Legislature(2001 - 2002)
02/15/2001 09:02 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 73
"An Act making supplemental appropriations and making and
amending other appropriations; and providing for an effective
date."
SENATE BILL NO. 74
"An Act making supplemental and other appropriations; and
providing for an effective date."
This was the second hearing for these bills in the Senate Finance
Committee.
Section 8
Multiple Departments
Gasline-Capital Budget Review Unit (BRU)
Gas pipeline development-related activities to expedite field
season research and other pre-application state
responsibilities.
$1,960,100 general funds
ANNALEE MCCONNELL, Director, Office of Management and Budget,
Office of the Governor, shared that since the fall of 2000, the
governor has had state agencies working as a team to advance
development of North Slope natural gas. She spoke to the intensive
effort and the importance that the state support the private
sector's heavy workload rather than impede those efforts. She said
it had become apparent that the magnitude of the work ahead is more
than initially predicted. She noted that the governor has requested
funding for FY 02 to address these issues, but that additional work
must be done before the start of that fiscal year.
Ms. McConnell explained the reasons for submitting the request as a
capital project rather than as an operating expense. She said that
by listing the project as a single budget item, it would be
possible to view the process as an inter-related package between
the agencies involved. She also stressed that as a capital project,
it would be clear that the efforts are project-specific instead of
the on-going state agency operations. She added that any positions
added would be funded only through the duration of the project
rather than permanent positions, which would be clearer with the
capital project designation.
WILLIAM G. BRITT, JR., State Pipeline Coordinator, Office of the
Commissioner, Department of Natural Resources testified that the
supplemental budget request would help advance development of
Alaskan's natural gas consistent with the following principles.
· Alaskans working on the project
· Alaskan businesses providing services and materials for
the project
· Alaskan consumers with access to the gas
· New and existing Alaskan industrial users with access to
the gas
· Alaskans receiving a fair return for the state-owned
resources
Mr. Britt asserted that the time is right for large-scale
development of Alaskan natural gas and that North America is the
market to receive the gas. He added that the North American route
is the way to move the gas from the source to the market. He
stressed that the gas pipeline must "be built now because demand is
up, supplies are not keeping up, storage docks are down and the
price of gas is up as a result."
Co-Chair Donley interrupted to stress that the Committee did not
need to be convinced of the reasons for getting the gas to market,
but rather needed to understand the necessity for the fast tracked
money.
Mr. Britt resumed, saying the request would allow the state to
advance the natural gas development project by:
· establishing a coordinated state permitting process
· beginning to gather data for processing the permits
· working with project proponents to advocate Alaskan
interests
· working with project proponents to insure that their
permit application are complete, which would allow the
state to move more rapidly when the applications are
received
· developing information on economic and fiscal issues for
policy makers
· advocating Alaskan interests before the US Congress and
with federal and Canadian agencies
· informing Alaskans of the issues involved in developing
Alaskan natural gas and soliciting their views on those
issues
Mr. Britt stated these efforts would make:
· the gas pipeline project more responsive to the state
priorities
· state government smarter about critical issues
surrounding a gas pipeline project
· better decisions related to those issues
· it possible to authorize the project more quickly when an
application is received
· better permit and authorizations that the state issues
· the permits and authorizations that others issue more
responsive to Alaskan priorities
· Alaska's financial return from the project greater
Senator Ward wanted to know the existing permitting problems that
call for the streamline efforts.
Mr. Britt stated he would not characterize the current system as
having problems. He described his duties as a coordinator and the
discovery that when state agencies work together with a unified
plan, resources and information could be shared and the process
would move efficiently.
Ms. McConnell also noted that a coordinated effort would allow the
statutory and regulatory process to proceed faster.
Ms. McConnell then addressed Co-Chair Donley's earlier question on
the need for the funds before the start of the next fiscal year.
She relayed that producers had already announced their expectation
to spend $75 million over the next nine months. She stressed the
need for the state to be prepared to address applications when they
are submitted. She added that the fiscal issues also need to be
resolved and that the public needs to be educated on the matter.
She stated that in order for field research and data gathering to
begin the upcoming summer, preparation for that work must begin at
once.
Senator Austerman commented on where the pipeline would run and
what the benefits to Alaska would be. He was concerned that the
producers are hesitant to discuss the matter before they have
decided where they would like the pipeline. He stressed that he had
not yet agreed to allow the producers to determine that location.
He qualified that the pipeline must be built, but that he was
uncomfortable with the governor's efforts.
Senator Wilken wanted to know how this supplemental request
involves the University of Alaska. He relayed President Mark
Hamilton's desire to be included in the planning of the pipeline.
Senator Wilken stated that the university had assets it could
"bring to the table."
Ms. McConnell stated that it was anticipated that the University of
Alaska would be very involved in the job training aspects of the
project, which would occur in FY 02.
AT EASE 9:25 AM / 9:27 AM
Department of Environmental Conservation
KURT FREDRIKSSON, Deputy Commissioner, Department of Environmental
Conservation, testified that the department would play a major role
in the gas line project. He listed air permits for the vessel
station, water quality issues, domestic wastewater issues with the
camp, solid waste and food safety, as examples of the many
departmental programs that would be involved in the permitting and
oversight of the project. He stated that the requested supplemental
funds would be used to help identify where potential permitting
problems could arise. He shared that there is confusion with what
the state requires for environmental protection and the aspects of
the project itself. He explained that the intent is for the future
applicant and the department to prepare an appropriate application.
He emphasized that submission of the actual application is expected
in December 2001.
Mr. Fredriksson continued saying that the department's main focus
is air, water and fuel issues. He pointed out that a portion of the
requested funds would be used to hire an air chemist to work with
the industry on ambient air quality monitoring and meteorological
data that must be collected the summer of 2001. State statute and
federal requirements, he informed the Committee, dictate the
department to have one year of this data.
Senator Austerman asked if the $140,000 allocated to this effort
would be utilized during the next four months.
Mr. Fredriksson affirmed and stressed the producers were requesting
discussions on this project to begin in the next month. He stressed
the need to design the facilities to avoid potential environmental
problems.
Co-Chair Donley asked if this supplemental request would apply only
to the current year or if the department anticipated these
expenditures would continue and whether the department would submit
requests for additional funds.
Ms. McConnell replied that the proposed FY 02 budget contains such
a request and that she could explain in further detail at members'
request. She stressed that the supplemental request before the
Committee at this time was smaller than the FY 02 request.
Co-Chair Donley asked if the FY 02 request would be contained in
the capital budget.
Ms. McConnell affirmed. She spoke to additional information
received since the December 2000 submittal, noting that the
Administration would submit amendments to the original proposal.
Senator Leman requested backup information detailing the additional
positions.
Mr. Fredriksson stated he would provide such information.
Senator Hoffman asked if the department was working with the Native
corporations who own much of the land that the pipeline would
traverse.
Mr. Fredriksson responded that while no such efforts had been made
to date, the department included working with all landowners in its
planning process.
Co-Chair Donley understood that the oil companies had not yet
announced a timetable for the total project and that their working
group would start April 1, 2001. He asked why the department needed
the money at this time.
Mr. Fredriksson replied that the funds are necessary to "gear up"
and to acquire and update the information gathered during previous
gas pipeline discussions held between 1978 and 1982. While he was
unsure of the April 1 timeframe, he knew that discussions regarding
environmental issues had already begun. He advised that the
industry has hired 50 new employees, with a goal of 90 employees to
address this issue. He relayed that the department had a meeting
scheduled for February 28, 2001 with the producers.
Mr. Britt interjected that the producers are only one of the
project components. He stressed that the producers have already
submitted requests for approximately $75 million worth of proposals
and have hired additional staff in anticipation for the projects.
He stated, "We are obligated to advocate the state's interest in
all of these different arenas."
Senator Green asked if any existing staff has the necessary
qualifications listed in the proposal.
Mr. Fredriksson answered that there were such employees and that he
would like to fill the new positions with these qualified staff
members. He singled out an employee currently working in the
Division of Oil Spill Prevention and Response who previously worked
in the former gas line office. He emphasized the need for such
expertise. He suggested that new staff would be hired to fill the
existing positions and the expertise would be directed to the
natural gas project.
Senator Green wanted to know if the department had a prioritization
mechanism in place to share these duties if the legislature did not
fund this request.
Mr. Fredriksson affirmed the department does have a system and that
the natural gas pipeline project would compete with existing
projects, such as air monitoring and air permitting work.
Ms. McConnell added that other industries depend on the department
for their projects. She warned that because many services are fee-
based and not funded from the general fund, the amount of work that
could be redirected to the pipeline project is limited. She added
that there is great concern with the matter of recruitment and that
many employees are being lost to the federal government and the
private sector.
Senator Green asked for the total number of employees in the
Department of Environmental Conservation.
Mr. Fredriksson replied there were approximately 425 positions in
the department.
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Senator Leman referred to HB 361, the "Fees Bill" from the 21
Alaska State Legislature and asked the state's obligation for cost
recovery of this natural gas project under this law.
Mr. Fredriksson explained the implications of HB 361 that
established a fee system, which holds the department accountable
for its time and reimbursement. He noted that this law does not
require 100 percent reimbursement and that the department would
look to the state lease authorities for reimbursement.
Senator Leman urged the accounting to be detailed and accurate in
order to justify what the state may wish to recover.
Ms. McConnell stated that a working group had already been formed
to devise a tracking system to identify any recoverable costs.
Senator Hoffman asked about the term of employment of the
additional staff requested.
Mr. Fredriksson referred to a projected timeframe up through 2002
when the issue would be reconsidered. He stressed the positions
would not continue past the construction of the pipeline.
Department of Fish and Game, Division of Habitat and Restoration
KEN TAYLOR, Director, Division of Habitat and Restoration,
Department of Fish and Game, testified that the division is
responsible for ensuring that the fish and wildlife resources are
not impacted, or that impacts are avoided during the construction
of the gas pipeline. He stated that this could be done most
successfully when the division is involved in the planning and
design phases of construction. He explained that the supplemental
request would fund a minimal approach to the issue, funding two
positions in FY 01 to prepare for the upcoming summer field season.
He stressed the need for receiving the funds in order to have staff
in place by the start of the summer season, when gas line
consultants would be in the field.
Mr. Taylor spoke to the three critical field seasons, the summer
and winter of 2001 and the spring of 2002. He stated that the
primary impacts to avoid are fisheries related and that the
different field seasons are necessary to survey impacts during
different times of the year.
Co-Chair Donley wondered how the division would be able to do field
surveys without knowing for certain the route of the pipeline.
Mr. Taylor replied that the division would focus on the Alaska
Highway route due to existing permit activity on that location.
Co-Chair Donley challenged that a recent poll shows 70 percent of
Alaskans support a tidewater route. He then asked if, because most
of the highway route follows the pipeline corridor, the data
already exists.
Mr. Taylor responded that the existing data was collected between
1978 and 1982 and does not focus on the entire area. He stressed
that changes have been made and more studies are necessary.
Senator Austerman questioned the $60,000 allocation for two four-
month positions. He calculated the annual salary would be $120,000
per employee and asked if that were appropriate for the type of
work performed.
Mr. Taylor affirmed, explaining that the positions would be upper
level positions, one supervisor and one pipeline coordinator, who
would supervise the field workers. He emphasized that the during
the Trans-Alaskan Pipeline construction in the 1970s the division
had a field crew of 15. He stressed that the gas pipeline is a "big
effort" and the funding level is appropriate for the positions.
Senator Leman asked if the division should rely on the project
sponsors to gather necessary information rather than collecting the
information itself.
Mr. Taylor agreed and stressed the effectiveness of working with
industry in the field, identifying solutions together.
Senator Ward asked if the division planned on transferring existing
employees into the positions.
Mr. Taylor responded that while there were qualified people already
on staff, their workloads were full. He stated that he did not plan
to transfer existing employees into the new positions but stressed
that employees could apply during the open recruitment period and
that they would be considered.
Senator Ward asked if the witness had identified what other
projects would be impacted if the supplemental funding were not
provided.
Mr. Taylor had not because 80 percent of the division's funding is
already targeted to existing projects and could not be redirected.
Tape SFC-01 #16 Side B 9:50 AM
Senator Ward asked if this meant no other projects would "drop off"
because of the natural gas pipeline.
Mr. Taylor did not know how the division could assume this workload
with the existing staff level.
Ms. McConnell explained that project-specific federal and other
fund sources could not be shifted to a different project.
Senator Ward understood that 20 percent of the division's funding
was not project-specific.
Mr. Taylor responded that approximately 12 percent is general funds
and that the legislature has directed the division to target those
funds toward the statutory permitting responsibilities. Therefore,
he stressed that without instructions from the legislature the
division would continue to follow the directive.
Senator Austerman asked how many employees work for the division.
Mr. Taylor answered there are 90 employees.
Senator Austerman wanted to know how many were located in
Anchorage.
Mr. Taylor estimated the number was between 40 and 43.
Senator Hoffman referred to the $32,000 Department of Environmental
Conservation travel budget, with which that department could
conduct fieldwork. He wondered how much fieldwork the Division of
Habitat and Restoration could perform with the only $3,900 that it
requested.
Mr. Taylor replied that most of the fieldwork would be conducted
during the upcoming summer and that funds for that work were
requested in the FY 02 budget. He stressed that the initial effort
would focus on analyzing the earlier collected data contained in 35
file cabinets and to hire staff and plan fieldwork projects. He
hoped to fill the two positions in April, with fieldwork beginning
in early June.
Office of the Governor, Division of Governmental Coordination
PATRICK GALVIN, Director, Division of Governmental Coordination,
out-laid the division's primary responsibility for implementing the
Alaska Coastal Management Program (ACMP). He explained the
statutory obligation to make a consistency determination for
projects that require a state or federal permit. He noted that for
this project, the division would perform a consistency
determination for the gas pipeline. He stated that the request is
to hire a project review coordinator who would engage in pre-
application assistance for this fiscal year, and perform the actual
consistency review when the project is submitted in December 2001.
Mr. Galvin explained the process of coordinating all permit issuers
to make the determination of whether the project would be
consistent with federal and state requirements and also how the
permits would be implemented.
Co-Chair Donley asked which portion of the pipeline would be
subject to the ACMP requirements.
Mr. Galvin responded the highway route would be subject to ACMP
requirements at the origination point on the North Slope.
Department of Labor and Workforce Development
REYMOND HENDERSON, Director, Department of Administration,
Department of Labor and Workforce Development, detailed the
department's role in assessing the occupational supply and demand
to determine what job classes would be required to construct and to
operate the gas pipeline. He stated that a new labor economist
position would supervise existing staff, and that the remainder of
the costs would cover associated travel and contractual needs.
Senator Green asked how a three-month delay in this funding would
affect the department's efforts.
Mr. Henderson replied that the Occupational Employment Survey (OES)
begins in October of each year and that the department needs to
begin right away to modify the survey. He warned that if the
process did not begin immediately, the entire survey project would
be delayed 12 months.
Ms. McConnell added that Department of Labor and Workforce
Development has been identified as a significant aspect of the
overall gas pipeline project. She asserted that the goal of the
legislature, the Administration and the private sector is to fill
as many jobs as possible with Alaskans. With accurate data up
front, she stated that the Administration would be in a better
position to work with the university and others to provide job
training and to match Alaskans with employers.
Senator Green asked if industry already knew their needs. She
questioned the need for special research.
Mr. Henderson responded that while the industry may have an idea of
their needs, the department needed to begin discussions with
experts to "find out exactly what it is going to take."
Department of Public Safety, Division of Fire Prevention
[Note: Audio malfunction with teleconference sound quality.]
KELLY NICOLELLO, Assistant State Fire Marshal, Division of Fire
Prevention, Department of Public Safety testified via
teleconference from Anchorage that the legislature's approval of
the supplemental request would allow the division to prepare
engineering and training regarding the practices and development
criteria of natural gas pipeline production. He continued that this
would allow the division to respond to the applicant's request for
building and construction permits, stressing the importance of
understanding, ascertaining and avoiding the hazards involved in
advancing technology. He pointed out that while the division has
experience with other oil production facilities, their experience
with natural gas is limited. He anticipated that this training
would help eliminate delays with project approvals.
Mr. Nicolello advised that if this request is not approved, the
division would not alter the level of service currently offered,
but would be disadvantaged in pre-construction design and planning.
Senator Leman wanted to know where the training is available.
Mr. Nicolello replied that the most economical courses were held on
a regular basis in Chicago, Illinois and Houston, Texas.
Senator Leman found the particular request refreshing in that it
uses existing staff. He urged other departments to "follow the
lead" of this department.
Senator Austerman asked if the training had to be undertaken within
the next four months or whether it could wait until the next fiscal
year.
Mr. Nicolello replied that the division has been receiving requests
from planners, but is currently unable to provide answers to their
various questions.
Senator Ward wanted to know if the division knew what courses were
applicable given that a pipeline route was not yet chosen.
Mr. Nicolello answered that the specialized training would apply to
the natural gas facilities no matter where they are located.
Department of Transportation and Public Facilities
KURT PARKAN, Deputy Commissioner, Department of Transportation and
Public Facilities detailed the request to hire an Engineer III for
two months in 2001. He explained that the department owns the
highway right-of-way and therefore must participate in any
permitting activities. He continued that the employee in the new
position would develop a work plan for the next fiscal year as well
as preparing right-of-way files and make them available to the
industry.
Senator Austerman calculated the salary for this position at
$22,500 for the requested two months, with an annual salary of
$135,000.
Mr. Parkan responded that the figure was higher than the salary of
an Engineer III.
Ms. McConnell interjected that the funds pay for both salary and
benefits.
Department of Natural Resources
Mr. Britt shared that during FY 01, the Joint Pipeline Office
proposes using the supplemental funds to begin implementing
Administrative Order # 187, which allows permitting authorities to
begin to prepare for receipt of a gas pipeline application. He
stated that the major task would be the creation of a Gas Pipeline
Office (GPO) as an operating unit of the State Pipeline
Coordinator's Office. He pointed out that currently the Federal
State Joint Pipeline Office is the only operating unit of the State
Pipeline Coordinator's Office. He explained that the GPO would
provide multi-agency one stop permitting authorization and
oversight.
Mr. Britt detailed that the supplemental would fund the acquisition
of office space, begin to staff the office and create a work plan
that would allow the participating agencies to work effectively
together. He noted that the Joint Pipeline Office would provide
management and engineering technical work for the new office. He
stated that he intended to hire a Deputy State Pipeline
Coordinator, an Administrative Manager, a Systems Administrator,
and a Records Manager by the end of FY 01 to assist him in the
startup of the new office. He anticipated that recruitment for
these positions would be difficult and that there were no existing
employees who were qualified. He referred to the vast amount of
data from the previous gas pipeline efforts that must be
inventoried with gaps identified and a plan written to collect
information in the summer of 2001. He added that the Office would
need to work with federal and Canadian agencies to create
compatible processes for dealing with the applications, and work
with the applicants themselves, and inform and engage the public.
[Note: audio recording of teleconference feed is inaudible.]
RICHARD MCMAHON, Chief, Lands Records Information, Division of
Support Services, Department of Natural Resources, testified via
teleconference from Anchorage on the goals of the division with
regard to the project. The first, he said, is to meet information
requirements to allow the GPO to make decisions. He indicated the
need to determine the complex ownership and right-of-way matters of
the affected land. He stressed that the "sooner we get a jump on
that, the faster we can respond to those kinds of questions that
come up." He listed the identification of hazardous materials,
ecological assessment, water quality, water volume and the
archeological impacts as other areas where questions could arise.
Senator Green asked about the addition of two employees included in
the budget request.
Mr. McMahon detailed the four part-time positions spread over five
divisions.
Senator Hoffman asked for more details on the $28,000 request for
equipment and the $185,000 for contractual services.
Mr. Britt replied that the equipment would supply the office
itself. He relayed the department's obligation to make the office
functional. He listed the largest contractual project for a file
inventory, which he hoped could begin as soon as possible. Staff
recruitment, he said is another large procurement item in addition
to rent charges for the existing staff that would eventually move
into the GPO.
Mr. McMahon wanted to make the Committee aware of the departments'
cooperation with the University of Alaska on obtaining federal
funding for a geological mapping project.
Senator Wilken asked what proposed corridor the mapping project
would study. He wanted to know if the study area would follow the
rail belt.
Mr. McMahon responded that the study would begin in the Fairbanks
area and follow the Alaska Highway to the Canadian border.
Ms. McConnell then noted that the budget request items presented
were covered by the administrative order and would be represented
in the GPO. She stated that other agencies were also participating
and that their presentations would begin.
MARK MEYERS, Director, Division of Oil and Gas, Department of
Natural Resources testified via teleconference from Anchorage that
the division needs to study four basic issues to properly evaluate
any proposal for North Slope gas production.
Mr. Meyers stressed the reason the funding was needed immediately
was to provide an "inherent understanding of any proposals by the
producers." He noted that these projects would be conducted almost
exclusively by consultants with department staff acting as project
managers.
Mr. Meyers explained the first study evaluates the royalty. He
asserted that royalty valuation makes a sizable difference in the
amount of revenue collected from oil and would also have a
"tremendous affect" on the natural gas. He expressed the need to
understand what the appropriate tariffs would be, what the market
conditions are, and the effects of a possible royalty reduction in
the future. He stated that this study would cost $55,000.
Mr. Meyers detailed the second study, which is to access the demand
for in-state natural gas. He stressed the importance of knowing the
demand between industrial, commercial, and residential heating
users. He relayed the need to also ascertain the demand and the
economic viability of supplying natural gas to rural Alaska. He
listed the cost of this study as $75,000 and noted that the work
would be contracted.
Mr. Meyers continued that the third item is a "supply side study",
which would entail looking at other sources of gas in addition to
the known resources on the North Slope. He shared that there has
been a great deal of effort to locate oil, but very little to
locate natural gas. He explained that this portion of the
appropriation would be used to hire a consultant and for
contracting helicopters, etc. to perform the necessary field work,
beginning in July 2001. He continued that the study would be
expanded in FY 02.
Mr. Meyers then listed a revenue study of Prudhoe Bay as the final
project. He informed that major gas sales from the reservoir would
likely result in lower annual reservoir pressures. He suggested
that proper timing in utilizing alternative sites such as Point
Thomson, which contain a large amount of natural gas, could
minimize the amount of royalty oil losses. He continued that the
study would also review actual production methods in conjunction.
He spoke of economic factors involved in the two parts of the
study.
Senator Austerman requested more backup information on the in-state
natural gas demands study, particularly the criteria employed. He
then asked about the $36,000 funding request for personnel costs,
but noted no new positions were proposed.
Mr. Meyers replied that the department would engage student interns
to compile data. He assured there would be no new positions
created. He noted the request also includes funds for travel costs
associated with the necessary fieldwork for the supply and demand
studies.
Mr. Meyers then addressed the in-state demand study, relaying that
additional information would be provided to the Committee.
Co-Chair Donley remarked that the federal government recently
renewed the export permit for liquefied natural gas (lng) from the
Cook Inlet.
Mr. Meyers affirmed the permit has been renewed through the year
2009.
Co-Chair Donley asked whether the review process was already
performed during the application for permit renewal.
Mr. Meyers responded that the Office of Fossil Energy oversaw that
effort but that study does not take the global view or the in-state
viability into account. He added that the projections were only
made through 2009.
Co-Chair Donley commented that this was "disappointing" that the
federal government would approve an export permit without
performing an analysis of the domestic market.
Senator Hoffman asked if the studies were planned to consider
pipeline spurs to increase in-state demand in rural Alaska. He also
wanted to know the level of demand in the Pacific Rim and the best
method of delivering natural gas to the Rim countries.
Mr. Meyers replied that the export demand is studied on an on-going
basis. He stated that the potential for delivering natural gas to
rural areas inside the state was contained in the proposed studies.
Office of the Governor
Ms. McConnell announced that the Alaska Oil and Gas Conservation
Commission (AOGCC) would have an appropriation request for FY 02,
and that the office is involved in the natural gas pipeline
project.
KEN FREEMAN, Special Assistant, Business and Gas Line Development,
Office of the Governor, explained his charge to take the lead staff
roll for the Alaska Highway Natural Gas Policy Council, which was
created by a recent administrative order. He described the council
as 28 individuals from across the state, co-chaired by Jim Sampson
and Frank Brown. He stated that the council in turn is charged with
the following duties.
· Identify how to maximize the benefits of an Alaska Highway
pipeline project for the citizens of the state.
· Conduct public hearings and take testimony from the public to
begin an assessment of the public's priorities with regard to
the pipeline project.
· Compile a report for submission to the governor, the Gas
Cabinet and the public by November 30, 2001.
Mr. Freeman elaborated that the council plans to hold eight to ten
public hearings in either Anchorage or Fairbanks. He noted that the
funding request would provide staff support, travel and expenses
and contractual services.
Senator Ward asked if the financial planning for the gas pipeline
project reflects a particular route. He mentioned a route that led
to tidewater in Nikiski.
Mr. Freeman responded that the counsel did not have a position
regarding financing. He explained this is because the counsel
planned to examine and determine the best financing method if the
state were to play a financial role in the project.
Senator Ward then asked about discussions held to date on the
matter.
Mr. Freeman relayed that it was not the governor's assessment that
an Alaska Highway pipeline precluded a pipeline to tidewater.
Senator Ward emphasized, "I'm not talking about precluding. I'm
talking about including and making it part of the original
discussion."
Mr. Freeman reiterated the counsel's mission to maximize the
benefits to the state of an Alaskan Highway gas line project. One
aspect of this process, he surmised, would be to give consideration
to the best way to finance and make the pipeline possible. He
shared that subcommittees would be formed and that one subcommittee
would be directed to investigate the best way to utilize the
state's royalty share and whether the state should have a role in
financing the pipeline project.
Senator Wilken pointed out that the Department of Natural Resources
components consisted of 40 percent of the funds requested but was
concerned with the 20 percent allocated to the Office of the
Governor. He wanted to know "what we're getting for the over
$400,000". He calculated that 90 percent of the request is for
contractual and travel expenses. He asked for an explanation of
"contractual".
Mr. Freeman responded that the contractual component would cover
the costs of holding public statewide meetings and also examining
studies by the Division of Oil and Gas. He indicated that the
subcommittees would be posed a number of questions, such as what is
the best way to access the natural gas. He listed the options as
access on the North Slope and access along the pipeline for
communities. He stated that the council would work internally with
the Division of Oil and Gas to ensure there is no duplication of
contractual services.
Ms. McConnell stressed the issue of "relative weight in terms of
the dollar amount." She acknowledged that public process is
particularly important at the beginning of the process and that the
council needs funds in order to conduct public meetings.
Senator Wilken countered that the people of Alaska support a
natural gas line that runs through the state. He surmised that
extensive public input is not necessary until "we put a little more
flesh on the bones." He referenced page 13 of the "Description of
Services in the Governor's FY2001 Supplemental Gas Pipeline Budget
Request." [Copy on file.] Specifically, he noted the eight items
that this "well intentioned group" would focus on. These items are
as follows.
· Benefits of natural gas development to Alaska
communities, including those located in rural areas of
Alaska;
· Best uses of the state's royalty share of the gas and
promotion or attraction of investment for in-state and
value-added processing;
· Costs and benefits of the state taking delivery of its
royalty share of the gas in Alaska versus allowing a
project developer to include the gas in its delivery flow
to the Lower 48 states;
· Options for projects utilizing gas-to-liquids, liquefied
natural gas, and natural gas liquids;
· Demand for in-state natural gas consumption and it
effects on a gas project;
· Environmental impacts and necessary protection measures;
· Training and readiness of Alaskans for jobs on a gas
project; use of Alaska labor pool by contractors and
subcontractors, and use of Alaska businesses; and
· State promotion and facilitation of project financing,
including potential ownership by the state of some or all
of a project.
Senator Wilken focused on the first five and the eighth issues,
noting that the Division of Oil and Gas is undertaking these with
the three proposed studies. The Department of Environmental
Conservation, he pointed out, would handle the sixth item and the
seventh is a function of the Department of Labor and Workforce
Development. He wondered if the $400,000 would not be better spent
in these departments rather than for the counsel. He stressed that
it is the duty of these departments to maximize the state's
investment in these matters.
TAPE SFC-01 #17, SIDE A 10:38AM
Senator Wilken concluded that he thought the $1.96 million total
amount of requested funds could be better spent by using the
"professionals who are charged with providing the answers that the
legislature requires." He did not question that Alaskans are behind
the pipeline project and suggested that the public hearings could
be a trade-off to allocating the funds to the agencies that would
better address the issues.
Co-Chair Donley commented on the name of the group, the Alaska
Highway Natural Gas Policy Council, and noted its bias toward the
highway route. He questioned the group's ability to objectively
ascertain which route the public prefers.
Mr. Freeman responded that the council is specifically charged with
looking at the benefits of a highway route, and then to consider
opportunities of spur routes to deliver natural gas to other areas.
Co-Chair Donley challenged that the "governor put the cart before
the horse" and that it would have been better to determine the best
route first rather than choosing the route then working to
determine that it was the best choice. He predicted that during the
public process, the council might learn that many people support a
different route.
Ms. McConnell assured that an alternate route had not been
precluded. However, she stressed that because no buyer has been
secured, the Administration is focusing on Alaska's "best shot" for
development in a "window that may not last for very long."
Co-Chair Donley remarked that several Alaskan mayors had submitted
alternative proposals and that there seems to be local support for
a different route than the governor's plan. He stated that it is
inconsistent to fund a group that would only advocate one specific
proposal when there was interest in others.
Mr. Freeman reiterated Ms. McConnell comments adding that he
anticipated increased permitting complications if there were a
route change. He stated that the Administration does not see
benefits to the state through contractual and employment
opportunities. He warned that if Middle East producers approached
the state with a liquefied natural gas project proposal, "no one in
the Administration would be turning them away." However, he
stressed that 15 years of effort have been invested in a North
Slope to Valdez route, with no results. He emphasized that the
Alaska Highway route is the best opportunity to "tap into a
massive, domestic demand of gas", pointing out that American
consumers are using 21 trillion cubic feet of natural gas, with
projections of almost 30 by the end of the decade. He asserted that
Alaska should be involved in supplying some of that gas.
Co-Chair Donley suggested that instead of spending $420,000, as
proposed, the council could spend $15,000 and learn that the
majority of Alaskans agree that a pipeline should run south, rather
than north. He added that most Alaskans would also prefer to
maximize the benefits to Alaska, including employment of Alaskans.
Senator Ward agreed and spoke of the constituents in his district
who have been working for years on securing a pipeline route that
ends in Nikiski. He also agreed that this is a one-time
opportunity, but stressed that the alternate routes should not be
precluded from discussion.
Mr. Freeman responded that the governor was not precluding a
tidewater route to either Valdez or Nikiski. Mr. Freeman specified
that the primary goal is to develop a pipeline and that the
governor believes that the most likely route is an Alaskan highway
project. Mr. Freeman testified that this route is contained in the
state as far south as Delta, with a possible spur to Cook Inlet or
Prince William Sound.
Senator Ward understood the dynamics that the route would go south
at least as far as Fairbanks. He argued that 600,000 Alaskans
"would not get another bite of this apple" if the pipeline turned
east into Canada. He added that the natural gas supply in the Cook
Inlet was depleting and that Anchorage, Kenai Peninsula and Mat-Su
Valley residents could benefit from a gas pipeline traversing this
area.
Mr. Freeman remarked that the time was right to examine whether
there is a possibility to add a spur to the Alaska Highway pipeline
leading to Cook Inlet. He stated that the intent is not only to
determine what is the best route within the Administration, but to
also garner the public's input.
Senator Ward suggested that the governor should issue a new
administrative order renaming the task force with a title
indicating support for a pipeline following the rail belt and to
the majority of Alaska's population.
Co-Chair Donley pointed out that while a pipeline route to South
Central Alaska has not materialized after 15 years of work neither
had the Alaska Highway route. He also took issue with the witness's
emphasis that a southern route would be a spur option, rather than
the main route.
Senator Austerman felt that most Alaskans would be more concerned
about the well being of Alaska rather than being overly concerned
about the energy situation in Oregon and California. He approved of
the Department of Natural Resources study that would help make the
determination of the best route.
Mr. Freeman responded that the governor has three primary
principles with regard to the development of an Alaska Highway
pipeline. The first, Mr. Freeman stated, is opportunities for jobs;
the second is access to the gas for Alaskans; and finally, best
utilizing the state's royalty share. Therefore, he stated that
while the Administration wants to bring domestic natural gas to the
rest of the country, it is also a "phenomenal opportunity" to bring
gas to Alaskans.
Senator Olson commended the valid points made by Committee members
regarding the budget and the location of the gas pipeline. However,
he stressed the importance of "getting on the table" the pipeline
in order to begin discussion.
Department of Law
JANICE LEVY, Supervising Attorney, Oil, Gas and Mining Section,
Civil Division, Department of Law testified that the department's
request would be used to assist the agencies with the missions that
have been outlined. She explained that one "in-house" assistant
attorney general along with outside council would work to educate
the other departments on the legal issues involved in a project of
such magnitude. She opined that Morrison and Foerster, hired to
provide expertise, would be cost-effective and valuable for the
state. She noted that the firm has been representing the state for
many years and was involved in Alaska Natural Gas Transportation
Act.
Ms. Levy stressed that any application received by the state would
be stringently evaluated to ensure fair review.
Department of Revenue
LARRY PERSILY, Deputy Commissioner, Department of Revenue,
testified that it is the department's directive to tax the natural
gas no matter where the pipeline is located. He stated that the
department supports the route that is most feasible and profitable
and that the budget request is to deal with this issue. If the
pipeline is built, he added that the department would need to be
educated so that as much value as possible can be captured. He
noted that natural gas issue has never been evaluated thoroughly by
the department and that the proposed project would be 20 times the
volume that is currently exported from Cook Inlet.
Senator Leman asked if the department had plans to review the
Economic Limit Factor (ELF) revisions in either oil or gas, and if
so when recommendations would be presented to the legislature.
Mr. Persily replied that the department was not working on such
legislation but that it has been reviewing the activities of ELF
over the past five years and making projections for the upcoming
ten years with regard to oil. He shared that a tentative session
was planned for Pedro van Meurs, a consultant based in Calgary,
Alberta, in the next month to specifically address ELF.
Ms. McConnell hoped the presentation conveyed the magnitude of the
project and the importance of beginning the process immediately.
Senator Austerman asked if the total $420,000 requested would be
expended in the next four months with the report written in
November 2001.
Ms. McConnell qualified that the original request was prepared in
December 2000, and that exact expenditure dates of the funds was
uncertain, although anticipated before June 30, 2001. She offered
to provide more details on the matter.
Senator Austerman asked about the additional staff positions.
Ms. McConnell stated that the positions would support the council
and would provide clerical support and were nonpermanent positions.
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