Legislature(2003 - 2004)

03/10/2004 09:05 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     SENATE BILL NO. 241                                                                                                        
     "An Act making an appropriation to the Alaska Natural Gas                                                                  
     Development Authority; and providing for an effective date."                                                               
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Co-Chair  Wilken stated  this bill  "makes an  appropriation to  the                                                            
Department of  Revenue for the analysis and design  of a natural gas                                                            
JOE BALASH, Staff  to Senator Gene Therriault, recalled  discussions                                                            
at the  previous hearing  about the  language of  Section 1  of this                                                            
bill. Senator  Therriault had asked that the language  be relatively                                                            
broad to allow the Department  of Revenue the flexibility to work on                                                            
gas line issues extending  beyond the Alaska Natural Gas Development                                                            
Authority  (ANGDA).   In  a  previous  hearing  the  Committee   had                                                            
questioned the appropriation  lapse date of 2009. Senator Therriault                                                            
is willing  to adjusting the lapse  date to 2005, as it is  expected                                                            
that the Department of  Revenue would complete the analysis provided                                                            
for in this bill by FY 05.                                                                                                      
Mr. Balash stated  for the record that the ANGDA Board  of Directors                                                            
endorsed the  appropriation this bill  would provide the  Department                                                            
of Revenue and passed a resolution, which reads the following.                                                                  
     The  Board of  the  Alaska Natural  Gas  Development  Authority                                                            
     supports  the appropriation  of  three million  dollars in  the                                                            
     remainder  of  FY 04  to the  Department  of Revenue  for  work                                                            
     related to bringing North Slope gas to market.                                                                             
STEVEN   PORTER,  Deputy   Commissioner,   Department  of   Revenue,                                                            
testified  via  teleconference   from  Anchorage  and  referenced  a                                                            
spreadsheet  titled, "Projected Gas  Budget for FY 04 and  05" [copy                                                            
on  file]. He  reviewed  the  spreadsheet.  He explained  that  even                                                            
though  the  spreadsheet  outlines   total  project  costs  of  $3.7                                                            
million, the Department  of Revenue is only requesting three million                                                            
dollars because  certain contracts may not occur,  and reimbursement                                                            
agreements  may  be  obtained  for  the  remaining   contracts.  The                                                            
Stranded  Gas Act  contemplates  the  possibility of  negotiating  a                                                            
reimbursement  agreement  with  a  party,  but does  not  require  a                                                            
reimbursement.  In addition, certain aspects of the  contracts, such                                                            
as in-state gas use, certain  State research, and social impacts may                                                            
be standard  in all three contracts.  ANGDA would benefit  from much                                                            
of the study work completed on the applications.                                                                                
Senator Hoffman  asked why  the lapse date  for this legislation  is                                                            
2009  instead   of  2005  considering   the  appropriation   to  the                                                            
Department of Revenue would be expended in FY 05.                                                                               
Mr. Porter  expressed willingness  to shorten the lapse date  to the                                                            
year 2005, although the  speed in which the negotiations would occur                                                            
could not be  predicted. The intent  is to complete negotiations  by                                                            
the end of fiscal year 2005.                                                                                                    
HAROLD  HEINZE,   Chief  Executive   Officer,  Alaska  Natural   Gas                                                            
Development Authority,  testified via teleconference  from Anchorage                                                            
that this legislation  has evolved  to combine funds to address  all                                                            
natural gas  projects and issues.  The funds requested through  this                                                            
legislation  would be utilized  to accomplish  all the goals  of the                                                            
Authority; the work to  be completed by ANGDA would focus on ANGDA's                                                            
business structure, financial  structure and tax status. This effort                                                            
is important  because ANGDA  might play a  roll in working  with the                                                            
projects detailed in this  legislation, and become an aggregator for                                                            
local utilities  in the State. ANGDA  must have an understanding  of                                                            
its business  standing and  structure because  it could be  handling                                                            
large financial transactions in the future.                                                                                     
Mr.  Heinze added  that  ANGDA  has requested  funds  in  the FY  05                                                            
operating  budget for the  ANGDA staff, the  Board of Directors  and                                                            
other administrative  functions totaling  approximately $200,000  to                                                            
$250,000. The  majority of the projects  ANGDA has contemplated  are                                                            
included  in   the  comparative  analysis   provided  for   in  this                                                            
legislation. The State  has a series of important issues to consider                                                            
in  negotiating  a gas  pipeline  project  such as  cost  estimates,                                                            
tariff  calculations,  benefits  and markets.  This  analysis  would                                                            
provide   ANGDA   with  information   vital   to   the  feasibility                                                             
determination,  and would  determine  what interaction  ANGDA  might                                                            
have with  the other applicants.  Lastly,  this analysis would  aide                                                            
ANGDA in documenting  the benefits North Slope gas  would provide to                                                            
the State.                                                                                                                      
Mr. Heinze indicated  that the ANGDA Board was aware  ANGDA would be                                                            
considered  with  three  other  applicants   in  the  analysis  this                                                            
legislation  would provide.  Though  this analysis  would not  grant                                                            
ANGDA  an ideal  level of  funding;  by participating,  ANGDA  would                                                            
obtain  information  necessary  to  fulfill  the  role  intended  by                                                            
Senator B. Stevens  asked if the port authority contract  is a valid                                                            
Mr.  Porter   replied   that  the   State  is   still  making   that                                                            
Senator B.  Stevens referenced the  "Projected Gas Budget  for FY 04                                                            
and 05" spreadsheet  and asked why  no expenses are planned  for the                                                            
negotiation  of a  contract  with the  MidAmerican  Energy  Holdings                                                            
Company  in   FY  05.  He  asked   if  the  Department  anticipates                                                             
reimbursement for expenses incurred in this effort.                                                                             
Mr. Porter  responded  that MidAmerican's  intent  is to complete  a                                                            
contract before the end of FY 04.                                                                                               
Senator  B. Stevens  suggested that  the funds requested  for  FY 04                                                            
expenditures  be included  in a supplemental  appropriation  and the                                                            
funds requested  for FY  05 expenditures  be included  in the  FY 05                                                            
operating budget.                                                                                                               
Amendment #1: This amendment  reduces the general fund appropriation                                                            
from $3 million to $2 million  to the Department of Revenue for work                                                            
related to bringing  natural gas from the North Slope  to market, on                                                            
page 1, line 4 of the committee substitute.                                                                                     
Senator B. Stevens moved for adoption.                                                                                          
Co-Chair Wilken objected for an explanation.                                                                                    
Senator B. Stevens  affirmed that there is an immediate  need for an                                                            
appropriation  of one million dollars to the Department  of Revenue,                                                            
but there  is not  an immediate  need for the  FY 05 appropriation.                                                             
Including  the FY  05 expenditures  in  the FY 05  operating  budget                                                            
would allow the  State time to determine whether the  port authority                                                            
contract  is valid and provide  a more complete  explanation  of the                                                            
expenditures outlined  in the "Comparative Analysis/Energy  Bill and                                                            
Other Proposals/Issues"  spreadsheet.  Ample time exists  to address                                                            
these appropriations,  and include  them in the standard  government                                                            
budget process.                                                                                                                 
Senator  Hoffman  asked if  Senator  B. Stevens  would  also  change                                                            
Section 2 of the committee substitute.                                                                                          
Senator  B. Stevens  stated that  if Amendment  #1  were adopted  he                                                            
would consider  offering an  amendment to change  the lapse  date of                                                            
the appropriation from 2009 to 2005.                                                                                            
Co-Chair Wilken  clarified that if  Amendment #1 passes one  million                                                            
dollars would  be offered as a supplemental  amendment to  the FY 04                                                            
operating budget.                                                                                                               
Senator B.  Stevens replied that if  this legislation is  adopted it                                                            
would take  affect immediately.  Sufficient  time exists to  include                                                            
the FY 04 expenditures  in the supplemental  amendment to  the FY 04                                                            
operating  budget and make  that funding  available upon passage  of                                                            
this bill. Additionally,  if this amendment passes the lapse date of                                                            
this appropriation  would need to be adjusted to 2005  to coordinate                                                            
with the second and last appropriation in FY 05.                                                                                
Co-Chair  Wilken asked  how  the additional  $2.7  million would  be                                                            
appropriated if it were considered necessary.                                                                                   
Senator B.  Stevens responded that  an allocation would be  included                                                            
in the FY 05 operating budget.                                                                                                  
Co-Chair  Wilken  clarified  that  these  funds  would  need  to  be                                                            
included in the calculations  of the existing FY 05 operating budget                                                            
Senator B. Stevens remarked  that the Department of Revenue would be                                                            
required  to justify  the need  for the  expenditure  and the  funds                                                            
would then  be appropriated through  the FY 05 operating  budget. In                                                            
using  the  traditional  budget process  to  appropriate  funds  the                                                            
legislature would  be following the directives of  the Office of the                                                            
Senator Bunde  spoke in favor of the amendment. He  acknowledged the                                                            
legitimacy  of ANGDA, but  noted that for  twelve years people  have                                                            
complained  of "too much  government, too  much bureaucracy  and too                                                            
much spending". The State  has put significant amounts of money into                                                            
the promotion  of private enterprise without receiving  any positive                                                            
return.  The amount  of funds  expended  for this  effort should  be                                                            
minimized because a positive  return is unlikely. An FY 05 operating                                                            
budget allocation should not be granted.                                                                                        
Senator Hoffman also supported  the amendment because it would allow                                                            
time   for   additional   scrutiny   of   the   appropriation.   The                                                            
documentation  is  minimal, and  a discrepancy  exists  between  the                                                            
costs  projected by  the Department  of  Revenue  and the  requested                                                            
appropriation.  One  million  dollars  should  be adequate  to  meet                                                            
ANGDA's need for immediate funding.                                                                                             
A roll call was taken on the motion.                                                                                            
IN FAVOR: Senator Olson,  Senator B. Stevens, Senator Bunde, Senator                                                            
Hoffman, and Co-Chair Green                                                                                                     
OPPOSED: Co-Chair Wilken                                                                                                        
ABSENT: Senator Dyson                                                                                                           
The motion PASSED (5-1-1)                                                                                                       
The amendment was ADOPTED.                                                                                                      
Amendment  #2:  This  amendment   changes  the  lapse  date  of  the                                                            
appropriation  made in this legislation  from June 30, 2009  to June                                                            
30,  2005,  in  Section  2  on page  1,  line  7  of  the  committee                                                            
Senator B. Stevens moved for adoption.                                                                                          
Co-Chair Wilken objected for an explanation.                                                                                    
Senator  B. Stevens asserted  that 16  to 18 months  is an  adequate                                                            
amount of time to complete  negotiations. Furthermore, the Authority                                                            
would have an opportunity  to request additional funds if necessary.                                                            
SFC 04 # 36, Side A 10:46 AM                                                                                                    
Senator B.  Stevens continued  that this  project might be  ongoing.                                                            
Rather  than making  a fund  source available  for  five years,  the                                                            
legislature  should review  and appropriate  funds  as needed  on an                                                            
annual basis.                                                                                                                   
Co-Chair Wilken withdrew his objection.                                                                                         
The amendment was ADOPTED without objection.                                                                                    
PAUL  FUHS, Backbone2,  explained  the organization  he represents.                                                             
Backbone2  is the continuation  of Backbone1,  which was a  group of                                                            
Alaskan  citizens  that spoke  against  BP's  efforts  to take  over                                                            
ARCO's assets in Alaska,  and of the concerns over the monopoly that                                                            
that takeover would create.  Backbone2 is a nonpartisan organization                                                            
whose  membership includes  former  governors,  former legislators,                                                             
current legislators, and  Alaskan citizens who are in support of the                                                            
"expeditious  development"   of a  gas  pipeline.  Backbone2  is  in                                                            
support  of SB  241. Mr.  Fuhs thanked  Senator  Therriault for  his                                                            
political leadership and  for respecting the gas pipeline issues the                                                            
voters supported in the last statewide election.                                                                                
Mr. Fuhs asserted  that decisions  made on gas pipeline development                                                             
are very  important to the  economy of the  State. He referred  to a                                                            
document   prepared  by   Backbone2  titled,   "Alaska's   Strategic                                                            
Interests  in  North Slope  Gas  Development"  [copy on  file],  and                                                            
defined  it as  a fair, and  complex  statement of  the State's  gas                                                            
pipeline  issues. He stated  that much  economic misinformation  has                                                            
been intentionally  disseminated regarding the gas  pipeline project                                                            
proposals.  In  conducting   the  proposed  gas  pipeline   contract                                                            
analysis  ANGDA and  the Department  of  Revenue  would confirm  the                                                            
actual economic  impacts of the various gas pipeline  contracts. The                                                            
gas pipeline  would be "the long term  fiscal plan for Alaska."  The                                                            
State revenues  Governor Murkowski envisioned as result  of resource                                                            
development can  only be achieved through the construction  of a gas                                                            
pipeline;  there are  no resource  development  projects that  could                                                            
produce greater  State revenue. Two  independent investment-banking                                                             
firms  have  determined  that ANGDA's  gas  pipeline  project  could                                                            
produce annual  revenues of up to one billion dollars  for the State                                                            
of Alaska. ANGDA's gas  pipeline proposal takes the best interest of                                                            
the  State  and  its citizens   into consideration,   whereas  other                                                            
project applicants  are asking for more concessions  from the State.                                                            
Mr. Fuhs asserted  that the "government  should only do things  when                                                            
the private  sector cannot."  The State has  waited for the  private                                                            
sector to  build a  gas pipeline for  thirty years,  and it  is time                                                            
that   the   government   takes   action,   especially   given   the                                                            
"dysfunctional"  relationships   that  have  developed  between  the                                                            
companies operating  on the North  Slope. MidAmerican has  offered a                                                            
serious gas pipeline  project proposal; a partnership  between ANGDA                                                            
and MidAmerican could prove successful.                                                                                         
Mr. Fuhs emphasized  the organization's support of  this legislation                                                            
and Amendment #1.                                                                                                               
Mr.  Porter  informed that  the  Department  of  Revenue  frequently                                                            
authorizes projects  one year before the necessary  funding would be                                                            
available.  However,  these  gas pipeline  contracts  could  not  be                                                            
authorized until  funding is received. Amendment #1  would delay the                                                            
Department  in  granting contracts.  He  requested  that  additional                                                            
funds be made available to the Department of Revenue in FY 04.                                                                  
Co-Chair  Wilken  pointed out  that  further consideration  of  this                                                            
matter could be  undertaken when this bill is heard  in the House of                                                            
Representatives.  He clarified  that Senator  B. Stevens' intent  in                                                            
proposing  Amendment  #1 was  to isolate  FY 04  expenditures,  both                                                            
expenses and encumbrances.                                                                                                      
Mr. Porter  replied he  would provide the  necessary information  to                                                            
Senator B. Stevens.                                                                                                             
Co-Chair Green  offered a motion to  report the bill from  Committee                                                            
as amended with individual recommendations.                                                                                     
There was no objection and CS SB 241 (FIN) MOVED from Committee.                                                                

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