Legislature(2013 - 2014)SENATE FINANCE 532
04/10/2013 01:30 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB 4 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 4 | TELECONFERENCED | |
| += | SB 13 | TELECONFERENCED | |
| + | TELECONFERENCED |
CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 4(FIN)
"An Act relating to the Alaska Gasline Development
Corporation; establishing the Alaska Gasline
Development Corporation as an independent public
corporation of the state; establishing and relating to
the in-state natural gas pipeline fund; making certain
information provided to or by the Alaska Gasline
Development Corporation and its subsidiaries exempt
from inspection as a public record; relating to the
Joint In-State Gasline Development Team; relating to
the Alaska Housing Finance Corporation; relating to
judicial review of a right-of-way lease or an action
or decision related to the development or construction
of an oil or gas pipeline on state land; relating to
the lease of a right-of-way for a gas pipeline
transportation corridor, including a corridor for a
natural gas pipeline that is a contract carrier;
relating to the cost of natural resources, permits,
and leases provided to the Alaska Gasline Development
Corporation; relating to procurement by the Alaska
Gasline Development Corporation; relating to the
review by the Regulatory Commission of Alaska of
natural gas transportation contracts; relating to the
regulation by the Regulatory Commission of Alaska of
an in-state natural gas pipeline project developed by
the Alaska Gasline Development Corporation; relating
to the regulation by the Regulatory Commission of
Alaska of an in-state natural gas pipeline that
provides transportation by contract carriage;
repealing the statutes relating to the Alaska Natural
Gas Development Authority and making conforming
changes; exempting property of a project developed by
the Alaska Gasline Development Corporation from
property taxes before the commencement of commercial
operations; and providing for an effective date."
2:20:19 PM
Co-Chair Meyer welcomed guests from a charter school in
Palmer, Alaska to the committee room.
2:20:47 PM
Senator Dunleavy clarified that the guests hailed from
Academy Charter School in Palmer, Alaska. He added that the
students and staff made an annual trip to the capitol in an
effort to give students a closer look at the inner-workings
of state government.
2:22:04 PM
Co-Chair Meyer noted that the bill under discussion could
provide the students with affordable energy in the future.
2:22:47 PM
FRANK RICHARDS, MANAGER, PIPELINE ENGINEERING, ALASKA
GASLINE DEVELOPMENT CORPORATION, referred to the previous
day's discussion by William Walker and Craig Richards of
Walker Richards LLC titled, "City of Valdez Presentation on
the In-State Gas Pipeline Bill"(copy on file). The
presentation had provided one perspective of the cost
estimate for HB 4. He reviewed that HB 369 had been a
legislative action offered in 2010 that had created the
Alaska Gasline Development Corporation (AGDC) in order to
advance the in-state natural gas pipeline and would bring
natural gas from the North Slope to Fairbanks and South-
Central Alaska. He said with funding from the legislature
under HB 369, AGDC hired experts in the necessary fields in
order to advance the project design from a concept to
written plan. He shared that the methodology used in
crafting the plan was created by the Association for the
Advancement of Cost Engineering (AACE), which set out
methodology for process engineering that was used industry-
wide. He explained that following the process of AACE, AGDC
had developed a cost estimate for the project. He
highlighted that at that time the project had focused on a
"rich-gas", 24 inch, high-pressure pipeline. He stated that
a cost estimate of $7.5 billion, plus or minus 30 percent,
had been determined based of the level of engineering
available at the time. He furthered that contingencies had
been built into the estimate because the engineering had
yet to be advanced far enough in order to determine a
conclusive cost estimate. He relayed that AGDC had
considered plus or minus 30 percent for the facility; 5
percent for the pipeline.
Mr. Richards continued that in 2012, while the
environmental impact statement (EIS) was being completed,
AGDC updated the project plan. He stated that the update
shifted the project from a "rich gas" case to a "lean gas"
case. After revisiting costs and examining the process
using the AACE methodology, AGDC increased the contingency
for the pipeline from 5 percent to 10 percent and left the
30 percent contingency on facilities. The cost estimate in
2012 was approximately $7.7 billion. He noted the increase
of approximately $200 million was due to the inflation
factors associated with the facilities. The revised project
plan reflected a $7.7 billion cost estimate along with the
major features of the gas conditioning compressor station,
the pipeline route from the North Slope to Dunbar, a
lateral to Fairbanks, and again from Dunbar down to Cook
Inlet. He stressed that the new project plan had been
crafted under industry standards and practices by
engineering companies used by both AGDC and Oil and Gas
producers in the state. He stated that the aforementioned
engineering companies were Alaska based, with experience on
the North Slope, and had been conducting major process and
pipeline work across the state for decades. He stated that
the project had been given a class four estimate based on
the AACE methodology. He believed that as the work
advanced, refined engineering would result in the state
holding an open season with a class three estimate.
2:28:03 PM
Senator Bishop understood that all parties involved were
working to keep the cost of the pipeline as close to the
estimated projections as possible.
Mr. Richards replied in the affirmative.
Senator Bishop surmised that completing the project for the
estimated cost would ensure lower overall tariff and toll
cost.
Mr. Richards replied that lower total installation costs
would result in a lower tariff.
Senator Bishop spoke of natural gas projects in other areas
of the world that had doubled in cost while under
construction. He urged AGDC to keep all options open when
executing contracts and to carefully consider the use of
multiple project labor agreements as a way of controlling
project costs.
Mr. Richards replied that the major factor for the tariff
would be the total cost for the project. He said that AGDC
would work diligently to get through an open season in
order to identify for potential shippers and buyers what
the costs will be. He stressed that AGDC would use all of
the tools available to advance the project. He added that
the labor, materials, process and plant costs would be
considerable, and that AGDC would do everything it could do
to keep the costs down.
2:30:11 PM
Senator Bishop hoped that a project labor agreement would
be part of the equation.
Mr. Richards replied that project labor agreements would be
reviewed as they became available. He stressed that as the
corporation moved through an open season, and looked toward
an ownership model, project labor agreements would be
considered one of the tools that would be used when working
with project partners.
2:30:37 PM
Senator Bishop remarked that that it would be unfortunate
for the project to come in at twice the estimated cost;
however he warned that the scope of tools necessary to make
the project successful should not be limited in an effort
to come in under budget.
2:31:06 PM
Senator Olson referred to the previous day's testimony
(4/09/13). He understood that upon completion of the
project the only entities that would be putting gas into
the pipeline would be ConocoPhillips, Exxon Mobil and
British Petroleum.
Mr. Richards replied he was not the expert concerning
ownership of the Prudhoe Bay units; however, the shippers
of the gas would be the entities that had gas available on
the North Slope. He deferred further comment to the
Department of Natural Resources.
Senator Olson expressed concern that the Oil and Gas
company, Shell, would not be able to put gas in the line if
the three aforementioned entities put gas into the line
first.
RENA DELBRIDGE, STAFF, REPRESENTATIVE MIKE HAWKER
interjected that anyone that had gas could participate. She
admitted that Exxon Mobil, British Petroleum and
ConocoPhillips presently had gas in the Prudhoe Bay unit
and were using it for greater recovery of oil; most oil
found on the slope had gas associated with it. She listed
the companies currently exploring in the area that could
participate in the project if they had gas to move off of
the slope. She stated that the only limitation that existed
was whether or not the pipeline was able to expand in the
future under the Alaska Gasline Inducement Act (AGIA). She
hypothesized that when Shell was ready and the state was no
longer bound by AGIA the pipeline could expand under
commercially reasonable terms.
2:34:38 PM
Senator Olson gathered that there would be room in the
pipeline for Shell gas if Shell found commercially viable
gas during off-shore exploration.
Ms. Delbridge replied that provided that there was no
violation of AGIA, there would be an expansion of the
pipeline to support the additional gas.
Senator Olson asked if Shell would be accommodated under
the same rates as the other producers.
Ms. Delbridge said that the cost of the expansion would be
paid for by the person wanting the expansion. She deferred
to AGDC for further explanation.
2:35:37 PM
Co-Chair Meyer understood that there were currently six
producers exploring on the North Slope.
2:36:02 PM
Senator Dunleavy wondered about the potential gas in Nenana
that could possibly be put in the pipeline.
Ms. Delbridge responded that Nenana was beneath the 68th
parallel and might not be subject to capacity constraints
under AGIA; it was possible to add additional capacity to a
pipeline to bring gas from Nenana to market.
2:36:32 PM
Vice-Chair Fairclough requested the explanation of any
acronyms used during the discussion. She noted for visiting
students in the gallery that the committee was discussing
whether it was best for the state to move forward with a
smaller pipeline, or should the state wait until a bigger
line could be built. She requested a discussion on access;
specifically, language in the bill pertaining to common
carriers versus the contract carriers. She voiced concern
that the three corporations that currently had oil in the
Trans-Alaska Pipeline (TAPS) would control interest in a
gas pipeline.
Ms. Delbridge addressed the allegation made during the
Valdez presentation that suggested that HB 4 violated the
terms of AGIA because of design capacity. She asserted that
the ultimate finding of the legal opinion cited in the
Valdez presentation stated that the specific language of
AGIA required the state to limit support of other projects
design capacity. She contended that AGDC had been careful
to design a project that was not in violation of AGIA. She
stressed that the Department of Law (DOL), Legislative
Legal and attorneys for AGDC had reviewed the opinion
language to ensure AGIA was not violated. She added that
the state believed that TransCanada was in compliance with
its license and had made no allegation to the contrary.
2:40:28 PM
KEN VASSAR, GENERAL COUNSEL, AGDC (via teleconference),
testified that there was nothing written in HB 4 that
violated the terms of AGIA. He furthered that the
corporation would comply with AGIA until AGIA was
officially no longer in effect.
2:42:17 PM
Vice-Chair Fairclough wondered how the project would move
forward under another leader, rather than AGDC. She queried
how the administration would handle outside parties
inquiring of TransCanada whether the state was in violation
of AGIA.
Ms. Delbridge replied that if the state were compliant it
would make it unnecessary for other parties to question
TransCanada. She believed that state commissioners and
TransCanada would determine whether the state was
compliant.
2:44:11 PM
Mr. Richards furthered that the governor had been clear in
stating that AGDC was to work cooperatively with
TransCanada, the Alaska Pipeline Project and the South
Central Liquefied Natural Gas (LNG) Project. He said that
discussions with those companies were ongoing. He noted
that the specifics of the dialogue were not entirely
transparent due to issues of confidentiality, but that the
corporation was working cooperatively with those entities.
2:44:33 PM
Senator Dunleavy asked if AGIA limited the size of the
pipe, or the volume moving through the pipe.
Ms. Delbridge read the definition of a competing natural
gas pipeline project, per AGIA:
"A project designed to accommodate throughput of more
than half a billion cubic feet a day of North Slope
gas to market."
Ms. Delbridge relayed that the design and the gas running
through the pipe were not mutually exclusive.
2:48:11 PM
Senator Dunleavy queried whether the size of the pipe would
dictate if the state was in violation under AGIA.
Ms. Delbridge replied that the AGIA statute clearly stated
"a pipeline project" and referred to the actual pipe plus
the facilities related to that pipe.
Mr. Richards elaborated that when AGDC looked at the
modifications to the project design, a trade-off between
pipe diameter, pressure, compression, and processing
ability were all examined. He reiterated that the ceiling
for the project was 500 million cubic feet per day flow
through the pipe, which included the processing of the gas
and the compression of the gas. He said that to reach the
lowest tariff for in-state Alaska use the corporation had
examined various pipe diameter sizes and the overall cost
associated with the different sizes. He stated that the 36
inch diameter pipe had been determined to have the lowest
cost for the project.
Senator Dunleavy thought that the question over pipe size
for future capacity could cause division between interested
parties in the future. He expressed the desire to
understand weather the pipe size could be increased under
HB 4 in the future without violating AGIA.
Ms. Delbridge answered that rates had to be cost based
under the regulatory framework. She said if the pipe
diameter was larger than necessary for the amount of gas
being shipped there could be challenges surrounding cost
recovery. She believed that the final word concerning
whether or not that would work under the terms of AGIA
would be given by attorneys from DOL and AGDC.
2:49:24 PM
Senator Olson directed attention to Page 37, line 17 of the
legislation. He noted that the Regulatory Commission of
Alaska (RCA) would play a prominent part during initial
construction, but after time the participants would be left
under their own direction.
Ms. Delbridge shared that the RCA would play a prominent
role in the early stages because that was when the
contracts would be made that would govern the pipelines
relationship with its customers. She said that at any point
at which an expansion was wanted and access to the pipeline
was sought, the RCA would be brought back in to start the
process over again. She stressed that one of the points
that had been raised was whether or not people had access;
the regulatory structure, coupled with the requirements in
the state right-of-way lease covenants, required mandatory
expansions on commercially reasonable terms provided that
those do not violate AGIA. She stressed that there was
access to the pipeline under HB 4; open seasons would be
conducted fairly and capacity would be awarded on a non-
discriminatory basis. She contended that nothing in the
regulatory framework of the bill changed the way that the
RCA currently regulated public utilities or common carrier
oil pipelines. She relayed the regulatory framework should
address that the state had never had a major natural gas
transportation pipeline. She said that the framework in the
bill was closely modeled on the Federal Energy Regulatory
Commission (FERC) process for regulating contract carrier
gas pipelines in the Lower 48. She noted that terms used in
previous testimony were special terms FERC had for one
pipeline, an overland pipeline from Alaska to the Lower 48,
and in part were added because the Lower 48 project had
sparked national interest. She agreed that there was no way
that there would ever be two Lower 48 natural gas pipelines
built from Alaska. She noted that there was a competitive
market in the Lower 48, which was why the sponsors of the
legislation made sure to require an open season for any
Alaska natural gas pipeline project. She said that the
language would ensure that there was access to everyone at
an RCA approved initial recourse rate. She furthered that
the upfront approval of the initial recourse rate, coupled
with the open season procedures, included the same
requirements as the FERC open season procedures for a Lower
48 Alaska gas pipeline. She listed the open season
procedures: open season procedures had to be noticed up
front in the initial recourse tariff, reasonable notice of
the open season must be given, initial approved recourse
tariff must be listed and final precedent and firm service
agreements must be shared. She continued that companies had
to define the route, capacity, operating pressures, in-
service date, and quality specifications for the gas and
how capacity would be awarded. She stressed that all the
procedures would have to be non-discriminatory.
2:54:19 PM
Ms. Delbridge cautioned against comparing the project to
TAPS. She stated that TAPS was an oil pipeline and a common
carrier with multiple tariffs on the one pipeline. She
furthered that TAPS was jointly regulated by a state body
and a federal body, and that the concept of rate based
tariffs had been complicated by state settlements. She
shared that under HB 4 the gas pipeline would be governed
by firm contracts. She said that there were no settlement
methodologies or rate cases that extended out for years.
She spoke to the concern that the three large oil companies
on the North Slope would increase the tariffs in order to
reduce the well head value of the gas for purposes of
production tax calculations. She pointed out that the
legislation expressly prohibited a tariff increase on Page
50, line 30 through Page 51, line 1. She noted under HB 4
tariffs would have to be RCA approved, cost based tariffs.
She said the tariffs must have a reasonable rate of return,
reasonable capital structure and a reasonable depreciation
method. She added that tariffs could be negotiated but if
contracts looked suspicious, particularly between
affiliated parties, the RCA would scrutinize them more
closely.
2:56:25 PM
Senator Olson restated his question concerning the level of
RCA oversight.
Ms. Delbridge specified that under the legislation the
contracts approved by the RCA would govern the business of
gas moving through the pipeline. She reiterated that if
someone wanted to pay to expand the line that the RCA could
order the expansion.
2:57:34 PM
Senator Olson expressed concern that current producers on
the North Slope could control the gas and the corridor down
to tidewater. He felt that so much control could lead to a
monopolization of the price of gas.
Ms. Delbridge did not believe that a monopoly scenario was
plausible under the regulatory framework of the bill.
2:59:44 PM
Senator Hoffman understood that RCA could order the
expansion, should it be requested. He wondered if the
expansion could be ordered without regard to the
limitations of AGIA.
Ms. Delbridge replied no, an RCA expansion would not
violate AGIA.
3:00:18 PM
Senator Olson surmised that there would be public money
going into the project which would include acquired assets;
the assets could be from a corporation such as AGDC or the
physical assets attached to the project. He wondered who
would own those assets 5 to 10 years after completion of
the pipeline.
Ms. Delbridge replied the HB 4 was structured so that
assets owned by AGDC would be managed by the corporation,
including sale or transfer. She said it would be up to AGDC
to manage the assets in a way that helped them meet their
mission of getting gas to Alaskans at the lowest possible
rate.
3:03:06 PM
Vice-Chair Fairclough wondered about rolled-in rates and
the FERC exemption.
Ms. Delbridge replied that with rolled-in rates the cost of
expansions would be shouldered by the shippers. She said
that with incremental rates, the person using the space
would pay for the expansion of the space. She stated that
with new capacity whoever was creating the need for the
expansion would be responsible for the costs. She related
that the rolled-in rates were important to people under
AGIA. She relayed that industry had testified that the
financial burden related to the initial cost of the
pipeline would make them unable to sign on to a project
requiring rolled-in rates. She stated that the reason for
that was because upon signing a contract for a specific
amount of space in a pipeline, over a period of twenty or
thirty years at a given rate, the expectation was that the
contractual rate would be used in calculating payment. She
stressed that the nature of contractual commitments on a
natural gas pipeline prohibited the rolled-in rate concept.
She reminded the committee that previous testimony had
suggested that FERC required rolled-in rates on a Lower 48
pipeline. She clarified that FERC had stated that it would
make a rebuttable presumption concerning rolled-in rates,
which could be challenged in the future. She asserted that
the sponsors of the bill felt that the users should pay;
those that would be creating the cost of expansion should
be held financially responsible.
3:06:35 PM
Senator Bishop understood that under HB 4, a new entrant
could get the gas in under the recourse rate plus the cost
of expansion.
Ms. Delbridge asked if the conversation could continue
under the assumption that compliance under AGIA was not an
issue.
Senator Bishop agreed.
Ms. Delbridge related that under HB 4 an initial recourse
rate would need to be set before going into an open season
for expansion. She reiterated that the user of the space
would pay for the space.
3:07:29 PM
Vice-Chair Fairclough inquired if the recourse rate was
different if there was existing capacity in the pipeline.
She asked if only the 250 million cubic feet were moving
through the pipeline, and a pipeline were to proceed, would
the recourse rate have an expansion in it or would there be
two rates.
Ms. Delbridge clarified that if only 250 million cubic feet
subscribed in an open season AGDC would need to reengineer
the project. She said that if the volume decreased the
rates would double; however, reengineering the project
could save the doubling of costs. She furthered that if
there was available capacity; if 10 percent of the line was
not subscribed, but that the subscriptions were enough to
finance the project, space would be available. She added
that the carrier would be required to tell others that the
space was available. She shared that if an entity wanted in
on the extra space they would need to be sure that the
recourse tariff was updated and hold and open season.
3:09:20 PM
Vice-Chair Fairclough understood that the tariff and the
expansion rate of one large pipeline would cost Alaska more
than a smaller line.
Ms. Delbridge felt that the senator was on the right track.
She clarified that the initial recourse tariff included
capital costs, as well as ongoing operation and maintenance
costs of the entire line, which would be spread among the
pipeline users. She relayed that the rate for the expansion
would be more than a functional cost of the capital
expansion.
3:10:23 PM
Vice-Chair Fairclough inquired how the expansion would be
handled; would the state alert people that an expansion was
pending and ask whether a group wanted to be on board in
order to lower fixed costs.
Ms. Delbridge replied that any request for an expansion
would result in another open season notification; every
time pipeline capacity was increased, anyone who wanted to
participate would have the opportunity.
3:12:04 PM
Vice-Chair Fairclough asked how the recourse rate would be
set if the pipeline were at capacity without the
possibility for expansion under the terms of AGIA.
Ms. Delbridge said that the recourse tariff would not be
necessary under that scenario. She stated that the state
would have contracts that would govern the shippers. She
added that if there was a small bit of pipeline that the
carrier had that was not for contract, they would need to
offer a short-term interruptible service, and then the
state would need an updated recourse tariff that reflected
actual costs.
3:12:43 PM
Senator Bishop believed that AGDC would need to reengineer
the line after an open season in order to reach the goal of
bringing gas to Alaskan's at the most affordable rate.
Ms. Delbridge agreed. She said that AGDC would need to
reengineer and assess whether the new estimates for a 250
million cubic foot line had tariffs that were competitive
for Alaskans.
3:14:20 PM
Senator Olson noted that there was no language in the title
that stated that the line was to bring gas to Alaskan's at
the "most affordable rate." He asked if the pipeline were
to be contracted at the maximum capacity under the permit,
a half a million cubic feet per day, would that limit other
companies from putting gas in the line.
Ms. Delbridge responded that it would depend on whether or
not the size was constrained by AGIA. She added that with
AGIA in place the line could not exceed a half a million
cubic feet per day. She said that AGDC had the power for
expansion once AGIA was not "in the way."
3:15:19 PM
Senator Olson understood that under AGIA a second open
season could not be held to put more gas in the line.
Ms. Delbridge replied in the affirmative.
3:15:28 PM
Senator Olson surmised that Shell coming on with more gas
off the Chuckchi or Beauford Seas would not be able to put
it in the line.
Ms. Delbridge responded that it would depend whether or not
AGIA was still in effect.
3:15:40 PM
Senator Olson thought that Shell would have gas long before
the AGIA sunset date.
3:16:15 PM
Vice-Chair Fairclough thought a further discussion on FERC
could be helpful, as well as further discussion of export
volumes.
Ms. Delbridge said that FERC regulatory jurisdiction had
not been addressed. She pointed out that on Page 36, lines
24 through 28 of the bill, the language clearly stated that
if there was an in-state natural gas pipeline that was
subject exclusively to federal jurisdiction, the chapter
did not apply. She furthered that the state could not tell
FERC to regulate the line. She said that FERC had
jurisdiction in some cases and not in others and FERC would
make the decision on jurisdiction in cases where there
could be discression involved. She stated that generally,
if there was an in-state natural gas pipeline with no
export then there was no FERC jurisdiction. If there was an
in-state pipeline with an export component, FERC may have
jurisdiction under certain scenarios. She furthered that it
could depend on where the gas was being shipped. She
stressed that FERC would not share jurisdiction but would
regulate the entire line including the in-state volumes if
they decided to regulate the pipeline.
3:19:00 PM
Mr. Richards added that FERC would be required to assert
jurisdiction for the LNG facility. He stated that the
current AGDC pipeline could conceptually deliver gas from
the North Slope into the Beluga pipeline at mile 29. He
concluded that there was not a LNG component associated
specifically with the AGDC project.
3:19:46 PM
Senator Bishop asked if there was language in the bill to
assure that an in-state rate could be negotiated early so
that it was not elevated with the LNG export rate once it
left tidewater.
Ms. Delbridge responded that there was nothing about AGDC
that would address the commodity price of the gas. The
corporation was a pipeline shipper, focused strictly on
shipment of the gas. She explained that people selling gas
to in-state customers would negotiate a price for sale of
the gas, and people selling gas to a foreign market would
negotiate the price of that particular gas.
3:20:51 PM
Senator Olson wondered if there were any legal questions
surrounding the issue of state ownership and regulation of
the gasline.
Ms. Delbridge replied that there were no legal questions
that had been brought to the sponsor's attention. She said
that the RCA was part of state government and a quasi-
judicial body and AGDC was a stand-alone, independent
corporation of the state.
Vice-Chair Fairclough solicited closing comments.
3:22:38 PM
JOE DUBLER, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
ALASKA GASLINE DEVELOPMENT CORPORATION AND DIRECTOR OF
FINANCE, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF
REVENUE (via teleconference), explained the three proposed
changes in the current legislation. He relayed that the
first change could be found in Section 3, page 9 of the
legislation and would allow for AGDC to hedge material
prices for building the line in an effort to curb price
inflation. He noted that the change had been vetted by both
DOR and DOL.
Vice-Chair Fairclough queried when the capital expenditure
costs would be presented to the legislature, or was it
inside the existing appropriation request.
Mr. Dubler responded that that the funds were not included
in the appropriation request. He said that the funds would
come from bond proceeds or equity contributions from owners
and co-owners of the project.
3:25:31 PM
Ms. Delbridge interjected that the costs would be part of
the project costs and would not require an additional
appropriation from the state.
3:25:35 PM
Mr. Richards furthered that the time to order the steel
would be after the decision to proceed with project
sanction.
Vice-Chair Fairclough understood that would mean an open
season had been held and contracts had been secured that
would be bondable assets to acquire capital in the market.
Mr. Richards replied yes.
3:26:04 PM
Mr. Richards referred to FN3, which had accompanied the
bill from the other body, and had been changed from $330
million to $250 million. He explained that the level of
effort to get to the project sanction was $330 million.
3:26:54 PM
Senator Meyer remarked that the pipe size of the project
was limited by AGIA. He assumed that to get out of the AGIA
contract would result in treble damages, which would be
cost prohibitive.
Mr. Richards deferred to the DOL or the attorney for AGDC.
He added that AGIA was the "law of the land" that governed
the corporation.
3:27:19 PM
Co-Chair Meyer understood that there was a way out of the
AGIA agreement but that it was expensive.
Mr. Richards relayed that there was more than one way to
get out from under the terms of AGIA.
3:27:37 PM
Vice-Chair Fairclough felt that the project should move
forward under AGIA. She believed that the goal should be to
get enough gas to build a larger pipeline based on the
contract carriage proposed in HB 4. She thought that the
framework would allow the state to move enough gas to
attract investors. She stressed that supporters of the
legislation were not trying to circumvent the AGIA project,
but believed both were on the table for Alaska's advantage.
Ms. Delbridge agreed.
Mr. Dubler continued to discuss the proposed changes. He
directed committee attention to Page 9. He said that the
change would strike all of the language on line 15, after
"obligations" and continue through "available" on Page 16.
He said that the removal would allow the corporation to
borrow construction funds for more than one year.
3:30:30 PM
Mr. Dubler continued to Page 23, line 7. He relayed the
word "pending" through to the end of the paragraph would be
removed. He remarked that the current language restricted
the type of investment that the corporation would be
allowed to make in a refunding transaction.
3:32:25 PM
Mr. Richards referred to FN3, dated April 1, 2013. The note
identified an FY14 appropriation for $225 million.
3:32:51 PM
AT EASE
3:34:22 PM
RECONVENED
Mr. Richards continued to discuss FN3. He said that the
appropriation would capitalize the in-state natural gas
fund with $225 million Alaska Housing Capital Corporation
receipts, including the governor's $25 million capital
request for Alaska Housing Capital Corporation receipts. He
spoke to the need for full funding of the project. He said
that the corporation had identified in the 2011 and 2012
project plans the amount of funds that would be necessary
in order to drive the project through an open season and on
to project sanction. He stressed that the need for full
funding through the open season to get to the level of
detail necessary, which would take design engineers,
process engineers, environmental and regulatory people, and
others. He said that the assembled team would be the people
working for the next year and a half to get the state to an
open season. He stressed the importance of working through
the process of a post open season when AGDC would be
getting ideas or requirements from the shippers and the
buyers of the gas concerning any modifications to the
project. He stated that the key would be to retain the
consulting staff in order to push the project through
without losing momentum during the post open season hiatus.
He said that the work that would be going on after the open
season would be a continuation of regulatory work. He
shared that the pipeline Hazardous Materials and Safety
Administration, which was a division of the federal
Department of Transportation, would require AGDC to have a
testing program for pipe samples and full pipe segments.
3:39:55 PM
Senator Bishop queried the whether the pipeline would be
strain-base tested.
Mr. Richards replied that the pipeline had a safety
administration through the U.S. DOT which had made the
determination that a natural gas pipeline in Alaska would
be strain-based design.
Mr. Richards stated that in addition to the Hazardous
Materials and Safety Administration, AGDC would have to
work with the Department of Homeland Security and the
Transportation Security Administration on the security
aspects of the project.
3:40:37 PM
Mr. Richards reiterated the importance that the project
received full funding.
3:41:31 PM
Senator Hoffman stated that he was trying to reconcile FN3
with a report that the committee has received in January
2013 titled, "ASAP Project Plan Update Year-End 2012"(copy
on file). He cited Page 5, figure 1.3, which listed the
AGDC recommendation status as of July 2011:
4
"The State of Alaska should appropriate $210 million
to complete the next phase of the project design
development, recognizing that approximately $130
million more will be required either through capital
funding or financing to complete the design before
project approval (sanction).
4
Assumed approval of $29 million appropriation by 27th
Alaska Legislature."
Senator Hoffman wondered how the update from January
compared to the current fiscal note and to Mr. Richards
testimony.
Mr. Richards responded that Page 5 of the report listed the
July 2011 recommendations for the project plan.
Senator Hoffman pointed out the report containing the
recommendation was dated January 2013.
Mr. Richards explained that the purpose of the section had
been to identify the prior recommendations that had come
out of the original project plan in July 2011, and compare
them to what had happened, or not, subsequent to that.
Senator Hoffman interjected that the report reflected that
in December 2012 the funds had not been appropriated, and
as a result, AGDC had not been able to pursue the detailed
engineering required to refine project costs estimates and
hold an open season. He assumed that the July numbers were
the same as the numbers in December 2012. He asked how the
numbers related to FN3, what was needed, and the difference
between the $25 and $29 million.
Mr. Richards replied that from July of 2011 to April 2013,
project advancement had resulted in a request for more
money.
Senator Hoffman inquired what had happened between December
2012 and January 2013 that altered the numbers. He noted
that the footnote had not changed from July 2011 to
December 2013 and wondered what had changed from December
2012 to April 2013 that altered the request.
Mr. Richards replied that in that section of the report
AGDC had been trying to identify what had been originally
proposed and where they stood now that no funds had been
appropriated to push through with the detailed engineering.
3:44:59 PM
Senator Hoffman understood that in July 2011 AGDC was
asking for $29 million, which was then reduced by $4
million, and now AGDC was asking that additional money be
appropriated so that the corporation did not have to come
back before the legislature.
Mr. Richards replied that Page 7 of the report identified
the stage-gate process that had been presented to the
legislature. He pointed out the graph on Page 7 making
reference to the left hand portion identified as, "FEL
(front end loaded) Phase 1"; this first phase was expected
to cost $30 million. He furthered that FEL Phase 2 was
expected to cost $240 million and FEL Phase 3, $130
million. He reiterated that $72 million in appropriations
had been received for the project through the end of 2013,
but in order to push forward through to phase 3, the
additional $330 million was necessary. He stressed that the
plan was one of efficiency and the lowest possible cost to
Alaskans.
3:46:39 PM
Senator Bishop turned committee attention back to Page 5 of
the report. He requested clarification on whether the
federal right-of-way was lacking by 90 miles.
Mr. Richards responded that the federal right-of-way with
The Bureau of Land Management (BLM) was approximately 100
miles.
Senator Bishop asked if the state was still waiting on the
right-of-way.
Mr. Richards answered that the decision of the BLM was
pending and was expected any day.
3:47:32 PM
Ms. Delbridge remarked that the sponsors were in support of
full funding for AGDC because it would make the state look
like they could follow through with the same fiduciary
commitments to the project that would be asked of the
private sector.
3:49:48 PM
RECESSED
4:53:22 PM
RECONVENED
Co-Chair Meyer continued the discussion surrounding the
fiscal notes.
4:54:10 PM
Mr. Richards stated that there were two notes accompanying
the bill. The first note was FN2, dated April 1, 2013.
4:55:10 PM
AT EASE
4:56:25 PM
RECONVENED
Mr. Richards continued to discuss the fiscal notes. He
stated that FN2 identified the costs for AGDC and other
agencies involved. The figures represented the cost of the
total project through an open season. He stated that the
funding for FY14 through FY19 would support staffing and
the regulatory process for AGDC. He noted that the
attachment to the note detailed how the funds would be
spent by each agency each fiscal year.
4:59:13 PM
Mr. Richards looked at FN3, which highlighted the $225
million that would be used to capitalize the pipeline fund
and would allow AGDC to advance the project through to an
open season. He said that the net of the two fiscal notes
was approximately $250 million.
4:59:51 PM
Co-Chair Meyer noted that the fund source for FN3 would be
the Alaska Housing Finance Corporation (AHFC).
Mr. Richards replied that the fund source was from the
Alaska Housing Capital Corporation receipts.
5:01:02 PM
REPRESENTATIVE MIKE HAWKER, thanked the committee for
hearing the legislation. He stressed the importance the
process of the project not be disrupted. He warned that any
disruption would further increase risk, delay, project costs
and uncertainty. He believed that full funding would protect
against such disruptions. He testified that the state's
money was well protected by the governance provisions that
had been incorporated into HB 4. He believed that the
legislation contained strong governance provisions that
would protect Alaskans while putting forth a project that
was appropriate and in the best interest of the state.
5:04:38 PM
REPRESENTATIVE MIKE CHENAULT, felt that by fully funding the
project the legislature would give AGDC the opportunity to
complete the project successfully through to an open season.
He expressed concern that not fully funding the project now
would result requests to the legislature in the future. He
felt enough time had been spent developing the project and
urged the committee to support the project with full
funding.
5:07:10 PM
Co-Chair Meyer solicited further committee discussion.
5:08:03 PM
Vice-Chair Fairclough relayed that many people who
testified earlier in the week had expressed concern that
moving HB 4 forward would mean the elimination of the
possibility of a large pipeline.
Representative Chenault did not believe that the bill would
stop any project from moving forward. He said that the
governor was intent on the AGIA process. He though that the
project in HB 4 could morph into a bigger project, which he
believed was what all Alaskans wanted. He said that the
state would not be able to decide how big the pipe would be
unless they had the money to pay for the entire project. He
reiterated that the legislation proposed that the buyers
and sellers put together the contracts in order to pay for
the project and move it forward.
5:12:13 PM
Representative Hawker echoed Representative Chenault's
comments. He stressed that there was nothing in HB 4 that
would eliminate or compromise the possibility of a large
capacity pipeline. He thought that the legislation had been
misinterpreted by the opposition. He stressed that HB 4 was
built around the base-case pipeline project design that was
limited under AGIA. He added that in the larger sense HB 4
would provide the state the tools necessary to participate
in a larger pipeline project should it become a reality. He
noted that the only other pipeline project that he believed
viable to move forward was the AGIA project, and he
emphasized that HB 4 and AGIA could work in tandem. He
concluded that it was time a gasline was built. He believed
that once the state took the steps to build a line the
design would fall into place and be successful due to the
diligence, vision and entrepreneurship of Alaskans to create
economically viable plans for distribution from region to
region.
CS HB 4(FIN) was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 4 Support Letter Packet 4.pdf |
SFIN 4/10/2013 1:30:00 PM |
HB 4 |
| HB 4 Opposition Letter Packet 3.pdf |
SFIN 4/10/2013 1:30:00 PM |
HB 4 |
| HB 4 Support Letter _ Lewis.msg |
SFIN 4/10/2013 1:30:00 PM |
HB 4 |