Legislature(2009 - 2010)HOUSE FINANCE 519

03/23/2010 01:30 PM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
<Bill Hearing Postponed>
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 50(FIN) Out of Committee
Moved CSHB 369(FIN) Out of Committee
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."                                                                                                           
1:42:04 PM                                                                                                                    
Co-Chair  Hawker   provided  history   of  the   measure  in                                                                    
committee. He referred  to a CS that had been  adopted and a                                                                    
new  combined fiscal  note that  would replace  all previous                                                                    
fiscal notes.                                                                                                                   
BOB SWENSON, DIRECTOR,  DIVISION, GEOPHYSICAL AND GEOLOGICAL                                                                    
SURVEY, DEPARTMENT OF NATURAL  RESOURCES and ALASKA IN-STATE                                                                    
NATURAL GAS  PIPELINE MANAGER, confirmed that  the format of                                                                    
the fiscal  note had  been changed  to combine  all previous                                                                    
fiscal  notes.  He  pointed  out that  the  money  would  go                                                                    
through  the governor's  office and  be distributed  through                                                                    
reimbursable service agreements (RSAs) to various agencies.                                                                     
Co-Chair  Hawker  queried the  fiscal  plan  for the  coming                                                                    
year.  Mr. Swenson  responded  that the  request  for FY  11                                                                    
comes  first  in the  fiscal  note  narrative; each  of  the                                                                    
agency's requests  for the  FY 11 budget  is broken  out. In                                                                    
addition, the RSA requests (which  are indeterminate at this                                                                    
time) are listed.                                                                                                               
Co-Chair  Hawker  requested  fiscal analysis  for  the  bill                                                                    
beginning with  the coming year. Mr.  Swenson continued that                                                                    
the  fiscal   request  from  the  governor's   office  would                                                                    
specifically fund positions  (through personal services) for                                                                    
the team of seven members (reduced later to six):                                                                               
   · Project manager: Mr. Swenson                                                                                               
   · Engineering manager: would  manage engineering work on-                                                                    
     going  and work  on the  project plan  outlined in  the                                                                    
   · Commercial  manager: management  of  both upstream  and                                                                    
     downstream activities                                                                                                      
   · Legislative liaison and public outreach                                                                                    
   · Finance and budget analyst                                                                                                 
   · Schedule coordinator                                                                                                       
   · Technical writer:  one-year position to develop  of the                                                                    
     plan outlined in the bill                                                                                                  
Mr. Swenson  informed the committee  that the FY  11 request                                                                    
also included the original $6.5  million put forth in the FY                                                                    
11 appropriations  request addressed in a  previous meeting.                                                                    
He detailed that the amount was for:                                                                                            
   · Completion  of  environmental  permitting by  the  U.S.                                                                    
     Army Corps of Engineers;                                                                                                   
   · State and federal right-of-way approvals;                                                                                  
   · Project  management  development  and  coordination  of                                                                    
   · Working  with stakeholders  such  as local  communities                                                                    
     and Native Corporations, the  Bureau of Land Management                                                                    
     (BLM), and others;                                                                                                         
   · Beginning  studies   on  wetlands,   stream  crossings,                                                                    
     culture  impacts,  lake   studies,  wildlife  and  bird                                                                    
     surveys,  air and  noise  surveys  associated with  the                                                                    
     U.S. Army  Corps of  Engineers' Section  404/Section 10                                                                    
   · Project management on  the engineering data acquisition                                                                    
     and further refinement of the engineering design;                                                                          
   · Refinement  costs  of   service  estimates  and  tariff                                                                    
     modeling  associated with  using the  data provided  by                                                                    
     the cost  of transport (underway in  the current fiscal                                                                    
     year); and                                                                                                                 
   · Preparing and completing documentation for in-state                                                                        
     pipeline   assets   for   consideration   for   private                                                                    
     developer or entity.                                                                                                       
1:47:34 PM                                                                                                                    
Mr.  Swenson pointed  to an  additional  request for  $2.599                                                                    
million  for  contractual work  and  RSA  needs, making  the                                                                    
total  request  $10.653  million.  He  noted  that  the  RSA                                                                    
request would be distributed as  outlined in the fiscal note                                                                    
narrative to various agencies affected  by the bill, as well                                                                    
as the work towards developing the pipeline.                                                                                    
Co-Chair   Hawker   acknowledged  the   detailed   narrative                                                                    
provided with the fiscal note.                                                                                                  
Representative Gara  stated that  he did  not want  to spend                                                                    
$100 million  on a project that  might not go ahead,  but he                                                                    
was  comfortable   with  the   request  to   do  preliminary                                                                    
planning. He  noted that  the FY 11  amount was  $10 million                                                                    
and  queried   costs  after   that.  Mr.   Swenson  directed                                                                    
attention to page 2 of 10  of the fiscal note narrative that                                                                    
specifically  relates   to  the   indeterminate  contractual                                                                    
request; he  remarked that the fiscal  responsibility to the                                                                    
state  will be  determined  by the  outcome  of the  project                                                                    
plan. He  declared that a  very significant factor  would be                                                                    
the  ability to  get a  private entity  to partner  with the                                                                    
state or take the entire project  on; the costs to the state                                                                    
from FY 12  on could vary between zero (if  the entity takes                                                                    
over  the   entire  project)   up  to   the  full   cost  of                                                                    
construction. The  cost-of-production [projections]  are not                                                                    
currently  done;  on-going  engineering  work  is  currently                                                                    
Co-Chair  Hawker agreed  with  the analysis.  He added  that                                                                    
fiscal  notes  are  adopted  as   though  they  were  budget                                                                    
appropriations,  so  the  2011  Conference  Committee  would                                                                    
adopt  the   $10  million   fiscal  note;   considering  the                                                                    
contractual   level  for   FY  12,   FY  13,   and  FY   14,                                                                    
"indeterminate" means  that nothing  will be  anticipated in                                                                    
the draft budget  for those years unless  a determination is                                                                    
made  to   fund  something.  The  personnel   services  will                                                                    
continue  as   full-time  positions   are  hired   with  the                                                                    
presumption of  continuing on. However,  that does  not mean                                                                    
the  project  cannot  be  terminated   at  the  end  of  the                                                                    
preliminary development stage if so desired.                                                                                    
1:50:53 PM                                                                                                                    
Representative  Gara  wanted  assurance  that  the  sponsors                                                                    
would have  to come  to the  legislature first  in FY  12 or                                                                    
after if  there is  a new contract  obligating the  state to                                                                    
spend a large amount of  money. Mr. Swenson responded in the                                                                    
affirmative. He stated  that the plan would  be presented to                                                                    
the legislature, and the legislature  and the governor would                                                                    
make the decision based on the cost estimates and plans.                                                                        
Representative Doogan  recalled that  28 positions  had been                                                                    
included in  the previous set  of fiscal notes; he  asked if                                                                    
the number  was still  the same.  Mr. Swenson  answered that                                                                    
the original  fiscal note  was from  the original  CS, which                                                                    
had a construction date of July  1, 2011; it would have been                                                                    
very challenging  to meet that  deadline. The change  from a                                                                    
construction date  to a  gas pipeline  plan has  reduced the                                                                    
number  of required  employees. He  did not  know the  exact                                                                    
number  off-hand,  although  the   fiscal  note  listed  the                                                                    
required positions.                                                                                                             
Co-Chair Hawker  added that in the  detailed narrative there                                                                    
are  partial  positions  representing  time  that  would  be                                                                    
required  from   existing  agency  personnel;  there   is  a                                                                    
difference between increasing  personnel and using personnel                                                                    
already in  place. He  detailed that the  FY 11  fiscal note                                                                    
provides for seven new full-time employees.                                                                                     
1:54:13 PM                                                                                                                    
Representative Austerman  referred to a  project coordinator                                                                    
at the  Department of  Environmental Conservation  listed on                                                                    
page 2 of  the narrative. He asked whether  the position was                                                                    
separate  from  the  seven already  mentioned.  Mr.  Swenson                                                                    
answered that  in the FY 11  budget they had tried  to break                                                                    
out the exact  personnel required; the positions  may or may                                                                    
not already  exist in the  agency. He wanted  the department                                                                    
to answer.                                                                                                                      
Representative  Austerman did  not want  to delve  into each                                                                    
component  for  each of  the  six  departments involved.  He                                                                    
pointed  to the  fact  more than  seven  employees would  be                                                                    
Representative Gara wanted  to know the cheapest  way to get                                                                    
natural gas to Alaskans. He  asked whether the plan would be                                                                    
presented  with  information  about  cost-effectiveness.  He                                                                    
referred to potential  gas reserves in Cook  Inlet and asked                                                                    
whether the  plan would  consider the  cost of  in-state gas                                                                    
from  Cook  Inlet as  compared  to  building a  larger  pipe                                                                    
south.  Mr. Swenson  responded that  the bill  was aimed  at                                                                    
bringing  North Slope  natural  gas  to Southcentral  Alaska                                                                    
(including  Valdez);  the  relative cost  of  possible  Cook                                                                    
Inlet gas would not be determined through the project.                                                                          
Representative Gara  was concerned  about choosing  the most                                                                    
expensive option.  He asked whether  comparative information                                                                    
would  be available  to the  legislature before  going ahead                                                                    
with North Slope  gas plans. Mr. Swenson  replied that there                                                                    
were on-going  studies. He referenced a  presentation at the                                                                    
recent  Anchorage  Resource  Development Council  by  ENSTAR                                                                    
Natural Gas Company using a  Department of Natural Resources                                                                    
(DNR)  study   of  costs   associated  with   accessing  gas                                                                    
reserves. He  thought the  comparison information  should be                                                                    
brought   into  discussions   with   the  legislature   when                                                                    
decisions are made.  He pointed out that HB 369  did not say                                                                    
that, but  he maintained  that all  options related  to [in-                                                                    
state  use of]  North  Slope would  be  considered and  that                                                                    
there would be comparative cost analysis.                                                                                       
Representative  Gara believed  the public  did not  have all                                                                    
the  information  and  stated  for the  record  that  a  big                                                                    
gasline would  result in cheaper  gas than a  smaller bullet                                                                    
line; the question was whether  the state could wait for the                                                                    
big line.  He maintained that  there is no  analysis showing                                                                    
that a  small bullet line  would produce cheaper gas  than a                                                                    
big gasline.  Mr. Swenson replied that  current analysis did                                                                    
not show the costs associated with  a spur line from a large                                                                    
diameter line,  whether the larger  line went to  Alberta or                                                                    
1:59:38 PM                                                                                                                    
Co-Chair Hawker  interjected that HB  369 (page 4,  lines 10                                                                    
and  11)  stipulates  that the  first  requirements  of  the                                                                    
development  team are  analysis of  routes and  selection of                                                                    
routes; Item 1 states that  it must be economically feasible                                                                    
and  Item  2  requires  that natural  gas  be  available  to                                                                    
residents [of the state] at the lowest possible cost.                                                                           
Representative Gara  asserted that he  had been told  in the                                                                    
past  that a  big gasline  would result  in lower  cost than                                                                    
smaller   line.  Mr.   Swenson  replied   that  the   volume                                                                    
transmitted  down a  larger line  would  be larger.  Without                                                                    
proper  economic  analysis,  he  opined  that  costs  [of  a                                                                    
smaller line] would  be less than a stand-alone  line to the                                                                    
North Slope.                                                                                                                    
Representative Gara  did not want  the public to  think that                                                                    
the state  could build  a smaller  line with  more expensive                                                                    
gas  and then  switch over  to cheaper  gas when  the bigger                                                                    
line  is  built.  He  asked  whether  the  public  would  be                                                                    
obligated to keep  paying for the gas from  the smaller line                                                                    
for a certain number of  years. Mr. Swenson noted that there                                                                    
was a letter regarding the  issue that the committee had not                                                                    
yet received. He opined that  the answer would depend on the                                                                    
configuration of the pipeline  with different commitments. A                                                                    
contract carrier or a common  carrier with financing through                                                                    
normal means would mean a  20-year commitment. The length of                                                                    
commitment would be less if the  state chose to buy down the                                                                    
debt. Commitments would  not be related to  financing if the                                                                    
state fully financed the line.                                                                                                  
Co-Chair  Hawker   echoed  that   there  are   many  complex                                                                    
variables  at  work and  stressed  that  the choice  is  not                                                                    
narrowed  to  between  only two  alternatives.  He  did  not                                                                    
believe there was  a dilemma. He wanted to  keep the state's                                                                    
options open to make sure gas was available to Alaskans.                                                                        
2:03:56 PM                                                                                                                    
Representative  Joule asked  whether the  difference between                                                                    
importing gas  and using  in-state gas  would be  clear when                                                                    
the legislature gets the plan  in 2011. Mr. Swenson answered                                                                    
that liquid natural gas (LNG)  imports were not contemplated                                                                    
in HB 369; the bill  considered using the current LNG export                                                                    
market and vying for that.                                                                                                      
Representative Joule  pointed out  that the state  would not                                                                    
know whether  it would be  cheaper to import gas  than using                                                                    
in-state  gas.   He  thought   the  information   should  be                                                                    
available to the legislature  before making final decisions.                                                                    
Mr.  Swenson  agreed  that  there  were  significant  issues                                                                    
related to imported LNG that  should be looked at, including                                                                    
the  Federal  Energy  Regulatory Commission  (FERC)  license                                                                    
associated  with the  import  as well  as  the volumes  that                                                                    
could   come  through   in  a   re-gasification  plant   and                                                                    
associated issues.                                                                                                              
Co-Chair Hawker  acknowledged that the question  deserved an                                                                    
acceptable response,  but pointed out  that HB 369  does not                                                                    
address  the issue.  He asked  whether feasible  information                                                                    
would be available to  the legislature regarding comparative                                                                    
costs for LNG  (presuming HB 369 goes forward  and a project                                                                    
plan  is  considered  after  July   1,  2011).  Mr.  Swenson                                                                    
believed that was correct.                                                                                                      
Representative  Joule understood  that expecting  short-term                                                                    
gas might be challenging when considering a big line.                                                                           
Co-Chair Hawker referred to a  report released in March 2010                                                                    
compiled  by Resource  Alaska at  the request  of the  three                                                                    
major  Southcentral  public  utilities. He  noted  that  the                                                                    
report had  a "stark"  premise and conclusion:  unless there                                                                    
is  significant  new  development   in  Cook  Inlet  in  the                                                                    
immediate future,  the state  will have to  import LNG  as a                                                                    
short-term  solution. The  report  also  indicated that  the                                                                    
long-term  solution  involved  in-state   gas.  He  did  not                                                                    
believe  the  HB  369 proposal  was  incompatible  with  the                                                                    
possible need for a short-term solution as well.                                                                                
2:09:00 PM                                                                                                                    
Representative Gara  stated that his major  concern with the                                                                    
legislation  was  that  it only  provides  a  cost  analysis                                                                    
comparing  other in-state  gasline projects  from the  North                                                                    
Slope.  He wanted  cost  analysis of  all  other options  as                                                                    
other options might be less expensive.                                                                                          
Representative Kelly believed all  the pieces were in place,                                                                    
such as temporary gas storage and the utility study.                                                                            
Co-Chair Hawker commented that  his personal vision included                                                                    
the  evolution  of the  hydrocarbon  potential  of the  Cook                                                                    
Inlet region. He  believed the region could  become a global                                                                    
trading  hub  for  natural  gas   because  of  its  position                                                                    
relative to Asian  trade routes and the North  Slope as well                                                                    
as  its gas  storage capacity.  He asserted  that the  state                                                                    
could become a  major trading center, the "Henry  Hub or the                                                                    
Alberta of the North."                                                                                                          
2:13:20 PM                                                                                                                    
Representative  Austerman  directed  attention  to  page  4,                                                                    
starting at  line 7, regarding  what the  development team's                                                                    
work product  would include,  especially making  natural gas                                                                    
available  to  residents at  the  lowest  possible cost.  He                                                                    
stated that  he supported the  bill because he  believed the                                                                    
least expensive route was the  state paying for the line. He                                                                    
noted that the state had the  assets to back up the project,                                                                    
including  the Permanent  Fund.  He  suggested building  the                                                                    
line and recovering the costs through the tariff.                                                                               
Co-Chair Hawker  observed that  the CS  had been  crafted to                                                                    
provide for a broad array of options for the state.                                                                             
Vice-Chair Thomas pointed to page  4, line 20 related to the                                                                    
transfer of  assets. He asked  who would decide to  sell and                                                                    
TOM  WRIGHT, STAFF,  REPRESENTATIVE MIKE  CHENAULT, SPONSOR,                                                                    
responded  that  the  legislature  would  ultimately  decide                                                                    
after the project plan was developed and presented.                                                                             
Vice-Chair  Thomas  turned  to  page 4,  line  27  regarding                                                                    
rights-of-way. He queried the  authority to purchase rights-                                                                    
of-way  before   the  money  is  appropriated.   Mr.  Wright                                                                    
responded that  some of the  rights-of-way can  be purchased                                                                    
with funds  available through the  fiscal note;  any further                                                                    
funds  needed  would  require   an  appropriation  from  the                                                                    
2:17:23 PM                                                                                                                    
Vice-Chair  Thomas directed  attention  to page  4, line  29                                                                    
regarding  purchase contracts.  He asked  who the  contracts                                                                    
would be  purchased from. Mr. Wright  believed that shippers                                                                    
would be the primary purchasers.                                                                                                
Representative  Fairclough stated  concerns related  to page                                                                    
5, line  12 regarding  the transfer of  eminent domain  to a                                                                    
private  entity. She  requested language  that would  ensure                                                                    
that the  state would maintain possession  of any additional                                                                    
rights-of-way  taken  from  a private  property  owner  upon                                                                    
construction  or  failure  of  a  project.  She  wanted  the                                                                    
property  to  be  used  later  if it  did  not  need  to  be                                                                    
maintained for right-of-way purposes.                                                                                           
FRANK  RICHARDS,  DEPUTY  COMMISSIONER,  HIGHWAYS  &  PUBLIC                                                                    
FACILITIES,   DEPARTMENT   OF  TRANSPORTATION   AND   PUBLIC                                                                    
FACILITIES, replied  that he had  posed the question  to the                                                                    
legal  team but  had not  yet  received the  answer. He  had                                                                    
discussed the issue of state assets and permanent rights-                                                                       
of-way   for   the   pipeline  with   the   state   pipeline                                                                    
coordinator's office. He reported that only the rights-of-                                                                      
way would  be provided, not  the underlying interest  of the                                                                    
land. He  noted that  at the next  level, land  purchased by                                                                    
the  state  through  any   means,  either  through  purchase                                                                    
agreement or  eminent domain, would  become an asset  of the                                                                    
state. He  envisioned that the  project would  purchase just                                                                    
the rights-of-way for pipeline use  and that the state would                                                                    
retain the fee simple interest  to the land. The state would                                                                    
not divest itself of the asset.                                                                                                 
Representative Fairclough  thought the intent was  noble but                                                                    
did  not think  the  language was  adequate  to protect  the                                                                    
public's interest.  She noted that the  attorney general had                                                                    
stated that the language had  to be explicit. She questioned                                                                    
whether  the sponsor  was amenable  to an  amendment on  the                                                                    
floor regarding the issue.                                                                                                      
REPRESENTATIVE  MIKE CHENAULT,  SPONSOR,  responded that  he                                                                    
wanted the information and would be open to an amendment.                                                                       
2:21:38 PM                                                                                                                    
Representative  Kelly asked  whether  anything  in the  bill                                                                    
would prevent  the state from  having anywhere from  zero to                                                                    
100 percent  ownership in the line.  Representative Chenault                                                                    
responded that  the only thing  that would prevent  that was                                                                    
the  legislature  and  the  governor   not  coming  to  that                                                                    
Representative  Kelly asked  whether the  bill itself  would                                                                    
prevent state  ownership. Representative  Chenault responded                                                                    
in the affirmative.                                                                                                             
Representative Doogan  spoke in  support of  the legislation                                                                    
but stated  that he did  not think  Alaska should go  in the                                                                    
direction. He  believed sincere efforts  were being  made to                                                                    
figure out how  much the project would cost,  but noted that                                                                    
there have  been many  "can't miss"  projects in  Alaska. He                                                                    
did  not  think  the  fastest   route  was  necessarily  the                                                                    
smartest. He stated that he had  not made his mind up on the                                                                    
Representative Gara  emphasized that he  did not want  to do                                                                    
anything  that would  harm the  chances of  a large  gasline                                                                    
that would  bring revenue  to the state.  He noted  that in-                                                                    
state gas would  not produce revenue; gas  going outside the                                                                    
state  would. He  intended to  honor a  requirement in  past                                                                    
legislation  that  that  the  state  not  jeopardize  a  big                                                                    
pipeline  through  more  than  .5 bcf/day  of  gas  into  an                                                                    
alternative  project. He  stated  that he  did  not want  it                                                                    
reported outside the state that  there was any intent to not                                                                    
honor the obligation.                                                                                                           
2:26:12 PM                                                                                                                    
Co-Chair  Stoltze spoke  in support  of the  legislation. He                                                                    
did not have as much  confidence in the TransCanada line. He                                                                    
emphasized  the   need  for  in-state  gas,   especially  in                                                                    
Southcentral. He  did not know  whether the  legislation was                                                                    
the right route  but wanted something moving  forward with a                                                                    
promise of in-state gas.                                                                                                        
Representative Austerman  did not  think HB 369  would break                                                                    
or  intended  to break  the  Alaska  Gasline Inducement  Act                                                                    
(AGIA) contract in any way.                                                                                                     
Co-Chair  Stoltze  MOVED  to report  CSHB  369(FIN)  out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note with  the ten-page fiscal analysis.                                                                    
There being NO OBJECTION, it was so ordered.                                                                                    
CSHB  369(FIN) was  REPORTED  out of  Committee  with a  "do                                                                    
pass"  recommendation  and   with  accompanying  new  fiscal                                                                    
impact note by the Office of the Governor.                                                                                      
2:30:46 PM          AT EASE                                                                                                   
2:44:53 PM          RECONVENED                                                                                                

Document Name Date/Time Subjects
HB 316 Gov.Trasmittal Letter.pdf HFIN 3/23/2010 1:30:00 PM
HB 316
HB 316 Sectional.pdf HFIN 3/23/2010 1:30:00 PM
HB 316
HB 50 Thomas Amendment #1.pdf HFIN 3/23/2010 1:30:00 PM
HB 50