Legislature(2007 - 2008)SENATE FINANCE 532
04/26/2007 01:30 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB104 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 104 | TELECONFERENCED | |
| += | SB 125 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
April 26, 2007
1:34 p.m.
CALL TO ORDER
Co-Chair Bert Stedman convened the meeting at approximately
1:34:17 PM.
PRESENT
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman, Co-Chair
Senator Charlie Huggins, Vice-Chair
Senator Kim Elton
Senator Fred Dyson
Senator Joe Thomas
Also Attending: PATRICK GALVIN, Commissioner, Department of
Revenue; MICHAEL WILLIAMS, Chief Economist, Tax Division,
Department of Revenue;
Attending via Teleconference: There were no teleconference
participants.
SUMMARY INFORMATION
SB 104-NATURAL GAS PIPELINE PROJECT
The Committee heard presentations on Natural Gas Prices, and
Alaska's Long Run Fiscal Outlook from the Department of Revenue.
The bill was held in Committee.
1:34:51 PM
CS FOR SENATE BILL NO. 104(JUD)
"An Act relating to the Alaska Gasline Inducement Act;
establishing the Alaska Gasline Inducement Act matching
contribution fund; providing for an Alaska Gasline
Inducement Act coordinator; making conforming amendments;
and providing for an effective date."
This was the seventh hearing for this bill in the Senate Finance
Committee.
1:34:56 PM
MICHAEL WILLIAMS, Chief Economist, Tax Division, Department of
Revenue responded to questions raised at a previous hearing
regarding revenue the State could generate from fields located
at the North Slope. He referenced an earlier presentation
titled, "Oil and Gas Incentives" [copy on file].
1:35:30 PM
Mr. Williams referenced page 13 of the presentation titled,
"Alaska Department of Natural Resources, Briefing for Senate
Finance, Current Gas Reserves & Resource Estimates, ANS &
Offshore" [copy on file], which contained the following table.
Table 4. Estimated mean volumes of undiscovered,
technically recoverable petroleum in conventional
accumulations for areas in the Arctic Alaska Petroleum
Province.
[Table depicting oil and natural-gas liquids in billion bbl
and natural gas in trillion cubic feet, in Onshore and
State offshore areas; Federal offshore areas; and the
Arctic Alaska Petroleum Province onshore and offshore
areas.
Total undiscovered, but technically recoverable liquids
amount to 50.75 billion bbl. Total undiscovered but
technically recoverable gas is 227.34 trillion cubic feet.
There is a total of 35.42 trillion cubic feet of known gas
fields for a total of 262.74 TCF.]
Mr. Williams informed that the State of Alaska received revenue
from oil and gas development in four methods. He listed royalty,
production taxes, corporate income taxes and property taxes.
1:35:45 PM
Mr. Williams stated that revenue generated from property taxes
was based on valuation of two percent and comprised less than
1.5 percent of the total revenue the State generated from oil
and gas activity.
1:36:01 PM
Mr. Williams reminded that Mr. Banks of the Department of
Natural Resources had addressed royalties, which accounted for
approximately 35 percent of the taxes collected. This percentage
was significant.
1:36:16 PM
Mr. Williams listed On-shore and State offshore areas, as the
National Petroleum Reserve-Alaska (NPR-A), Central North Slope,
and the Arctic National Wildlife Reserve (ANWR).
1:36:38 PM
Mr. Williams explained that the State would collect production
taxes on the gas extracted from these areas.
1:36:48 PM
Mr. Williams stated that the federal offshore area included the
Chukchi Shelf, the Beaufort Shelf and the Hope Basin. The State
could collect no production taxes from these areas.
1:37:00 PM
Mr. Williams next spoke to the corporate income tax collected by
the State for activities located at the onshore and state
offshore areas. He stressed that corporate income taxes were
"convoluted". The portion of production, sales, and capital
within the state was divided by "the three factors for the
companies outside the State of Alaska". These three factors were
averaged and multiplied by the total profit then multiplied by
9.4 percent.
Mr. Williams remarked that increased production from the onshore
and state offshore areas would result in increased sales and
subsequently increased corporate income tax.
1:38:01 PM
Mr. Williams pointed out that increased production occurring at
the federal offshore area would have the opposite effect.
Because this production would occur outside the state, the share
related to Alaska would decrease and proportionately, the State
would receive a smaller share of the corporation's profit.
Mr. Williams reiterated the complexity of this taxation and
qualified that the aforementioned statements regarding
production rates in the two areas assumed that all other factors
were equal.
1:38:42 PM
Co-Chair Hoffman questioned the depiction of the total liquids
and total gas figures on Table 4.
1:39:06 PM
Mr. Williams advised that he did not prepare this chart, and was
utilizing it only to demonstrate the areas of development
eligible for taxation. The Department of Natural Resources
prepared the chart.
1:39:25 PM
Senator Huggins requested clarification that the State would
receive royalties from offshore development but would not
receive revenue from production or income taxes.
1:39:42 PM
Mr. Williams affirmed, reminding again that Mr. Banks had
addressed the royalty formula. Because the areas were located
offshore, the proportionate amount of profits subject to the
corporate income tax would be reduced.
1:40:07 PM
Senator Huggins asked the "federal royalty factor" of which the
State received a percentage.
1:40:15 PM
Mr. Williams deferred to Mr. Banks on matters relating to
royalty.
1:40:46 PM
Mr. Williams next outlined the Department of Revenue's natural
gas price forecast at the request of Co-Chair Stedman. He
utilized a handout titled, "Natural Gas Prices, Senate Finance,
Department of Revenue, April 26, 2007, Michael D. Williams,
Chief Economist" [copy on file].
Natural Gas Prices
Nominal Dollars per million BTU at Henry Hub
[Line graph depicting the History prices for the years 1997
through 2007 and three Forecast prices for the years 2007
through 2025. The Forecast prices include an Official price
trend plus higher and lower scenarios.]
Mr. Williams cited the Spring 2007 Revenue Forecast released by
Commissioner Patrick Galvin one week prior as the source of the
information contained in the graph.
1:42:03 PM
Co-Chair Stedman commented that the "less optimistic" price
scenario appeared to be substantially higher than the "old
stress price" of $3.50. Therefore "we should be in the money
depending on costs."
1:42:53 PM
Mr. Williams cautioned that forecasting natural gas prices was a
"very dicey" process. The forecast released by the U.S.
Department of Energy was prepared utilizing "a full staff" and
included "a wide array of prices." To understand the future, an
understanding of the past must be achieved. Natural gas prices
were regulated in the United States between 1938 and 1978.
During that time industries were created and infrastructure was
established with the intent that prices would continue to be
regulated and would be low. Houses were constructed with natural
gas heating systems. However, shortages occurred in 1978 and
prices began to be deregulated. Deregulation was complete by
1996. Therefore, price trends of the future were unclear.
Mr. Williams continued that events resulting from the impacts of
Hurricane Katrina in 2005 "really outlined the issues". Price
was not the only factor; supply and availability were also
contributors. Various organizations had modeled this and
information provided by the Department of Energy affirmed his
concerns that the low scenario depicted on the graph was not the
lowest possible price trend. Long term issues must be resolved
in the forecasting of gas prices.
1:44:50 PM
Co-Chair Stedman recognized that price spikes could occur.
1:44:59 PM
Senator Dyson asked the witness' understanding of the
assumptions contributing to the high and low scenarios and the
official forecast, particularly the "dog leg" shown for the year
2013.
1:45:22 PM
Mr. Williams told of the Department of Revenue protocol to only
change long run price forecasts once every two years and during
the fall. This was done so that the long run price would not
change each quarter. The most recent update was made in the fall
of 2006. The noticeable shift in the official forecast at 2013
reflected the 2006 adjustment.
1:46:23 PM
Mr. Williams explained the high forecast would likely become a
reality in the event of a "robust economy". During a robust
economy companies that produce petrochemical products as well as
electric utilities could sell their goods and services at a
profit and pass the high natural gas prices to consumers who
have experienced increased incomes.
Mr. Williams countered this with a situation in which consumers
could not afford the high price, an economic recession occurred
or an alternative energy source became available such as clean
coal technology or nuclear power. If demand for natural gas
"slipped" the price could decline.
1:47:26 PM
Mr. Williams predicted that weather would be a more significant
factor in the short term. Extremely cold winters, extremely hot
summers and outages caused by hurricanes would affect natural
gas prices.
1:47:36 PM
Senator Dyson clarified that the adjustment to the official
price trend represented on the line graph was a result of the
Department's policy to not change the forecast for five to six
years rather than a reflection on the economic situation.
1:48:16 PM
Mr. Williams agreed in part that the policy dictates that the
forecast remain the same. However, consideration should be given
to the "up and down" history of prices of the past ten years.
While the policy caused the forecasted price to drop, it was
"quite possible" that the actual price could also be reduced.
Mr. Williams emphasized that unlike oil production, with its
price history of 140 years, forecasts for gas prices must rely
on only ten years of price history due to past regulation of the
industry.
1:49:13 PM
Senator Thomas qualified that the 140-year history of oil prices
had not guaranteed predictability either.
1:49:28 PM
Mr. Williams acknowledged this but pointed out the useful
benchmarks that provided a long term perspective.
1:49:37 PM
Senator Huggins asked the witness' assessment of the reliability
of the official forecast. Producers had testified to the risk of
making a commitment of gas given the uncertainty of gas prices
at the time the pipeline began operation.
1:50:10 PM
Mr. Williams reiterated the challenges of forecasting natural
gas prices due to the limited history. The significant variation
of prices during the past year "highlights the problems". He
remarked, "The fundamental will drive what the price will be and
if prices remain high, there's the potential to drive many users
out of the market." He continued, "If the price stabilizes and
is relatively constant at a reasonable level - a lower level - I
think demand could really take off and … keep a floor under
prices." However the uncertainty was "the key" and was the
reason he could not attest with confidence his "comfort" with
the forecasts. He also pointed out that a worldwide market does
not exist and must be considered.
1:51:19 PM
Monthly International Gas Prices
US Dollars per Million British Thermal Units
[Line graph listing the prices for six month periods
between January 2000 and January 2006 of US Henry Hub,
Japanese LNG, and German Pipeline.]
Mr. Williams described the information contained on this slide
included in his presentation. This graph highlighted several
important aspects, the first of which was that no "world price"
existed. Secondly, the situation of the United States was not
necessarily the experience of elsewhere in the world. He asked
whether a convergence would occur and the impact it would have
on US prices. Oil could be traded in marketplaces in New York
and Singapore and the price could be monitored twenty-four hours
a day. Conversely much of natural gas transactions were
"contract driven" between a producer and seller.
1:52:38 PM
Senator Huggins commented and posed a question as follows.
If you look in Cook Inlet, if you look at Agrium, gas
became too expensive, supply limited so they don't use gas.
It doesn't work for them in the long run.
We're going to go now - we, us, our state - is looking how
to circumnavigate that problem … dig up some coal [from
Interior Alaska], bring it down into port, put it on a
barge and barge it down so that we can do a process to keep
down the price; but to compete with the gas market.
You take that scenario, and I'm not sure how that would
replicate itself in the Lower 48 and other markets, but I'm
just wondering [be]cause you mentioned nuclear, you
mentioned clean coal technology, whether that sort of
phenomenon or human caused syndrome, whether you see that
as a reality in other parts of the country or not.
1:53:46 PM
Mr. Williams answered, "Yes I do." The example of Agrium was a
good "microcosm" of the events in the country. A utility company
located in the state of Texas wanted to expand its electricity
production with a plan to construct 11 coal-fired plants. Oil
and gas are produced in Texas but supply availability plus the
price disadvantaged its use by this utility. Significant "shut
in gas" resulted from Hurricane Katrina. Due to a proposed
buyout of the utility and because of environmental concerns,
President George W. Bush ruled that only three coal-fired plants
would be allowed and that the largest nuclear plant in the US
would be constructed.
Mr. Williams stressed that "prices do matter". Currently,
utilities require a regular stable supply of fuel for ten years
in advance.
Mr. Williams summarized that he could not respond to whether
coal or nuclear energy was an option. He listed factors
involved, including environmental concerns, costs, capital
expenses, regulatory issues and "siting". Because of these
issues, natural gas had an advantage. Smaller scale plants could
be constructed with a "combined cycle", which would be
efficient. However, natural gas was "not the only game in town".
1:56:01 PM
Mr. Williams next gave a presentation utilizing a PowerPoint
presentation titled, "Alaska's Long Run Fiscal Outlook" [copy on
file.]
1:56:27 PM
Page 2
Agenda
· Surplus / Deficit
· State Oil Revenue
· Appropriations
· Revenue, Expenditures and use of Balance Funds
Mr. Williams indicated he would address these four topics.
1:56:50 PM
Mr. Williams emphasized this presentation was a "high level
overview" of "one way the future might unfold". It represented
one of many scenarios. This presentation would also be limited
to unrestricted general fund revenue and would not address
federal receipts or any restricted revenues. The dates in the
charts referred to fiscal years, and all the values were
reflected in billions of nominal dollars. Additionally the
source of the revenue figures was the Department of Revenue
Spring 2007 Revenue Sourcebook released the previous week by the
commissioner. Data pertaining to appropriations and use of
funds, notably the Constitutional Budget Reserve (CBR) Fund and
the Public Education Fund were obtained in consultation with the
Office of Management and Budget.
1:58:02 PM
Co-Chair Stedman asked if a proposed $1 billion appropriation
intended to "forward fund" education was taken into account in
this presentation.
Mr. Williams replied that it was included.
1:58:36 PM
Page 3
State Surplus & Deficit
Unrestricted General Fund, Billions of Nominal Dollars
[Bar graph showing surplus for the fiscal years 2001 and
2004 through 2006 and forecasted for the years 2007 through
2009; and deficits for the years 2000, 2002 and 2003 and
forecasted for the years 2010 through 2025. The year 2014
is highlighted as the year that the CBR Fund would likely
be depleted. The forecasted amounts of the deficit for that
year and the subsequent years would increase from $2.5
billion to almost $4 billion. The experienced and
forecasted deficit for each of the years prior to 2014 was
less than $1 billion.]
Note: Surpluses are deposited in the Education Fund,
shortfalls are withdrawn from the CBRF
Mr. Williams detailed the information contained on this slide
and pointed out that deficits would be experienced in 2010 and
would continue through 2025. The State receives over 85 percent
of its revenue from oil, which includes royalty, production
taxes, corporate income taxes and property taxes.
1:59:38 PM
Page 4
State Oil Revenue
General Fund Unrestricted Revenue, Billions of Nominal
Dollars
[Line graph depicting the variations in the amount of
revenue generated from oil for the years 2000 through 2006
and forecasted for the years 2007 through 2025.]
Mr. Williams stated that this slide showed future general fund
unrestricted revenue from oil for the State. He noted the
timeframe was the same as that of the previous slide in the
presentation. Revenues would decrease in 2008 and would remain
"relatively level" until 2013 when a significant decrease would
occur. The primary factor for the two declines was declining
crude oil prices. The long run price "takes hold" in 2014 and
Alaska North Slope (ANS) crude oil prices would decline almost
28 percent to $41 per barrel in 2014.
2:00:26 PM
Mr. Williams listed other factors that would cause oil revenues
to decline, including decreased production volume and decreases
in production taxes due to increases in costs.
2:00:45 PM
Mr. Williams addressed an earlier question regarding the
"downward turn in prices". A long history of crude oil prices
exists and therefore the "long run price" was very "close" to
historical occurrences. Although the decrease forecasted for
2014 was significant, the prediction was "right on the money".
2:01:10 PM
Senator Huggins requested the witness' insight to the volume of
oil and the price per barrel that the forecast was based on.
2:01:24 PM
Mr. Williams cited the forecasted price for 2014 was $41.03 per
barrel in nominal terms.
2:02:18 PM
Co-Chair Stedman noted that the information was included in the
Executive Summary of the Spring 2007 revenue forecast [copy on
file].
2:02:43 PM
Mr. Williams stated that the production volume was forecasted to
be 750,000 barrels per day for the year 2014.
2:02:52 PM
Co-Chair Stedman asked whether the "economic stimulus out of the
20 percent credit on Prudhoe Bay … as the ability to stimulate
exploration and development" was factored into the forecast.
2:03:19 PM
Mr. Williams identified two aspects of the question, one being
the "financial aspect" and the other "the drilling and
production."
2:03:32 PM
Mr. Williams responded that the Department reviewed existing
programs and estimated the cost of those programs to include in
the forecasts. Some programs were currently under development
and others were under evaluation. The cost of those programs was
included in the forecasts with an assumption that those costs
would be subtracted from the revenue to calculate the net
revenue and that 20 percent of the capital costs would be
subtracted "from the potential liability".
Co-Chair Stedman reiterated his question as follows.
When we went forward with a policy directional change on
how we dealt with severance tax we put in a 20 percent
credit to stimulate exploration and expansion. Is there a
calculation or an estimate on the marginal increase -
assuming it's positive - of oil volume down the TAPS [Trans
Alaska Pipeline System] that can be related back to the
credit stimulus or is it too early to know if that's going
to work yet?
2:04:53 PM
Mr. Williams responded as follows.
There's several things going on here. It's actually too
early to speak definitively. But we can tell you that since
2003, the credits … - not the PPT but the exploration
credits were first passed - we're just now started getting
those in. So if you think in terms of the exploration
process and, maybe some of my colleges from the oil
companies could speak better to this than I can, they've
got a time line. So I think the true affects from this will
probably be felt later on.
Are we monitoring it? Yes we're monitoring it; we're trying
to find out what's going on. Have we specifically
incorporated in? Within the first ten years we have not
because those plans are in place. I believe … that's a
longer term affect.
Mr. Williams invited Commissioner Galvin to comment.
2:05:48 PM
PATRICK GALVIN, Commissioner, Department of Revenue, testified
that the fiscal policy based projections on experience and other
projections. At issue was the point at which an expectation of
behavioral changes resulting from the changes to the tax credit
system should be incorporated into the projections. The process
of economists modeling projected revenue involves "action first"
before an expectation of changed behavior was "built in" to the
model.
2:06:27 PM
Co-Chair Stedman opined that this was "a pretty reasonable
assumption to me."
2:06:37 PM
Senator Elton asked whether a revenue projection had been
conducted that included earnings from the Alaska Permanent Fund
less the amount paid out in dividends. This scenario would
involve expenditure of the portion of the earnings not utilized
for the dividend program, for State services. He asked the
impact to the depletion rate of the CBR.
2:07:32 PM
Mr. Williams stated that the analysis utilized for this
presentation only involved unrestricted revenues. Earnings from
the Alaska Permanent Fund were not unrestricted.
2:07:45 PM
Senator Elton acknowledged that this was the subject of a larger
discussion that did not pertain exclusively to AGIA.
2:07:56 PM
Mr. Williams believed in revenue diversification. He and the
Commissioner had considered preparing forecasts utilizing
alternative scenarios including different oil prices and cost
estimates. Expenditure from the Alaska Permanent Fund could be
incorporated as another factor.
Senator Elton clarified intent that earnings from the Permanent
Fund rather than the corpus of the Fund would be considered in
such a scenario.
2:08:33 PM
Mr. Galvin stated that consultation with the Alaska Permanent
Fund Division would be necessary in part to provide an estimate
of the amount of the dividends.
2:09:09 PM
Co-Chair Stedman noted that the Department of Revenue website
portrayed a 25-year forecast "with the earnings reserve" of the
Permanent Fund, which could be reviewed and incorporated into
this issue.
2:09:32 PM
Page 5
General Fund Appropriations
Billions of Nominal Dollars
[Line graph showing the History of appropriations made for
the years 2000 through 2006 and Forecast of appropriations
for the years 2007 through 2025. A notation reads,
"Appropriations increase 2.5% per year".]
Mr. Williams cited the Office of Management and Budget as the
source of this data. The Office of Management and Budget assumed
an appropriation of almost $2 billion for FY 08, followed by an
increase of 2.5 percent each year beginning in FY 09. The
inflation rate appeared reasonable because it was "fairly close"
to other indicators of inflation. Recent annual increases in the
consumer price index had been growing at approximately three
percent and the long run average was approximately three percent
as well. The Department of Revenue Revenue Source Book forecast
of costs and other factors assumed an inflation rate of 2.75
percent per year.
2:10:58 PM
Page 6
Revenue, Appropriations & Monies from Special Funds
Billions of Nominal Dollars
[Line graph overlaying the information from the previous
slides. Delineated are Non-Oil Revenue, Oil Revenue, and
Public Education Fund & Constitutional Budget Reserve
Fund.]
Mr. Williams noted this overview was intended to assist the
Committee in understanding the fiscal situation.
2:11:41 PM
Senator Thomas asked the assumptions utilized as the base to
determine the revenue surplus and deficit.
2:12:22 PM
Mr. Galvin utilized the graphs of Page 3 and Page 6 to
demonstrate the differences between revenues generated and
expected appropriations. He detailed how the forecasted oil
price would determine revenue.
2:13:49 PM
Mr. Williams furthered that the FY 06 "level" of $3.25 billion
excluded a proposed $400 million capitalization of the Education
Fund. Additionally excluded was $500 million capitalization of
the Education Fund for FY 07, $300 million for the Education
Fund for FY 08, and a $300 appropriation to the Alaska Housing
Finance Corporation. These items reflect that "some of the money
has been moved forward."
2:14:33 PM
Co-Chair Stedman requested "preparatory work with the AGIA
timeline so we could lay over, or have it side by side and - not
so much the revenue potential [be]cause … we don't know what's
going to get built - but just the mechanical timeline of the
different certificates, timings, with the five-year extension,
without it, that type of stuff so that we…"
2:15:05 PM
Mr. Galvin interrupted to inform that without the AGIA
applications the "actual picture" could not be determined. Known
factors of the timelines could be discussed, such as the open
season date occurring up to three years following issuance of
the AGIA license. A certain amount of time would be allowed for
FERC application submission and a certain amount of time would
be allowed after FERC certification was received to secure
credit support. These terms would be provided to interested
parties for incorporation into a project plan that the party
"believe was an appropriation response" and would compete with
other project proposals.
Mr. Galvin predicted that one company could submit that it would
hold an open season earlier and apply for the FERC certificate
in a shorter amount of time than another company could. The
remainder of the timeline, including necessary contingencies,
would be established "around" the proposal. Otherwise to infer
that the AGIA timeline provided that gas would not be produced
until after 2020 was not "a real description of what is going to
result from this competitive process."
Mr. Galvin commented as follows.
Frankly if we only got in proposals that stretches out to
gas coming in in 2020 I think we're going to have to
seriously look at proposals that come in and decide, as
AGIA allows, whether or not going forward is in the State's
interest. We're going to have to really look at that.
2:17:16 PM
Mr. Galvin pointed out the following.
But what AGIA provides is an opportunity for companies to
compete at each of those different gates. We're going to
have a year from now, the opportunity to look at a
particular project proposal and match it up here [to the
graph depicting Revenue, Appropriations & Monies from
Special Funds] and say OK how's this going to work with our
future and how are we going to then plan for that if we
decide to go forward with it.
But when we talk about the AGIA timeline we've got to look
at it in terms of "is this a reasonable commercial proposal
to expect parties to want to accept and participate in?"
2:18:04 PM
Mr. Galvin appreciated Co-Chair Hoffman's assertion that the
State should not provide the AIGA licensee "a blank check at the
end of the day" informing them that "we'll wait around and
you'll tell us what you're going to do, or come back to us in
five years." This was not the intent. The language of the
application would include requirements for a work plan through
the entire timeline. The legislation would reflect that.
Mr. Galvin reiterated that the timeline could not be assumed to
be 20 years. This would not be an "accurate depiction or a
relevant discussion in the nature of our finances."
2:18:55 PM
Co-Chair Stedman deemed the matter to require further
consideration. He expressed confidence that a reasonable
expectation of the date of "first gas" could be estimated "if
everything went fairly well with a good proposal that came
forward with gas and capital behind it". He questioned the
inability to estimate the risk level to the Committee in
"dealing with the timeframe."
2:20:06 PM
Mr. Galvin reiterated that a "realistic best case scenario"
would result gas production starting in 2016. This would require
that the first open season was successful and was held within
one year of the issuance of the license, and that the FERC
certificate was approved, credit support was sanctioned and the
pipeline was constructed without delays.
2:20:45 PM
Mr. Galvin posed a scenario in which no delays occurred in the
open season process or in obtaining the FERC certificate but
credit support was not immediately secured. This would add up to
five years to the date in which gas production would begin.
2:21:41 PM
Mr. Galvin next hypothesized three years before the first open
season was held and the potential impact on the FERC
certification process. Application for the FERC certificate
should be submitted in the first four to five years.
Mr. Galvin identified the only variables as the length of time
required once the FERC certificate was issued to secure
financing and begin construction and the length of the
"construction window".
2:22:06 PM
Senator Elton reminded that the current five-year allowance for
the licensee to secure credit support was discussed at a
previous hearing. Testimony received at a subsequent hearing
informed of the two-year deadline on the federal loan guarantees
commencing at the time of FERC certification. He requested this
be considered in conjunction with the proposed five-year credit
support extension. He surmised that the deadline to secure
credit support could be changed to two years with an option for
a three-year extension.
2:22:59 PM
Mr. Galvin had reviewed the federal loan guarantee issue and the
method in which the deadline "actually works." The
Administration had been advised of the possibility that the
deadline could be met in the form of a conditional issuance
contingent upon certain criteria, which could require additional
time.
Mr. Galvin understood the logic that if the financial plan was
based on the federal loan guarantees and failure to meet the
two-year deadline resulted in the loss of the loan guarantees,
additional time to secure credit support would not be
productive. However, if the AGIA license holder planned to rely
on the federal loan guarantee, this must be specified in the
"post certification work plan". Failure to qualify for the loan
guarantee would therefore be a violation of the AGIA license
agreement and the license could be revoked.
2:24:38 PM
Mr. Galvin summarized that the federal loan guarantee deadline
and the credit support deadline were integrated. However, the
expectation of a project timeline would be based on "the
abstract" without a proposal.
2:25:06 PM
Senator Huggins agreed with Senator Elton's assessment. In
conversation with the Department of Natural Resources
commissioner and from this discussion, Senator Huggins concluded
that "applications are clearly just all of our imaginations;
what's going to come back we don't know." However this
legislation would stipulate specific deadlines. He recommended
that a party that had secured credit support would be allowed
one year from the issuance of the FERC certificate to begin
construction, and that a party that had yet to secure credit
support before FERC certification was complete would be
permitted two years from the date of issuance. Additionally, an
"expandability clause" would allow for up to three additional
years if necessary and if approved by the State. This would
prevent the State from being "held hostage" for the entire five
year period.
2:26:13 PM
Mr. Galvin deemed this proposal as "clearly something that's
workable". The Administration intended for this to "become part
of the deal as it were, in response to an application." However,
not every project would rely upon the federal loan guarantee.
The bill was HELD in Committee.
ADJOURNMENT
Co-Chair Bert Stedman adjourned the meeting at 2:27:29 PM
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