Legislature(2013 - 2014)Anch Temporary LIO
11/28/2014 10:00 AM House LEGISLATIVE BUDGET & AUDIT
| Audio | Topic |
|---|---|
| Start | |
| Executive Session | |
| Presentation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE BUDGET AND AUDIT COMMITTEE
Anchorage, Alaska
November 28, 2014
10:11 a.m.
MEMBERS PRESENT
Senator Anna Fairclough, Chair
Representative Mike Hawker, Vice Chair
Senator Donald Olson
Senator Cathy Giessel
Representative Kurt Olson
MEMBERS ABSENT
Senator Kevin Meyer
Senator Click Bishop
Representative Alan Austerman
Representative Bob Herron
Representative Andy Josephson
Senator Mike Dunleavy (alternate)
Representative Scott Kawasaki (alternate)
Representative Bill Stoltze (alternate)
OTHER LEGISLATORS PRESENT
Senator John Coghill
Representative Doug Isaacson
Representative Tammie Wilson
Representative Dan Saddler
Representative Eric Feige
Representative Lynn Gattis (via teleconference)
Representative Shelley Hughes (via teleconference)
COMMITTEE CALENDAR
EXECUTIVE SESSION: ALASKA LIQUEFIED NATURAL GAS BRIEFING
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOE BALASH, Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint on the AKLNG project
update; legislative briefing.
ANGELA RODELL, Commissioner
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Testified during the PowerPoint on the
AKLNG project update; legislative briefing.
MICHAEL PAWLOWSKI, Deputy Commissioner
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Testified during the PowerPoint on the
AKLNG project update; legislative briefing.
ACTION NARRATIVE
10:11:45 AM
CHAIR ANNA FAIRCLOUGH called the Legislative Budget and Audit
Committee meeting to order at 10:11 a.m. Representative Hawker
and Senators Giessel, Olson, and Fairclough were present at the
call to order. Representative Olson arrived as the meeting was
in progress. Also present were Representatives Gattis (via
teleconference), Hughes (via teleconference), Isaacson, T.
Wilson, Saddler, and Feige; and Senator Coghill.
^Executive Session
Executive Session
10:12:26 AM
CHAIR FAIRCLOUGH announced that the only order of business today
would be an executive session to receive a briefing on the
Alaska Liquefied Natural Gas Project by Commissioner Joe Balash,
Department of Natural Resources; and Commissioner Angela Rodell,
Department of Revenue.
CHAIR FAIRCOUGH informed members that the Legislative Budget and
Audit Committee will conduct two identical meetings today to
allow the legislature to receive a confidential briefing from
the current administration on the Alaska Liquefied Natural Gas
Project (AKLNG). She said that everyone participating in the
executive session meetings today will have signed the required
confidentiality agreement prior to the briefing. When the
legislature passed SB 138, it anticipated the necessity to be
briefed on sensitive information in order to protect Alaska's
interest in the AKLNG project on behalf of all Alaskans. She
emphasized the need for confidentiality to ensure that the
legislature does not reveal the state's strategy and undermine
its own interest. It is legislature's responsibility to
understand the reasons why certain decisions and commitments
have been made, the work that has been done to date on the AKLNG
project, as well as to have an opportunity to provide input in
the process and on decisions. A confidentiality agreement must
be signed in order for the administration to share confidential
information with members and staff. While some may choose not
to participate, those who elect to receive the information must
determine how to use the information to make decisions on behalf
of all Alaskans.
10:13:56 AM
REPRESENTATIVE HAWKER made a motion to move to executive session
as provided under Uniform Rule 22(b)(1) and (3) since the
meeting will involve a discussion of matters that the immediate
knowledge of which would adversely affect the finances of a
government unit. There being no objection, the committee went
into executive session at 10:14 a.m.
^Presentation
Presentation
12:52:32 PM
CHAIR FAIRCLOUGH brought the committee back to order at 12:52
p.m. Members present were Representative Hawker and Senators
Giessel, Olson, and Fairclough. Also in attendance were
Representatives Isaacson, Feige, and Saddler.
12:52:59 PM
CHAIR FAIRCLOUGH asked for a presentation for the purpose of
providing the general public with an update on the Alaska
Liquefied Natural Gas Project (AKLNG).
12:53:19 PM
JOE BALASH, Commissioner, Department of Natural Resources,
stated he would provide a status report on the AKLNG project
[for the public], including the steps necessary to keep the
project on track to reach a FEED [Front End Engineering Design]
decision in early 2016. After passage of SB 138, the AKLNG
project team was assembled over the summer and project work has
been timely and under budget. The venture agreement and
assembled team is well positioned with substantial global
experience, he said. Further, the state's team is also well
positioned to carry out the work necessary to complete the
agreements on the agency side to facilitate the commitment to
reach FEED, which is anticipated to occur in 2016. He remarked
on the cooperation, constructive dialogue, and energy from all
parties. Although they are not always in agreement, the team
has been working to solve problems to achieve a "win-win"
outcome [slide 2].
12:55:22 PM
COMMISSIONER BALASH said that the AKLNG project is now in Phase
2 pre-FEED, with a phase-gate decision approaching in 2016
[slide 3]. Substantial work will be necessary to achieve that
decision. A number of decisions related to royalty-in-kind
(RIK), as well as other fiscal agreements must be developed
early in 2015 to allow the legislature and the public to affirm
the agreements in a special legislative session, which is likely
to occur in the fall of 2015. Although the executive branch is
the negotiating party, the authority to approve the agreements
comes from the legislature. Thus, the administration has been
conducting periodic executive sessions with the Legislative
Budget & Audit Committee. The incoming administration will
likely hold additional briefings with other legislative
committees during the upcoming legislative session to obtain
feedback on options and identify pathways available during the
negotiating phase.
12:56:53 PM
REPRESENTATIVE HAWKER related his understanding that
Commissioner Balash has been providing the legislature with
significant details on the state's bargaining position under the
terms of the confidentiality agreement. He further understood
that neither the Department of Revenue or the Department of
Natural Resources have held a similar transition briefing with
the incoming administration. He asked whether there are any
plans to have a detailed transition briefing with incoming
administration.
COMMISSIONER BALASH answered that there has not yet been a
detailed briefing with the incoming administration although he
has held a general conversation with Dr. Mark Meyers, the
incoming commissioner with respect to the transition at the
Department of Natural Resources (DNR). He anticipated that oil
and gas issues will arise during face-to-face meetings.
REPRESENTATIVE HAWKER asked whether Commissioner Rodell, who has
been instrumental in developing the details and the intricacies
involved to date, has had an opportunity to provide any
transition to the incoming administration.
12:58:38 PM
ANGELA RODELL, Commissioner, Department of Revenue, responded
that the department has not been asked to provide specific
information during the transition, but she will continue to make
herself available to do so.
12:59:07 PM
COMMISSIONER BALASH stressed "the last bullet" [on slide 3] in
terms of the work schedule contemplated, requires maintaining
project alignment. If the state maintains that alignment, and
all parties agree to work constructively in order to progress,
the project will be on track; however, any one of the parties
can upset the alignment. He noted that the new administration
has signaled it wants to keep the AKLNG project on track, which
will include what needs to happen in the next 15-18 months.
COMMISSIONER BALASH reported the progress on the AKLNG project
to date. The state has worked through the Point Thomson
settlement, joint work agreements, concept selection, and is
currently making its way through Pre-FEED [slide 4]. The
parties have collectively spent $500 million and the work
associated with Pre-FEED should be complete by the end of 2015,
then move to the full FEED phase - expected to cost $2 billion
and take two to three years to complete. The overall time to go
through this process will depend on the time to complete the
federal permitting processes. Once the permits are in place,
the parties will be in the position to sanction the project and
make a final investment decision and begin construction. He
said that "first gas" could occur as soon as 2023 or 2025. Any
of these numbers could change if the state fails to obtain the
necessary agreements, alignments, or permits for the AKLNG
project.
1:02:14 PM
REPRESENTATIVE HAWKER asked whether the legislature previously
saw this chart [slide 4] as part of the development of SB 138.
He suggested that the chart represents the highest level, most
abstract plan chart for the entire successful project by
outlining the work plans and key decision points. He asked
whether this chart is the same aforementioned chart, and if so,
if any significant changes have been made to it.
COMMISSIONER BALASH answered that it is the same chart with some
of detailed information has been stripped off to allow timeline
dates to be inserted.
REPRESENTATIVE HAWKER asked for further clarification as to
whether the department is on track with the timeline for the
AKLNG project.
COMMISSIONER BALASH answered that the department is on track.
1:03:19 PM
COMMISSIONER BALASH stated that significant work must be
completed during the next 15 months to reach the FEED decision
in the first quarter of 2016 (1Q 16) [slide 5]. The anticipated
work listed excludes any confidential information with the
general timeline stretching from January 2015 through the FEED
decision in the first quarter 2016 (1Q16). The top line [from
January 2015-August 2015 labeled "DNR RIK Process" refers to
royalty-in-kind (RIK) and represents the timeline decision to
limit the state's right to switch from royalty-in-value (RIV) to
RIK or vice versa. This timeline also includes the flattening
of royalty terms on certain leases with a net profit share or
sliding scale royalty. This August 2015 deadline will allow the
[DNR and DOR] commissioners to enter into an agreement of less
than two years duration in advance of a special session in
October 2015. Since the agreements will need a duration longer
than two years, legislative approval will be required for a
number of items. It will take several months for the
legislature and the public to review the information prior to
the October special legislative session. The DOR and
municipalities will also need to negotiate agreements with
respect to property taxes. Virtually all of these agreements
must have term sheet agreements completed by April, with the
agreements "papered" by July, to allow each organization to
review them prior to publicizing them in August 2015.
COMMISSIONER RODELL commented that the Municipal Advisory Gas
Project Review Board (MAGPR) has been meeting on a regular basis
to develop recommendations on changes to property tax for this
project to present to the administration and the legislature.
Their report will be released on December 15, 2014, as required
by the administrative order and SB 138.
1:07:42 PM
COMMISSIONER BALASH highlighted the 2014 summer field season
work update [slide 6]. He briefly reviewed accomplishments to
date, which were concentrated in an area between Livengood and
Big Lake. The final route for the last leg of the pipeline to
Nikiski has not yet been determined. Thus, the 2015 field
season [to collect samples, surveys, and data] will be important
in terms of keeping the project on track.
1:08:40 PM
COMMISSIONER RODELL acknowledged a tremendous amount of
coordination and sharing of information with AGDC [Alaska
Gasline Development Corporation] on the Alaska stand-alone
pipeline has been done to avoid a duplication of effort.
1:09:13 PM
COMMISSIONER BALASH emphasized the importance of drafting the
resource reports required by the Federal Energy Regulatory
Commission (FERC) for the NEPA pre-file request is critical to
the success of 2015 summer field season [slide 7]. Each of the
reviews must be completed by state agencies prior to submittal
to the FERC in January. This will allow the FERC and other
federal agencies time to provide meaningful feedback to the
project, which will inform the scope of activities undertaken in
the 2015 summer field season. The transition must assess what
will need to be done by state agencies in order to meet the
deadlines.
1:10:37 PM
MICHAEL PAWLOWSKI, Deputy Commissioner, Department of Revenue,
in response to Representative Hawker, referring to slide 7,
stated that the acronym VAMOU stands for Venture Alignment
Memorandum of Understanding. Part of the collective work on the
AKLNG project is a recognition that the legislature set up AGDC,
but SB 138 also designated the state agencies to lead a host of
issues outside the direct technical work of the project. Thus,
the VAMOU is the entity, a working group, established to discuss
and accomplish all of the "outside" work for the AKLNG project.
1:11:51 PM
COMMISSIONER RODELL added that the NEPA Pre-file process
provides an opportunity for municipalities and Alaskans to "make
their voices heard" and is a drafting process that allows the
FERC to identify areas where additional work should be done.
This includes preparing initial rough drafts that will help
identify any issues and provide for community involvement to
identify the impacts of the project. For example, as property
taxes are discussed, determinations can be made in terms of the
impact payments. This process also includes developing a socio-
economic resources report, number 5, which will be key in
identifying project impacts to communities and individuals
within the state.
1:12:53 PM
COMMISSIONER BALASH turned to the illustration of the state
agency gas team organization chart [slide 8]. Although he and
Commissioner Rodell will be transitioning out, the remaining
team can help keep the project on track. He cautioned against
making a significant number of changes in the organization
chart, which could be an indicator that the project won't be on
track.
1:14:02 PM
COMMISSIONER RODELL added that this organization chart does not
include AGDC staff, which is separate from this chart. This
chart represents the teams within the DNR and DOR designed to
move the AKLNG project forward.
1:14:15 PM
COMMISSIONER BALASH stated that it also includes contractors.
He directed attention to Greenberg Traurig, a firm that has been
providing legal advice to the state on these matters across
administrations. He cautioned against any changes to the law
firms, who will assist in developing the term sheets and
drafting the necessary agreements, since this could also signal
project delays.
1:15:49 PM
COMMISSIONER BALASH, in response to Representative Feige,
acknowledged that any one of these individuals could be
replaced, but it really goes more to the question of how many.
Any of these individuals can draw on the experience and prior
knowledge of the others remaining in the organization; however,
wholesale changes made throughout the organization chart could
impact the AKLNG project timeline. He declined to try to
estimate any specific delay.
COMMISSIONER RODELL pointed out that the AKLNG project is a long
project, noting the estimated ten years prior to obtaining first
gas. She anticipated a number of personnel changes will occur
throughout the course of the development of this project. She
highlighted the importance to recognize that wholesale
organization changes have the potential to slow down the
project's forward momentum.
1:17:36 PM
COMMISSIONER BALASH turned to the SOA AKLNG working teams and
sub-teams [slide 9]. The Heads of Agreement (HOA) and SB 138
continue to be the guiding documents for the activities of the
state as it moves forward on the principles and agreements
necessary to make a decision to proceed to the FEED stage of the
project. The parties are negotiating in specific groups:
fiscal, upstream, project, governance, expansion, and
TransCanada/SOA bilateral agreements. In addition, several
working groups or subgroups were formed, including regulatory,
midstream technical, finance, and tax subgroups. Each of these
subgroups meet regularly to identify tasks, deliverables, and
continue to plan the work, and work the plan, and progress the
topic. In terms of finance and property taxes, the legislature
provided specific tasks to the DOR and the municipal advisory
board.
1:19:21 PM
COMMISSIONER RODELL advised that the DOR retained the financial
consultant firm, Lazard, as well as an Independent Registered
Municipal Advisor (IRMA), FirstSouthwest, for expertise on
certain advisory rules that have been in progress over the last
year on the federal side. The department currently works with
an investment bank to provide the State of Alaska advice. The
consultant firms are working through their first draft report
and are on track to submit the report on the due date of first
day of the upcoming legislative session. The report will
identify a whole spectrum of options available to the state to
finance the state's portion of the project. It will include
many of the topics the legislature and the Legislative Budget &
Audit Committee asked the report to address in terms of risk and
participation by others within the state, including Native
Corporations or individuals. In addition, this report will
provide a framework through which the state can view other
agreements to narrow down the range of financing options and
provide guidance back to the administration as to the risks the
legislature deems appropriate and which ones are not appropriate
for the state to take.
COMMISSIONER RODELL informed members that the department was
also tasked with chairing the Municipal Advisory Gas Project
Review Board (MAGPR). She characterized the MAGPR as one of the
best working groups, who have met every two to three weeks on
recommendations for property taxes while recognizing the
concerns of the communities along the Railbelt and pipeline
route that will be directly impacted. Further, the group
continues to examine the AKLNG's impact on the balance of the
state, and the state as a whole, as well as identify and
recognize the direct benefits of this project on those
communities. She characterized it as a tension between those
communities directly on the route who will benefit from gas and
those that are not. She noted the first MAGPR report due date
is December 15, 2014. The MAGPR board does not sunset so it
will continue provide a good avenue for ongoing discussions as
to property taxes associated with this project.
1:22:08 PM
COMMISSIONER BALASH identified one key thing the MAGPR board has
done is the bifurcation of property tax and impact payments.
Certainly, property taxes will be what they are, in some
respects, but impacts are real and will be felt by communities
during construction. Being able to separate those two issues
allows the AKLNG project to deal with the real costs of impacts
and to also address issues affecting communities or the state
during this enormous project. For example, the Fairbanks North
Star Borough (FNSB) will likely have little value from the AKLNG
project within its borders; however, the FNSB will be impacted
in significant ways during construction. This process has also
affected the FNSB's perspective on how to approach the issue.
He said it's something to monitor closely and goes back to the
importance of draft resource report number 5 in the FERC
process.
1:23:47 PM
COMMISSIONER BALASH, in closing, highlighted the importance of
confidentiality, commenting that SB 138 provided the departments
with tremendous responsibility to negotiate and further define
the details of certain key agreements that will allow the state
to participate as an equity partner in the AKLNG project.
However, the negotiations will ultimately require the
legislature's approval. To ensure a smooth process, SB 138 also
created some unusual windows for the legislature to participate
in the negotiation by sharing confidential information with the
executive branch. He characterized this process as unique and
critical since the producers are essentially negotiating with
the people of Alaska, although permission will ultimately be
granted through the elected officials. As the state goes
through this process, the administration will share information
with the legislature that it doesn't want the counter parties to
have access to, whether it will be the three producers,
TransCanada, or prospective buyers in Korea, Japan, or China.
However, advice from the legislature will be important. While
some angst exists with respect to confidentiality agreements,
these agreements are important to protect the interests of
Alaskans and to prevent the counter parties from access to the
state's strategies, motivations, or positions upon which the
administration will base its decisions.
COMMISSIONER BALASH, in closing, said the administration
believes that this course is the way to maximize Alaska's
benefits from this project. He reported that currently the
AKLNG project is on track and it can remain on schedule. He
hoped this briefing provides members with a view of the project
timeline and deadlines that need to be met over the next year.
1:27:39 PM
CHAIR FAIRCLOUGH expressed the Legislative Budget & Audit
Committee's appreciation for the legislative briefing.
1:28:27 PM
ADJOURNMENT
There being no further business before the committee, the
Legislative Budget and Audit Committee meeting was adjourned at
1:28 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AKLNG Legislative Briefing 11-28-2014.pdf |
JBUD 11/28/2014 10:00:00 AM |