be treated as a public-works project.
Representative Hawker observed that "should" inferred a
very clear statement of intent. He relayed that it had been
discussed that it was one way for the state to look at
this, should it be one of the courses action chosen;
however, the sponsors would much rather see a project move
forward on its economic merits in the private sector and be
facilitated only by an economic climate and an initial
investment of funds by the state that was necessary to get
a project going. He offered that it was possible that
through separate legislative action at a later date, the
state might choose to view HB 4's project or even the
connecting pipelines in other projects as something that
was an assistance to the state and that built out
infrastructure much like roads and very large public-works
projects. He believed that someone had misspoken if it was
said that HB 4's project "should" be a public-works
project.
Representative Gara inquired if there was any plan to seek
state assistance to make HB 4's project pencil out. Mr.
Dubler responded that the tariffs that AGDC had produced
to-date did not require a state subsidy beyond the $400
million to get the project to an open season. He explained
that the open season would take AGDC through another gate
and prove that the project was feasible; as this point, a
3rd party builder/owner or builder/owner/operator would
come onboard and build and operate the pipeline. He
concluded that AGDC did not anticipate any state
contribution beyond the initial $400 that was being
requested in the bill.
9:40:50 AM
Representative Costello asked Mr. Vassar about the language
on page 4, line 16 of the bill, where it was stated that
AGDC had a legal existence independent and separate from
the state; however, on Page 2, lines 24 and 25, it stated
that AGDC shall be treated for all purposes as the transfer
of a corporation within the state and not as the creation
of a new entity by the state. She thought that the 2
sections of the bill might be contradictory and requested
an explanation. Mr. Vassar replied that the first language
that Representative Costello was referencing was on page 10
and was a common type of language that was used for public
corporations of the state; these corporations were given a
separate legal existence because it was the reason that
they were created in the first place. He expounded that
public corporations of the state were created to help
generally insulate the state from the risks and liabilities
that the corporations may be exposed to.
Mr. Vassar addressed the second language that
Representative Costello had referenced and thought that
although she raised a good point, that section was ok the
way it was because unlike other corporations of the state,
AGDC was a subsidiary of a public corporation of the state;
the corporation currently existed, currently had a legal
existence of its own, and was a separate entity of its own.
He further explained that the idea behind the language on
page 2 of the bill was to ensure that if AGDC moved from a
subsidiary of AHFC to become a public corporation of its
own, that the transition was done in a way that did not
interrupt the current activities and contractual
commitments that AGDC had already entered into;
furthermore, the purpose of the language was to make it
clear that a new entity was not being created, but that
there was a transfer of title from AHFC to the state itself
9:43:49 AM
Ms. Delbridge addressed the members' pre-submitted
questions regarding HB 4 and believed that Mr. Dubler
answered question 7: "Could the state's bond rate be
affected by AGDC's capital reserve fund obligations?"
Ms. Delbridge discussed the members' pre-submitted
questions regarding HB 4 and spoke to question 8: "There is
a 30-day timeline with no apparent extensions for the
recourse tariff with the RCA, which calls for meaningful
review of rates, terms, conditions, and calls for public
testimony. Is this a realistic timeline to evaluate what
maybe extensive data from shippers and does there need to
be a possible postponement period, possibly only for good
cause?" She stated that the bill provided for a 30-day RCA
process for the approval for the initial recourse tariff,
which looked at the capital structure, the depreciable
life, and the return on equity that was based on estimates;
this was well in advance of construction. She recalled that
the bill's sponsors had presented to the RCA on March 15 in
Anchorage to review what was in HB 4; the RCA had been
clear that the 30-day period was not sufficient enough time
to conduct the level of review that was requested. She
explained that the sponsors were prepared to increase the
level of RCA review and pointed out that every time an
additional time frame was added that was a potential and
not given up front, it delayed all of the commercial
processes, open seasons, negotiations, and progress on a
pipeline that were scheduled after that set statutory
window of review that was allowed by the RCA; extending the
30-day review period to "for example" 90 days, AGDC's
progress would be delayed for another 2 months. She
expounded that if there was an additional delay that kicked
in after that 90 day window, AGDC would not know that until
90 days was over; as a result, AGDC's open season,
commercial agreements, and progress could be delayed. She
offered that for every year the project was delayed, it
"essentially" added another $200 million in inflation costs
at 2.5 percent. She concluded that giving an additional 6-
month window to the RCA to review contracts, if it decided
to, would come at a price of roughly $100 million and would
delay the gas to Alaskans for another 6 months.
9:46:36 AM
Representative Hawker stated that question 8 was a policy
question that had been considered by HB 4's sponsors, who
saw an important role for the RCA in the reviews because
they were necessary for the public good and the protection
of the consumer. He pointed out that the legislature had
created the RCA in order to have an oversight body for such
things. He reiterated that it was a policy approach and
that the sponsors wanted reasonable and appropriate
timelines on the RCA. He recalled passing statutory
requirements that specified that the RCA had to complete
activity under certain timeframes. He reiterated that the
sponsors wanted reasonable and appropriate timeframes, but
that they did not want excessive timeframes. He offered
that "when you were a hammer, everything looked like a
nail," and opined that if he were a regulatory agency, he
would prefer unlimited timelines; however, if the
legislature wanted to get a pipeline project going, which
he submitted it wanted to see progress on, it probably did
not want to allow the possibility for unlimited time to
delay a project. He pointed out that the bill's sponsors
were working with Co-Chair Stoltze's staff in order to
reach an accommodation regarding the review period that
worked for everyone.
Vice-Chair Neuman asked about the $2 billion moral
obligation of the state and wondered where the figure came
from. He thought maybe the $2 billion was derived from the
70 percent to 30 percent debt to equity ratio and inquired
if it represented an equity portion that the state needed
to come up with. Mr. Dubler replied that the $2 billion was
a made up number and that if "we were to do $2 billion, we
probably would not do the entire 6." He explained that the
current ratio was 75 percent to 25 percent debt to equity
and that there would be $6 billion in debt; the entire debt
service would probably not need to be backed by a moral
obligation, but possibly the last ten years would. He
explained that the longer bonds would have the biggest
impact and that as a result, the entire amount would not be
taken. He offered that the current state moral obligation
balance was a little over $1 billion and that $2 billion to
$6 billion would represent a lot more, which was why he had
stated that it did have the potential to impact the state's
credit rating. He stated that moral obligations showed up
differently than general obligation debt on the rating
agencies' analyses and were depicted as a credit negative.
9:50:50 AM
Vice-Chair Neuman asked what the state's responsibility
would be for the equity portion. He additionally asked what
the equity portion was and where it would come from. Mr.
Dubler responded that the equity portion would come from
the equity investors, which would be either the producers
that were shipping the gas or a third party
build/owner/operator. He explained the Alaska would own 1/8
of the gas in the form of royalty and that the state could
have the potential of putting up 1/8 of the equity, which
came out to be about $250 million; this would be an
investment, not a subsidy and was currently calculated to
have a return of 11 percent, which he though beat most "of
what were are getting at least in the debt markets."
Representative Gara discussed AGIA and noted that it had
required a debt to equity ratio of 70 percent to 30
percent; the project had since moved to 80 percent debt. He
explained that the more debt a project had, the lower the
RCA allowed the tariff to be. He inquired if AGDC had the
same requirement with its project to maximize the amount of
debt by the project owner in order to keep the tariff low
for consumers. Mr. Dubler did not believe that AGDC
currently had that requirement. He explained that the
original goal had been a 70 percent to 30 percent debt to
equity ratio, which was in line with the AGIA project;
however, AGDC felt that a 75 percent to 25 percent ratio
provided a better cost of funds because there would be
"less capital at 11 percent and more at the lower debt
number." He stated that going to an 80 percent to 20
percent split would depend on what happened during the open
season when AGDC attempted to sell the project; if an
investor only wanted to put in 20 percent, AGDC could
probably do the 80 percent to 20 percent debt to equity
ratio. He furthered that if an investor wanted to put 30
percent in, there would be a negotiation.
Representative Gara asked about the 30-day timeline for the
RCA to set the tariff. He noted that the RCA stated that
the 30-day period was way too short and was glad that
people were taking a look at that. He explained that there
was a way that a company could run out the clock by not
giving the RCA the information that it needed and that if a
company held out for 90 days and withheld the information,
the RCA would not even be able to make the decision in 90
days. He hoped that people would consider a provision that
would not allow a company that the RCA needed information
from to run out the clock and pointed out that this had
been put in prior legislation.
Ms. Delbridge addressed Representative Gara's comments and
stated that there were a number of provisions already in
the RCA section of HB 4 that allowed the RCA to extend any
review period where delay was caused by a failure of an
applicant to provide additional information as requested by
the duration of that delay; furthermore, she would make
sure that this was in fact part of the recourse-tariff
approval process.
9:55:13 AM
Representative Hawker pointed out that the RCA would be
"reviewing" tariffs and would not be "setting" tariffs.
Ms. Delbridge continued to speak to the members' pre-
submitted questions regarding HB 4 and discussed question
9: "Confidentiality agreements appear to be open-ended. Is
this true? What is needed to be included in confidentiality
agreements?" She pointed out that the ability of AGDC to
enter into a confidentiality agreement with a private
sector entity was not exactly open ended in the
legisaltion, but that the terms of the that agreement would
be determined by the agreement itself; it was unlikely that
those were things that would be disclosed in the future
because they were confidential in order to provide for the
protection of peoples' commercial and private sector
interests. She offered that Mr. Kleppin would be able to
discuss what would need to be included within
confidentiality agreements and opined that question 9 was
asking what kinds of things confidentiality agreements
would be needed for.
Co-Chair Stoltze stated that committee would discuss the
concerns and benefits of confidentiality agreements further
with the administration and the Department of Law.
Representative Gara had a confidentiality question
regarding a different provision in the bill. He pointed out
that under the legislation, AGDC's board was allowed to
issue bonds and was only required to give 24 hours of
public notice; furthermore, it was unclear if the public
would be able to participate at all under the provision. He
offered that it seemed like the board could also "do this"
electronically and e-mail with each other through a medium
where the public did not get to see anything. He inquired
if he was reading the provision correctly that there was
only 24 hours public notice and that the board members
could discuss the issue privately via e-mail with no public
participation. Ms. Delbridge clarified that AGDC had to
have open board meetings regardless and could not hold
private meetings whether it was doing regular business or
conducting a bond issuance. She explained that AGDC was
subject to the open meetings portion of the Administrative
Procedures Act for any board meeting and would have to
provide reasonable notice and comply with all the other
things that anyone else did; however, there was an extra
provision that specified that outside of this, AGDC could
provide 24-hour notice for a meeting in which bonds needed
to be issued. She pointed out that AHFC was allowed to
provide 24-hour notice for a meeting in which bonds needed
to be issued, but believed that the corporation had never
exercised that ability; however, there was a very important
reason that the ability was there. She asked if Mr. Dubler
would like to speak to the point.
9:58:10 AM
Mr. Dubler explained the provision that gave AGDC the
ability to give a 24-hour public notice for a meeting in
which bonds needed to be issued. He reported that the
provision was there because it allowed a quick board
meeting and approval if a corporation was in the middle of
a bond issuance or was planning a bond issuance and events
happened in the market that required getting to the market
quickly because it might not be there in a "week or two
weeks, or however long the notice needs to be." He related
that the important consideration in the context of AGDC was
that the bonds to be issued would not be the debt of the
state, but would be the debt of the project. He understood
the concern of having public notice, as well as access to
the board and its information. He pointed out that AGDC was
still subject to the online public system and would still
be required to publish the notice 24 hours in advance;
however, in order to react to declining or decaying
markets, AGDC needed to have the ability to operate quickly
if it was necessary.
Ms. Delbridge added that it was very clear on page 5 of the
bill that AGDC's board may meet and transact business by
electronic media "if" there had been public notice of the
times and locations where the meeting would be held by
electronic media, "if" participants and members could hear
and have the same right to participate as if it were
conducted in person, and "if" copies of all the relevant
materials were also provided to the public. She concluded
that a meeting via electronic media would not be hidden
from the public.
Representative Gara inquired if "electronic media" in the
bill was referencing a teleconference that the public would
be able to see and did not include email that the public
would not be able to see. Ms. Delbridge believed that
regardless of the actual electronic media used, the public
had to be provided certain things. She quoted from page 5
of the bill as follows:
"if copies of pertinent reference materials, statute,
regulations, and audio visual material are reasonably
available to participants and to the public…"
"if participants and members of the public in
attendance can hear and have the same right to
participate in the meeting as if the meeting were
conducted in person…"
Ms. Delbridge continued to address Representative Gara's
question and related that if AGDC was transacting business,
the public needed to be involved in that.
10:00:18 AM
Representative Kawasaki referenced subsection (e) on page 5
of the bill and noted that items 2, 3, and 4 also stated
that the sale and disposition of an asset, the ownership
structure of the pipeline, and an action committing the
corporation to an additional natural gas pipeline could
also be voted upon. He understood the need to get to
markets quickly, but pointed out that there were other
things that could be done "under that." Ms. Delbridge
responded that the provisions that Representative Kawasaki
had referenced did not pertain to the 24 hour notice to
issue bonds, but required a higher threshold of members of
the board to be present for substantive votes that had a
lot of bearing and meaning to Alaskans. She explained that
the higher threshold would be used for things like issuing
and selling bonds, managing those assets, and deciding on
ownership structures, and related that there was no 24 hour
notice required for those votes because they were regular
board business; furthermore, the sponsors were simply
saying in the bill that those types of decisions not only
required a majority of the quorum, but also that a majority
of the board must be present.
Mr. Dubler noted that the reason the bill was allowing
telephonic boards meetings was because in Alaska, it was
sometimes difficult to get 7 or 5 people, or how every many
would be on the board, in the same room and that if AGDC
was negotiating a sale, purchase, or something that needed
a majority of the boards, it might not be able to get a
majority of the board in the same room. He expounded that
AGDC wanted to have the ability to have a member on the
phone in case it was needed.
Ms. Delbridge discussed the members' pre-submitted
questions regarding HB 4 and addressed question 10:" If the
state's moral obligation did not come into play, how would
that affect AGDC's credit rating?" She discussed a prior
question and asked if it had been sufficiently answered
related to moral obligation.
Co-Chair Stoltze thought that the question was asking what
the upside benefit of the moral obligation was, but that he
was unsure.
Mr. Dubler noted that the answer depended in the structure
that AGDC set up. He relayed that a financing package that
AGDC would put forward would be based on the rating of its
counter parties. He offered that Exxon Mobile, British
Petroleum (BP), and ConocoPhillips were very highly rated
entities and that if those companies were AGDC's
counterparties in the firm transportation shipping
agreement, he did not believe that the moral obligation
would have a very large impact on the financing and would
probably not be used. He stated that if the majors opted
not to be shippers and instead the counterparties were
companies like the Enstar Natural Gas Company or other
small utilities in the state that would have relatively low
ratings, AGDC could get a "fairly decent advantage";
however, the advantage would be "probably not as big as the
trucking project" of the Alaska Industrial Development and
Export Authority (AIDEA), which he believed was "200 or 250
basis points." He thought that AIDEA was looking at an
unrated project, while AGDC was planning on doing its
project on a rated basis. He explained that "what you get"
was the difference between what your project would be rated
without the credit enhancement versus the rating you get
with the credit enhancement, which could be anywhere from
10 basis points to 100 or 150 basis points; the exact
amount would be hard to determine without looking at the
structure again. He explained that a basis point was a
percent of a percent and was .01 percent.
Representative Hawker relayed that the cost of financing
ultimately became a cost to the consumer and that in
crafting the bill, the policy call by the sponsors was to
allow AGDC to avail itself of the moral obligation of the
state if it was necessary and appropriate to execute a most
efficient financing transaction that resulted in the least
possible cost to consumers.
10:05:15 AM
Representative Gara stated that he was hearing 2 things. He
referred to testimony that the moral obligation of the
state might not be needed, but observed that if it was
needed, it put the state on the hook. He inquired why there
was not a provision in the bill that stated that if AGDC
decided to use the moral obligation of the state, it had to
seek the legislature's or the governor's approval.
Ms. Delbridge responded that based on committee's concerns,
the sponsors were prepared to add an amendment to HB 4 that
left in the structure of how a capital reserve fund and
moral obligation would work, but required as a preface that
by law, AGDC must get come back and get express approval
from the legislature to actually use the ability. She
explained that if the structure was left in the bill, it
was clear that this was the intent of the legislature, but
only if and not until AGDC could come with information
regarding who it was hoping to back stop, whether it was in
fact necessary, and whether it benefited the state. She
reiterated that the sponsors were happy to amend the bill
to address the issue.
Ms. Delbridge continued to speak to the members' pre-
submitted questions regarding HB 4 and addressed question
11: Could a cap be set on the state's moral obligation
capacity?" She believed that the question was referencing a
cap per project or per authorization to do so and responded
that a cap could be set. She stated that the specific
circumstances regarding how much of a capital reserve fund
backed by how much of moral obligation debt was important
when determining "these things." She offered that Mr.
Dubler or DOR would have suggestions regarding how
something like this would be capped.
Co-Chair Stoltze asked for a brief commentary on the
advocacy of question 11, as well as some of its potential
issues. Mr. Dubler replied that a cap could be put on the
moral obligation capacity on a transaction like this; "they
were typically no more than 10 percent of the debt that was
issued, which in this case would be approximately $6
billion"; 10 percent of $6 billion was $600 million, which
would be the amount of the reserve fund. He explained that
"they" generally had a 1 year maximum debt service. He
related that he had done a quick calculation and that a 30-
year bond at 7 percent would yield just under $500 million
per year in debt service. He expounded that if the
potential reserve fund was capped at $500 million, that
would be the maximum that would need to be put in the
reserve fund; furthermore, AGDC had not discussed the issue
of a possible cap much because it would have come back when
it had better numbers, a better idea what the market and
the project rating would be, and had a much better package
to bring back to the legislature when it requested approval
for that moral obligation.
10:08:26 AM
Ms. Delbridge continued to discuss the members' pre-
submitted questions regarding HB 4 and spoke to question
12: On page 8, lines 18-19, what type of hearings do you
envision AGDC conducting?" She pointed out that AGDC could
conduct a variety of hearings and that it was prepared to
give examples. She stated that it was AGDC's duty once
construction had been started on a mainline to start
analyzing additional pipeline opportunities that benefited
Alaskans and opined that this might represent an instance
in which AGDC would like to hold hearings in order to talk
to communities and other entities to find out where those
opportunities really were. She pointed out that AGDC may
call a hearing and try to gather information regarding
different explorers' plans and entry points into oil and
gas basins in order to allow for future planning on
additional pipelines.
10:09:38 AM
Ms. Delbridge continued to speak to the members' pre-
submitted questions regarding HB 4 and addressed the
"bonding questions." She spoke to the 2 following bonding
questions:
"If the bond mechanism relies on the credit worthiness
of the shippers, can the shippers build the pipe line
with their own resources, and keep the moral
obligation of the state out of the equation?"
"If there was no state moral obligation necessary what
will that do to the potential bond interest rates?
Caveat: If there was a draw on the Capital Reserve
Fund (if the shippers fail to meet their financial
obligations) there is the danger of the moral
obligation pledge attaching to all moral obligations
of the state and automatically drag down our bond
rating."
Mr. Dubler addressed the first question and stated that if
a shipper wanted to build a pipeline, they could do so with
their own equity and go out to the capital markets to
borrow money; furthermore, they could have done that 10 or
20 years ago, but it had not happened yet.
Co-Chair Stoltze wondered if Representative Hawker would
have met his goal if HB 4 was the catalyst for a shipper
building the pipeline. Representative Hawker replied in the
affirmative and explained that the desired outcome of HB 4
was that the private sector would be able to step up under
the framework established by the bill and take a project to
fruition on its own. He reminded the committee that the
legislation was not about building 1 pipeline, but that it
represented a suite of tools for the State of Alaska to
facilitate a project going forward; furthermore, the bill
would give the state a strong seat at the table with any
project that went forward regardless if it was an AGIA or
AGDC pipeline, or even another pipeline project.
Mr. Dubler continued to discuss members' pre-submitted
questions regarding HB 4 and addressed the following bond
question:
"If there was no state moral obligation necessary what
will that do to the potential bond interest rates?
Caveat: If there was a draw on the Capital Reserve
Fund (if the shippers fail to meet their financial
obligations) there is the danger of the moral
obligation pledge attaching to all moral obligations
of the state and automatically drag down our bond
rating."
Mr. Dubler addressed the question and related that the cost
of the financing could increase significantly without the
moral obligation; his standpoint would be that if the
financing was increased significantly to the point that
tariffs were "out of the money," then the moral obligation
was necessary in order to get the project completed and get
gas to Alaskans. He explained that if it was necessary,
AGDC would approach the legislature regarding using the
capital reserve fund.
Representative Gara noted that the legislature would be
appropriating about $360 million to the project and
inquired if some of that money would be used for the
capital reserve fund. He further inquired where the money
for the capital reserve fund would come from and how much
it was. Mr. Dubler replied that AGDC was currently not
contemplating a capital reserve fund for the project, but
that it did have the option to come back and request one.
He relayed that if there was a capital reserve fund
utilized, there were several different sources that could
be used. He offered that the appropriation was in fact $330
million, would not go into a capital reserve fund, and was
only for the project's pre-sanction costs; the capital
reserve fund would come into play when bonds were sold
because it was only made available to satisfy debt
obligations of the corporation. He stated that a capital
reserve fund was typically borrowed and would come out of
the bond proceeds; if not, the state could have a general
fund appropriation to the reserve fund if it so desired, or
the corporation could borrow the funds.
10:13:52 AM
Representative Hawker clarified for the record that the
request in the legislation was not for $360 million, but
was for $330 million in aggregate, which included the $200
million that AHFC already had.
Ms. Delbridge continued to discuss members' pre-submitted
questions regarding HB 4 addressed "HB 4 General Questions"
She spoke to the first talking point:
· Confidentiality Provisions (unlike all other state
semi-autonomous agencies);
· Insufficient Executive and Legislative branch checks
and balances
Ms. Delbridge related that the HB 4 general questions were
really points and not specific questions. She explained
that many of the state's public corporations had the
ability to keep some or a lot of their information
confidential, particularly when it came to things like
trade secrets and proprietary technical information and
pointed out that the Aerospace Corporation could keep
proprietary technical information confidential;
additionally, AIDEA could keep financial records
confidential that were related to applicants for its
programs if they were not public previously. She pointed
out that the Alaska Permanent Fund also had some
confidentiality provisions if information would disclose
the business affairs of private enterprise or investors and
that the Alaska Railroad also had some provisions for
confidentiality; however, the likelihood of AGDC being
unique from these and needing to bring along private sector
partners in ownership and operating agreements necessitated
a different level of confidentiality provision, in
particular the ability to make the confidentiality
agreements in order to talk freely with private sector
entities in negotiating commercial deals. She addressed the
sub-bullet point and offered that by listing some of the
reporting requirements, the presenters had articulated what
a lot of those checks and balances do in fact look like.
She stated that there was a concern in legislature
regarding AGDC's full exemption in the Executive Budget Act
and related that AGDC believed that it could operate well
with a partial exemption that was similar to that of other
state corporations; as a result, AGDC's operating money
would be subject to the Executive Budget Act and then the
corporation would have the flexibility to deal with its
bond related finances outside of that process.
10:16:42 AM
Ms. Delbridge continued to discuss members' pre-submitted
questions regarding HB 4 and addressed the the HB 4 general
questions. She spoke to the second talking point:
· RCA Regulatory related:
· No common carriage in-state ((the contract
carriage requires only a 30-day review; need up
to 180 days for meaningful public comment and
review of the recourse tariff before the open
season; public comment includes the shippers))
· After Open Season the Legislature needs to review
and approve.
Ms. Delbridge noted that the 30-day review and the
sponsors' desire to be responsive to the RCA's need for a
longer timeframe for meaningful review had already been
voiced. She pointed out that there was not a common
carriage provision for "instate in the contract carrier
regulations." She was unsure what aspects of the talking
point the committee wanted her to address.
Representative Gara noted that under the AGIA statutes, HB
4's project would be small pipeline and would deliver less
than 500 million cubic feet (Mcf) per day; he agreed that a
contract carrier made sense because it was a small amount
of gas. He explained that a common carrier meant that if
there was an expansion, everyone who was shipping gas in
the pipeline would have to share the cost of the expansion,
which facilitated new producers being able to get into the
line and on the North Slope. He stated that he was happy
with the AGIA provision that stated that an expansion was
great for the state and made "everyone pay to get in";
whereas, with a contract carrier, new comers had to pay the
full cost of the expansion and would not be able to make it
in.
Representative Gara inquired what would happen if AGIA was
evaporated, HB 4 became "the bill," and Alaska was able to
put together a huge pipeline, which was in the state's
interest; he further inquired if HB 4's pipeline would
still be a contract carrier at this point and expressed
that he would have some concern if that was the case. Ms.
Delbridge responded that the provisions in AGIA related to
a Lower-48 line that was regulated by the Federal Regularly
Commission (FERC) and related that the state did not
"necessarily" have a regulatory mechanism in place to deal
with that; the assumption was that "that" does in fact work
through FERC, which had a host of special conditions for an
Alaska gas pipeline on the assumption that it would be a
massive diameter line that went through Canada and served
the Lower-48 and potentially other markets. She pointed out
that while the bill provided for contract carriage, it
required expansions when presented with commercially
reasonable opportunities, so that future explorers that
found gas and wanted access to the pipeline would be able
to do so; if the the explorers had enough gas and were
willing to sign a contract to ship it to warrant the
expansion, the pipeline must do that. She explained that
the point that was trying to be made was that if you had
long-term contracts governing your other shipment on those
pipelines, "those" people had put up the initial investment
to actually make the pipeline happen; to penalize these
investors by adding to their rates after they had
shouldered that initial investment was not something that
the sponsors felt comfortable with.
Ms. Delbridge continued to respond to Representative Gara's
question and noted that the entities that would be paying
for the expansions would be the ones that would be using
that space, just as ones paying for the initial pipe would
be the ones using that space. She pointed out that there
was also the possibility of rolled-in rates in HB 4,
meaning that they were not precluded, if that is what the
contracts allowed for. If the "big line" became the project
that was moved forward and the state wanted it to be
regulated under "this chapter," it was good to note that
FERC had not issued anything definitive on "this"; however,
there was a good chance that if only a small portion of the
gas from a pipeline that was going to the North Slope to
export at tidewater was going to instate-use, FERC may
assert jurisdiction over the regulation of the pipeline.
10:21:15 AM
Representative Gara stated that if the bill became the
mechanism to build a big pipeline and if AGIA went by the
wayside, the bill would need to be amended because it
currently had 500 Mcf per day limitation. Ms. Delbridge
noted that the limitation was only in effect as long as
there was a licensee under AGIA that was in compliance with
its license and that the state was assisting through those
payments as per AGIA. She concluded that there would be no
need to amend HB 4 later to lift the limitation if AGIA was
somehow no longer there. She pointed out that while AGDC
provided the opportunity for the projects to come together,
the regulatory framework was not "necessarily" where the
projects would come together; furthermore the state was
unable to tell the federal government that they could or
could not regulate something, but would have to work within
the framework to some degree.
Ms. Delbridge continued to discuss members' pre-submitted
questions regarding HB 4 and pointed to the HB 4 general
questions. She spoke to the third talking point:
· Cost estimate not transparent
· Base estimate currently ~ $7.7 billion; the cost for
larger diameter pipelines have been estimated at
under 10.0 billion. Example -Alyeska 2013 cost study
reported direct costs of replacing TAPS (plus owner,
management and engineering costs) less VMT at:
o 30" pipe with 440,000 (650,000 w/DRA) bbl/d
capacity ~ $8.9 billion
o 48" pipe with 750,000 (1,000,000 w/DRA) bbl/d
capacity ~$9.7 billion
Ms. Delbridge addressed the first sub-bullet point and
stated that she had been unable to locate the Alyeska 2013
cost study; furthermore, she had contacted the Alyeska
Pipeline Service Company, which was not aware of a 2013
cost study. She relayed that she had been able to find the
Alyeska 2013 study information directly referenced in a
slide prepared for another committee, but pointed out that
she had no way of knowing what this cost study said in
relation to the "figures that we were given." She believed
that the replacement costs for the Trans-Alaska Pipeline
System (TAPS) involved starting with something that had
already been largely done and that one would not be doing a
construction project from the start and would see
differences. Furthermore, TAPS was an oil pipeline that was
largely above ground, while HB 4's line would be a gas line
that was largely below ground; there were many different
engineering, safety, and other concerns related to those
and she was unsure if the comparisons were fair or
relevant. She added that AGDC would be able to talk about
the transparency that actually was in place for the cost
estimates that it had put forward on the pipeline.
10:23:58 AM
Mr. Richards addressed the concern relating to cost
estimate transparency. He stated that the $7.7 billion,
which AGDC had just updated at the end of 2012, was based
on the design premise that it had gone forward with, which
was based on the level of engineering that AGDC had
currently advanced; the pipeline, as well as the gas
treatment and compression station on the North Slope were
the major components. He relayed that based on AGDC's
current level of engineering, it felt confident that the
$7.7 billion estimate was accurate with a plus or minus of
30 percent.
Representative Gara stated that he was unable to parse
through the numbers that AGDC had come up with, but noted
that the original cost study for a 500 Mcf or smaller
pipeline from 4 or 5 years prior was that it would deliver
gas at about $21 per Mcf; however, the prior year, a study
had been presented that showed those costs at about $14,
$12, or $10 per Mcf and the current year's study showed a
lower cost. Mr. Richard replied that under HB 369 ["HB 369"
was made in reference to a bill from a previous
legislature.], AHFC was to provide a project plan to the
legislature. In the 2011 project plan, the cost estimate
for the 24 inch, high-pressure rich gas case had come in at
about $7.5 billion and would deliver gas at approximately
$9.62 to the Cook Inlet area; however, the update that AGDC
had provided to the instate gas caucus at the end of 2012
had a design-premise change to a lean gas case with a cost
estimate of $7.7 billion. He pointed out that in the 2012
update, the number of facilities had been reduced and
related that compressor stations, straddle plants that
would have stripped out the natural gas liquids out of the
line, and other associated facilities had been removed from
the plan. He stated that AGDC had provided the current cost
estimates based on the current level of detail and reported
that the major facilities were: the gas treatment
facilities on the North Slope and the compressor station;
he noted that the pipeline now only planned to use one
compressor station to push the gas from the North Slope to
the Cook Inlet basin and Fairbanks. He offered to go into
the cost estimates in more detail if the committee so
desired.
10:26:45 AM
Representative Gara observed that there was an earlier cost
estimate, but that it did not need to be addressed.
10:26:57 AM
Ms. Delbridge continued to discuss members' pre-submitted
questions regarding HB 4 and jumped to the final question
on the bottom of the page:
o Will the state's work to date on permitting (right
of way, etc) be considered as an equity
contribution?
Ms. Delbridge related that the state's work to date on
permitting, right of way, etc. certainly could be
considered as an equity contribution; furthermore, AGDC
could potentially use the early state investment as the
equity contribution on behalf of AGDC as it worked with
potential partners down the road.
Mr. Richards added that the mandate provided to AGDC by HB
369 ["HB 369" was made in reference to a bill from a
previous legislature.] was to advance a project and
identify what its major components and costs would be and
that through that process, AGDC had been able to talk to
major pipeline companies and shippers from across the
nation; AGDC had learned that the project had not been
advanced to the point where these companies and shippers
felt confident of ascertaining whether it was worthy of
their involvement. He explained that the money that the
state would put forward to advance the HB 4's project would
get it to the point where those potential shippers and/or
builder/owner/operators would feel confident that AGDC had
followed industry standard practice, cost estimating, and
engineering that would provide a pipeline that would be
worthy of their participation; at this point, AGDC would
try to leverage that money in order to best provide for the
lowest possible cost gas to consumers at the earliest
possible date.
Co-Chair Austerman requested a brief explanation of the
second to last talking point on the members' pre-submitted
questions:
o Too little throughput for market demand; max 1.6
bcf/d and no NGLS's Market demand currently over 5
bcf/d NGLS's are feed stock for value added economy
(propane market e.g. helps rural Alaska)
Ms. Delbridge spoke to the second to last talking point and
related that AGDC had originally considered shipping
natural gas liquids (NGLs) through its pipeline and that at
the current time, NGLs had a premium price; however, that
premium was disappearing as shale gas took off in the
Lower-48 and elsewhere. She related that players were
turning to NGL rich plays in order to compensate for
extraordinary low prices for the dry gas that they were
producing. She stated that AGDC had taken another look at
its project and had realized that although the premium
price used to warrant the additional engineering and pipe
costs of carrying NGLs, that "is not the way that the world
is looking at this point" and was not where AGDC's
potential shippers' interests were; however, there was
nothing preventing AGDC, if there was market interest at
open season, from working out a way to ship NGLs, providing
that there was sufficient supply and demand to do so.
Representative Hawker appreciated the opportunity to
respond to committee questions. He observed that the
meetings with the Joint In-State Gas Caucus, which was co-
chaired by Vice-Chair Neuman, was a great forum that had
raised a lot questions and answers; he encouraged people
who were following HB 4 to take a look at those meetings
because there had been really good dialogue that had
discussed how the project positions itself, the visions of
the sponsors, as well as how the sponsors had responded to
those visions with the statute that was being proposed.
Co-Chair Stoltze noted that the administration was
listening to the meeting and observed that there was a
request to have "Mr. Gibson" or someone from the AGIA team
respond to the interplay between the "two entities"; he
would not make that request officially, but knew that they
were listening.
10:31:18 AM
RECESSED
1:39:37 PM
RECONVENED
Ms. Delbridge related that Representative Hawker was
currently in another hearing, but could return if the
committee so desired. She shared that she had been asked to
elaborate about the ability of an AGDC gas pipeline to
carry propane under HB 4. She related that the committee
had previously discussed NGLs as a whole, but that propane
was of particular importance to Alaska. She requested that
Mr. Dubler be allowed to explain how propane could work
within AGDC's pipeline.
Mr. Dubler stated that in AGDC's new dry-gas scenario, 1.5
percent of the gas coming down the line would be propane;
for in-state use and to the extent that there was a
commercial enterprise that wanted to utilize that propane
in the line, 3500 barrels of propane per day could be
extracted from the line, which just about matched the
current propane use in Alaska. He reported that the 3500
barrels per day would not allow for expansion into the
future, but noted that Alaska was currently using that
amount and was importing it.
Representative Gara noted that the presentation had been
that the cost of AGDC's project had been reduced by
eliminating the infrastructure to ship liquids. He inquired
if propane was a liquid when it was shipped by a gas
pipeline. Mr. Dubler responded in the affirmative, but
stated that 1.5 percent propane content was not enough to
cause problems in the gas pipeline.
Representative Gara observed that one of the promises of
this, and every pipeline project "we've ever heard of," was
that propane would get to Rural Alaska and that its use
would be expanded; he inquired if the pipeline would need
to ship more propane, "were the promise to come through"
and need to go back to design where the additional
infrastructure was needed to deal with the liquids. Mr.
Dubler stated that AGDC had not looked at that scenario yet
and pointed out that the issue during its expression of
interest in 2011 was that nobody was interested in propane;
the expression of interest had been open to all users of
gas and no one had been interested in taking the propane
off the line and doing anything with it in-state. He
explained that it was not in AGDC's charter to extract
propane from the line and stated that AGDC was a gas
pipeline company that was to bring gas from the North
Slope; furthermore, it was AGDC's understanding that it was
not the intent of the legislature for it to be extracting
propane and the corporation had been operating under that
assumption.
1:44:42 PM
Representative Gara expressed confusion and observed that
the presentations that he had seen stated that the bill was
a way to get propane to Rural Alaska. He noted that if the
bill was a way to get propane to rural Alaska, that would
seem to expand the amount of propane that would be going
through the pipe; he inquired if would it necessitate re-
instituting the older project proposal that had the
infrastructure to deal with NGLs if that were the case.
Ms. Delbridge responded that on behalf of bill's sponsors,
there was no intent in the legislation to have AGDC doing a
project that would extract propane and then have AGDC run a
propane distribution operation, just as it had also not
been part of other pipeline projects; however, propane was
considered by some to be one of the potential benefits and
ancillary activities that could be done once a pipeline was
in place that had a resource coming through the areas that
might in fact need it. She reiterated earlier comments that
having propane in the pipe did not necessarily require the
plan to revert to straddle plants and other engineering
increments in order to keep that propane going as long as
it was within a given range and there were not a lot of
other heavier liquids in the pipe.
Mr. Dubler noted that the important time in the process
would be during the project's open season. If AGDC went to
a binding open season and a propane company stated that it
wanted 10,000 barrels of propane per day off of the line
and bid a firm transportation on that, then AGDC would go
back and redesign, re-engineer, or whatever it had to do as
long as it did not cost more to the entire project than the
propane brought to the table; furthermore, this was the
purpose of the open season. He explained that AGDC would
not know what customers were out there until the customers
showed up and that the project had to get to an open season
first. He explained that AGDC had conducted an expression
of interest, which was basically a non-binding "test run"
for an open season and that it had not received any viable
interest in propane in the Alaska; the lack of interest in
propane during the expression of interest was why AGDC had
taken it "out of the line."
1:47:12 PM
Vice-Chair Neuman understood the current pipe plan would
use Schedule 80 pipe at about 2100 pounds per square inch
(psi) and believed that at about 2500 psi, propane,
butanes, ethane, pentane and other NGLs could be carried in
the line. He inquired if it would be in AGDC's ability to
change the physics of the pipeline to accommodate added
value processing, if there was interest in it during the
open season. He believed that Schedule 80 pipe could still
hold up to 2500 psi with a higher compression and that
under current design, NGLs could still be carried if
needed; he inquired if this was correct. Mr. Dubler
responded that the 2500 psi line that AGDC had proposed
back in 2011 had been modified in the December report and
that he believed the current line was 1480 psi in a 36 inch
pipe; additionally, the line would probably not use X80
steel, but would most likely use X70 steel, which had a
little thinner wall and was a softer pipe with less
rigidity. He pointed out that the X70 steel was a lot less
expensive than the X80, but that it was a standard pipe
that was used all over the country. He relayed that AGDC
would be able to buy the X70 steel from many different
mills in the U.S. and abroad and pointed out that all of
the valves and fittings that went on the pipe would be
available "pretty much" off the shelf; the change to X70
steel accounted for a lot of the reduction in cost that
AGDC had realized with the new plan.
Mr. Dubler addressed the part of Vice-Chair Neuman's
question related to accommodating the line for added value
processing. He stated that AGDC could run "what if"
scenarios, but that what it was trying to do was get the
project to a point where it knew the what ifs, as well as
who wanted to participate; at this point, AGDC would be
able to design the pipe and the facilities to meet that
need.
1:49:36 PM
Co-Chair Austerman understood that the current plan would
not move propane off the North Slope, but would extract it
and ship the gas down; he inquired if this was correct.
Mr. Dubler stated that current plan was that 1.5 percent of
the gas stream would be propane and would travel down the
line; furthermore, if there was a commercial interest in
that propane when it reached Southcentral Alaska,
Fairbanks, or wherever the interest was, then it could be
extracted. He explained that approximately 3500 barrels of
propane per day could be extracted from the line under the
current plan.
Co-Chair Austerman inquired what would happen if there was
no interest in the 3500 barrels per day of propane. Mr.
Dubler replied that if there was no interest, AGDC would
either redesign the plan to remove all of the propane on
the North Slope or would continue to ship it down and mix
air with it in Southcentral Alaska in order to bring the
BTU content in line with utility-grade gas.
Co-Chair Austerman related that, similarly to
Representative Gara, he had anticipated that propane would
be part of the effort to get another heating source to
customers, in particular to the areas that he represented.
He pointed out that his constituents were not on the
Railbelt or the road system and that he had hoped and
assumed that getting propane down the line had been part of
the project. He referenced the expression of interest that
AGDC had held and wondered if the lack of interest in
propane meant that the right price was not discussed with
potential interests. He did not want to call HB 4's gas
line project a subsidy, but on the other hand, he did not
see any revenues been generated for the state; he opined
that this made it somewhat of a subsidy. He thought that
there should be a way to offer the propane at a price where
it was attractive for people to consider extracting.
1:52:16 PM
AT EASE
1:53:47 PM
RECONVENED
Co-Chair Austerman hoped that he was not "throwing a
wrinkle" with his question, but noted that this was the
first time that the committee had seen the bill.
Ms. Delbridge noted that the sponsors' intent had always
been to make sure that Alaska's needs were taken care of
through AGDC and HB 4, but at the same time realizing that
the state needed buyers and sellers of a product in order
to have a market to ship it within; furthermore, the
sponsors wanted AGDC, generally speaking, to be a gas-
pipeline developer and not necessarily an entity that
extended into different energy options that were related to
actually interfacing with Alaskans "that way." She pointed
out, however, that there were opportunities within the
legislation in the way that AGDC had been structured to
expand on other potential energy options. She offered that
Mr. Dubler had a few points that could address the issue.
Mr. Dubler stated that the legislation did allow AGDC to
create under it a subsidiary for gas marketing and that
AGDC would more than likely utilize that subsidiary, which
had original had been a former sister agency that had
become dormant that last several years. He explained that
"we've actually created a new entity" that would be in a
position to utilize propane from the line if there was a
demand and a market for it; the subsidiary would be able to
solicit interest in propane or other byproducts of the
natural gas for usage within the state similarly to the way
that AGDC was required to go and solicit offtake points for
the gas line.
Ms. Delbridge stated that for example, the subsidiary
cooperation could serve as an aggregator of small propane
volumes that a number of in-state interests might want to
participate with, but might not be fully equipped to
negotiate directly with the pipeline for. She stated that
the aggregator could pay for shipment on behalf of smaller
communities and get the propane to them; furthermore, the
subsidiary would have given advanced notice to communities
that were interested in propane to let it know about that
interest. She reiterated that if there was insufficient
interest, it would be difficult for a pipeline to commit to
shipping something that no one was ready to receive.
1:56:21 PM
Co-Chair Austerman supported HB 4 and moving it out of
committee because he saw its advantage to the Railbelt, as
well as the advantages of what the natural gas could do
along the pipeline; however, he had hoped "all along" that
the bill would have a little more emphasis on areas besides
the Railbelt. Mr. Dubler pointed out that AGDC had held
discussions with the governor's office and others about
getting propane down the Yukon River, as well as on barges
to get it to coastal communities; AGDC would look into
whether its subsidiary could take on and distribute that
project.
Co-Chair Stoltze shared Co-Chair Austerman's caution and
did not want people following the bill from Rural Alaska to
get an exaggerated or unrealistic expectation of what the
legislation would provide. He offered that hyping the
benefits of legislation could raise hopes unfairly and that
he wanted to "flesh that out" as well because "this" had
been an ancillary benefit that had been discussed that had
brought a broader consensus of support for the bill;
additionally, he was a "little bit taken aback, not having
followed this detail in previous committees."
Representative Edgmon echoed the comments of Representative
Gara, Co-Chair Austerman, Co-Chair Stoltze, and Vice-Chair
Neuman. He thought that HB 4 was being put forward in a
good-faith effort to get natural gas to all Alaskans, which
was stated in the legislative intent. He expressed
appreciation for the intent language, but stated that as a
member from Rural Alaska, his constituents were paying 3 to
4 times more than what the primary customer base of the
proposed pipeline was paying. He inquired why Rural Alaska
was not a bigger part of this whole solution. He was unsure
of what that solution would be, but noted that in the
recognition that the bill was a creature of the
legislature, that the legislature could write it how it
wanted; furthermore, he intended to insert additional
language in the bill to put "those" safeguards in.
Representative Wilson noted that although it was not the
bill in front of the committee, SB 23 would be trucking
propane and natural gas and doing more build out, so that
there would be more need for propane. She noted that there
were not currently a lot of people using propane. She
wondered if a greater need for propane in a more "urban"
area would make a difference to those who might not have
come to the table because as a result of the increased use,
they saw a bigger need in the state than currently existed;
she thought this seemed logical. Mr. Dubler agreed that it
would be logical and that for a smaller amount of propane,
it might not make sense for an entity to build a plant to
extract propane from a line and ship it in-state; whereas,
if Alaska was only importing 3500 barrels per day, it could
be done very easily from Canada, which was cheaper than
building the infrastructure. He offered that if the 3500
barrels per day were doubled or tripled, then maybe the
infrastructure would "pencil" to where it would actually
make sense to build a plant in Alaska, extract propane, and
ship it around the state.
Representative Wilson asked how many homes or residents
3500 barrels per day would serve. Mr. Dubler responded that
he did not have that data, but that 3500 barrels was
roughly 18,000 gallons. He was unsure how large the tanks
were in homes, but indicated that he could get the
requested information.
Co-Chair Stoltze thought that there was an opportunity to
discuss propane in relation to the current project and
noted that there was interest and support for the issue; he
thought that it just needed more "fleshing out."
2:01:31 PM
SPEAKER MIKE CHENAULT, explained that HB 4 was about
opportunities for Alaska and offered there were currently
zero such opportunities. He discussed different lines,
sizes, and pressures and what could be moved under those
different scenarios. He spoke about a 48 inch pipeline
scenario that some were discussing that would carry NGLs to
market and stated that he was unsure of how many people had
thought of that scenario. He relayed that when AGDC had
first proposed the current project, there was 1 straddle
plant in Fairbanks to remove the liquids; however, under
the AGIA process there were 5 straddle plants. He explained
that under AGIA, an estimated $250 million straddle plant
would need to be built in each of the 5 locations in order
to take off dry gas for communities and pointed out that
someone would have to pay for the straddle plants. He
offered that if might not necessarily be true that HB 4's
current project would bring liquid gas and its benefits to
Alaskans. He pointed out that HB 4 was about opportunities.
He explained that until AGDC got to an open season and saw
who wanted gas, in what quantity, and in what chemical
makeup, the state would not know what opportunities were
there.
Speaker Chenault stated that AGDC had held a non-binding
expression of interest and that no one had wanted NGLs; as
a result, the project had been redesigned to send dry gas,
plus 1.5 percent propane. He explained that the 1.5 percent
propane in the line represented about 3500 barrels per day,
which was roughly 20,000 gallons. He opined that a tank in
most people's homes would probably be in the 300 gallon
range and would last most homes months. He related that HB
4 was all about opportunities and that if AGDC got to the
open season and there were people that wanted to sell
propane, it would be there to sell. He shared that the
bill's sponsors wanted the gas to go to all Alaskans. He
acknowledged the concerns of Rural Alaskans that they
wanted to see some benefit from HB 4 and pointed out that
there was an opportunity for benefit in the legislation;
whereas, there was currently zero opportunity. He offered
that the legislature could continue to talk about the
project, but that until it made a move and put together a
real project, the state would not have any shippers or
buyers that would come and put down the billions of dollars
that needed to be spent in order to make the project
happen.
2:05:20 PM
Co-Chair Stoltze would not view the questions and comments
as negative, but offered that the discourse was building
the record and explaining some of the steps that had to be
taken; additionally, he noted for the public that the
questions and comments were part of the constructive
dialogue of building what the realistic expectations were
and what steps needed to be taken if the project went
forward.
Representative Gara offered that there were 2 opportunities
facing the state and that there were 2 pipeline proposals
that should both be looked at.
Co-Chair Stoltze interjected that there should be a sound
bite limit of 2 or 3 times per meeting.
Representative Gara disagreed with the "zero opportunities"
comment, but acknowledged that Co-Chair Stoltze was right.
Representative Gara revisited the propane issue and
recalled that before last December, HB 4's project was
intended to carry NGLs; however, there was analysis
conducted that showed that by stripping out the NGLs
portion, a certain amount of money would be saved on
straddle plants. He inquired how much was shaved off of the
project by removing the infrastructure that would allow the
shipment of a large amount of liquids. Mr. Dubler replied
that the straddle plants cost approximately $250 million
apiece and that there were 2 of them; the cost savings was
$500 million.
Representative Gara thought that at least 1 of those
straddle plants would be needed at a cost of about $250
million if HB 4's project became the project that would
send propane to rural Alaska to lower energy costs; he
inquired if this was correct. Mr. Dubler responded that it
would depend on where the straddle plant was and whether or
not it was located above the first offtake point by a
utility. He expounded that above the straddle plant would
be enriched gas that could not just be put into a home for
heating fuel; if the straddle plant was in Fairbanks and
there was no one above Fairbanks that wanted or could get
the gas, 1 straddle plant would be sufficient, otherwise 2
would be needed.
Representative Gara understood the comments that if a big
user on the Railbelt wanted propane, enough might be sold
to make it economic, but offered that it sounded like
getting propane to Rural Alaska would have a $250 million
to $500 million cost; he wondered how this would get
funded. Mr. Dubler responded that the problem with planning
for in-state propane and designing the whole pipeline
around in-state propane as a definite end use was that AGDC
had to find an in-state use that could handle a $250
million plant that would make sense and one that ended up
with propane that was cheaper than what could be imported
from Canada. He recalled his earlier answer to
Representative Wilson's question and related that at 3500
barrels per day, that $250 million plant probably did not
make sense; however, at some greater quantity of propane,
it probably would make sense. He explained that AGDC did
not know what exact quantity of propane would make a
straddle plant make sense and related that AGDC was not in
propane business; AGDC relied on the private sector to come
in and say that, at a certain price of propane, it could
build a plant, extract the propane, and distribute it all
through Alaska.
Representative Gara noted for the record that he just
wanted to get the costs on the table.
2:09:09 PM
Representative Munoz inquired if it was possible that AGDC
could get to the open season and find that there was a
greater demand than a 36 inch line could accommodate and if
so, how that would be dealt with. Mr. Dubler replied that
"it would be hopefully a good day for us" if AGDC had
oversubscribed. He related that AGDC's directive from the
legislature was to provide gas for Alaskans and that the
utilities that were using gas for Alaskan residents would
get first priority on the gas; He indicated that Mr.
Kleppin, who was AGDC's commercial manager, could speak to
the issue, but believed that there was an allocation
between the remaining proposers. He believed that if the
project had been FERC regulated, it would require that
there could not be a priority to the allocation among
proposers. He deferred further comments to Mr. Kleppin.
2:10:27 PM
DARYL KLEPPIN, ALASKA GASLINE DEVELOPMENT CORPORATION,
ANCHORAGE (via teleconference), replied that Mr. Dubler was
correct and related that the recourse tariff filing would
include methodology for allocating capacity if there was an
oversubscription. He expounded that if AGDC had a pipeline
that it was designing for 500 Mcf per day and people wanted
600 Mcf, then it would have to allocate capacity so that
the total was 500 Mcf per day.
Representative Munoz inquired at what point the limitations
of AGIA would go away and further queried what the state's
commitment was in terms of the size, shipping capacity, and
financial obligations. Mr. Dubler stated that the
restrictions under AGIA would not go away as long as there
was a valid license in place and a licensee working on that
license and furthered that as long as work continued on
AGIA, AGDC's project was limited to 500 Mcf per day. He
noted that AGDC had been asked "more times than I would
like to remember" if it could do more if there was no AGIA
project and related that it was a question that he did not
really like because it was a what if. He pointed out that
obviously, a bigger pipeline was more economical and would
bring cheaper gas for Alaskans; however, it seemed naïve to
think that if ConocoPhillips, Exxon Mobile, and BP could
not make larger line, that the state of Alaska could. He
doubted that the state could "pull off" a 3 billion cubic
feet per day pipeline or a something similar to what AGIA
was proposing if ConocoPhillips, Exxon Mobile, and BP had
not been able to.
Representative Munoz wondered if ConocoPhillips, Exxon
Mobile, and BP all had active licenses in terms of the
definition that was used.
Ms. Delbridge believed that the Trans-Canada Corporation
was the sole licensee with the state on AGIA and that the
commissioners of the Department of Revenue and the
Department of Natural Resources had signed a contract with
just the Trans-Canada Corporation. She believed that Exxon
Mobile was participating with the Trans-Canada Corporation
as a partner, but was not subject to the license agreement
with the state. She furthered that BP and ConocoPhillips
were the other two producers that "they" have generally all
thought needed to participate in a bigger project in order
to make it happen; however, the 2 companies had not, to her
knowledge, signed on as partners to Trans-Canada like Exxon
Mobile had. She believed that ConocoPhillips, Exxon Mobile,
and BP, as per the governor's request to them, were working
together with the Trans-Canada Corporation to look at
another option, including the large export pipeline to
tidewater in Alaska.
2:13:30 PM
Co-Chair Austerman understood that AGDC was not in the
propane business. He referred to work that AIDEA had done
for Fairbanks; he wondered about a similar option that
would allow AGDC to use a subsidiary to transport gas via
tanker from Kenai or other rural coastal Alaska regions.
Mr. Dubler believed that the legislation would allow the
option as it was currently written.
Co-Chair Austerman asked if the bill would allow the option
for gas and not propane. Mr. Dubler replied that the bill
would allow propane as well as gas.
Representative Costello asked about the market's role in
the legislation. She referred to comments that the market
would answer particular questions.
Ms. Delbridge responded that the sponsors had been clear
that they wanted to rely on the market to define how the
arrangement would take form rather than prescribing a
pipeline size regardless of demand; the sponsors wanted the
market to determine the size of the pipeline. She stated
that the sponsors believed that the state had gone wrong in
the past when it tried to prescribe the arrangement
narrowly when the market would have preferred different
conditions. The legislation had been structured to provide
AGDC with as much latitude as possible within the bounds of
its mission to bring gas to Alaskans at the lowest possible
rates. For example, AGDC had flexibility to follow the
project plan pipeline as described, but with modifications
as necessary. She cited one of the modifications shown in
AGDC's 2012 year-end project plan amendment, where interest
in NGLs was lacking. As a result AGDC had adjusted the
pipeline to match the market's environment.
Ms. Delbridge furthered that part of allowing the market to
work meant ensuring that AGDC was not able to go forward
with a project without sufficient commercial shipping
contracts that would support the project financing. She
stated that the bill did not allow AGDC to build a pipeline
without the market interest. She stated that providing the
transportation tool the market needed in order to make
things happen would create other opportunities for the rest
of Alaska. She stated that a businessperson in the Interior
could see a business opportunity in pulling propane out of
the pipeline and extending it down the Yukon. She
hypothesized that perhaps there was another business
enterprise that saw the value in converting gas to liquid
or compressed gas for transportation to small coastal
communities within the state.
2:17:52 PM
Representative Costello asked whether there was a timeline
or deadline for the opportunities. Ms. Delbridge replied
that there were no timelines or deadlines.
Representative Edgmon thanked Speaker Chenault for
providing clarification on the bill. He believed the
current conversation was critical for the state and his
constituents. He referred to HB 9 (from the prior
legislative session) and asked if it had included more
intent language about distribution to regions outside of
Southcentral Alaska that could occur once the pipeline was
in place.
Ms. Delbridge answered that HB 4 continued to provide the
information. She pointed to a provision on page 9,
subsection (b), which told AGDC that once construction had
been started on an instate pipeline that it needed to
analyze other pipelines that connected to industrial and
residential utility customers in other regions of the
state. She elaborated that the legislation had been crafted
to allow AGDC to pursue other pipelines in the future. The
corporation could consider pipelines that would feed off
the pipeline to connect to other communities, utilities,
and mines that could benefit from the gas; AGDC would also
have the ability to look outside the immediate pipeline
corridor. She stated that the legislature had passed oil
and gas exploration credits for middle earth the prior
session; the legislation would provide the ability for AGDC
to assist with a pipeline that would connect a future
gasline to other communities if the project was
economically viable and there was sufficient public
interest.
2:20:39 PM
Representative Edgmon asked where the bill provided the
ability to create a subsidiary corporation for gas work.
Ms. Delbridge pointed to page 13, Section 31.25.120.
Representative Gara asked whether there was a scenario
under which the project could be built with private
financing and without AGDC financing. Mr. Dubler replied
in the affirmative. He stated that there were multiple
scenarios where that would be the case and that AGDC was
hoping it would be the case. The corporation hoped for a
successful open season in which numbers, customers, and
shippers would validate a viable project that AGDC could
bid out. He furthered that pipeline companies could bid to
take over the project and continue construction.
Representative Gara surmised that under the scenario there
would be private financing and bonding that would not
require the legislature to appropriate additional funding.
2:22:26 PM
Mr. Dubler agreed and detailed that developers would be
responsible for securing financing through the market.
Representative Gara asked if the possibility was realistic.
Mr. Dubler answered that with a successful open season the
scenario was definitely in the realm of possibilities.
Representative Gara asked for verification that if [the
legislation became law] AGDC did not need to come back to
the legislature for funding, that the legislature would not
have the ability to approve or disapprove the project in
the future.
Mr. Dubler replied that like other private projects in the
state, the legislature would not have control over whether
a project was built or not. He added that if producers
wanted to build a pipeline at present, they would not be
required to obtain legislative approval.
2:23:40 PM
Ms. Delbridge stated it was important to note that the HB 4
provision allowing AGDC to enter into an arrangement was
clear about the corporation's purpose to provide gas to
Alaskans at the lowest possible rates.
2:24:24 PM
AT EASE
2:30:05 PM
RECONVENED
Co-Chair Stoltze noted that he had stepped out of the
committee room when there had been a very salient question
and response and that he would like it addressed for his
edification and clarification for the public. He had
overheard part of the conversation and thought that it was
the intent to not have any further legislative approval of
the project subsequent to HB 4; He wanted the issue
addressed very clearly on the record.
DAN FAUSKE, CEO/EXECUTIVE DIRECTOR OF ALASKA GASLINE
DEVELOPMENT CORPORATION, related that he would briefly
defer to Mr. Dubler to clarify a comment that he had made.
Mr. Dubler noted that the committee had been discussing
whether or not the HB 4's project would come back to
legislature for approval in the event that a private
corporation took over and was building the pipeline; the
answer to this was no and in that case, the project would
not come back to the legislature. However, the project
would come back to legislature if it needed more
appropriations; in other words, if the state was still in a
position to be an owner of the project and was continuing
it forward or if AGDC asked the state for moral obligation
debt, AGDC would have to come back to legislature. He
related that it was important to note that although a
private company that took over the line would not be before
the legislature, it would be back in front of the RCA for
its tariff. He offered that there would not be an
unregulated group of people out there charging Alaskans
whatever they wanted. He explained that a private company
would still be subject to RCA overview in accordance with
HB 4 provisions.
2:32:06 PM
Co-Chair Stoltze observed that his question represented a
public interest question.
Representative Gara saw realistic scenarios where there
might be private financing and that AGDC would not come
back to the state for an appropriation; therefore, the
legislature would not have another say. He inquired if
there were realistic scenarios where this would happen.
Mr. Dubler replied in the affirmative, but reiterated that
the even though the legislature would not have any more
review of the project, the RCA would review all of the
aspects that were in the bill.
Co-Chair Stoltze apologized for missing the earlier
comments and offered that not being in the room had
probably led to some of the confusion. He appreciated the
clarification.
Representative Holmes clarified that a private company
would either be back before the RCA or possibly FERC if
FERC determined that it was a pipeline subject to its
jurisdictions.
Mr. Dubler stated that Representative Holmes was correct
and that it depended on how FERC looked at the pipeline. He
knew that with the larger line, FERC was viewing it as an
entire project, including the export and believed that FERC
would have jurisdiction over that whole line; however, he
believed that FERC viewed AGDC's potential line
differently.
Mr. Fauske noted the propane piece that was going in the
AGDC pipeline was for the distinct reason of seeing if
there was a way that a propane market down the Yukon River
and the Richardson Highway could be developed; there were
also discussions of getting propane to Valdez and shipping
it down to Southeast Alaska. He related that these were
ideas that AGDC was looking at that needed further study
and that he did not want to leave the committee with the
impression that AGDC would not explore these areas. He
offered that AGDC's position had always been that the key
was to get a pipeline, get some product in it, and get to
the open season. He explained that the open season was
really where the rubber hits the road and was when AGDC
would start finding out what it had; under ideal
circumstances, the product viability would be there and
AGDC could start exploring other options. He reminded
people that AGDC's project under HB 4, other than the
requested $400 million, had a revenue bond structure where
the underlined credit of the project was the project;
therefore, if the revenue were there to support the debt
service, it freed up other options for legislators. He
explained that creating a project that paid for itself
would enable looking at further enhancements or expansions
and would, in his mind, free up additional revenues; as a
result, there would be opportunities in areas that would
have needed to be otherwise subsidized, but there would be
a product coming down the line "that you can actually do
something with."
Mr. Fauske related that he liked the bill's structure. He
pointed out that the legislation had a stage-gated approach
and that AGDC would be giving the legislature monthly
reports; furthermore, there was no way that AGDC would
continue with a project that it determined was not viable
simply because it had the authorization. He appreciated the
questions and acknowledged that the bill was big. He
thought that the legislation accomplished a lot of good
things.
2:36:31 PM
Co-Chair Stoltze asked if there was an incentive for AGDC
to not spend the full $400 million if it found out early on
that the project would not work. Mr. Fauske replied that
"that would not be in the cards" and was not how AGDC
operated.
Mr. Dubler noted that out of the $400 million, there was a
significant amount of money for re-engineering after an
open season and that if AGDC had a failed open season, that
amount would definitely not be spent because there was
nothing to re-engineer. If an open season was unsuccessful,
AGDC would "end the game" right there.
Representative Wilson clarified that there was a lot of
people in Fairbanks in rural areas that would not be
getting the gas. She offered that those in Rural Alaska had
the same issue that some in Fairbanks had, which was that
they were not "big" enough to make the economics work at
this point. She stated that if propane use could be grown
and Alaska could make a market, it would enable potential
interests to see a high demand and market. She opined that
people would not come to the table when the demand for
propane was too low. She related that Fairbanks could be
growing a propane opportunity in the Interior if it
"pencils out, even on the other project." She inquired if
her above statements were correct. Mr. Fauske replied in
the affirmative. He reiterated that once a product was
flowing and there was access to something, he was an
absolute believer in the economic spirit of "our" country,
state, people, and businesses. He could not guarantee
anything except that without the gas being there, "none of
this" was going to happen; the opportunity existed once
there was product. He relayed that it was everyone's desire
to fix everything all at once, but that it became so
difficult; however, people's hearts were in the right place
and he thought that people would be pleasantly surprised at
the potential that "exists here" once things were going and
started expanding.
2:39:44 PM
Co-Chair Stoltze understood that Alaska would never have a
plan that would reach every Alaskan. He noted that many
people considered his district urban, but that he could not
think of a single sewer hook in his district, unless "maybe
there was a peripheral public building"; it was not
economic for natural gas to reach a lot of his
constituents. He concluded that even in an urban tax-paying
area like his district, a lot of folks would not have
access to potential natural gas.
Co-Chair Austerman believed that Mr. Fauske's last
statement was absolutely true and that if the HB 4's
gasline were built, there would be all kinds of things that
would come from it, including transportation issues; the
state would have the opportunity to change over a lot of
its vehicles and those kinds of things as time went by. He
inquired what the effective date on the bill was. Ms.
Delbridge replied that the legislation had an immediate
effective date.
Co-Chair Austerman inquired what the project's timeframe
would be to get to open season. Mr. Dubler replied that
AGDC intended to have an open season complete by the end of
2014, which was the end of the following calendar year.
2:41:12 PM
Representative Gara noted that there was a discussion
regarding whether HB 4's project could be privately
financed and therefore, would not require additional
legislative approval and that the response had been that
the RCA would get to review it. He wanted to understand the
RCA's role and observed that legislators had their role,
which was to make sure that the maximum benefit got to
constituents. He inquired if the RCA's role was limited to
making sure that the tariff that was charged by the
pipeline owner only granted them reasonable profit, and was
not geared to whether this was the best project for the
State of Alaska. Mr. Dubler responded in the affirmative.
Representative Gara inquired if the RCA also regulated the
price of gas. Ms. Delbridge replied that the RCA did not
regulate the price of gas for "anything in the state that
way."; furthermore, under legislation, the RCA did not just
look at an appropriate rate of return, but also ensured
that the rates were cost based and were supported by all of
the cost data, operations and maintenance costs, and
everything else that went into the pipeline. Under the
legislation, the RCA would make sure that there was a
reasonable rate of return, depreciation method, and capital
structure involved; the RCA would not be looking at the
ownership of the pipeline beyond looking at the regulatory
framework. However, if AGDC did not own the pipeline that
was to be regulated, the legislation required a full CPCN
process that delved quite far into the owner's financial
situations to make sure that they were financially fit,
willing, and able to take on the service that they were
proposing to handle.
2:43:03 PM
Representative Munoz inquired about the cumulative fiscal
note and pointed to page 1 where there was $56 million for
all of the agency work from FY14 to FY19. She wondered why
the reimbursable services portion of the budget was $27
million if the full fiscal note was $56 million. Ms.
Delbridge deferred the question to Mr. Dubler and believed
that AGDC had prepared the fiscal note with the
administration.
Mr. Dubler stated that coming up with the fiscal note had
been an intricate process and that it was rather involved.
He asked if the question could be repeated.
Representative Munoz noted that on page 1 of the fiscal
note, the cumulative costs in additional personnel for the
agencies to complete the tasks necessary in HB 4 totaled
$56 million, but that the budget for reimbursable services
that would be repaid to the agencies was $27 million for
that additional personnel cost. She wondered why those 2
numbers did not line up. Mr. Dubler replied that the
difference between the 2 represented AGDC's cost and that
the reimbursable service agreements were only for other
agencies that would incur costs on AGDC's behalf.
Co-Chair Stoltze asked if the fiscal note would be one of
the last ones the legislature would see if "this" was not
under the executive budget act. Mr. Dubler responded that
it would depend on the appropriation amount and related
that AGDC would need about $400 million to get through an
open season and to project sanction; however, if the
appropriation were significantly less than that, AGDC would
come back to the legislature for an additional
appropriation.
Ms. Delbridge clarified that part of that $400 million had
already been provided to AGDC and what was needed was
roughly $330 million. Mr. Dubler stated that Ms. Delbridge
was the correct.
2:45:21 PM
Representative Gara recollected a previous appropriation of
$200 million and inquired if he was mistaken. He requested
a history of the appropriations as well as what was being
requested. Ms. Delbridge believed that the legislature
appropriated had appropriated $200 million in 2011 for AGDC
to the AHFC Fund; the language in the appropriation would
hold that money in the fund until the In-State Gas Pipeline
Fund was created through what was then HB 9. She explained
that the In-state Gas Pipeline Fund would now to be created
in HB 4. She believed that the $200 million had been
partially appropriated, but that it required an additional
appropriation in order move it from the AHFC Fund into the
In-state Gas Pipeline Fund.
Mr. Dubler stated that Ms. Delbridge was correct and added
that what had happened was that the bill creating the fund
never passed the legislature. He explained that the funding
appropriation had been specific about the fund being
created by the 27th Legislature, but that it was not
created by that legislature; as a result, the $200 million
was sitting in limbo at AHFC and if and when a fund is
created, a separate appropriation would be required to put
it into the In-state Gas Pipeline Fund because the original
appropriation language had lapsed.
Representative Gara inquired if there was additional money
being requested on top of the $200 million. Mr. Dubler
replied in the affirmative and stated that there was an
additional $130 million request, for a total request of
$330 million.
2:47:48 PM
HB 4 was HEARD and HELD in committee for further
consideration.
2:47:48 PM
AT EASE
2:50:34 PM
RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 4 NEW FN CSSS(RES)-DOR-AHFC-AGDC-03-26-13.pdf |
HFIN 3/27/2013 9:00:00 AM |
HB 4 |
| HB 4 HFIN Members Questions.pdf |
HFIN 3/27/2013 9:00:00 AM |
HB 4 |
| HB 4 Back-up for House Finance Questions March 27.pdf |
HFIN 3/27/2013 9:00:00 AM |
HB 4 |
| HB 4 DOE Dismissal of AGPA Application.pdf |
HFIN 3/27/2013 9:00:00 AM |
HB 4 |
| HB 4 LeMaster backup to testimony.pdf |
HFIN 3/27/2013 9:00:00 AM |
HB 4 |