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 393-COOK INLET/MIDDLE EARTH GAS ROYALTIES                                                                      
                                                                                                                                
1:57:17 PM                                                                                                                    
                                                                                                                                
CHAIR MCKAY  announced that the  next order of business  would be                                                               
HOUSE BILL  NO. 393, "An Act  relating to oil and  gas leases and                                                               
royalty shares; and providing for an effective date.                                                                            
                                                                                                                                
CHAIR  MCKAY,  on behalf  of  the  sponsor, the  House  Resources                                                               
Standing Committee,  of which he  served as chair,  presented the                                                               
sponsor  statement for  HB 393  [copy included  in the  committee                                                               
packet] which read as follows [original punctuation provided]:                                                                  
                                                                                                                                
     In  the  coming  years,  Southcentral  Alaska  faces  a                                                                    
     critical  challenge:  a  projected shortage  and  ever-                                                                    
     increasing decline  in Cook Inlet gas  production. This                                                                    
     looming  shortage poses  a  significant  threat to  the                                                                    
     energy  security of  our state,  with the  potential to                                                                    
     lead  to drastic  increases in  energy  prices for  the                                                                    
     residents  and businesses  of Southcentral  Alaska. The                                                                    
     prospect  of diminishing  in-state gas  supplies and  a                                                                    
     reliance  on liquefied  natural gas  (LNG) imports  not                                                                    
     only threatens our economic stability  but also our way                                                                    
     of life.                                                                                                                   
                                                                                                                                
     Due  to the  nature of  this issue,  bold and  decisive                                                                    
     action is  required. HB 393 makes  a significant change                                                                    
     to the Cook  Inlet royalty structure based  on the idea                                                                    
     that  the Inlet  is  not  attracting enough  investment                                                                    
     dollars  and activity  for development  and exploration                                                                    
     drilling. At this critical  juncture, royalties on Cook                                                                    
     Inlet  gas which  decrease drilling  activity, increase                                                                    
     the  cost  of  gas,  or  lead  to  costly  LNG  imports                                                                    
     represent a tax on  southcentral ratepayers in addition                                                                    
     to jeopardizing the energy security of our state.                                                                          
                                                                                                                                
     This legislation  seeks to address the  anticipated gas                                                                    
     production  shortfall by  decreasing  royalty rates  on                                                                    
     new  wells for  gas used  by Alaskans  to 0%,  with the                                                                    
     goal  of fostering  an environment  which will  lead to                                                                    
     increased  drilling and  exploration activities  in the                                                                    
     Cook  Inlet region.  This bill  also  reduces the  base                                                                    
     royalty on wells currently producing  to 5%, which will                                                                    
     extend  the life  of those  wells leading  to more  gas                                                                    
     production.  HB  393   extends  incentives  to  "middle                                                                    
     earth" and allows drilling and  development costs to be                                                                    
     deducted against royalty  burdens. The rationale behind                                                                    
     HB  393   is  straightforward:  by   enhancing  project                                                                    
     economics, we can attract  more investment into natural                                                                    
     gas   exploration   and  production.   This   increased                                                                    
     investment will  not only  mitigate the  risk of  a gas                                                                    
     shortage  but  also  has  the  potential  to  stabilize                                                                    
     energy prices for Southcentral Alaskans.                                                                                   
                                                                                                                                
     HB 393 is  an acknowledgment of the  critical role that                                                                    
     affordable and  reliable energy plays in  our lives and                                                                    
     a  recognition  of the  need  for  immediate action  to                                                                    
     secure our energy  future. I urge my  colleagues in the                                                                    
     33rd Alaska State Legislature to  join me in supporting                                                                    
     HB 393.                                                                                                                    
                                                                                                                                
2:01:12 PM                                                                                                                    
                                                                                                                                
TREVOR  JEPSEN, Staff,  Representative  Tom  McKay, Alaska  State                                                               
Legislature,  on  behalf  of the  sponsor,  the  House  Resources                                                               
Standing  Committee,  of  which Representative  McKay  served  as                                                               
chair, introduced  HB 393 with a  PowerPoint presentation, titled                                                               
HB  393  -  Cook  Inlet/Middle Earth  Gas  Royalties  [hard  copy                                                               
included  in the  committee packet].    He pointed  out that  the                                                               
graph on  slide 2 shows  the projected decline of  gas production                                                               
in Cook  Inlet in the  coming decades.   He noted that  when this                                                               
low-cost gas  supply disappears,  the cost  would be  felt across                                                               
the entire  state, not just  Southcentral Alaska.  He  added that                                                               
this would  take over 15  to 20 years  to happen but  could cause                                                               
such  effects as  the loss  of population  and higher  government                                                               
costs.    He expressed  the  opinion  that royalty  modifications                                                               
would  be the  most  impactful tool,  so it  is  crucial for  the                                                               
legislature to pass the proposed legislation this session.                                                                      
                                                                                                                                
MR.  JEPSEN moved  to  slide 3  and pointed  out  the results  of                                                               
polls, which show  there is a high level  of Southcentral support                                                               
for  the state  to utilize  incentives to  private companies  and                                                               
utilities for  the purpose of identifying  and pursuing projects,                                                               
as this would  ensure energy deliverability.  He  added that this                                                               
would be  gas produced in  Alaska for  Alaskans.  He  pointed out                                                               
that there is  also support to create incentives for  oil and gas                                                               
companies to find  and produce more Cook Inlet gas,  and there is                                                               
a high percentage of the  population opposed to importing natural                                                               
gas.                                                                                                                            
                                                                                                                                
MR. JEPSEN  moved to slide  4, which provided background  on Cook                                                               
Inlet  gas reserves.    He pointed  out that  the  slide shows  a                                                               
hypothetical to help understand  gas volume and production prices                                                               
going  forward.   He  stated  that the  graph  shows that  easily                                                               
accessible  gas  reserves  are the  least  expensive,  with  cost                                                               
rising incrementally on the graph  to undiscovered gas.  He noted                                                               
that  the cost  of undiscovered  gas would  be comparable  to the                                                               
cost  of  LNG imports.    He  argued  that the  proposed  royalty                                                               
changes would  lower the  cost to the  producers, which  would in                                                               
turn lower consumer costs.                                                                                                      
                                                                                                                                
2:06:36 PM                                                                                                                    
                                                                                                                                
MR. JEPSEN moved to slide 5  and stated that in evaluating energy                                                               
policy,  the state  should  consider three  factors.   The  first                                                               
factor is whether  the policy should be short term  or long term.                                                               
The second factor  is the level of risk the  state would take, as                                                               
importing  LNG would  be a  higher cost  with a  lower risk.   He                                                               
noted  that  forgoing royalties  on  new  gas  wells, as  in  the                                                               
proposed legislation,  would be a  higher risk option.   He added                                                               
that this  would be  aimed at lower  energy costs  for residents.                                                               
The  final  consideration  would  be how  policies  interact  and                                                               
complement  each other.   He  expressed the  opinion that  HB 393                                                               
would work in  conjunction with other committee  bills to further                                                               
increase project economics, making  investment in Cook Inlet more                                                               
attractive.                                                                                                                     
                                                                                                                                
MR. JEPSEN moved to slide  6, which reviewed the potential fiscal                                                               
impacts of the proposed legislation  to Alaskans.  He pointed out                                                               
that the chart  compares the cost resulting from  the decrease of                                                               
Cook Inlet  royalties with the  cost increase to  ratepayers from                                                               
LNG  imports.   He  noted that  even  if there  is  no change  to                                                               
royalty  relief, there  is  a projected  decrease  in Cook  Inlet                                                               
royalties  over  the  next  few  decades.    He  noted  that  the                                                               
Southcentral utility  revenues represent  ratepayers' costs.   He                                                               
argued that if  LNG is imported, there would be  a large increase                                                               
to the ratepayers.                                                                                                              
                                                                                                                                
2:10:15 PM                                                                                                                    
                                                                                                                                
MR. JEPSEN moved  to slide 7 and discussed  the royalty structure                                                               
modifications.   Based  on the  current lack  of interest  in the                                                               
Cook Inlet  sedimentary basin,  he suggested  that the  market is                                                               
sending a message  that the current tax and  royalty structure is                                                               
not ideal.   He  stated that the  rate of return  on gas  is much                                                               
lower than  oil.   He maintained that  if royalties  are reduced,                                                               
rates of return  and the economics of projects  would be boosted,                                                               
making  projects  more  viable.   He  continued  to  address  the                                                               
effects of  reducing royalties  in new and  producing wells.   He                                                               
stated  that  HB 393  would  also  not  allow the  assessment  of                                                               
royalties until  payout, which is  the recuperation of  costs for                                                               
oil  and gas  development  in Cook  Inlet in  middle  earth.   He                                                               
suggested that  this would  allow costs  to be  recouped quicker,                                                               
and he acknowledged the time value of money.                                                                                    
                                                                                                                                
MR. JEPSEN moved  to slide 8 and provided an  overview of HB 393.                                                               
The slide read as follows [original punctuation provided]:                                                                      
                                                                                                                                
     •Changes royalty structure for Cook Inlet:                                                                                 
          •  0%  for gas  produced  from  new wells  drilled                                                                    
     starting in FY25                                                                                                           
          •  5%  for oil  produced  from  new wells  drilled                                                                    
     starting FY25                                                                                                              
          • 5%  on oil and  gas produced from  wells drilled                                                                    
     prior to FY25                                                                                                              
     •Capital  expenditures associated  with development  of                                                                    
     oil  or  gas  can  be  deducted  from  royalty  burden;                                                                    
     Excludes North Slope                                                                                                       
                                                                                                                                
     •Requires    commissioner   to    enter   into    lease                                                                    
     negotiations to comply with these terms                                                                                    
                                                                                                                                
2:13:32 PM                                                                                                                    
                                                                                                                                
MR. JEPSEN moved  to slide 9 and provided  the sectional analysis                                                               
for  HB   393,  which  read  as   follows  [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     Sec.  1 Amends  AS 38.05.180(f)  to allow  an exception                                                                    
     for the new subsection  (mm). Changes royalty structure                                                                    
     for Cook  Inlet leases to 0%  on gas and 5%  on oil for                                                                    
     wells drilled after  July 1st, 2024, and 5%  on oil and                                                                    
     gas for wells drilled prior to July 1st, 2024.                                                                             
                                                                                                                                
2:13:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER questioned what  the exception would be in                                                               
Section 1.                                                                                                                      
                                                                                                                                
MR. JEPSEN  responded that this has  to do with the  terms of the                                                               
oil and gas  leases.  It would require the  commissioner to issue                                                               
oil and gas leases according  to the subsection which changes the                                                               
lease terms.                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER reiterated the question.                                                                                 
                                                                                                                                
CHAIR  MCKAY  deferred the  question  until  after the  sectional                                                               
analysis.                                                                                                                       
                                                                                                                                
2:15:11 PM                                                                                                                    
                                                                                                                                
MR. JEPSEN continued  with the sectional analysis,  which read as                                                               
follows [original punctuation provided]:                                                                                        
                                                                                                                                
     Sec.  2 Adds  a new  subsection (mm)  to AS  38.05.180,                                                                    
     stating  that for  leases issued  for  property in  the                                                                    
     state  excluding   land  north  of  68   degrees  North                                                                    
     latitude, the  royalty share reserved to  the state may                                                                    
     not  exceed  zero if  the  lessee  is recovering  costs                                                                    
     associated  with development  of  oil  or gas  produced                                                                    
     from a well drilled on or after July 1, 2024.                                                                              
                                                                                                                                
     Sec.  3 Adds  uncodified  law  regarding transition  to                                                                    
     comply  with   the  changes  in  royalty   rates  which                                                                    
     requires  the  commissioner  of  natural  resources  to                                                                    
     enter into  lease negotiations with a  lessee holding a                                                                    
     lease issued before  the effective date of  this Act in                                                                    
     the Cook  Inlet sedimentary  basin to modify  the lease                                                                    
     to   meet   the   royalty    rates   required   by   AS                                                                    
     38.05.180(f)(7) and (mm).                                                                                                  
                                                                                                                                
     Sec. 4 Provides for an effective date of July 1, 2024.                                                                     
                                                                                                                                
2:16:21 PM                                                                                                                    
                                                                                                                                
DEREK NOTTINGHAM,  Director, Division of Oil  and Gas, Department                                                               
of   Natural  Resources   (DNR),   responded  to   Representative                                                               
Saddler's question.   He expressed the belief  that the exception                                                               
would  be for  new leases,  as they  would be  exempted from  the                                                               
minimum royalty of 12.5 percent.                                                                                                
                                                                                                                                
2:17:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MEARS expressed the belief  that HB 393 would be a                                                               
giveaway by the  state, with no accountability or  no promises of                                                               
new gas.   She argued that  there needs to be  a justification on                                                               
how this would  save consumers in utility rates, as  this has not                                                               
been discussed.                                                                                                                 
                                                                                                                                
CHAIR  MCKAY expressed  disagreement, stating,  "I would  not say                                                               
that  we  could  ever  promise  anything."    He  continued  that                                                               
legislation  is  often put  forward  to  incentivize the  private                                                               
sector, but  what the private  sector will do is  not guaranteed.                                                               
He  asked Mr.  Jepsen to  discuss what  could possibly  happen if                                                               
energy rates were to double or  triple at the raw material end of                                                               
the supply chain.                                                                                                               
                                                                                                                                
2:18:54 PM                                                                                                                    
                                                                                                                                
MR.  JEPSEN stated  that  the example  on [slide  6]  is a  rough                                                               
calculation  using the  information  on royalty  revenues to  the                                                               
state and revenues to Southcentral  utilities.  He suggested that                                                               
if  there  is a  doubling  in  price  for  utility gas  heat  and                                                               
electricity,  this  would be  a  straight  pass to  the  consumer                                                               
rates, which  would then likely  double.  He  expressed agreement                                                               
that there would  be no guarantees and there would  be risks.  He                                                               
stated  that currently  there is  little interest  in [developing                                                               
gas] in  Cook Inlet and changing  the royalty would be  an effort                                                               
to bring  in new gas  producers.  He  maintained that this  is an                                                               
idea and a tool the state has, but there would be no guarantees.                                                                
                                                                                                                                
2:20:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  referenced past legislation that  had "no                                                               
promises" for  Cook Inlet, but it  had worked.  He  discussed how                                                               
lowering the  royalty share would  make investment in  Cook Inlet                                                               
more advantageous.   He stated that  this would be a  policy call                                                               
"to see if we think the give is worth the get."                                                                                 
                                                                                                                                
2:21:04 PM                                                                                                                    
                                                                                                                                
CHAIR  MCKAY expressed  the opinion  that Representative  Mears's                                                               
question was  "excellent."   He stated  that the  conversation is                                                               
important because  the free market  has not been responding.   He                                                               
pointed out  that low-cost  energy is essential  for Alaska.   He                                                               
discussed how  there has been  no interest in developing  oil and                                                               
gas in Cook Inlet.   He opined that the free  market in Alaska is                                                               
unlike the Lower 48,  as it is isolated.  He  stated that the oil                                                               
and gas  field in Cook Inlet  is very mature and  "barely hanging                                                               
on."   He reminded  the committee of  the projection  that Alaska                                                               
would not  be importing LNG  for six  more years.   He reiterated                                                               
that the  state is isolated and  not connected to a  real market.                                                               
He  discussed the  issue of  the limited  market for  gas in  the                                                               
Railbelt and urged  the committee that the state  should not wait                                                               
for the free  market to take care of the  situation, as the state                                                               
has very  few levers,  and addressing royalties  is one  of these                                                               
levers.                                                                                                                         
                                                                                                                                
2:25:14 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 2:25 p.m. to 2:26 p.m.                                                                       
                                                                                                                                
2:26:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER  pointed  out  that the  fiscal  note  is                                                               
indeterminate,  and   he  questioned   whether  there   would  be                                                               
additional [staff needed] for analysis and accounting functions.                                                                
                                                                                                                                
2:27:34 PM                                                                                                                    
                                                                                                                                
MR.  NOTTINGHAM expressed  the belief  that DNR  already has  the                                                               
staff  to do  the  accounting  functions.   He  added that  these                                                               
functions would  be similar  to other  duties that  staff already                                                               
performs.   He  stated  that the  indeterminate  fiscal note  has                                                               
nothing  to do  with staff,  rather; it  is more  to do  with the                                                               
uncertain outcomes of the proposed legislation.                                                                                 
                                                                                                                                
2:28:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MEARS,  referencing her previous  question, stated                                                               
that  there  are  many  unanswered  questions  on  the  potential                                                               
impacts to utility  companies.  She argued that  a rough estimate                                                               
[on  the  effects  of cutting  royalties]  is  insufficient  when                                                               
discussing the potential impacts to consumers.                                                                                  
                                                                                                                                
CHAIR MCKAY  countered that there  would be a  significant impact                                                               
if energy prices increased dramatically.                                                                                        
                                                                                                                                
REPRESENTATIVE MCCABE opined that the  free market is not present                                                               
in the state  because of taxes and the government.   He suggested                                                               
that  taking   away  the  taxes   could  possibly   increase  the                                                               
availability  of gas.   He  said, "Gas  is going  away, that's  a                                                               
fact."    He suggested  that  the  proposed legislation's  impact                                                               
would be  the availability of gas,  even if there is  an increase                                                               
in price, but this  would be up to economics and  gas as a finite                                                               
resource.   He  argued  that  HB 393  would  incentivize the  gas                                                               
industry to come  to Alaska, so consumers would  not be effected,                                                               
as the consumers will be effected [with higher rates] soon.                                                                     
                                                                                                                                
2:30:52 PM                                                                                                                    
                                                                                                                                
CHAIR  MCKAY   opened  public  testimony   on  HB  393.     After                                                               
ascertaining there  was no one  who wished to testify,  he closed                                                               
public testimony.                                                                                                               
                                                                                                                                
2:31:16 PM                                                                                                                    
                                                                                                                                
MR. JEPSEN followed-up on Representative  Mear's concern on "give                                                               
aways,"  arguing that  with the  projections, there  would be  no                                                               
Cook Inlet royalty money within 10 to 15 years.                                                                                 
                                                                                                                                
2:31:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER questioned  whether  there  has been  any                                                               
research on how production is effected by a change in royalties.                                                                
                                                                                                                                
MR. NOTTINGHAM expressed  uncertainty on any studies.   He stated                                                               
that there  is literature that  suggests royalty  reduction would                                                               
incentive  new activity  and  new  oil and  gas  production.   He                                                               
stated that he would follow up on this with the committee.                                                                      
                                                                                                                                
2:33:22 PM                                                                                                                    
                                                                                                                                
CHAIR MCKAY announced that HB 393 was held over.                                                                                
                                                                                                                                
            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