Legislature(2009 - 2010)HOUSE FINANCE 519
03/22/2010 01:30 PM House FINANCE
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HOUSE BILL NO. 369 "An Act relating to an in-state natural gas pipeline, the office of in-state gasline project manager, the Joint In- State Gasline Development Team, and the In-State Gasline Steering Committee; and providing for an effective date." 2:51:47 PM Vice-Chair Thomas MOVED to ADOPT CS for HB 369 (FIN), 26- LS1527\C, Cook, 3/18/10, as a working draft. Co-Chair Stoltze OBJECTED TOM WRIGHT, STAFF, REPRESENTATIVE MIKE CHENAULT, highlighted the changes in the CS described in the CS Sectional Analysis (copy on file). "An Act relating to an in-state natural gas pipeline, the office of in-state gas line project manager, the Joint In-State Gasline Development Team; requiring the development of an in-state natural gas pipeline plan, to be delivered to the legislature by July 1, 2011, that provides for a gas line that is operational by December 31, 2015; directing the Joint In-State Gasline Development Team to assume responsibilities under sec. 19, ch. 14, SLA 2009; requiring expedited review and action by state agencies or entities relating to the in-state natural gas pipeline project; and providing for an effective date." Mr. Wright noted the change to the title of the bill. The title was tightened up to differentiate the legislation from other bills dealing with natural gas development. He continued with the sectional. Section 1: Adds a new chapter, Chapter 34: In-State natural Gas Pipeline, to AS 38, Public Land. Sec. 38.34.010. In-state gas line project manager. (a) Creates the position of in-state gas line project manager within the governor's Office. This position will continue until one year after commercial operation of the in-state natural gas pipeline begins. (b) The Governor appoints an individual to the position of an in-state gas line manager and may be removed at the Governor's discretion. (c) Describes the duties of the in-state gas line project manager. Sec. 38.34.020. Expedited review and action by state agencies or entities. (a) States that any state agency or entity conducting and taking action relating to the in-state gas line shall be expedited. (b) A state agency or entity may not include in any project certificate, right of way, permit or other authorization issued to a licensee a term or condition that is not required by law if the in-state project manager determines the term or condition would prevent or impair the expeditious construction and operation or expansion of the in-state gas line. (c) A state agency or entity may not, unless required by law, amend or abrogate any certificate, right of way, permit or other authorization issued to a licensee if the project manager determines the action would prevent or impair the expeditious construction and operation or expansion of the in-state gas line. In Section 1 Sec.38.34.020., The word entity was added to "review and action by state agencies". The inclusion allows for involvement of entities such as ANGDA (Alaska Natural Gas Development Authority). Sec. 38.34.030. Joint In-state Gasline Development Team. (a) Establishes the Joint In-State Gasline Development Team in the Governor's Office. The team consists of the commissioner of the Department of Transportation and Public Facilities or designee, the chief executive officer of the Alaska Railroad Corporation or designee, the chief executive officer of the Alaska Natural Gas Development Authority, the in-state gas line project manager and the chief executive officer of the Alaska Housing Finance Corporation. (b) Names the Alaska Housing Finance Corporation's chief executive officer as chair. (c) Allows the development team to hire staff, enter into contracts and exercise other powers to carry out its functions. The chief executive Officer of the Alaska Housing Finance Corporation was added as a fifth member and chair to the Joint In-state Gasline Development Team in Sec.38.34.030. Mr. Wright explained that Dan Fauske, (CEO/Executive Director, Alaska Housing Finance Corporation, Department of Revenue) would bring his finance and leadership experience to the team. 2:55:31 PM Co-Chair Stoltze interjected that he believed in the value of having a Development Team member who is familiar with the legislative and budget process. Mr. Wright elaborated further. Sec. 38.34.040. Duties of the Development Team. (a) Ensure a project plan for the development of an in- state gas line is completed and delivered to the legislature by July 1, 2011. The project plan must specify and document how an in-state gas line can be designed, financed, constructed and made operational by December 31, 2015. (b) The Joint In-State Gasline Development Team is to assume all executive authority over and managerial responsibility for all activities enumerated under sec. 19, ch. 14, SLA 2009, including work previously completed, work in process, and work for which money has been encumbered but that is not completed on the effective date of this subsection. (c) Describes specific plans that are to be included within the project plan for an in-state gas line that will serve Fairbanks, the south central region of the state, and other communities whenever practicable, connecting with or enhancing the existing gas pipeline system, and reaching to tidewater. (d) The development team's work product is to include an analysis of alternative possible routes and select a route that is consistent with the following requirements: (1) is the most economical, (2) will provide gas to residents at a reasonable cost, (3) allows for connecting lines to serve industrial, residential and utility customers along the entire route and in other regions of the state that can be served at commercially feasible rates, (4) uses state land and existing state highway and railroad rights of way to the maximum extent feasible, (5) uses existing highway and railroad bridges, gravel pits equipment yards and maintenance facilities and other existing facilities and resources to the maximum extent feasible. (e) With the intent that any project-related assets acquired or developed be available for transfer or sale to the entity best able to complete the project, the development team is to: (1) prepare plans and designs necessary for the construction of the in-state gas line; (2) coordinate with entities qualified to build, own and operate the gas line; (3) identify, apply for and obtain rights-of-way and other permits for the project route; (4) work with other entities to promote gas supply and purchase contracts required for the project to be commercially viable; (5) prepare cost estimates for project design, construction and operation to determine the project's feasibility and the projected cost of natural gas to consumers; (6) coordinate with and use, to the fullest extent, possible existing work by other state agencies and entities before contracting for new reports and research and analysis; (7) determine regulatory authority over the pipeline project and perform any necessary compliance requirements; (8) identify and apply for, or support extension of, existing permits for export of Alaska natural gas if that export improves project economics and will reduce the price of natural gas to in-state consumers. (f) Any rights to a gas line corridor obtained by a state agency under eminent domain may be transferred to a private entity. (g) Describes the various aspects of the in- state gas line project the development team may consider. Sec.38.34.040, changes the July 1, 2011 deadline from construction ready to a completed project plan delivered to the legislature. He added that the change accommodated concerns raised by the impending deadline. Mr. Wright also pointed out that in subsection(c) "the south central region" includes Valdez. He read the final change in Sec.38.34.060. Subsection b that dealt with conflicts of interest. 3:00:22 PM Sec. 38.34.060. Conflicts of interest. (a) If a member of the Development Team acquires, owns or controls a direct or indirect interest in property, an organization or business that might be affected by the in-state gas line project or other matters under consideration by the Development Team shall immediately disclose the interest to the Development Team. This disclosure is part of the public record and shall be included in the minutes of the first meeting of the Development Team held after the disclosure. (b) Members of the development team are subject to AS 39.50 (Public Official Disclosure) and AS 39.52 (Alaska Executive Branch Ethics Act). Representative Gara referred to page 4, line 8 of the CS that calls for analysis of "alternative possible routes". He explained that alternatives might not be routes. The alternatives could include importation of liquefied natural gas or Cook Inlet gas subsidies. He asked the sponsor if he would change the language to reflect other possibilities. Representative Chenault wanted time to consider the request. Representative Gara understood the goal to be ready to move forward but wanted to avoid spending money unnecessarily. He did not want to see gas pipeline engineering plans discarded. On page 4 line, 23 he requested to insert the word "preliminary", that would read, "prepare [preliminary] plans and designs for construction of the in-state natural gas line project." Representative Chenault argued that even though he dislikes wasting money the state should pay for whatever plans are necessary to determine costs. 3:04:17 PM Representative Gara referred to line 27, of the CS, regarding obtaining right-of-ways. He wondered if it was a waste of money to obtain right-of-ways that might not be used. Representative Chenault believed that in order for the project to move forward the state will need to spend money up front to develop right-of-ways. He felt resolving right-of-way issues was essential to promoting the project to a private entity. Co-Chair Stoltze WITHDREW his OBJECTION. There being NO OBJECTION, it was so ordered. The CS for HB 369 (FIN), 26- LS1527\C, Cook, 3/18/10CS was adopted. 3:06:29 PM RECESS 3:07:45 PM RECONVENED Representative Chenault recalled Representative Gara's request to change the language in the CS on page 4, line 8 to delete the word "routes". He stated that he did not want to change the language. He felt that although liquefied natural gas imports might become a stop gap measure, HB 369 was written specifically, to develop an in-state gas line. Representative Gara announced that he supported leaving HB 369 as a pipeline bill but pointed out that on Page 4, line 8 of the CS the language called for analyzing alternatives. He felt that leaving the word routes narrowed analysis of all options. He wanted the state to be free to analyze any cheaper alternatives. Representative Chenault offered that there are a number of options being evaluated by other sources. His specific bill dealt with the development of in-state gas pipeline routes not alternative options. He felt that all of the options will be evaluated once all of the information and cost analysis is gathered. Co-Chair Hawker interjected that Speaker Chennault's intention was to present legislation to promote an in-state gas line not liquefied natural gas importation. Speaker Chenault affirmed. 3:11:44 PM Representative Doogan asked if the pipeline project will be limited in size by AGIA. Representative Chenault stated that the project would not be limited to the 500 bcf (billion cubic feet) specified by AGIA depending on the state's involvement. Representative Gara referred to page 4, lines 23 and 27 of the CS. He asked the sponsor to consider adding the word "preliminary" before plans on line 23. On line 27, he requested adding "applying" for and omit "and obtain rights-of-way and". He stated that he offered these conceptual amendments as cost saving measures to limit ineffectual effort by the state. Speaker Chenault reiterated that it is imperative to have the rights-of-ways in place in order to transfer or sell the project to a private entity. He read the following: Page 4, lines 20-21, "With the intent that any project-related assets acquired or developed be available for transfer or sale to the entity best able to complete the project…" Speaker Chenault stressed that if the state must own or control right-of-ways to support project completion it was a valuable use of state funds. Co-Chair Hawker interjected that there are not mandates in HB 369. He emphasized that the bill only requires a project plan be delivered to the legislature by July 1, 2011. He cautioned that prescribing limits to a dynamic process could hurt the outcome of the project. 3:16:49 PM Mr. Wright explained that any private entity interested in the feasibility of the project will do its own analysis. Representative Austerman asked if the bill allows the state to build and own the pipeline and lease it out for operation. Representative Chenault asserted that he would not want the state to build the in-state gas line. However the legislation does not preclude the state from participating in any form. Representative Fairclough referred to page 5, lines 12-13, that allows for a state agency to transfer any acquired gas line corridor rights to a private entity. She wondered if that was a normal process for state. Representative Chenault stated he did not know the answer. Co-Chair Hawker added that the language was added at the request of the Department of Transportation and Public Facilities to clarify the department's ability to do so. 3:20:51 PM FRANK RICHARDS, DEPUTY COMMISSIONER, HIGHWAYS & PUBLIC FACILITIES, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, explained that the state is currently prohibited to transfer land obtained by a state agency through eminent domain to a private entity. Representative Fairclough referred to Sec.38.34.050 that dealt with confidentiality. She observed that the development team will have access to confidential information and pointed out that the bill would add a new layer of access by someone other than commissioners. Representative Chenault read lines 30-31 of Sec.38.34.050. "Confidential information received by the development team shall be kept confidential." Co-Chair Hawker closed public testimony. He called for discussion of the fiscal notes. He referenced the new FN (OOG) dated 3/12/2010 (copy on file) and noted it was indeterminate. Bob Swenson, Manager, In-State Gasline Project, Office of the Governor; relayed that the fiscal note was outdated and no longer applied to the CS version of the legislation. Co-Chair Hawker asked if the updated fiscal note information was available. Mr. Swenson stated it was. Representative Kelly pointed out that the legislature previously approved the Governor's requests for in-state pipeline development funds. He requested Mr. Swenson delineate the expenditure of the funds as it relates to the current project. Co-Chair Hawker elaborated that the Governor requested an additional $6.5 million dollars in this year's operating budget for in-state gas line development. He informed the committee that a fiscal note for the legislation would incorporate the appropriation request. He requested Mr. Swenson provide a recap of the overall fiscal requirements to move the project forward under the authority of HB 369. Mr. Swenson summarized the projected fiscal note expenditures. He stated that the fiscal note total is $ 8,000,053. Incorporated in that total is $ 1,000,095 for personal services. He highlighted the positions deemed necessary due to the accelerated timeline for completion of the project plan. He listed them as follows: project manager, engineering manager, commercial manager, legislative liaison/public outreach officer, finance and budget analyst, schedule coordinator, and finally a technical writer. He added that $6.8 million was requested for contractual services. He noted the contractual services request was similar to the entire operating budget request of 6.5 million with the additional amount intended for market analysis. He expounded that the contractual services request was divided into four components. The first component was completion of environmental and permitting activities and state and federal right-of-way approvals. That includes all of the different issues involved in the permitting process. The second component of the request was project management and engineering data acquisition to further refine the engineering design. 3:31:24 PM The third component was refinement of cost of service estimates and tariff modeling. The component was expanded to incorporate both possible routes. The fourth component consisted of a complete documentation of pipeline assets for commercial offering. Co-Chair Hawker wondered if the mandates could be completed in one year for the additional approximately $1.2 million over the Governor's original operating budget request. He noted the additional funds were for personal services to get the work done. Mr. Swenson stated that was correct. He offered that in reference to the fiscal note the years out from FY 2011 remain indeterminate dependent upon outcomes of the plan. Co-Chair Hawker robustly concurred. Representative Austerman asked if it was possible to project the expenditures for the out years. Mr. Swenson voiced that the "what if" scenario is incredibly broad and depends on what part of the project the state is willing to undertake. He believed it would be impossible at this time. 3:35:25 PM Co-Chair Hawker asked that in reference to the fiscal notes, if the mission of the bill is essentially the same as the intent directive from the legislature except for the accelerated timeline and creation of clear management hierarchy and authority. Mr. Swenson affirmed. He stated the accelerated timeline was worrying. The assurance that an in-state gas pipeline operational by December 31, 2015 was of particular concern. The permitting process was out of the state's control and difficult to submit to an aggressive timeline. Mr. Swenson shared that another issue is optimization. He explained that the earliest phase of a massive project is the most important and affects the costs of the project over time. Significant optimization effort must be taken early on in a project to save money in the long term. Optimization is not always conducive to an accelerated timeline. He stated that these issues should be addressed before moving forward. Co-Chair Hawker agreed. He commented that in terms of the fiscal note it was basically the same project that the administration had all ready been working on. He ascertained that there was coordination of fiscal note preparation with the other departments involved in the project. Representative Kelly asked how the role of project manager would interact with the Development Team. Mr. Swenson was not certain how the management structure was going to be set up. 3:44:53 PM RECESS 3:51:39 PM RECONVENED Representative Fairclough referenced page 5, lines 12 and 13 of the CS regarding eminent domain. Representative Fairclough wondered what transferring gas line corridor rights to a private entity means to the state. She asked if the state could recover those rights if necessary. Mr. Richards understood that the contract with the private entity developer would provide a construction right-of-way and contain a reverter clause. He revealed that when construction is completed the property will revert back to state ownership. Representative Fairclough asked if the contract language adequately protects the states interest. Mr. Richards answered that the contract reverts the property rights back to the state even in a scenario that the project is not completed. Representative Fairclough wondered if the state's interest is protected if the private entity sells their assets to another party. Mr. Richards did not know the answer. HB 369 was HEARD and HELD in Committee for further consideration.