Legislature(2023 - 2024)BARNES 124
04/03/2024 01:00 PM House RESOURCES
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Audio | Topic |
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Start | |
HB394 | |
HB393 | |
HB388 | |
Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
*+ | HB 393 | TELECONFERENCED | |
*+ | HB 394 | TELECONFERENCED | |
+= | HB 388 | TELECONFERENCED | |
+= | HB 359 | TELECONFERENCED | |
+ | 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 |