Legislature(2003 - 2004)
03/10/2004 09:05 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 Committee. Co-Chair Wilken stated this bill "makes an appropriation to the Department of Revenue for the analysis and design of a natural gas pipeline." 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 voters. Senator B. Stevens asked if the port authority contract is a valid proposal. Mr. Porter replied that the State is still making that determination. 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 draft. 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 Governor. 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 substitute. 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.