Legislature(2023 - 2024)BARNES 124

04/03/2024 01:00 PM House RESOURCES

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

Document Name Date/Time Subjects
HB0394A.pdf HRES 4/3/2024 1:00:00 PM
HB 394
HB 394 Sponsor Statement ver. A.pdf HRES 4/3/2024 1:00:00 PM
HB 394
HB 394 Sectional Analysis ver. A.pdf HRES 4/3/2024 1:00:00 PM
HB 394
HB 394 Presentation ver. A.pdf HRES 4/3/2024 1:00:00 PM
HB 394
HB 394 Fiscal Note DCCED-RCA.pdf HRES 4/3/2024 1:00:00 PM
HB 394
HB 394 RCA Presentation to HRES 4.3.24.pdf HRES 4/3/2024 1:00:00 PM
HB 394
HB0393A.pdf HRES 4/3/2024 1:00:00 PM
HB 393
HB 393 Sponsor Statement Version A.pdf HRES 4/3/2024 1:00:00 PM
HB 393
HB 393 Sectional Analysis Version A.pdf HRES 4/3/2024 1:00:00 PM
HB 393
HB 393 Presentation Version A.pdf HRES 4/3/2024 1:00:00 PM
HB 393
HB 393 Fiscal Note #1 DNR-DOG.pdf HRES 4/3/2024 1:00:00 PM
HB 393
HB 393 Fiscal Note #2 DOR-TAX.pdf HRES 4/3/2024 1:00:00 PM
HB 393
CSHB 388(RES) LS-1237R Summary of Changes.pdf HRES 4/3/2024 1:00:00 PM
HB 388
CSHB 388(RES) LS-1237R.pdf HRES 4/3/2024 1:00:00 PM
HB 388