Legislature(2009 - 2010)HOUSE FINANCE 519

02/24/2010 01:30 PM FINANCE

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01:36:22 PM Start
01:36:29 PM HB300 || HB302
03:30:10 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
+ Briefing on Governor's FY11 Oil & Gas TELECONFERENCED
<Above Item Continued to 02/25/10>
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 300                                                                                                            
     "An  Act making  appropriations for  the operating  and                                                                    
     loan program expenses of  state government, for certain                                                                    
     programs, and to  capitalize funds; making supplemental                                                                    
     appropriations;  making appropriations  under art.  IX,                                                                    
     sec. 17(c),  Constitution of the  State of  Alaska; and                                                                    
     providing for an effective date."                                                                                          
HOUSE BILL NO. 302                                                                                                            
     "An  Act making  appropriations for  the operating  and                                                                    
     capital    expenses   of    the   state's    integrated                                                                    
     comprehensive mental health  program; and providing for                                                                    
     an effective date."                                                                                                        
1:36:29 PM                                                                                                                    
Co-Chair  Hawker discussed  housekeeping. He  indicated that                                                                    
he was  expecting a  high level overview  on what  funds the                                                                    
departments had  available for spending at  the beginning of                                                                    
FY2010;  what the  money was  spent on  in FY2010,  what was                                                                    
still available, and what the  agency was requesting for the                                                                    
next  fiscal  year.  He  requested  that  a  clear,  written                                                                    
definition  of  an "encumbered  expense"  be  provided at  a                                                                    
later date.                                                                                                                     
Representative   Kelly  requested   that  the   speaker  tie                                                                    
together expenditures  with statutory  law as  the committee                                                                    
examined the various expenditures.                                                                                              
Co-Chair   Hawker  restated   that   when   asking  for   an                                                                    
appropriation   item,  the   committee   was  requesting   a                                                                    
description  of where  that appropriation  was sourced,  and                                                                    
why it had been originally appropriated.                                                                                        
DANIEL T.  SEAMOUNT, JR., COMMISSIONER,  ALASKA OIL  AND GAS                                                                    
CONSERVATION   COMMISSION,  DEPARTMENT   OF  ADMINISTRATION,                                                                    
explained that the commission was  requesting an addition to                                                                    
the  budget to  fund the  3 commissioners,  2 geologists,  5                                                                    
engineers, 6  inspectors, and  support staff  that comprised                                                                    
the commission.                                                                                                                 
Co-Chair  Hawker pointed  out to  the committee  the handout                                                                    
provided by  the Alaska Oil and  Gas Conservation Commission                                                                    
(AOGCC),  titled  "AOGCC  Gas Studies  FY2010  Progress  and                                                                    
Future   Work"  (copy   on  file).   He   noted  the   AOGCC                                                                    
appropriations that  were listed in the  "Historical Summary                                                                    
Gasline    Related   Appropriations    FY2004-FY2010".   The                                                                    
appropriations were located  on Page 1, Line 3,  and Page 3,                                                                    
Line 28.                                                                                                                        
Mr. Seamount  continued. He stated  the funds would  be used                                                                    
to embark  upon studies  to mitigate oil  losses due  to gas                                                                    
production  in  the major  fields  on  the North  Slope.  He                                                                    
referred  to handouts;  "AOGCC Gas  Studies FY2010  Progress                                                                    
and  Future   Work"(copy  on   file),  and   "AOGCC  Funding                                                                    
Co-Chair  Hawker  highlighted   the  FY2010  expenditure  of                                                                    
$121,985 to  the law  firm Gaffney,  Cline &  Associates. He                                                                    
asked what services they were providing.                                                                                        
Mr.  Seamount responded  that the  commission had  a limited                                                                    
number of engineers to cover  the amount of work that needed                                                                    
in to  be done in  all of Alaska's  oil and gas  fields. The                                                                    
firm was an  internationally recognized petroleum consulting                                                                    
firm, specializing in  engineering, geology, and geophysics.                                                                    
The  contract  was  to  assist AOGCC  with  the  review  and                                                                    
analysis  of  the  unit  at  Point  Thomson.  The  firm  was                                                                    
assisting the  commission in ensuring that  the models being                                                                    
used  were  accurate and  could  be  used to  determine  the                                                                    
impacts on oil production via gas production.                                                                                   
CATHY   FOERSTER,   COMMISSIONER,   ALASKA   OIL   AND   GAS                                                                    
CONSERVATION COMMISSION,  DEPARTMENT OF  ADMINISTRATION (via                                                                    
teleconference),  added  that   given  the  firms  worldwide                                                                    
experience,  the   findings  could  validate  some   of  the                                                                    
assumptions Exxon  was making i.e.;  how wells  would behave                                                                    
in particular  situations, and well spacing.  The experience                                                                    
of the  firm would be  beneficial in determining  whether or                                                                    
not Exxon was creating a good development plan.                                                                                 
Co-Chair  Hawker summarized  that the  commission was  using                                                                    
the firm as  part of the regulatory  authority in evaluating                                                                    
the  utility of  information  made  available from  industry                                                                    
when making  regulatory decisions.  Ms. Forester  replied in                                                                    
the affirmative.                                                                                                                
Co-Chair Hawker mentioned that the  same consulting firm had                                                                    
done  work for  the Department  of Natural  Resources (DNR),                                                                    
and  The  Department  of  Revenue   (DOR),  and  that  other                                                                    
agencies  had  used  the  same  consultants  to  politically                                                                    
motivate  the   legislature.  He   wondered  if   there  was                                                                    
potential for a conflict of interest.                                                                                           
1:52:26 PM                                                                                                                    
Ms. Forester  felt that  there was  no conflict  of interest                                                                    
for  several reasons:  the consultants  that the  commission                                                                    
employed   were   reservoir   engineers,   geologists,   and                                                                    
geophysicist, and a  major consulting firm of  this kind was                                                                    
very careful  to avoid conflicts  of interest. The  firm had                                                                    
always  checked  with  the  commission   when  they  felt  a                                                                    
conflict might be apparent.                                                                                                     
Co-Chair  Hawker asked  if there  were  written conflict  of                                                                    
interest rules. Mr. Seamount did not believe so.                                                                                
Co-Chair   Hawker  warned   that   in   order  to   maintain                                                                    
credibility  the  commission  should wary  of  conflicts  of                                                                    
1:55:07 PM                                                                                                                    
Representative  Austerman  cited   the  "AOGCC  Gas  Studies                                                                    
FY2010 Progress and Future Work"  handout. He noted that the                                                                    
commission received  $1.2 million  in 2005 and  $2.2 million                                                                    
in  2007.  The  expenditures for  FY2010  were  $121,985.00;                                                                    
$228,363.64 which was currently  encumbered. He asked if the                                                                    
work done in 2010, plus  the encumbered amount, totaled what                                                                    
was remaining  from the  original $3.4  million, or  had all                                                                    
the $3.4 million  had been spent and the request  was for an                                                                    
additional $1.1 million.                                                                                                        
Co-Chair Hawker referred to page  3, line 28, as a reference                                                                    
to the question.                                                                                                                
Mr.   Seamount   replied   that   the   original   operating                                                                    
appropriation  was for  $2.2 million;  $121,985.00 had  been                                                                    
spent and $228.363.64 was  encumbered, which left $1,150,900                                                                    
as the appropriation request.                                                                                                   
Co-Chair Hawker  clarified that  at the  end of  FY2010, the                                                                    
AOGCCs funding  would lapse. The commission  would then seek                                                                    
reappropriation of  the funding. He asked  if the commission                                                                    
would  be spending  the entire  $150 million  in the  coming                                                                    
fiscal year.                                                                                                                    
Mr.  Seamount replied  that it  was  uncertain. It  appeared                                                                    
that  activity was  beginning to  happen, and  that industry                                                                    
was becoming more  cooperative. More would be  spent than in                                                                    
the past,  however, the  commission would  work to  spend as                                                                    
little as  possible. He  warned that if  the funds  were not                                                                    
appropriated, any gasline project would be delayed.                                                                             
1:59:49 PM                                                                                                                    
Ms. Forester  added that  the commission had  a lot  of work                                                                    
left  to do.  Work that  had been  completed had  taken time                                                                    
because  of the  volatile  relationship with  Exxon. It  had                                                                    
been  a challenge  to predict  the rate  at which  the Point                                                                    
Thomson  analysis would  be  completed.  Currently, two  new                                                                    
wells were  being drilled  at Point  Thomson which  would be                                                                    
brought on-line as  a gas cycling pilot.  Data gathered from                                                                    
drilling,  and  producing,  the   wells  would  need  to  be                                                                    
incorporated in  the analysis. In  Prudhoe Bay more  oil was                                                                    
being produced and mitigation measures  were being tested in                                                                    
preparation for  a gas off-take.  As the data  was collected                                                                    
the  commission needed  to be  prepared  to incorporate  the                                                                    
data  into a  revision of  its studies,  and eventually  gas                                                                    
off-take hearing  would need to  be held for both  areas, as                                                                    
well as a  pool rules determination for  Point Thompson. The                                                                    
commission would need contract  experts available to testify                                                                    
at the  hearings to  ensure that the  public had  a complete                                                                    
understanding and so that the record was accurate.                                                                              
Co-Chair  Hawker cited  Page 1,  Line 3,  of the  historical                                                                    
summary. He  said that  in 2008,  the commission  received a                                                                    
reservoir  depletion study  appropriation for  $1.5 million,                                                                    
none of  which had been spent  to date. He wondered  why the                                                                    
funding had not been used.                                                                                                      
Ms. Forester  thought that was  a question best  answered by                                                                    
the Department  of Administration  (DOA), as  the department                                                                    
had been managing the commission's money.                                                                                       
Mr. Seamount  interjected that the  funds not  only included                                                                    
the  Prudhoe Bay  and Point  Thomson fields,  but other  oil                                                                    
fields that would  be under consideration for  adding to the                                                                    
pipeline, and other future exploration discoveries.                                                                             
2:03:53 PM                                                                                                                    
Co-Chair Hawker asked if the  commission exhausted the Point                                                                    
Thomson money, would the appropriation  language of the $1.5                                                                    
million be  sufficient to  avoid accusations  of interfering                                                                    
with the forward development of  a gas project. Mr. Seamount                                                                    
did not  believe that $1.5  million would be enough  for the                                                                    
commission to  do all  the work  that it  needed to  do, and                                                                    
that  the  total  operating,  plus  capital,  might  not  be                                                                    
enough. If the commission were  to conduct its own study the                                                                    
request  would be  significantly higher.  He added  that the                                                                    
commission hoped that  it would not have to  conduct its own                                                                    
study. Many  experts had already  begun the study, a  lot of                                                                    
information  had  been  gathered,   and  it  would  be  time                                                                    
consuming to go through the process again.                                                                                      
Co-Chair Hawker asked what the  constraints were on the $1.5                                                                    
million  that  had  been  sitting  unused  since  2008.  Mr.                                                                    
Seamount replied that the funds  could be used for the Point                                                                    
Thomson and Prudhoe Bay field studies.                                                                                          
2:05:56 PM                                                                                                                    
Representative Gara  wanted assurances that the  field study                                                                    
process would  be successful. He understood  that the AOGCCs                                                                    
main  mission  was  to  use  oil  and  gas  efficiently.  He                                                                    
wondered if  the AOGCC  had to stick  to the  academic rule,                                                                    
which was  the maximum use in  theory, or go by  the reality                                                                    
of not putting  something in the pipe by a  certain time and                                                                    
killing  the  project. Mr.  Seamount  believed  that by  not                                                                    
producing  the gas,  billions of  barrels of  oil equivalent                                                                    
would be  wasted.  He believed  that the gas was  a resource                                                                    
that would always be useful.                                                                                                    
Representative Gara  voiced concern  with the  ongoing field                                                                    
studies. He  wondered if  the point  would be  reached where                                                                    
the academic view  trumped the reality of  the situation. He                                                                    
hoped that  AOGCC could  provide a  more reliable  answer in                                                                    
the future.                                                                                                                     
Co-Chair Hawker  interjected that he did  not understand the                                                                    
question  Representative  Gara  was attempting  to  ask.  He                                                                    
requested that the question be  put in writing and submitted                                                                    
to the agency for a formal response.                                                                                            
Representative Gara said that he did  not want to find out 8                                                                    
years from  now that the  state cannot  go ahead with  a gas                                                                    
pipeline because in theory more  oil could be drawn from the                                                                    
field, when  in fact, the  window for moving ahead  with the                                                                    
gas pipeline was  going to pass.  Mr.  Seamount replied that                                                                    
there was  more energy equivalent  in the gas that  was left                                                                    
that in the oil that was left.  He felt if the oil could not                                                                    
be produced  out of  the production of  the gas  the project                                                                    
was a waste.                                                                                                                    
Representative  Gara said  he would  submit the  question in                                                                    
writing to the commission.                                                                                                      
Ms. Forester  interjected that  the commission  was supposed                                                                    
to prevent the  waste of both oil and gas.  If to preserve a                                                                    
half  a billion  barrels  of oil,  four  billion barrels  of                                                                    
equivalent gas had to be wasted, the plan was a failure.                                                                        
2:12:44 PM                                                                                                                    
Co-Chair Hawker  summarized that  the legislature  was being                                                                    
asked by the  commission for continued authority  to use the                                                                    
$1.1 million that would be  lapsing soon, and the commission                                                                    
was hoping  to move it forward  one year. At the  same time,                                                                    
there were still the other million  and a half that had been                                                                    
appropriated that had yet to be used.                                                                                           
BOB SWENSON,  PROJECT MANAGER, ALASKA IN-STATE  GAS PIPELINE                                                                    
COORDINATOR, referred to the  pamphlet, "Alaska In-State Gas                                                                    
Pipeline Project, Budget Summary,  February, 18, 2010", copy                                                                    
on file),  which he presented as  background information for                                                                    
further discussion.                                                                                                             
Co-Chair  Hawker  pointed  out  to the  committee  that  the                                                                    
appropriation  being discussed  could  be found  on Page  4,                                                                    
Lines 37 and 37 of the historical summary sheet.                                                                                
Mr. Swenson continued.  He shared that Page 5  of the budget                                                                    
summary  outlined  the tasks  that  had  been ongoing  since                                                                    
FY2010,  and  what would  be  happening  in FY2011.  Page  6                                                                    
provided the  breakdown of the FY2010  expenditures and what                                                                    
the balance was  as of January 15, 2010.  The work completed                                                                    
to  date  included the  route  alternative  analysis of  the                                                                    
Parks Richardson  Highway routes and  associated comparative                                                                    
pipeline cost  estimates, and  environmental surveys  of the                                                                    
alternative  routes.  The  initial project  description  was                                                                    
required for the initial application  for both the right-of-                                                                    
way and  the Environmental  Impact Statement  (EIS) process.                                                                    
Another cost  was for the  commercial group scoping  for the                                                                    
upstream and downstream issues  associated with the in-state                                                                    
gas  pipeline. Initial  review of  the  ENSTAR capital  cost                                                                    
estimate was  influenced by data  that the  original bullet-                                                                    
line  partners;  Anadarko  and  ENSTAR  had  complied.  This                                                                    
included  orthoimagery  and   Light  Detection  and  Ranging                                                                    
(LIDAR). Money had been encumbered,  with the Bureau of Land                                                                    
Management and the Corps of  Engineers, to cover the cost of                                                                    
the  applications. Work  that  was  currently underway,  and                                                                    
would  continue  into  FY2011,   was  the  cost  estimations                                                                    
associated with  the pipeline and facilities.  There were 16                                                                    
separate facility  scenarios being evaluated.  The scenarios                                                                    
had  variations of  the configuration  of  the gas  handling                                                                    
facilities, the compressor stations,  and the through-put of                                                                    
250  million cubic  feet to  1 billion  cubic feet  per day.                                                                    
All the  facility cost estimations and  configurations would                                                                    
be provided  at the  end of  the fiscal  year in  a complete                                                                    
report. He stated that the  work had just recently begun and                                                                    
referred to  Page 6,  which illustrated  that as  of January                                                                    
15,  2010, $2,214,968  had been  spent,  leaving 6  million.                                                                    
Other work  currently being done  included; updating  of the                                                                    
pipeline   cost   estimates,  development   of   facilities,                                                                    
continuing  preparation of  a detailed  project description,                                                                    
continued  engineering and  support of  the EIS  process and                                                                    
the right-of-way  process, developing  the data  package for                                                                    
economic  analysis,  facility  scenarios,  commercial  group                                                                    
market analysis, and cost of transport.                                                                                         
2:20:11 PM                                                                                                                    
Mr. Swenson explained that the  $3.9 million in encumbrances                                                                    
was for  the different  contracts that  were still  out. The                                                                    
personal services,  travel, and  commodities listed  on Page                                                                    
6,  were associated  with  his office.  The  request in  the                                                                    
FY2011 budget  was for  $6.5 million  to continue  with cost                                                                    
estimation.  Page 13  detailed  the  activities planned  for                                                                    
   1. Completion of environmental and permitting for United                                                                     
     States Army Corps of Engineers (USACE) and state and                                                                       
     federal right-of-way approvals.                                                                                            
   2. Engineering data acquisition for detailed engineering                                                                     
     design of the project.                                                                                                     
   3. Refinement of Cost of Services estimates and Tariff                                                                       
   4. Prepare complete project documentation of in-state                                                                        
     pipeline asset for consideration by private pipeline                                                                       
Mr. Swenson  asserted that the  state did not plan  to build                                                                    
the  pipeline.   The  state  planned  to   reduce  the  risk                                                                    
associated  with building  the pipeline  by identifying  the                                                                    
permit  ability of  the  pipeline through  the  EIS and  ROW                                                                    
process.  Additionally,  the  state  would  spend  money  to                                                                    
sanction the project  and sell the acquired  data package to                                                                    
the  third-party  pipeline  company,  who  would  ultimately                                                                    
strike the  deal with producers  on the North Slope  and the                                                                    
consumers in Cook Inlet.                                                                                                        
Co-Chair  Hawker  asked  about  the two  components  of  the                                                                    
appropriation that  was made in  the current fiscal  year on                                                                    
Lines 36  and 37,  $4,322,000 and  $3,967,000, respectively.                                                                    
The $4,322,000  was a cash  appropriation and had  been easy                                                                    
track, the  specific intent  for the funds  had been  in the                                                                    
2009  supplemental  budget.   The  appropriation  from  2009                                                                    
included the provision that any  funds left over from a 2008                                                                    
Department of  Natural Resources  grant would roll  into the                                                                    
project.  It was  estimated at  budget  close-out last  year                                                                    
that  the  amount  would  be   $2.7  million,  however,  the                                                                    
rollover had been approximately  $4 million. The funding for                                                                    
the project  had a  lapse date of  February 28,  2010, which                                                                    
meant that the funding would expire  in 4 days. He said that                                                                    
$1.8 million of the aggregate  had been expended, and all of                                                                    
the balance  appeared as encumbered.  If the  funding lapsed                                                                    
in  February the  project would  stop. He  expressed concern                                                                    
that  the project  had  encumbered all  the  funding it  had                                                                    
received,  which meant  that it  could spend  infinitely. He                                                                    
questioned  the use  of  encumbrance  for personnel  service                                                                    
costs and travel.                                                                                                               
2:27:23 PM                                                                                                                    
Mr. Seamount replied that the  amount of money that had been                                                                    
appropriated had  not been  enough to  complete the  job. He                                                                    
added  that  the  personal service  and  travel  costs  were                                                                    
comprised of  his wages and  those of his  assistant through                                                                    
the end of the year.                                                                                                            
LETA  SIMONS,   DIRECTOR,  DIVISION  OF   SUPPORT  SERVICES,                                                                    
DEPARTMENT   OF   NATURAL   RESOURCES,   stated   that   the                                                                    
Reimbursable  Services Agreement  (RSA) from  the Office  of                                                                    
the  Governor and  the Department  of Natural  Resources had                                                                    
been  looked   at  for  funding  for   the  project  manager                                                                    
position.  It  had  been  important  that  only  the  actual                                                                    
expected  expenditures and  obligations through  the end  of                                                                    
February 28 be encumbered.  Several offices working together                                                                    
established a  spreadsheet determining that  the appropriate                                                                    
amount  would be  $6.8 million.  The department  had advised                                                                    
the governor's office that and  amendment for the RSA should                                                                    
be  included in  the appropriation  in order  to reduce  the                                                                    
total to  the $6.8 million.  The $3.9 million  that appeared                                                                    
on the budget  overview were task orders that  were out, and                                                                    
were legitimate  encumbrances. The  intent of  the amendment                                                                    
was to reconcile the funds  and list the correct encumbrance                                                                    
number on the RSA.                                                                                                              
Co-Chair Hawker asked  if the intention was  to encumber the                                                                    
personal  service cost  and travel.  Ms. Simons  replied no.                                                                    
Co-Chair Hawker  wondered what  was going  to happen  to the                                                                    
position of  project manager when the  appropriation lapsed.                                                                    
Ms.  Simons   answered  that  the  actual   project  manager                                                                    
position was under DNR and  had been budgeted for in FY2010.                                                                    
The department  still had  the ability  to pay  the position                                                                    
Co-Chair Hawker understood  that the technical complications                                                                    
would not  impede the  progress of  the project.  Ms. Simons                                                                    
replied  yes, and  reiterated that  the encumbrances  in the                                                                    
overview were legitimate.                                                                                                       
Co-Chair  Hawker  asked  about   the  $$2,493.7  million  in                                                                    
encumbrance  found  on  Line  36. He  said  that  the  added                                                                    
encumbrance  numbers on  Lines  36 and  37 totaled  $6,460.7                                                                    
million.  Ms. Simons  replied that  the amount  was correct.                                                                    
She explained that  the amendment would reduce  the total to                                                                    
$6.8 million total RSA, which  included all expenditures and                                                                    
encumbrances through February 28, 2010.                                                                                         
Co-Chair  Hawker expressed  unease with  the lack  of detail                                                                    
concerning what  exactly the encumbrances  were for,  and if                                                                    
the  encumbrances   were  in  accord  with   the  accounting                                                                    
policies and  laws of  the state. Ms.  Simons said  that she                                                                    
would provide the information to the committee.                                                                                 
2:33:35 PM                                                                                                                    
Representative Doogan requested the  information as well. He                                                                    
asked if  the amount of  money being requested  was expected                                                                    
to fund  the completion of  a gasline project that  would be                                                                    
compliant  with  AGIA, and  provide  gas  for South  Central                                                                    
Mr. Swenson replied yes. He  expounded that one of the first                                                                    
issues  with the  bullet  line to  Gubik  with Anadarko  and                                                                    
ENSTAR, was  still a viable  option. The stream of  gas that                                                                    
could come  from the  North Slope  was also  being examined.                                                                    
The  project was  in full  compliance with  AGIA, and  was a                                                                    
backup plan  in case the  process fell through.  Mr. Swenson                                                                    
the said that  the intent of the work was  to craft a permit                                                                    
package, cost estimates  for the entire route,  and the cost                                                                    
of facilities and services. The  hope was to pass the entire                                                                    
project on and then pay back  both ENSTAR, and the state for                                                                    
the expended funds.                                                                                                             
Representative  Doogan wondered  about  funding the  project                                                                    
when there were no assurances  that it would be economically                                                                    
successful. Mr.  Swenson replied  that the package  that was                                                                    
being  created included  16 different  options, which  would                                                                    
all be vetted  for economic viability before  going into the                                                                    
permit  process. He  believed  time was  of  the essence  to                                                                    
supply natural gas to South Central Alaska.                                                                                     
Representative Doogan voiced  apprehension to committing the                                                                    
funding for  a project when  it was unknown  if corporations                                                                    
could even afford to participate.                                                                                               
2:40:10 PM                                                                                                                    
Co-Chair  Hawker interjected  that the  funding that  was in                                                                    
the operating budget currently in  effect had been requested                                                                    
by    the   Palin    Administration,   not    the   existing                                                                    
Representative  Gara shared  that  the  former in-state  gas                                                                    
pipeline czar stated  repeatedly that if a big  line were to                                                                    
be  built   it  would  provide  cheaper   in-state  gas  for                                                                    
consumers than  a small  line. Mr.  Seamount said  that that                                                                    
was correct.                                                                                                                    
Representative Gara  expressed frustration with  the popular                                                                    
misconception that in-state gas  would be cheap. He believed                                                                    
that  the state  needed to  reconcile that  the big  gasline                                                                    
would  not be  built in  time to  alleviate pressing  energy                                                                    
problems in the state. The  former oil czar had committed to                                                                    
evaluating whether  or not the in-state  gasline made sense.                                                                    
He wondered  why the state  was working on  acquiring right-                                                                    
of-way for a pipeline that  might lead to more expensive gas                                                                    
for  consumers,  rather  than   working  toward  the  larger                                                                    
Mr. Swenson pointed out to the  committee the if there was a                                                                    
spur-line in the  distance of the pipe,  a diameter distance                                                                    
in  cost was  associated with  it, and  travel to  the North                                                                    
Slope considerably  increased that  cost. He stated  that it                                                                    
would make sense to build  an additional line to the Prudhoe                                                                    
Bay area, because of the  area's abundant natural resources.                                                                    
He expressed belief  in AIGA as good plan to  get gas to the                                                                    
Cook Inlet region. However, he  stressed the importance that                                                                    
the state  should maximize its  resources. If it  turned out                                                                    
that everything  worked smoothly with AGIA,  the state would                                                                    
have the initial right-of-way and  EIS work done, and if the                                                                    
package sold  to another entity  that was getting  access to                                                                    
gas elsewhere, it would make  sense to maximize the recovery                                                                    
of state resources.                                                                                                             
2:45:21 PM                                                                                                                    
Representative Gara  understood that the  overarching answer                                                                    
was unknown.  He cautioned that  people could end  up paying                                                                    
twice  as much  for  gas  coming from  a  small pipeline  in                                                                    
Anchorage and  Fairbanks, while the cheaper  gas flows right                                                                    
by  them  in the  big  pipeline.  He  probed the  two  other                                                                    
temporary solutions; subsidizing  the higher cost production                                                                    
of Cook Inlet gas until the  big line was built, or building                                                                    
a pipeline from Cook Inlet up to Fairbanks.                                                                                     
Mr.  Swenson  said  the   administration  was  working  with                                                                    
various agencies and organizations  to combine efforts going                                                                    
into the spur routes, as well  as the stand alone routes. He                                                                    
stated that a  range of options in  various combinations was                                                                    
being  explored.  The  fiduciary   request  would  fund  the                                                                    
project that  would bring all the  components concerning the                                                                    
natural gas pipeline  together in order to  determine a plan                                                                    
of action.                                                                                                                      
Representative Gara asked if ideas  were being assessed, and                                                                    
the  subsidizing of  Cook Inlet  gas would  be the  cheapest                                                                    
option, why was a cost analysis being performed.                                                                                
Mr. Swenson believed  that the reason that  the permits were                                                                    
initiated prior to the cost  analysis was because of timing.                                                                    
There  was   trepidation  about  the  amount   of  available                                                                    
resource in Cook Inlet.                                                                                                         
2:49:50 PM                                                                                                                    
Co-Chair   Hawker  asked   if  the   intent  language   that                                                                    
accompanied  the   appropriation  gave   the  administration                                                                    
specific directions concerning a smaller gasline.                                                                               
Mr. Swenson replied no. If  a corporation wanted to go ahead                                                                    
with the  small line,  the right-of-way and  cost estimation                                                                    
studies could be used for the project.                                                                                          
Co-Chair   Hawker   clarified    that   the   administration                                                                    
acknowledged  that  there  was specific  legislative  intent                                                                    
that constrained its activities.  Mr. Swenson replied in the                                                                    
affirmative.  He added  that there  was the  possibility the                                                                    
AGIA could  fail, which would make  the research development                                                                    
project more important.                                                                                                         
Co-Chair Hawker  queried the  three potential  numbers being                                                                    
examined by  the administration  of the  amount of  gas that                                                                    
could be delivered; 1/4 billion,  1/2 billion, and 1 billion                                                                    
per day. Mr. Swenson replied  that there was a fourth option                                                                    
of 750 million per day.                                                                                                         
Co-Chair  Hawker said  that under  AGIA,  anything over  1/2                                                                    
billion  would trigger  treble damages.  He wondered  how it                                                                    
would be  reconciled if  the most  economical option  was in                                                                    
violation  of  AGIA. Mr.  Swenson  clarified  that the  four                                                                    
options were  a holdover from  the Gobik option.  Because it                                                                    
was a small line the economics were inherently challenged.                                                                      
Co-Chair  Hawker understood  that the  artificial constraint                                                                    
established by  the legislature on  the 1/2 billion  per day                                                                    
triggering  treble  damages  might  not have  been  in  best                                                                    
interest  of  the  successful completion  of  a  stand-alone                                                                    
line. Mr.  Swenson reiterated that the  stand-alone line was                                                                    
a back-up plan and might not present any conflict at all.                                                                       
Co-Chair  Hawker  thought  there  could be  a  problem  with                                                                    
statutory regulations.                                                                                                          
2:55:29 PM                                                                                                                    
Representative Salmon asked  how far along the  state was in                                                                    
the  development   of  an  in-state  gasline.   Mr.  Swenson                                                                    
answered that  the state was  farther along now than  in the                                                                    
past. Because  of the  decline of  resources in  Cook Inlet,                                                                    
the necessity  had grown for  the examination of  the energy                                                                    
supply within the inlet and  the Rail belt region. Access to                                                                    
development  of  the natural  gas  on  the North  Slope  was                                                                    
imminent. The  state's position on AGIA  process was farther                                                                    
along towards the development of  North Slope resources than                                                                    
ever before.  He argued  that the  stand alone  pipeline was                                                                    
also farther along than in the past.                                                                                            
2:57:44 PM                                                                                                                    
Representative  Kelly asked  how the  scheduling was  coming                                                                    
along.  Mr.  Swenson  replied  that  scheduling  was  a  big                                                                    
concern. The  administration was examining what  the breadth                                                                    
of  schedules  might be,  but  was  pushing for  fast  track                                                                    
scheduling. One  possible option  looks at a  2014-2015 time                                                                    
frame, with  access to dry gas.  The gas in Prudhoe  Bay was                                                                    
dirtier   and  would   require  a   significant  amount   of                                                                    
conditioning. Incorporating the Prudhoe  Bay facility into a                                                                    
pipeline of  this nature  would require  numerous sea-lifts,                                                                    
which would  extend the completion date.  The recent release                                                                    
of  federal  regulation  from the  Environmental  Protection                                                                    
Agency (EPA) on carbon dioxide could also inhibit progress.                                                                     
Representative Kelly  asked if  the administrative  team was                                                                    
on schedule.  Mr. Swenson  replied that  they were  ahead of                                                                    
schedule. Cost estimations and  facilities design were being                                                                    
finalized with  the initial  facilities design  completed by                                                                    
May 1, 2011.                                                                                                                    
3:02:11 PM                                                                                                                    
Representative  Salmon  understood   that  there  were  many                                                                    
components  to a  project of  this size.  He asked  what the                                                                    
perfect combination  of variables  would be needed  in order                                                                    
to guarantee a gasline. Mr.  Swenson replied that there were                                                                    
three  important tenants;  the cost  of the  construction of                                                                    
the  pipeline and  facilities, identifying  the resource  on                                                                    
the North Slope, and working with the producers.                                                                                
3:05:10 PM                                                                                                                    
Representative Doogan  listed several energy sources  in the                                                                    
state.  He hoped  that the  state was  not wasting  time and                                                                    
money  on  an energy  project  that  would ultimately  be  a                                                                    
Co-Chair  Hawker said  that  a defined  route  needed to  be                                                                    
picked and pursued.                                                                                                             
Mr.  Swenson responded  that  the  confusion concerning  the                                                                    
gasline was  understandable. He  assured the  committee that                                                                    
his mandate was to coordinate  the gasline efforts. He noted                                                                    
that  Alaska had  more options  than most  other states  for                                                                    
energy development.  He thought that the  emphasis should be                                                                    
on  gathering the  correct data  in order  to have  informed                                                                    
conversations about how to move forward in the future.                                                                          
3:09:54 PM                                                                                                                    
Representative Kelly  stated that  the gas line  between the                                                                    
two largest communities  in the state could  be started soon                                                                    
and without regret.                                                                                                             
Mr.   Swenson  believed   that   the   Alaska  Natural   Gas                                                                    
Development Authority  (ANGDA) was  looking at that  line as                                                                    
the  stand  alone  Beluga  to   Fairbanks  route,  and  were                                                                    
performing   economic  projections.   A  pre-build   in  the                                                                    
scenario would  be difficult to  "pencil out on the  back of                                                                    
an  envelope", given  the market  capacity in  the Fairbanks                                                                    
region. He believed economic projections were challenging.                                                                      
Representative  Kelly expressed  hopes that  there would  be                                                                    
enough money and opportunity to  build a successful line. He                                                                    
expressed  frustration that  the  smaller  pipeline was  not                                                                    
moving forward more quickly.                                                                                                    
Representative Joule asked whether  an in-state gas line was                                                                    
more economical in  the long run than  simply importing gas.                                                                    
Mr. Swenson did not know.                                                                                                       
Representative  Joule felt  that  the question  would be  of                                                                    
primary  concern before  spending a  considerable amount  of                                                                    
state dollars.                                                                                                                  
Mr. Swenson replied that the  state would make a significant                                                                    
amount  of revenue  from the  development of  the resources.                                                                    
Long-term  prices and  infrastructure development  should be                                                                    
considered as well.                                                                                                             
3:15:58 PM                                                                                                                    
Representative Joule  thought that in the  end, people would                                                                    
care about the price of the gas, and not who owns the line.                                                                     
Co-Chair Hawker noted that Page  1, Line 6 of the historical                                                                    
summary,  illustrated  that  the  Department  of  Labor  and                                                                    
Workforce  Development (DOL)  was halfway  through a  multi-                                                                    
year grant  on the Alaska  Works Partnership. Pages 5  and 6                                                                    
list  a number  of  smaller grant  awards  with the  unspent                                                                    
balances of approximately $1 million.                                                                                           
DAVID STONE,  DEPUTY COMMISSIONER,  DEPARTMENT OF  LABOR AND                                                                    
WORKFORCE DEVELOPMENT,  referred the  committee to  Guy Bell                                                                    
for further details.                                                                                                            
Co-Chair Hawker reiterated that  the department had received                                                                    
appropriations in  the past and  had been a  large component                                                                    
of the  gasline strategy.  He pointed  out to  the committee                                                                    
that DOL had  $3 million left of a  $6 million appropriation                                                                    
for  the Alaska  Pipeline  Works  Partnership, and  numerous                                                                    
other appropriations  winding down,  yet the  department was                                                                    
not asking for  more funds. He wondered  why the legislature                                                                    
did  not need  to make  any further  investment in  DOL this                                                                    
3:20:09 PM                                                                                                                    
GUY BELL,  ASSISTANT COMMISSIONER,  DEPARTMENT OF  LABOR AND                                                                    
WORKFORCE DEVELOPMENT,  responded regarding  statutory basis                                                                    
mandate in  AGIA; that  DOL develop  a job  training program                                                                    
for  Alaskans in  pipeline  related  job opportunities.  The                                                                    
commissioner  convened  a  steering committee  comprised  of                                                                    
high-level   individuals  within   the  industry   including                                                                    
representatives   from   the   Alyeska   Pipeline   Company,                                                                    
TransCanada   Alaska,   British  Petroleum,   Exxon,   Price                                                                    
Construction,  and  a  number of  private  individuals.  The                                                                    
steering committee  had been  influential in  developing the                                                                    
training  program that  the department  was responsible  for                                                                    
implementing.  Strategies  had  been presented  which  would                                                                    
increase  opportunities  for  Alaskans  in  gasline  related                                                                    
occupations, with an emphasis  on the immediate availability                                                                    
of jobs.                                                                                                                        
Mr.   Bell    referred   to   information    detailing   the                                                                    
appropriations  that  had been  received  to  date, and  the                                                                    
expenditures including; capital  appropriations, fiscal year                                                                    
2009   operating  appropriations,   and  fiscal   year  2010                                                                    
Mr.  Bell  cited  the  one-page  narrative  titled  "Gasline                                                                    
Funding  History"(copy on  file). In  fiscal year  2011, the                                                                    
department  had no  requests  in  the gasline  appropriation                                                                    
section  of the  budget  bill. However,  the department  had                                                                    
incorporated in the FY2011 budget  request some of the items                                                                    
that had been included in FY2009  and 2010. That was done by                                                                    
locating money within the agency  budget, and moving general                                                                    
fund dollars  within that budget,  to continue  the training                                                                    
program.  The re-allocation  of  the money  being was  being                                                                    
reviewed  by   the  House  Finance  Sub-Committee   and  the                                                                    
department was awaiting the results.                                                                                            
Co-Chair  Hawker noted  the department's  core missions  had                                                                    
been internalized into the operating  budget, and not viewed                                                                    
as  an  increment  in  addition  to  the  regular  operating                                                                    
budget. Mr.  Bell said that  transfers had been  made within                                                                    
the  operating  budget  without requesting  an  increase  in                                                                    
funding. Because the  money had been moved  from one program                                                                    
to   another  they   were  identified   in  the   budget  as                                                                    
incremental increases.                                                                                                          
3:25:05 PM                                                                                                                    
Co-Chair Hawker  said that the  department had   received $6                                                                    
million in  2008, and  had spent  $860,000, with  $2 million                                                                    
encumbered. He wondered why the  money had not been spent as                                                                    
of yet. Mr. Bell replied that  the funds had been  a capital                                                                    
appropriation;  $3  million  in federal  authority,  and  $3                                                                    
million state  funds. The  federal dollars  were based  on a                                                                    
federal   authorization  bill   that   had  passed   through                                                                    
congress, but  was a contingent appropriation.  The pipeline                                                                    
training  center  had  not  yet   received  any  funds.  The                                                                    
department  was  working  with   the  governor's  office  in                                                                    
Washington D.C.  and with  the congressional  delegation, to                                                                    
work for the  release of the funds. Some of  the activity at                                                                    
the training  center, specifically  the construction  of the                                                                    
central  training facility,  had  been  delayed because  the                                                                    
federal  funding had  not been  forthcoming. The  center was                                                                    
operational  and  there were  further  plans  for a  central                                                                    
training center and housing.                                                                                                    
Co-Chair  Hawker  asked  if the  unspent  balance  were  the                                                                    
federal  funds  that had  yet  to  be  received.   Mr.  Bell                                                                    
replied no.  He stated  that the  total unspent  balance was                                                                    
the  sum of  the $3  million plus  the encumbered  amount of                                                                    
$2.1 million.                                                                                                                   
Co-Chair Hawker  reworded his question.  Was the  $3 million                                                                    
unencumbered balance  all federal dollars. Mr.  Bell replied                                                                    
Co-Chair Hawker  queried the  probability of  the department                                                                    
receiving the  federal $3  million. Mr.  Bell said  that the                                                                    
department  was  hopeful.  A   problem  was  the  contingent                                                                    
language surrounding  the funds. The department  was working                                                                    
to convince  the delegation that the  authorization language                                                                    
needed to be changed.                                                                                                           
3:30:10 PM                                                                                                                    
Co-Chair Hawker asked if a  new federal pipeline coordinator                                                                    
would be helpful. Mr. Bell replied yes.                                                                                         
Co-Chair Hawker discussed housekeeping.                                                                                         

Document Name Date/Time Subjects
Revenue Gasline Expenditures Summary.pdf HFIN 2/24/2010 1:30:00 PM
Law one page.pdf HFIN 2/24/2010 1:30:00 PM
Labor Gasline Funding History 02.23.2010.pdf HFIN 2/24/2010 1:30:00 PM
Instate Gas- Budget Narrative 2 18 2010.pdf HFIN 2/24/2010 1:30:00 PM
Historical Gasline Appropriations Summary 2-22-10.pdf HFIN 2/24/2010 1:30:00 PM
FY2011 Gasline Requests 02 24 2010.pdf HFIN 2/24/2010 1:30:00 PM
DNR Gasline Overview.pdf HFIN 2/24/2010 1:30:00 PM
AOGCC overview 02.24.2010.pdf HFIN 2/24/2010 1:30:00 PM
ANGDA.pdf HFIN 2/24/2010 1:30:00 PM