Legislature(2013 - 2014)HOUSE FINANCE 519

04/16/2014 01:30 PM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
--Delayed to 1:40 p.m. Today--
Heard & Held
Moved Out of Committee
<Bill Hearing Canceled>
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
Moved HCS CSSB 191(FIN) Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 16, 2014                                                                                            
                         1:44 p.m.                                                                                              
1:44:46 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 1:44 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Daniel George,  Staff, Representative Bill  Stoltze; Senator                                                                    
Anna Fairclough, Sponsor;  Kris Curtis, Legislative Auditor,                                                                    
Alaska  Division of  Legislative  Audit; Michael  Pawlowski,                                                                    
Deputy  Commissioner,   Strategic  Finance,   Department  of                                                                    
Revenue;  Janak  Mayer,  Partner, enalytica;  Nikos  Tsafos,                                                                    
Partner,  enalytica;  Jessee  Logan,  Staff,  Senator  Lesil                                                                    
McGuire;  Sarah   Lunkin,  CEO,   PT  Public   Policy,  LLC;                                                                    
Genevieve Wojtusik, Staff, Senator Lesil McGuire.                                                                               
PRESENT VIA TELECONFERENCE                                                                                                    
Ron Long,  Manager, City of  Seward; Ted  Leonard, Executive                                                                    
Director,   Alaska   Industrial   Development   and   Export                                                                    
CSSB 129(FIN)                                                                                                                   
          REAL ESTATE APPRAISERS                                                                                                
          CSSB 129(FIN)  was REPORTED out of  committee with                                                                    
          a   "do   pass"   recommendation  and   with   one                                                                    
          previously  published  fiscal   impact  note:  FN2                                                                    
CSSB 138(FIN)am                                                                                                                 
          GAS PIPELINE; AGDC; OIL & GAS PROD. TAX                                                                               
          CSSB 138(FIN)am  was HEARD  and HELD  in committee                                                                    
          for further consideration.                                                                                            
CSSB 140(FIN)                                                                                                                   
          AIDEA: ARCTIC DEVELOPMENT PROGRAM/FUND                                                                                
          CSSB 140(FIN) was HEARD and  HELD in committee for                                                                    
          further consideration.                                                                                                
CSSB 191(FIN)                                                                                                                   
          GENERAL OBLIGATION BOND FUND TRANSFER                                                                                 
          HCS CSSB  191(FIN) was  REPORTED out  of committee                                                                    
          with  a  "do  pass" recommendation  and  with  one                                                                    
          previously published zero fiscal note: FN1 (REV).                                                                     
CSSB 194(L&C)                                                                                                                   
          TOURISM MARKETING BOARD                                                                                               
          CSSB 194(L&C) was HEARD and  HELD in committee for                                                                    
          further consideration.                                                                                                
1:45:33 PM                                                                                                                    
Co-Chair Stoltze discussed the meeting agenda.                                                                                  
CS FOR SENATE BILL NO. 191(FIN)                                                                                               
     "An Act  relating to the  authority of  the Legislative                                                                    
     Budget  and Audit  Committee to  approve the  temporary                                                                    
     transfer   of   money   from  the   general   fund   to                                                                    
     construction funds  or accounts;  and providing  for an                                                                    
     effective date."                                                                                                           
1:45:55 PM                                                                                                                    
Vice-Chair  Neuman MOVED  to  ADOPT  the proposed  committee                                                                    
substitute  for   CSSB  191(FIN),  Work   Draft  28-LS1483\C                                                                    
(Wallace, 4/16/14).                                                                                                             
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
DANIEL   GEORGE,   STAFF,   REPRESENTATIVE   BILL   STOLTZE,                                                                    
explained the change in the CS,  which began on page 1, line                                                                    
14 with the addition of new language:                                                                                           
     If a temporary transfer has  already been made from the                                                                    
     general fund to the  bond construction fund or account,                                                                    
     additional transfers may be made,  but the total amount                                                                    
     of  the  outstanding  transfers  not  returned  to  the                                                                    
     general fund under  (d) of this section  may not exceed                                                                    
     25  percent of  the amount  authorized for  the general                                                                    
     obligation bonds without  approval from the Legislative                                                                    
     Budget and Audit Committee.                                                                                                
SENATOR  ANNA  FAIRCLOUGH,  SPONSOR,  was  amenable  to  the                                                                    
changes in the  CS. She appreciated the  committee's work on                                                                    
the  bill.  She   noted  her  intent  to   ensure  that  the                                                                    
legislature retained its oversight.                                                                                             
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further OBJECTION, Work Draft 28-LS1483\C was ADOPTED.                                                                          
Representative Costello  highlighted the zero  impact fiscal                                                                    
note from the Department of Revenue.                                                                                            
Vice-Chair  Neuman congratulated  Senator Fairclough  on her                                                                    
recent engagement.                                                                                                              
Vice-Chair Neuman MOVED  to REPORT HCS CSSB  191(FIN) out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
HCS CSSB 191(FIN)  was REPORTED out of committee  with a "do                                                                    
pass" recommendation and with  one previously published zero                                                                    
fiscal note: FN1 (REV).                                                                                                         
CS FOR SENATE BILL NO. 129(FIN)                                                                                               
     "An Act extending the termination  date of the Board of                                                                    
     Certified  Real  Estate  Appraisers; relating  to  real                                                                    
     estate  appraisers;  and  providing  for  an  effective                                                                    
1:49:25 PM                                                                                                                    
SENATOR ANNA  FAIRCLOUGH, SPONSOR,  spoke to the  purpose of                                                                    
the bill. The  legislation would extend the  sunset date for                                                                    
the Board of Certified  Real Estate Appraisers. She detailed                                                                    
that the  federal government  had outlined  new requirements                                                                    
for   the  board;   therefore,  its   length  of   time  for                                                                    
reauthorization was  shortened in order to  ensure there was                                                                    
time to review the process for federal compliance.                                                                              
KRIS  CURTIS,   LEGISLATIVE  AUDITOR,  ALASKA   DIVISION  OF                                                                    
LEGISLATIVE  AUDIT,  communicated   that  the  division  had                                                                    
conducted a  sunset review  of the  Board of  Certified Real                                                                    
Estate  Appraisers.  The  division had  concluded  that  the                                                                    
board was  protecting the  public's interest  by effectively                                                                    
licensing  and regulating  the real  estate appraisers.  The                                                                    
audit  recommended  a  four-year   extension  (half  of  the                                                                    
maximum allowable  statutory extension) because  the board's                                                                    
mandated responsibilities had been  expanded by federal law.                                                                    
The  audit  included  two  recommendations  for  operational                                                                    
improvements,  which were  directed to  the director  of the                                                                    
Division   of   Corporations,  Business   and   Professional                                                                    
Licensing. The first recommendation  was for the division to                                                                    
improve its  administrative support to the  board, including                                                                    
addressing    delays   in    investigations.   The    second                                                                    
recommendation  was  to  continue  efforts  to  improve  the                                                                    
investigative   case  management   system's  integrity   and                                                                    
confidentiality. She  relayed that the board  and department                                                                    
had both concurred with the recommendations.                                                                                    
1:51:28 PM                                                                                                                    
Co-Chair Stoltze CLOSED public  testimony. He asked if there                                                                    
were any amendments.                                                                                                            
Representative Costello  discussed the  previously published                                                                    
fiscal  impact   note  from  the  Department   of  Commerce,                                                                    
Community  and Economic  Development. The  note included  an                                                                    
annual fiscal impact of $7,400 in FY 15 through FY 20.                                                                          
Vice-Chair Neuman MOVED to REPORT CSSB 129(FIN) out of                                                                          
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
CSSB 129(FIN) was REPORTED out of committee with a "do                                                                          
pass" recommendation and with one previously published                                                                          
fiscal impact note: FN2 (CED).                                                                                                  
1:53:26 PM                                                                                                                    
AT EASE                                                                                                                         
1:58:49 PM                                                                                                                    
CS FOR SENATE BILL NO. 138(FIN) am                                                                                            
     "An Act  relating to the  purposes, powers,  and duties                                                                    
     of   the   Alaska  Gasline   Development   Corporation;                                                                    
     relating  to  an  in-state  natural  gas  pipeline,  an                                                                    
     Alaska  liquefied natural  gas project,  and associated                                                                    
     funds; requiring  state agencies and other  entities to                                                                    
     expedite  reviews and  actions related  to natural  gas                                                                    
     pipelines  and projects;  relating  to the  authorities                                                                    
     and  duties of  the commissioner  of natural  resources                                                                    
     relating to a North Slope  natural gas project, oil and                                                                    
     gas and gas only leases,  and royalty gas and other gas                                                                    
     received  by  the  state   including  gas  received  as                                                                    
     payment for the production tax  on gas; relating to the                                                                    
     tax on oil  and gas production, on  oil production, and                                                                    
     on  gas  production;  relating to  the  duties  of  the                                                                    
     commissioner  of  revenue  relating to  a  North  Slope                                                                    
     natural  gas project  and gas  received as  payment for                                                                    
     tax;  relating to  confidential information  and public                                                                    
     record  status of  information provided  to  or in  the                                                                    
     custody of the Department  of Natural Resources and the                                                                    
     Department  of   Revenue;  relating   to  apportionment                                                                    
     factors of the Alaska Net  Income Tax Act; amending the                                                                    
     definition of gross value at  the 'point of production'                                                                    
     for  gas for  purposes of  the oil  and gas  production                                                                    
     tax; clarifying that  the exploration incentive credit,                                                                    
     the oil or gas producer  education credit, and the film                                                                    
     production tax credit may not  be taken against the gas                                                                    
     production tax paid in gas;  relating to the oil or gas                                                                    
     producer education  credit; requesting the  governor to                                                                    
     establish  an  interim  advisory board  to  advise  the                                                                    
     governor  on municipal  involvement  in  a North  Slope                                                                    
     natural gas  project; relating to the  development of a                                                                    
     plan  by the  Alaska  Energy  Authority for  developing                                                                    
     infrastructure  to deliver  affordable energy  to areas                                                                    
     of  the state  that will  not have  direct access  to a                                                                    
     North Slope  natural gas pipeline and  a recommendation                                                                    
     of   a  funding   source   for  energy   infrastructure                                                                    
     development; establishing the  Alaska affordable energy                                                                    
     fund; requiring the commissioner  of revenue to develop                                                                    
     a  plan  and  suggest legislation  for  municipalities,                                                                    
     regional corporations,  and residents  of the  state to                                                                    
     acquire ownership  interests in  a North  Slope natural                                                                    
     gas  pipeline  project; making  conforming  amendments;                                                                    
     and providing for an effective date."                                                                                      
1:59:06 PM                                                                                                                    
MICHAEL PAWLOWSKI,  DEPUTY COMMISSIONER,  STRATEGIC FINANCE,                                                                    
DEPARTMENT  OF REVENUE,  continued to  address questions  on                                                                    
the legislation.  He recapped  that earlier  in the  day the                                                                    
administration had  discussed the affordable  energy aspects                                                                    
and the  ability to move  and look at infrastructure  and to                                                                    
move benefits of the project across the state.                                                                                  
Representative Gara  referred to  a request  for information                                                                    
about  where  Alaska  ranked  in   terms  of  its  potential                                                                    
government take on  the project. He stated  that Roger Marks                                                                    
[Legislative  Consultant,   Legislative  Budget   and  Audit                                                                    
Committee] estimated  the state's share at  approximately 60                                                                    
percent,   which  he   deemed   to  be   lower  than   other                                                                    
jurisdictions taking similar risks.                                                                                             
Mr. Pawlowski  replied that the royalty  study was available                                                                    
on the Department of Natural  Resources website and provided                                                                    
a broad range of government  takes across different types of                                                                    
projects. He  noted that he  would work to  provide excerpts                                                                    
from the  study. He relayed  that the consulting  firm Black                                                                    
and Veatch was updating the  study to put the information on                                                                    
one page.                                                                                                                       
Representative  Gara wondered  if the  information would  be                                                                    
available  prior to  the  amendment  process. Mr.  Pawlowski                                                                    
replied   that  the   consultants   were   working  on   the                                                                    
information as fast as possible.                                                                                                
Representative  Costello   communicated  that   her  primary                                                                    
concern   about  the   current  project   was  the   state's                                                                    
relationship with  TransCanada. She  asked about all  of the                                                                    
opportunities  the legislature  would  have  the ability  to                                                                    
alter its relationship with TransCanada.                                                                                        
Mr.  Pawlowski  pointed   to  page  8,  Exhibit   C  of  the                                                                    
Memorandum  of Understanding  (MOU)  related to  termination                                                                    
events  (copy on  file). The  section  described the  rights                                                                    
that  the  state  and  TransCanada  had  to  reevaluate  the                                                                    
relationship and  choose to terminate. The  initial and pre-                                                                    
FEED  [Front   End  Engineering  and  Design]   stages  were                                                                    
estimated to conclude around the  end of 2015; at that point                                                                    
contracts  with  a longer  duration  would  be ratified.  He                                                                    
detailed that the state had  the right at any time (provided                                                                    
that 90-day  notice was given to  TransCanada) to reevaluate                                                                    
and/or terminate the relationship  prior to the ratification                                                                    
of  the  contract   in  2015.  He  relayed   that  the  firm                                                                    
transportation   services   agreement  decision   would   be                                                                    
required  to  be brought  to  the  legislature and  be  made                                                                    
public  90  days  prior  to  the  effective  date;  the  MOU                                                                    
specified the date would be 90  days before the end of 2015.                                                                    
The legislature  would have an  opportunity to  determine if                                                                    
it  wanted  to  continue  moving forward  with  its  partner                                                                    
Mr. Pawlowski communicated that  after the contract had been                                                                    
approved, the FEED  stage would be entered;  during the FEED                                                                    
stage through  to the final  investment decision  (FID), the                                                                    
legislature  and  the  state  would  retain  an  ability  to                                                                    
terminate the relationship with  TransCanada for a couple of                                                                    
reasons. Including, if within 60  days from the date, one or                                                                    
more of the producers or  the transporter withdraws from the                                                                    
project  or at  any  time  the shipper  was  unable to  sign                                                                    
agreements to  sell all of its  royalty or tax gas  on terms                                                                    
acceptable to  the shipper. He relayed  that the legislature                                                                    
would  play  a   role  in  the  FID   (most  likely  through                                                                    
appropriation   powers).  The   state  would   have  another                                                                    
opportunity to reevaluate  its relationship with TransCanada                                                                    
at the  FID stage; however,  during the FEED and  FID stages                                                                    
there  was a  provision  that would  provide TransCanada  an                                                                    
option  to participate  in  an  alternative similar  project                                                                    
advanced by the state. The  opportunity was based on the MOU                                                                    
terms (75 percent debt and  25 percent equity); however, the                                                                    
cost of debt  and return on equity were  open to negotiation                                                                    
based on  conditions at the  time. He summarized  that there                                                                    
would  be  multiple  occurrences  when  the  state  had  the                                                                    
opportunity  to  weigh  advancement  with  TransCanada;  the                                                                    
legislature  would  make  the next  decision  on  the  terms                                                                    
towards the end of 2015.                                                                                                        
2:06:57 PM                                                                                                                    
Representative  Costello asked  whether the  state's buyback                                                                    
option  was always  open or  limited. Mr.  Pawlowski replied                                                                    
that  the   buyback  option  was  only   applicable  in  the                                                                    
ratification of the  firm transportation services agreement.                                                                    
The  provision would  be  in  effect from  the  end of  2015                                                                    
Representative  Costello  referred  to  testimony  from  the                                                                    
Department of Transportation and  Public Facilities. She had                                                                    
been surprised by the testimony  related to the department's                                                                    
lack  of  awareness  about logistical  needs.  She  wondered                                                                    
whether the  logistics would be  provided to the state  at a                                                                    
certain  point or  if the  conversation  would improve  with                                                                    
Mr.  Pawlowski  answered  that  the  needs  of  the  project                                                                    
broadly  and  specifically  related to  transportation  were                                                                    
issues  developed  during  the pre-FEED  period.  The  phase                                                                    
moved  from a  conceptual idea  to a  conceptual design.  He                                                                    
elaborated that  the size of  the pipe was  developed during                                                                    
the time period; all of  the decisions impacted the boom and                                                                    
trench   sizes  in   addition   to   other  logistics.   The                                                                    
development of  due diligence conducted during  the pre-FEED                                                                    
time  period,  which  was also  important  for  the  Federal                                                                    
Energy  Regulatory  Commission (FERC)  environmental  impact                                                                    
statement (EIS)  requirements related to social  impacts. He                                                                    
noted  that  the  department  would   provide  the  list  of                                                                    
resource  reports  to  the  committee.  He  summarized  that                                                                    
during the next project stage  the detailed work would begin                                                                    
and the items  would be developed in order  for the involved                                                                    
parties to decide whether it was desirable to move forward.                                                                     
2:09:38 PM                                                                                                                    
Co-Chair Stoltze handed the gavel to Vice-Chair Neuman.                                                                         
Mr. Pawlowski followed up on  his response to Representative                                                                    
Costello.  He  added that  Black  and  Veatch was  currently                                                                    
updating  the  government  take  to  include  implied  state                                                                    
expenditures  for infrastructure;  the information  would be                                                                    
provided to the committee.                                                                                                      
Vice-Chair Neuman referred  to a 5 percent  return on equity                                                                    
(ROE) related to  SB 21 [oil tax legislation  that passed in                                                                    
2013]. He discussed a 5  percent per barrel of oil exclusion                                                                    
on ROE in the Black and Veatch proposal.                                                                                        
Mr. Pawlowski asked for  verification that Vice-Chair Neuman                                                                    
was speaking about the Black and Veatch fiscal analysis.                                                                        
Vice-Chair Neuman replied in the affirmative.                                                                                   
Mr. Pawlowski explained that under  SB 21 there was a credit                                                                    
for the production  of each barrel of oil. One  of the items                                                                    
Black  and Veatch  had looked  at was  a similar  credit for                                                                    
each  million British  thermal unit  (btu) or  million cubic                                                                    
feet (mcf) of  gas produced. The goal had  been to determine                                                                    
a modification that would create  the same system. The $5.00                                                                    
had been divided  by the energy equivalent,  which created a                                                                    
fixed credit per unit of gas.  He believed it had been $5.00                                                                    
divided by 6 per mcf.                                                                                                           
Vice-Chair  Neuman  asked  for  detail on  off  ramps  [i.e.                                                                    
termination options].                                                                                                           
Mr. Pawlowski pointed to page 8  of Exhibit C of the MOU. He                                                                    
explained that the section was  broken up into circumstances                                                                    
under which  the shipper  could terminate,  the transporters                                                                    
could  terminate,  and cases  where  either  the shipper  or                                                                    
transporter  could  terminate.  He addressed  the  right  to                                                                    
terminate prior to the FEED  stage; notice could be given by                                                                    
the shipper (State  of Alaska) any time provided  that a 90-                                                                    
day notice was given  to the transporter (TransCanada). From                                                                    
the  beginning  of  FEED  through   FID  the  shipper  could                                                                    
terminate within  60 days  from the date  one or  more North                                                                    
Slope producers or transporter withdrew  from the Alaska LNG                                                                    
Project. Secondly,  the shipper could terminate  at any time                                                                    
if  it was  unable to  sign agreements  to sell  all of  its                                                                    
royalty  or tax  gas  on terms  acceptable  to the  shipper.                                                                    
Additionally, the shipper could  choose to terminate for any                                                                    
reason at FID.                                                                                                                  
Mr. Pawlowski  addressed that  the transporter  could choose                                                                    
to terminate if the  legislature failed to provide statutory                                                                    
authority to  the Department of  Natural Resources  (DNR) or                                                                    
the Department of Revenue (DOR)  to enter into the precedent                                                                    
agreement  by  June  30, 2014.  He  referred  to  additional                                                                    
reasons listed in the MOU (Exhibit C):                                                                                          
     · Shipper fails to execute the PA within the specified                                                                     
     · Shipper fails to execute the FTSA by December 31,                                                                        
     · Shipper fails to maintain the standard of                                                                                
        Creditworthiness  Requirements.   Transporter  shall                                                                    
        provide notice to Shipper of a  failure to meet such                                                                    
        standards,  and  Shipper  shall  have  a  reasonable                                                                    
        period to cure.                                                                                                         
     · At FID, if all Transporter corporate/Board approvals                                                                     
        have not been obtained.                                                                                                 
     · Within 3 months from FID, if debt financing has not                                                                      
        been secured on terms and conditions satisfactory to                                                                    
        Transporter in its sole discretion.                                                                                     
Mr. Pawlowski  noted that  the term  sheet was  a conceptual                                                                    
document.  The  precedent  agreement would  begin  with  the                                                                    
concepts  and  would  add detail.  The  firm  transportation                                                                    
services  agreement  would  add  a more  thorough  level  of                                                                    
2:14:36 PM                                                                                                                    
Representative   Guttenberg   referred  to   DOR's   earlier                                                                    
testimony that Black and Veatch  was working on a new report                                                                    
on government take.  He believed it had been  in the context                                                                    
of   the   state's   obligation    to   expand   and   build                                                                    
infrastructure. He was concerned  about the issue because of                                                                    
a report  from the  Department of Transportation  and Public                                                                    
Facilities.   He  wondered   if  there   were  things   like                                                                    
deductions   for   existing  North   Slope   infrastructure,                                                                    
expansion,  and how  it would  affect the  existing oil  tax                                                                    
Mr.  Pawlowski responded  that  the  deductibility of  lease                                                                    
expenditures had  been included in every  model developed on                                                                    
the  project   since  the  beginning.  He   noted  that  the                                                                    
deductions were often  listed in Black and  Veatch models as                                                                    
a separate  part of the  negative calculation for  the early                                                                    
years. He  clarified that the  prior evening  the department                                                                    
had received a  request by the committee  chair's office for                                                                    
an update  on the government  take. Also requested  was that                                                                    
the state choose  some numbers that it would  be spending on                                                                    
infrastructure. He  believed it had been  a specific request                                                                    
to  assume $1  billion or  another amount  was spent  by the                                                                    
state  on infrastructure.  He explained  that providing  the                                                                    
information  required the  models  to be  rerun; the  models                                                                    
were not  based on anything  other than a guess.  He relayed                                                                    
that   the   royalty   report   included   government   take                                                                    
Representative Guttenberg  asked if  there was  one scenario                                                                    
being  run that  included $1  billion as  the infrastructure                                                                    
needs.  Mr.  Pawlowski  replied  that  the  scenarios  would                                                                    
include  $1  billion,  $2  billion,  and  $500  million.  He                                                                    
provided a disclaimer that the numbers were arbitrary.                                                                          
Representative  Gara  noted  that a  contract  under  former                                                                    
Governor  Murkowski had  fallen apart  when the  legislature                                                                    
had  realized  the  governor   could  move  forward  without                                                                    
legislative approval. He asked for the meaning of FID.                                                                          
Mr. Pawlowski  replied that FID  stood for  Final Investment                                                                    
Representative  Gara referred  to department  testimony that                                                                    
the state's authority would be  determined [at FID] when the                                                                    
governor came  forward with a  contract and  the legislature                                                                    
could decide whether appropriate the  money. He asked if his                                                                    
understanding was accurate.                                                                                                     
Mr. Pawlowski  replied that he  was hesitant  to contemplate                                                                    
what  would  be necessary  for  the  FID. His  reference  to                                                                    
appropriations had  been used based  on his  assumption that                                                                    
appropriations  would be  necessary given  the scale  of the                                                                    
FID  and   construction  step.  He  communicated   that  any                                                                    
contract with a duration  exceeding five years would require                                                                    
a  legislative vote.  He  did not  currently  know how  many                                                                    
contracts would be necessary for the FID to take place.                                                                         
Representative Gara wanted to ensure  that it was in writing                                                                    
that at  FID the legislature  had the right  to say no  to a                                                                    
contract.  He  did not  want  the  legislature  to be  in  a                                                                    
situation where it  was held liable for damages  if it chose                                                                    
not to appropriate money.                                                                                                       
2:19:33 PM                                                                                                                    
Mr. Pawlowski  answered that  the actual  body of  work that                                                                    
would  go into  the  FID  was not  currently  known. To  his                                                                    
knowledge  there was  nothing  specific  in the  legislation                                                                    
that drove  one single  decision. The department  had worked                                                                    
to break the  concept apart from previous  efforts, that one                                                                    
contractor  or  one  execution  would  actually  lead  to  a                                                                    
project. There  were multiple  contracts and  agreements. He                                                                    
detailed  that part  of the  path was  designing what  would                                                                    
occur in  the pre-FEED stage.  As the different  work needed                                                                    
was identified, it  would become clearer what  would need to                                                                    
be  done  in  the  FEED  and FID  stages.  There  were  many                                                                    
potential decision points  leading up to FID,  but they were                                                                    
unknown at present.                                                                                                             
Co-Chair Austerman  noted that  enalytica was  available for                                                                    
Representative Wilson wondered how  to determine the project                                                                    
was the  best deal for  the state's residents.  She wondered                                                                    
why  the consultants  believed the  current project  was the                                                                    
best way  to go  or if  there were  other options  it should                                                                    
2:22:28 PM                                                                                                                    
JANAK MAYER, PARTNER, ENALYTICA,  asked for clarification on                                                                    
the  question. He  wondered if  the  question was  primarily                                                                    
focused  on potential  future  gas  prices for  constituents                                                                    
along the pipeline route.                                                                                                       
Representative Wilson  agreed. She believed the  state would                                                                    
ensure  the constituents  were taken  care  of. She  relayed                                                                    
that the  Fairbanks area was  primarily on heating  oil. She                                                                    
wondered how  gas would  be different  from heating  oil for                                                                    
Fairbanks and other areas.                                                                                                      
NIKOS TSAFOS,  PARTNER, ENALYTICA, responded with  advice on                                                                    
thinking  about  the  issue at  the  40,000-foot  level.  He                                                                    
highlighted that the state would  sell gas in Asia. Once the                                                                    
process began  the state would  realize that  consumers were                                                                    
using gas  or fuel oil.  He spoke to the  competitiveness of                                                                    
Alaska's gas in  the Asian market; it would need  to be less                                                                    
expensive than  fuel oil. When  oil prices had  collapsed in                                                                    
2008 and  2009 there had been  a short period of  time where                                                                    
oil was  cheaper than  gas. He stated  that during  the time                                                                    
the Korea  Electric Power Corporation had  switched from LNG                                                                    
to oil. He  reasoned that if gas was taken  earlier it would                                                                    
be able  to compete with fuel  oil if the delivery  price of                                                                    
gas had to be lower than the  fuel oil in Asia. He could not                                                                    
think  of  many  cases  worldwide  where  gas  traded  at  a                                                                    
continuous premium  to fuel  oil. He  detailed that  in most                                                                    
locations gas gained market share  by being more competitive                                                                    
than fuel oil,  which was one reason gas prices  in Asia and                                                                    
Europe were linked  to fuel oil. Distribution  price was not                                                                    
yet  known. He  characterized  his response  as the  highest                                                                    
level observation  that could provide  any comfort  that the                                                                    
energy delivered to Alaskans would  be more competitive than                                                                    
what they  currently paid (especially locations  that relied                                                                    
heavily on oil-based energy).                                                                                                   
2:27:05 PM                                                                                                                    
Representative   Wilson  wondered   if  it   came  down   to                                                                    
contracts. She asked how the  state would make sure it would                                                                    
have  sufficient  gas  for  instate  use.  She  remarked  on                                                                    
meeting  demand   and  making  sure  Alaska   was  not  only                                                                    
receiving a leftover amount of gas.                                                                                             
Mr. Tsafos  replied that  the issue could  be thought  of in                                                                    
two different  ways. He  remarked that  the concern  was not                                                                    
unique to  Alaska; any  sovereign developing  LNG considered                                                                    
to  obtain competitive  energy. He  believed there  were two                                                                    
parts that  would require management. First,  when using gas                                                                    
for heating it was difficult to  know how much would be used                                                                    
because  it depended  on  the weather.  He  stated that  the                                                                    
limitation  was well  understood and  would require  working                                                                    
through  contracts.   He  explained  that   sales  contracts                                                                    
typically had  upward or  downward quantity  provisions. For                                                                    
example,  if 4  million  tons were  sold  there was  usually                                                                    
flexibility to go 10 percent  higher or lower. Additionally,                                                                    
there  was  a  planned  out monthly  delivery  schedule.  He                                                                    
suspected that in Alaska it  would be assumed that the state                                                                    
needed more gas  in the winter; therefore,  it would deliver                                                                    
less during that period. He  noted that it would also depend                                                                    
on  the state's  ability  to produce  more. He  communicated                                                                    
that the state could produce at  a flat amount and alter the                                                                    
distribution between domestic sales  and exports or it could                                                                    
produce more  when more was  needed and vice  versa. Second,                                                                    
the  broader concern  was  what would  happen  if the  state                                                                    
underestimated  its  need.  He  relayed that  there  were  a                                                                    
number of ways  to manage the issue  including studying what                                                                    
the number  would be.  He referred  to prior  testimony that                                                                    
AGDC  would  work  to determine  the  most  reliable  number                                                                    
possible. He discussed the  importance of understanding what                                                                    
the  contingencies and  spare  capacities of  infrastructure                                                                    
would be.  He referred  to committee discussions  on surplus                                                                    
infrastructure and  spare capacity in order  to enable other                                                                    
producers  to   meet  the   demand.  Additionally,   it  was                                                                    
important  to have  a contractual  access regime  that would                                                                    
allow  third-parties to  supply the  gas; the  absence of  a                                                                    
well  laid plan  could be  problematic. He  stated that  the                                                                    
optimal solution  was not yet known.  Sovereigns that failed                                                                    
to  do the  proper due  diligence had  seen exports  decline                                                                    
because they had  diverted gas to the  domestic market; some                                                                    
had paid penalties as a  result. He detailed that there were                                                                    
ways to mitigate  the problem such as choosing  to commit 80                                                                    
to 90  percent of sales  to long-term contracts in  order to                                                                    
provide more flexibility and avoid  penalties. He noted that                                                                    
the  state  may  want  to  consider  marketing  its  gas  in                                                                    
different ways than producers. Perhaps  the state would want                                                                    
to keep  more of  its gas  for the open  market in  order to                                                                    
retain  gas   for  the  "what  if's."   The  commercial  and                                                                    
technical aspects  would be worked  through during  the pre-                                                                    
FEED and FEED  stages. He reiterated that  the concerns were                                                                    
fairly common facing all LNG  producers. He thought the best                                                                    
thing  to  do was  to  look  at  how various  concerns  were                                                                    
addressed in each stage of the agreements.                                                                                      
2:32:52 PM                                                                                                                    
Representative  Wilson believed  the state  was looking  for                                                                    
answers that were not yet  known. She noted that the answers                                                                    
were  desired  before the  start  of  the project,  but  the                                                                    
legislature  was  being told  the  project  needed to  start                                                                    
before  the answers  could be  obtained.  She remarked  that                                                                    
AGDC and the administration would  direct the project on the                                                                    
state's  behalf.  Currently   TransCanada  was  the  state's                                                                    
partner and the three producers  would each have 25 percent.                                                                    
She believed most  of the gas would be  takin in-kind versus                                                                    
in-value.  She  believed the  tax  structure  was being  set                                                                    
somewhat. She remarked on the  pre-FEED and FEED stages. She                                                                    
wondered if she was missing  any pieces. She understood that                                                                    
a contract would not be set at present.                                                                                         
Mr. Mayer  answered that  there were a  number of  key items                                                                    
occurring  at  present.  He discussed  that  the  state  was                                                                    
acknowledging   a   vision   that  addressed   whether   all                                                                    
requirements could be  met for taking in-kind  and having an                                                                    
equity share. The legislature  was giving the administration                                                                    
the authority to negotiate the  key points. He remarked that                                                                    
the  basic  structure  of  a  state  gas  share  and  direct                                                                    
participation   in   the    project   provided   significant                                                                    
flexibility for the state to  solve the problem of obtaining                                                                    
affordable gas  prices in  the state.  The options  would be                                                                    
better understood  as the process  evolved. He  relayed that                                                                    
the state  could decide  to solve the  problem by  using its                                                                    
own share  of the  gas to provide  for the  domestic demand;                                                                    
the price would have an  impact on the economics received by                                                                    
the  state. The  state could  decide that  it was  a uniform                                                                    
obligation  across all  project participants;  if the  other                                                                    
partners believed the terms were  not in their best interest                                                                    
there may be negotiations. There  were a wide range of items                                                                    
that could  be considered including meeting  in-state demand                                                                    
not  primarily with  gas  from the  project  but from  other                                                                    
sources such  as Cook Inlet  or from other producers  on the                                                                    
North Slope (gas that was  essentially stranded at present).                                                                    
There  were many  different mechanisms  the state  could use                                                                    
that would determine the ultimate delivery price.                                                                               
Representative  Wilson   asked  what  the  state   would  be                                                                    
required to approve  next and when. Mr.  Tsafos deferred the                                                                    
question to the administration.                                                                                                 
2:38:16 PM                                                                                                                    
Representative Wilson  wondered if the  consultants believed                                                                    
the state  would need to  be able  to meet the  deadline for                                                                    
the  Asian  market  needs.   There  were  other  competitors                                                                    
working to get the market as  well. She wondered if 2022 was                                                                    
the "drop dead" deadline.                                                                                                       
Mr. Tsafos  cautioned that it  was dangerous to  speak about                                                                    
closing windows  of opportunity.  He stated that  because of                                                                    
the  time  the  project  would take,  the  farther  out  the                                                                    
project went the  better it looked because  there were fewer                                                                    
projects planned in the future.  He discussed that currently                                                                    
entities selling gas were aiming  for delivery dates in 2018                                                                    
through 2021. Alaska was looking  at a later market that was                                                                    
not  as saturated  by competition.  He acknowledged  that as                                                                    
time went by,  later future dates would  become saturated as                                                                    
well. He  stated that  trying to  capture a  specific window                                                                    
was the wrong  way to move forward. He  believed the primary                                                                    
reason to keep moving forward was  due to the length of time                                                                    
the process took. He noted  that everything was interrelated                                                                    
and one piece  could not be moved without the  other. It was                                                                    
not possible  to talk about  marketing until  conducting the                                                                    
financing study;  likewise it was  not possible to  know how                                                                    
much gas  there would  be before conducting  the engineering                                                                    
study. Although  the state  would get  to FID  that included                                                                    
financial,  marketing, technical  studies,  the items  would                                                                    
become more final throughout the  process. He concluded that                                                                    
it  was not  possible  to  wait for  everything  to be  done                                                                    
before  moving to  the  subsequent  step because  everything                                                                    
would become obsolete if too much time passed.                                                                                  
2:42:16 PM                                                                                                                    
Co-Chair  Austerman  believed   that  what  the  legislature                                                                    
approved  in  the  current session  would  mean  a  two-year                                                                    
timeframe on  most contracts. He surmised  that if contracts                                                                    
were not signed within the  two years they would become null                                                                    
and void;  the contracts  would be  required to  come before                                                                    
the  legislature in  order to  move  to the  next step.  Mr.                                                                    
Mayer  answered  in  the   affirmative.  The  contracts  the                                                                    
legislature was  empowering the administration  to negotiate                                                                    
without coming back before the  legislature would govern the                                                                    
pre-FEED phase. Contracts governing  the project beyond pre-                                                                    
FEED  would  come  back  to  the  legislature  for  approval                                                                    
(especially  large  contracts   such  as  the  joint-venture                                                                    
agreements and firm transportation services agreements).                                                                        
Mr. Tsafos  communicated that the fiscal  notes only covered                                                                    
the  pre-feasibility  study.  The   FEED  stage  would  cost                                                                    
hundreds of millions of dollars.                                                                                                
Co-Chair Austerman surmised  that by the time  the state got                                                                    
to the FEED  stage there would be a special  session in late                                                                    
2015  to  discuss the  issue.  Mr.  Tsafos replied  that  it                                                                    
sounded  reasonable, but  he deferred  the  question to  the                                                                    
Representative  Gara was  interested in  the ability  to get                                                                    
extra  gas  in  the  pipeline.  He  discussed  expanding  by                                                                    
compression  up to  1 billion  cubic feet;  expansion beyond                                                                    
the amount  would become difficult  without help  from other                                                                    
parties.  He  referred  to  a  provision  in  the  HOA  that                                                                    
represented risk  for the  state, but  reward for  the other                                                                    
companies. He elaborated that if  the state wanted to expand                                                                    
the pipeline,  as long as it  and a new shipper  came in and                                                                    
expanded, the  state had to  share the benefits  with Exxon,                                                                    
Conoco, and  BP. Once  the expansion got  the state  back to                                                                    
the cost  of the  initial shipping rate  the state  would be                                                                    
required to  bare all of the  cost. He remarked that  if the                                                                    
cost of  expansion increased the  tariff up to  the original                                                                    
rate, the  state and  shipper would be  required to  pay the                                                                    
cost. He wondered why the provision was fair.                                                                                   
2:46:37 PM                                                                                                                    
Mr. Mayer  replied that  there were  two important  items to                                                                    
distinguish  pertaining to  Representative Gara's  question.                                                                    
The  first item  pertained  to the  parties  involved in  an                                                                    
expansion and who  bore the direct capital  cost. The second                                                                    
item related  to the  total per unit  capital costs  for the                                                                    
entire  pipeline, whether  the  costs were  higher or  lower                                                                    
than previously, and whether there  was a benefit or cost to                                                                    
the  expansion in  terms of  the implied  tariff. He  stated                                                                    
that  among  the  parties  to  the  HOA  there  were  active                                                                    
explorers who  may have  additional gas  in the  future that                                                                    
they would like to see an  expansion for (that the state may                                                                    
or  may not  want  to  participate in).  He  noted that  the                                                                    
agreement allowed  a party  that wanted to  expand to  do so                                                                    
unilaterally without  being held back by  the other parties.                                                                    
He  mentioned  that  under  the   HOA  any  benefits  of  an                                                                    
expansion would go to all  parties; however, when costs rose                                                                    
they were borne  by the parties executing  the expansion. He                                                                    
agreed that  greater symmetry  from the  state's perspective                                                                    
was  preferable. However,  he noted  that reasonable  people                                                                    
could disagree on  the subject. He had  heard testimony that                                                                    
the  tradeoff was  that the  initial investment  enabled the                                                                    
expansion; therefore,  the initial investors  should benefit                                                                    
in some  way. However,  when looking  solely at  the state's                                                                    
interest, it would be reasonable  to say that only expanding                                                                    
parties bore  costs and  benefits or  that if  benefits were                                                                    
shared that  costs would also  be shared. He stated  that in                                                                    
negotiations  if  one  party was  adamant  about  unilateral                                                                    
expansion, sharing the costs may be given up.                                                                                   
2:50:29 PM                                                                                                                    
Mr. Tsafos  referred to discussions about  the importance of                                                                    
initial  design and  how to  build  a pipeline  that was  as                                                                    
expandable as  possible as cheaply as  possible. He reasoned                                                                    
that  if  the state  wanted  its  partners, which  would  be                                                                    
baring 75 percent  of the cost, to put down  75 percent on a                                                                    
slightly  larger or  more expandable  pipeline,  one way  to                                                                    
encourage  the  partners  towards  the option  would  be  to                                                                    
provide  them with  a benefit.  He noted  that the  tradeoff                                                                    
could be important.                                                                                                             
Representative  Gara   believed  the  state  had   the  most                                                                    
interest  in bringing  in new  parties. He  opined that  the                                                                    
producers did  not care  about the ability  to bring  in new                                                                    
parties. He stressed  that the state cared how  much more of                                                                    
the North Slope  was developed. He hoped the  state would be                                                                    
actively  seeking new  partners;  however,  he reasoned  the                                                                    
partners would not  develop unless they could  get their gas                                                                    
in the pipeline. He commented  on the state giving producers                                                                    
the  benefit  of reduced  shipping  rates  if there  was  an                                                                    
Co-Chair  Austerman  asked   Representative  Gara  to  avoid                                                                    
making statements about how producers  would act in response                                                                    
to certain things.                                                                                                              
Representative Gara agreed. He wondered  why it would not be                                                                    
fair for  producers to  share in costs.  He asked  about the                                                                    
fairness of allowing the state to  bring the cost back up to                                                                    
the original rate in order to expand.                                                                                           
Mr. Mayer answered in terms  of the implied pipeline tariff,                                                                    
the arrangement seemed to be  a fair and equitable. He could                                                                    
not say whether the arrangement  would ensure the state with                                                                    
the right of  unilateral expansion that was  provided in the                                                                    
current contract.                                                                                                               
2:54:10 PM                                                                                                                    
Representative Guttenberg wondered  if the consultants could                                                                    
answer a  question related to the  midterm service agreement                                                                    
in the MOU,  Exhibit C. Mr. Mayer replied that  he would try                                                                    
to answer the question.                                                                                                         
Representative  Guttenberg   looked  at  the   document  and                                                                    
observed that  TransCanada would  have the ability  to write                                                                    
off  its property  taxes against  the capital  expenditures,                                                                    
which was  100 percent recovered through  tolls. He surmised                                                                    
that  Anchorage and  Fairbanks would  charge property  taxes                                                                    
and they  would charge the  taxes to the state.  He observed                                                                    
that the money moved in a circle.                                                                                               
Mr.  Mayer  answered  that  there were  a  series  of  costs                                                                    
incurred in  the development  of a  project. The  costs with                                                                    
allowances  for  the return  on  debt  and equity  would  be                                                                    
recovered by  the project builder  over the lifespan  of the                                                                    
project.   The   costs   included   the   upfront   capital,                                                                    
maintenance,  operating,  and  those associated  with  taxes                                                                    
such as federal,  state, and property taxes  etc.; the costs                                                                    
were all built into the model determining the tariff.                                                                           
Representative Guttenberg observed that  it was money moving                                                                    
in a circle.                                                                                                                    
2:56:41 PM                                                                                                                    
Co-Chair   Austerman  asked   for   verification  that   the                                                                    
consultants  were   under  contract  with   the  Legislative                                                                    
Affairs  Agency.  Mr.  Mayer   replied  in  the  affirmative                                                                    
(specifically  under   the  Legislative  Budget   and  Audit                                                                    
Co-Chair  Austerman asked  when  the  contract expired.  Mr.                                                                    
Mayer  replied  that  it  expired   on  January  31  of  the                                                                    
following year.                                                                                                                 
Co-Chair   Austerman  asked   for   verification  that   the                                                                    
consultants would  be available  over the  upcoming interim.                                                                    
Mr. Mayer agreed.                                                                                                               
Co-Chair Austerman relayed that  amendments on the bill were                                                                    
due at 4:00 p.m. that day.                                                                                                      
CSSB 138(FIN)am was HEARD and  HELD in committee for further                                                                    
2:58:07 PM                                                                                                                    
AT EASE                                                                                                                         
3:04:49 PM                                                                                                                    
CS FOR SENATE BILL NO. 140(FIN)                                                                                               
     "An Act creating  the Arctic infrastructure development                                                                    
     program and  fund in the Alaska  Industrial Development                                                                    
     and Export  Authority; and  relating to  dividends from                                                                    
     the   Alaska   Industrial    Development   and   Export                                                                    
3:04:54 PM                                                                                                                    
Co-Chair Stoltze noted the intent  to hear an explanation of                                                                    
the bill, brief questions, and public testimony.                                                                                
JESSEE LOGAN,  STAFF, SENATOR  LESIL MCGUIRE,  addressed the                                                                    
legislation. The bill would  create an Arctic Infrastructure                                                                    
Development  Fund within  the Alaska  Industrial Development                                                                    
and  Export  Authority  (AIDEA) and  addressed  one  of  the                                                                    
principle elements in the  Alaska Arctic Policy Commission's                                                                    
(AAPC) legislative  package. He  detailed that the  AAPC had                                                                    
been   created   to   prepare    the   Arctic   policy   and                                                                    
implementation  plan for  the  state  for the  legislature's                                                                    
consideration. The bill would  attract private investment to                                                                    
pair with  public investment  in Alaska's  infrastructure in                                                                    
the Arctic.  Although AIDEA currently  had the  authority to                                                                    
invest in  many of  the areas, it  had no  specific programs                                                                    
directed to attract private  investment. There were specific                                                                    
limitations  to  the package  financing.  He  asked for  the                                                                    
committee's preference on how to proceed.                                                                                       
Co-Chair Stoltze asked for a  brief description of the goals                                                                    
and aspirations of the bill.                                                                                                    
Mr.  Logan  addressed  the sectional  analysis.  Sections  1                                                                    
through   8   were  boiler   plate   and   put  the   Arctic                                                                    
Infrastructure  Development Fund  in line  with other  funds                                                                    
within AIDEA  (e.g. the revolving  fund and  the Sustainable                                                                    
Energy  Transmission and  Supply  Development Fund  (SETS)).                                                                    
Additionally,  the sections  described net  income, ways  to                                                                    
generate incentive  packages within the funds,  and what the                                                                    
funds consist of. He spoke  to the limitations on financing.                                                                    
For land-based  infrastructure AIDEA would be  authorized to                                                                    
give  loans  for  one-third  of the  capital  cost  or  loan                                                                    
guarantees up  to $20 million.  There was a project  life of                                                                    
up  to  40  years;  AIDEA was  also  authorized  to  provide                                                                    
securities for bond  guarantees. Page 7, lines  9 through 15                                                                    
included a  fisheries provision,  which was limited  to loan                                                                    
guarantees only  (no direct loans) because  the Alaska banks                                                                    
were currently  very active in  the sector; the  sponsor did                                                                    
not  want to  create undo  competition. The  loan guarantees                                                                    
had  a  floor of  $7  million  to  ensure  that it  did  not                                                                    
conflict or  create competition with other  state or federal                                                                    
programs. Additionally, the loan  guarantee could not exceed                                                                    
more  than one-third  of the  project's  capital costs.  The                                                                    
eligibility for  the loan guarantees  would be  the purchase                                                                    
or repair of vessels used  in federally managed fisheries or                                                                    
the purchase of  quota shares or individual  quota shares in                                                                    
federally managed Arctic fisheries.                                                                                             
Co-Chair Stoltze  asked for a  description of  the fisheries                                                                    
in the  Arctic. Mr.  Logan replied  that the  fisheries were                                                                    
primarily  cod  and  pollock   fisheries.  The  bill  looked                                                                    
primarily  at  Bering  Sea fisheries  that  included  mostly                                                                    
large fisher/processor  trolls. He relayed that  most of the                                                                    
fishing  entities   were  located  outside  of   Alaska.  He                                                                    
explained  that  because  AIDEA  was  forbidden  to  operate                                                                    
outside of  Alaska, any fishing  entity taking  advantage of                                                                    
the financing  opportunity would be required  to relocate to                                                                    
Alaska. The purpose of the  provision was to repatriate some                                                                    
of the quotas and vessels to the state.                                                                                         
Co-Chair Stoltze asked  how large the boats  were. Mr. Logan                                                                    
did not know.                                                                                                                   
3:09:30 PM                                                                                                                    
AT EASE                                                                                                                         
3:09:41 PM                                                                                                                    
Mr. Logan replied that the  fund did not specifically choose                                                                    
winners or  losers or look  for specific projects;  it would                                                                    
wait for  private entities to  seek out the funding.  He did                                                                    
not know who would be seeking the funds.                                                                                        
Co-Chair Stoltze  wondered about  the vessel size  and asked                                                                    
if they  would be trawlers  or draggers. Mr.  Logan believed                                                                    
the  vessels would  be trawlers  and processors.  He relayed                                                                    
that Sarah  Lunkin with PT  Capital was available  to answer                                                                    
detailed fishery provision questions.                                                                                           
Co-Chair Stoltze asked for verification  that PT Capital was                                                                    
a private entity. Mr. Logan replied in the affirmative.                                                                         
Representative  Edgmon took  exception  to use  of the  word                                                                    
Arctic because technically  it was the Bering  Sea. He noted                                                                    
that  the federal  definition of  the  Arctic extended  down                                                                    
into  the upper  Bering  Sea. He  asserted  that there  were                                                                    
currently no fisheries in the Arctic  and may not be for the                                                                    
next 50 years.                                                                                                                  
3:11:03 PM                                                                                                                    
Representative Costello asked  for verification that outside                                                                    
companies  would   be  able  to  benefit   from  the  bill's                                                                    
fisheries provision.  Mr. Logan replied in  the affirmative.                                                                    
He added  that the  asset taking advantage  of the  funds or                                                                    
loaned against would be required to remain in Alaska.                                                                           
Representative  Costello asked  if the  asset could  also be                                                                    
repatriated. Mr. Logan answered in the affirmative.                                                                             
Representative  Costello  noted that  geographically  Alaska                                                                    
was  an  Arctic  nation. However,  the  infrastructure  fund                                                                    
would only benefit projects in  one region of the state. She                                                                    
wondered why the fund should not apply to the entire state.                                                                     
Mr. Logan pointed to page 8,  lines 4 through 7 that defined                                                                    
the state's geographical boundary  of the Arctic. He pointed                                                                    
to a  map included in  members' packets that had  been taken                                                                    
from the federal  Arctic Region Policy Act of  1990 (copy on                                                                    
file).  The  map included  all  areas  north of  the  Arctic                                                                    
Circle to the north and west  of the Yukon boundary; it also                                                                    
included the  Bering Sea. He  referred to the  definition of                                                                    
Arctic development  on page  7 of  the bill,  which included                                                                    
the construction, improvement,  rehabilitation, or expansion                                                                    
of a  facility in the Arctic  to aid in development  or meet                                                                    
emergency  response   or  anywhere  in  the   state  if  the                                                                    
construction,  improvement,   rehabilitation,  or  expansion                                                                    
supported  the  further development  of  a  facility in  the                                                                    
Representative Costello asked for  the location in the bill.                                                                    
Mr.  Logan  pointed to  page  8,  lines  8 through  15  that                                                                    
included the  Arctic infrastructure  development definition.                                                                    
In response  to Representative  Edgmon's comment,  he agreed                                                                    
that the bill  pertained mostly to the  Bering Sea; however,                                                                    
because the bill  used the definition of the  Arctic it also                                                                    
used  the language  "federal fisheries  in  the Arctic."  He                                                                    
agreed that  there were  no fisheries  located north  of the                                                                    
Arctic Circle;  there was a  moratorium on any  fisheries in                                                                    
the location for the foreseeable future.                                                                                        
Representative  Costello  surmised  that there  would  be  a                                                                    
hurdle that  would need to  be overcome in lines  13 through                                                                    
15. She wondered if it would  be a substantial hurdle or one                                                                    
that could easily be overcome.                                                                                                  
Mr. Logan  answered that it  would depend on  the individual                                                                    
project. The  purpose of the  bill was to  create incentives                                                                    
for infrastructure in the state's  least developed areas. He                                                                    
elaborated that if development in  other areas would further                                                                    
the development  in the state's least  developed areas (i.e.                                                                    
the Arctic)  they would be  eligible. He provided  the deep-                                                                    
water  draft port  in the  Arctic  as an  example. The  Army                                                                    
Corps of Engineers had identified  Port Clarence as a likely                                                                    
target. He expounded  that for the project to  be built over                                                                    
the course of several years,  staging grounds in other ports                                                                    
would be  necessary due  to the  limited amount  of shipping                                                                    
available  for  the  area. Other  ports  may  include  Dutch                                                                    
Harbor,  Seward, or  Ketchikan.  He stated  that if  storage                                                                    
capacity was increased  in the areas to  provide for staging                                                                    
they would be eligible for the funds.                                                                                           
Representative  Costello  asked   how  the  dividend  aspect                                                                    
worked in the  bill. Mr. Logan referred to page  2, lines 14                                                                    
through  19. The  dividends were  the same  as those  set up                                                                    
from  the  revolving  and  SETS  funds.  He  explained  that                                                                    
between 25 and  50 percent of money the  fund earned through                                                                    
loan  proceeds  would  be  returned   to  the  general  fund                                                                    
annually.  For   example,  in   the  current   year  AIDEA's                                                                    
dividends  provided  approximately   $20.5  million  to  the                                                                    
general fund.                                                                                                                   
3:15:30 PM                                                                                                                    
Co-Chair Stoltze asked if the SETS  fund was a model for the                                                                    
bill's fund. Mr. Logan answered in the affirmative.                                                                             
Co-Chair Stoltze  wondered if the  fund would be  drained in                                                                    
two  years. Mr.  Logan replied  that the  bill did  not seek                                                                    
capitalization at  present; therefore, there was  nothing to                                                                    
Co-Chair  Austerman referenced  the  building  of ports.  He                                                                    
stated that  fisheries was  only a portion  of the  bill. He                                                                    
spoke to  the original intent  of the bill to  develop areas                                                                    
that were not developed in the Arctic.                                                                                          
Representative  Wilson asked  for verification  that one  of                                                                    
the  projects  would  not   qualify  under  AIDEA's  current                                                                    
structure.  Mr. Logan  replied that  AIDEA  could invest  in                                                                    
infrastructure in most  of the areas contained  in the bill;                                                                    
however,  there was  no existing  provision to  specifically                                                                    
attract  outside investment.  The  loan  limitations in  the                                                                    
bill  were a  signal  to outside  investors  that the  state                                                                    
would help  provide capital  at a  slightly reduced  rate if                                                                    
investment was brought to Alaska.                                                                                               
Representative  Wilson  wondered   how  the  commission  was                                                                    
connected  and if  AIDEA would  look for  private investors.                                                                    
Mr. Logan replied  that the commission was  not connected to                                                                    
AIDEA in any way. He assumed  AIDEA could market the fund if                                                                    
it  chose  to  do  so,   but  that  was  not  the  sponsor's                                                                    
intention. The  intention was to provide  AIDEA with another                                                                    
tool and to allow companies to submit proposals.                                                                                
Representative Wilson thought most of  the items in the bill                                                                    
(with   the  exception   of   fisheries  provisions)   could                                                                    
currently  occur  through  AIDEA.  She  wondered  about  the                                                                    
purpose of  the bill.  She remarked that  it made  sense for                                                                    
AIDEA to look for businesses to bring back to Alaska.                                                                           
Mr. Logan could  not speak to AIDEA's  marketing ability. He                                                                    
explained  that the  bill created  an incentive.  Currently,                                                                    
AIDEA's funds  were not  designed to  be limited  to certain                                                                    
portions  of the  capital investment  or  the overall  costs                                                                    
(with the  exception of the SETS  fund). Without legislative                                                                    
approval AIDEA  could not  issue a loan  for more  than one-                                                                    
third of the  capital cost; however, the  loan for one-third                                                                    
of  the capital  cost  could be  significantly below  market                                                                    
value, which  would be  a trigger to  investors. He  did not                                                                    
know whether AIDEA would actively seek the investors.                                                                           
3:19:43 PM                                                                                                                    
Representative  Costello remarked  on Mr.  Logan's testimony                                                                    
that there  was no connection  between AIDEA and  the Arctic                                                                    
Policy Commission. She wondered  whether the commissioner of                                                                    
the   Department  of   Commerce,   Community  and   Economic                                                                    
Development (DCCED) sat on both boards.                                                                                         
Mr. Logan replied  that AIDEA had its own  board; in statute                                                                    
the  participants  were  referred  to  as  members,  but  in                                                                    
practice it was a board of directors.                                                                                           
Representative  Costello asked  whether the  commissioner of                                                                    
DCCED sat on the board. Mr. Logan believed so.                                                                                  
Co-Chair Stoltze replied in the affirmative.                                                                                    
3:20:52 PM                                                                                                                    
RON  LONG, MANAGER,  CITY  OF  SEWARD (via  teleconference),                                                                    
spoke in support of the  legislation. He highlighted his top                                                                    
five   reasons  for   supporting   the   bill.  First,   the                                                                    
legislation did not ask for  capitalization and used AIDEA's                                                                    
authority to guarantee loans and  transfer between funds. He                                                                    
stated that  the Alaska Arctic Policy  Commission identified                                                                    
that needs  and opportunities  in the Arctic  would generate                                                                    
billions in  private capital  that would  go to  the region.                                                                    
Second,  the   bill  would  allow   AIDEA  to   give  Alaska                                                                    
businesses  better-than-market  rates   to  move  the  money                                                                    
through the  state's resources (e.g. oil  and gas, response,                                                                    
search   and  rescue,   tourism,  fisheries,   and  economic                                                                    
sectors).   He    believed   the   definition    of   Arctic                                                                    
infrastructure recognized that  ports outside the geographic                                                                    
arctic would play  a critical logistics and  support role in                                                                    
developing the  Arctic. Third, the  bill made  Alaskan ports                                                                    
more competitive  than outside ports; it  would take several                                                                    
Alaska  ports to  get everything  accomplished. Fourth,  the                                                                    
fisheries component  created an  economic reason for  the 90                                                                    
percent  of  the  federally  managed  Bering  Sea  fisheries                                                                    
currently  monetized out-of-state  to home  port in  Alaska,                                                                    
adding  to the  10 percent  currently allocated  to the  CDQ                                                                    
[Community Development  Quota] programs. Fifth,  he believed                                                                    
the federal  government had done little  to advance Alaska's                                                                    
goals in the  Arctic; however, the bill  would enable Alaska                                                                    
to make the U.S. a participant rather than an observer.                                                                         
Co-Chair Stoltze  referred to a  resolution on  by-catch. He                                                                    
spoke  to   concern  about  bringing  in   by-catch  with  a                                                                    
conflicting   goal  of   bringing  more   by-catch  in   for                                                                    
subsidizing. Mr.  Long replied that  the bill did not  add a                                                                    
new  quota to  fully allocated  fisheries. He  surmised that                                                                    
the bill  may change some  of the quota ownership  from non-                                                                    
Alaskans to Alaskans.                                                                                                           
Co-Chair Stoltze  asked if it  was okay for Alaskans  to by-                                                                    
catch Chinooks. Mr. Long answered in the negative.                                                                              
3:23:24 PM                                                                                                                    
SARAH   LUNKIN,  CEO,   PT   PUBLIC   POLICY,  LLC,   shared                                                                    
information  about  the  company.  She  explained  that  the                                                                    
company was  the only private  equity firm  headquartered in                                                                    
Alaska that was focused  exclusively on deploying capital in                                                                    
the Arctic. The company  expected to deploy approximately 80                                                                    
percent of  the total money  raised in Alaska; the  other 20                                                                    
percent  would  be  deployed   in  Iceland,  Greenland,  and                                                                    
Co-Chair Stoltze appreciated the information.                                                                                   
Ms. Lunkin thanked the sponsors  for their work on the bill.                                                                    
She shared  that PT was  currently in the midst  of speaking                                                                    
with  global investors  about deploying  significant capital                                                                    
in  Arctic Alaska.  She planned  to speak  primarily on  the                                                                    
bill's fisheries provision.                                                                                                     
Co-Chair   Stoltze  asked   for   information  about   other                                                                    
provisions as well.                                                                                                             
Ms.  Lunkin  clarified  that  the  fisheries  provision  was                                                                    
focused  on  AIDEA  financing federally  managed  industrial                                                                    
fisheries  in the  Bering Sea.  The Alaska  fishing industry                                                                    
was  the  largest  employer  in Alaska  and  was  the  third                                                                    
largest industry  in the state; nearly  60,000 Alaskans were                                                                    
employed in  commercial fishing and seafood  processing. She                                                                    
stated  that an  additional 11,000  jobs in  the state  were                                                                    
created  by support  services industries.  She relayed  that                                                                    
most  additional jobs  created  by  Alaska's fisheries  were                                                                    
located outside of  Alaska. She stated that  the company saw                                                                    
the  provision as  bringing some  of  the outside  fisheries                                                                    
jobs  back  to  Alaska.  She detailed  that  jobs  would  be                                                                    
brought back in-state if AIDEA  had the ability to guarantee                                                                    
bank loans for  quota and or vessels used in  the Bering Sea                                                                    
for  fisheries   including  pollock,  crab,  and   cod.  The                                                                    
fisheries  provision also  provided AIDEA  loans for  shore-                                                                    
based plants, facilities, and equipment  within the State of                                                                    
Alaska that were used in  support of the Bering Sea fishery.                                                                    
The  company  believed  the  bill  would  increase  economic                                                                    
development,  infrastructure, opportunities,  and keep  jobs                                                                    
and profits in-state.                                                                                                           
3:27:56 PM                                                                                                                    
Representative  Wilson asked  what  new  authority the  bill                                                                    
would provide to AIDEA.                                                                                                         
TED   LEONARD,   EXECUTIVE   DIRECTOR,   ALASKA   INDUSTRIAL                                                                    
DEVELOPMENT  AND  EXPORT   AUTHORITY  (via  teleconference),                                                                    
answered  that the  bill  would establish  a  new fund  that                                                                    
would  allow  AIDEA  to  move  forward  on  Arctic  projects                                                                    
assisted by the legislature.  He communicated that AIDEA had                                                                    
the ability  to finance  the projects through  its revolving                                                                    
fund,  but  there  were  side  bars for  a  sample  of  loan                                                                    
participation that allowed the  agency to provide investment                                                                    
at its cost  of capital. He noted  that development projects                                                                    
through the  agency's development program were  based on its                                                                    
cost of capital.  The different fund would  allow the agency                                                                    
to assist  the legislature with  projects that it  wanted to                                                                    
fund and allowed the legislature to  set the type of cost of                                                                    
capital for the  project; it also set  limits on investment.                                                                    
Additionally,  the  bill  would  allow  the  legislature  to                                                                    
increase  the  investment  amount  through  legislation.  He                                                                    
provided  the Interior  energy project  funded  by the  SETS                                                                    
program  as   an  example.  Under   the  SETS   program  the                                                                    
legislature  had  instructed  AIDEA  to invest  up  to  $125                                                                    
million  in low-cost  loans  at a  rate of  no  more than  3                                                                    
percent and had  provided a capital appropriation  to use in                                                                    
combination  with the  loans. He  elaborated  that the  fund                                                                    
would   allow  the   same  type   of  flexibility   for  the                                                                    
legislature to  use AIDEA  as a  tool in  financing projects                                                                    
that it wanted  to move forward. Finally, the bill  set up a                                                                    
different  fund; therefore,  it  would not  impact the  bond                                                                    
rating  of the  AIDEA revolving  fund and  funding of  other                                                                    
3:31:40 PM                                                                                                                    
Representative Edgmon spoke  in support of the  bill that he                                                                    
believed  was forward  looking. He  believed the  bill dealt                                                                    
with an  issue that was  not presently  on the radar  of the                                                                    
mainstream  public. He  stated  that  things were  happening                                                                    
quickly associated  to the potential  opening of  the Arctic                                                                    
and issues  pertaining to the  Arctic Policy  Commission. He                                                                    
viewed  the bill  as providing  similar  building blocks  as                                                                    
those  that  had led  the  legislature  to the  current  gas                                                                    
legislation. He opined that the  opening of the Arctic would                                                                    
mean  bigger  things for  Alaska.  He  noted that  the  fund                                                                    
focused on fisheries.                                                                                                           
Co-Chair Stoltze made a remark  about the state's commercial                                                                    
CSSB 140(FIN)  was HEARD and  HELD in committee  for further                                                                    
3:33:45 PM                                                                                                                    
AT EASE                                                                                                                         
3:43:27 PM                                                                                                                    
CS FOR SENATE BILL NO. 194(FIN)                                                                                               
     "An Act creating the Alaska Tourism Marketing Board;                                                                       
     and relating to tourism marketing."                                                                                        
3:43:41 PM                                                                                                                    
Co-Chair Stoltze spoke to the intent of the bill hearing.                                                                       
GENEVIEVE WOJTUSIK, STAFF,  SENATOR LESIL MCGUIRE, discussed                                                                    
the  bill.   The  bill  would  create   the  Alaska  Tourism                                                                    
Marketing   Board  within   the   Department  of   Commerce,                                                                    
Community and  Economic Development  (DCCED). There  were 21                                                                    
members  on  the board;  one  member  was appointed  by  the                                                                    
Senate,  one  was  appointed  by  the  House,  and  one  was                                                                    
appointed by  the DCCED commissioner. The  remaining 18 were                                                                    
members  of the  Alaska Travel  Industry Association  (ATIA)                                                                    
representing  Southeast, Southcentral,  Southwest, Interior,                                                                    
and Far  North. The  regions were  designated by  the Alaska                                                                    
State  Travel  Planner.  She detailed  that  the  categories                                                                    
involved  in   ATIA  were  accommodations,   activities  and                                                                    
attractions, transportation, cruise  travel, tour operators,                                                                    
and  destination   management  organizations  such   as  the                                                                    
Anchorage Convention  and Visitors  Bureau and the  JCB. The                                                                    
bill  would require  the department  and the  board to  work                                                                    
together  to   plan  and   execute  a   destination  tourism                                                                    
marketing plan for  Alaska. The public members  of the board                                                                    
served at  no cost to  the state.  The bill would  sunset in                                                                    
2018. She  added that  the bill did  not change  how tourism                                                                    
marketing  was currently  funded  or  how expenditures  were                                                                    
made  by  the  department;  it would  formalize  the  board,                                                                    
recognizing it  as an important  part of the process  in the                                                                    
development  of   a  marketing  plan  for   the  state.  She                                                                    
communicated  that  having   significant  tourism  marketing                                                                    
experience  and knowledge  from  the private  sector at  the                                                                    
table would be very beneficial to the state.                                                                                    
3:45:21 PM                                                                                                                    
Co-Chair  Stoltze  asked  about  the  history  and  why  the                                                                    
legislation  proposed to  place the  board under  DCCED. Ms.                                                                    
Wojtusik replied  that DCCED was  supportive of  housing the                                                                    
Co-Chair  Stoltze  noted that  the  board  had been  through                                                                    
different iterations. Ms. Wojtusik agreed.                                                                                      
Co-Chair Stoltze CLOSED public  testimony with the intent to                                                                    
reopen  it  if  needed.  He assumed  that  the  majority  of                                                                    
potential parties  wishing to testify would  be advocates of                                                                    
the legislation.                                                                                                                
CSSB 194(L&C)  was HEARD and  HELD in committee  for further                                                                    
Co-Chair Stoltze discussed the evening meeting.                                                                                 
Representative  Gara  relayed  that the  administration  had                                                                    
expressed  concern  over  two  of  the  minority  amendments                                                                    
[pertaining  to SB  138].  Subsequently  the amendments  had                                                                    
been submitted for rewording  by Legislative Legal Services.                                                                    
He noted that  the concern was over rolled-in  rates. He did                                                                    
not want to increase anyone's cost  for gas if the state did                                                                    
not receive tax for the gas.                                                                                                    
Co-Chair  Stoltze  replied  that  the  amendments  would  be                                                                    
considered timely.                                                                                                              
Representative  Holmes   expressed  a  similar   concern  to                                                                    
Representative Gara's over an amendment she was working on.                                                                     
3:50:02 PM                                                                                                                    
The meeting was adjourned at 3:49 p.m.                                                                                          

Document Name Date/Time Subjects
SB 191 CS WORKDRAFT FIN C VERSION.pdf HFIN 4/16/2014 1:30:00 PM
SB 191
CSSB 140 (FIN) Letters of Support.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
CSSB 140 (FIN) Sectional Analysis.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
CSSB 140 (FIN) Summary of Changes ver U to ver E.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
CSSB 140 (FIN) Supporting Document-Planning and Infrastructure Section of AAPC Preliminary Report.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
CSSB 140 (FIN) Sponsor Statement.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
CSSB 140 (FIN) Supporting Document-ARPAPolar map.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
SB 138 4.16.14 HFIN Response to Rep Gara Questions.pdf HFIN 4/16/2014 1:30:00 PM
SB 138
SB 138 4.15.14 House Finance 830 AM DOR Notes.pdf HFIN 4/16/2014 1:30:00 PM
SB 138