Legislature(2023 - 2024)ADAMS 519

04/19/2024 01:30 PM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 74 GEOTHERMAL RESOURCES TELECONFERENCED
Heard & Held
+ HB 388 COOK INLET RESERVE-BASED LENDING TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                   HOUSE FINANCE COMMITTEE                                                                                      
                       April 19, 2024                                                                                           
                          1:34 p.m.                                                                                             
                                                                                                                                
1:34:58 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster  called the  House Finance Committee  meeting                                                                   
to order at 1:34 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Bryce Edgmon, Co-Chair                                                                                           
Representative Neal Foster, Co-Chair                                                                                            
Representative DeLena Johnson, Co-Chair(via teleconference)                                                                     
Representative Julie Coulombe (via teleconference)                                                                              
Representative Mike Cronk                                                                                                       
Representative Alyse Galvin                                                                                                     
Representative Sara Hannan                                                                                                      
Representative Andy Josephson                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Will Stapp                                                                                                       
Representative Frank Tomaszewski (via teleconference)                                                                           
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Sean  Clifton, Policy  and  Program Specialist,  Division  of                                                                   
Oil and Gas;  John Crowther, Deputy Commissioner,  Department                                                                   
of  Natural  Resources; Representative  Tom  McKay,  Sponsor;                                                                   
Trevor Jepsen, Staff, Representative Tom McKay.                                                                                 
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Melanie  Werdon,   Director,   Division  of  Geological   and                                                                   
Geophysical   Survey,   Department  of   Natural   Resources,                                                                   
Fairbanks; Steve  Davies, Senior Petroleum  Geologist, Alaska                                                                   
Oil  and  Gas  Conservation  Commission,  Anchorage;  Brandon                                                                   
Brefczynski, Deputy  Director, Alaska Industrial  Development                                                                   
and  Export  Authority,  Anchorage;   Mark  Davis,  Attorney,                                                                   
Alaska   Industrial   Development   and   Export   Authority,                                                                   
Anchorage.                                                                                                                      
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB  74    GEOTHERMAL RESOURCES                                                                                                  
                                                                                                                                
          HB 74 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
HB 388    COOK INLET RESERVE-BASED LENDING                                                                                      
                                                                                                                                
          HB 388 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
Co-Chair Foster reviewed the meeting agenda.                                                                                    
                                                                                                                                
HOUSE BILL NO. 74                                                                                                             
                                                                                                                                
     "An Act relating to geothermal resources; relating to                                                                      
     the   definition   of   'geothermal    resources';   and                                                                   
     providing for an effective date."                                                                                          
                                                                                                                                
1:35:07 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster reviewed the meeting agenda.                                                                                    
                                                                                                                                
1:37:32 PM                                                                                                                    
                                                                                                                                
SEAN  CLIFTON, POLICY  AND  PROGRAM SPECIALIST,  DIVISION  OF                                                                   
OIL AND  GAS, introduced the  PowerPoint presentation  "HB 74                                                                   
Geothermal Resources"  dated April  19, 2024 (copy  on file).                                                                   
He advanced  to slide  2 titled  "Fundamentals of  Geothermal                                                                   
Systems."  He relayed  that  the following  slides  discussed                                                                   
geothermal  fundamentals and move  into an  overview   of the                                                                   
bill.                                                                                                                           
                                                                                                                                
1:38:13 PM                                                                                                                    
                                                                                                                                
MELANIE  WERDON,   DIRECTOR,   DIVISION  OF  GEOLOGICAL   AND                                                                   
GEOPHYSICAL   SURVEY,   DEPARTMENT  OF   NATURAL   RESOURCES,                                                                   
FAIRBANKS  (via  teleconference),  presented slide  3  titled                                                                   
 Fundamental Ingredients of Useable Geothermal Energy:"                                                                         
                                                                                                                                
     • Elevated geothermal gradient                                                                                             
     • Porosity and permeability for the migration of                                                                           
       fluids                                                                                                                   
     • Surface access                                                                                                           
     • Sufficiently large thermal system                                                                                        
     • Customers for energy                                                                                                     
                                                                                                                                
Ms. Werdon continued to slide 4 titled "Heat Flow in                                                                            
Alaska                                                                                                                          
                                                                                                                                
     Most  of Alaska  is thought  to  have slightly  elevated                                                                   
     heat  flow (red).  However,  only  very localized  areas                                                                   
     will  have   all  the  ingredients   for  cost-effective                                                                   
     geothermal energy use.                                                                                                     
                                                                                                                                
Ms. Werdon turned to slide 5 titled "Introduction to                                                                            
Geothermal Resources:                                                                                                           
                                                                                                                                
     • Geothermal  heat, where  technically and  economically                                                                   
     accessible, is an excellent  form of sustainable energy                                                                    
                                                                                                                                
     •  Hydrothermal  systems are  the  most common  form  of                                                                   
     energy extraction from geothermal heat                                                                                     
                                                                                                                                
     •  Complex geologic  parameters necessary  for a  viable                                                                   
     geothermal  resource, all  present at  one location,  is                                                                   
     rare                                                                                                                       
                                                                                                                                
     •   Alaska   contains   several   potential   geothermal                                                                   
     resources                                                                                                                  
                                                                                                                                
     •  New technologies  that  will help  expand  geothermal                                                                   
     development  into  less  favorable  geology are  on  the                                                                   
     horizon                                                                                                                    
                                                                                                                                
Ms. Werdon moved to slide 6 titled Fiscal Note: DGGS                                                                            
Geothermal:"                                                                                                                    
                                                                                                                                
     •  "Powering  Alaska's Future  with  Geothermal  Energy"                                                                   
     $1,000.0  UGF;  included  in FY2025  Governor's  Amended                                                                   
     Budget                                                                                                                     
                                                                                                                                
     • Enables DGGS to restart its geothermal program:                                                                          
                                                                                                                                
          • Supply information to support DNR's geothermal                                                                      
          leasing program and attract explorers and                                                                             
          developers of Alaska's geothermal resources                                                                           
                                                                                                                                
          • Analyze satellite-based remote sensing data for                                                                     
          known geothermal springs and the areas around                                                                         
          them                                                                                                                  
          •    Contract   airborne    thermal   imagery    to                                                                   
          identify/prioritize promising geothermal sites                                                                        
                                                                                                                                
          •    Contract    limited,    site-scale    airborne                                                                   
          geophysical surveys                                                                                                   
                                                                                                                                
          •   Conduct  ground-based   geologic  mapping   and                                                                   
          geothermal-site investigations                                                                                        
                                                                                                                                
          •  Collect water  samples  from geothermal  springs                                                                   
          and   obtain    state-of-the   art    analyses   at                                                                   
          commercial laboratories                                                                                               
                                                                                                                                
          •  Attract federal funds  to characterize  Alaska's                                                                   
          geothermal systems                                                                                                    
                                                                                                                                
          •  Complement initiatives  by university,  federal,                                                                   
          native, and private-sector partners                                                                                   
                                                                                                                                
1:41:13 PM                                                                                                                    
                                                                                                                                
Representative  Hannan  referred  to Ms.  Werdon's  statement                                                                   
concerning  restarting  the  geothermal  program.  She  asked                                                                   
what restarting  the program  would entail.  She wondered  if                                                                   
the  $1  million  was  for the  first  fiscal  year  for  new                                                                   
employees and  what were the  needs for the  following years.                                                                   
Ms. Werdon  responded that  a geothermal  program existed  in                                                                   
the   1980s.  However,   since   then   the  technology   had                                                                   
progressed  with new  techniques which  incited the  proposal                                                                   
to restart  the program.  She indicated  that the  Department                                                                   
of  Natural  Resources  (DNR)  currently  lacked  staff  with                                                                   
geothermal  expertise.  The  fiscal  note  proposed  to  hire                                                                   
three  new  employees  to  run  the  program.  Representative                                                                   
Hannan  restated her  question  regarding if  the $1  million                                                                   
would  fund one  year of  operating expenses.  She asked  for                                                                   
more  information  about  the program's  budget  and  ongoing                                                                   
expenses.  Ms. Werdon  replied  that the  fiscal note  called                                                                   
for three  permanent staff  for $400  thousand, $10  thousand                                                                   
for travel, $550  thousand for contracted data  services, and                                                                   
$40  thousand for  commodities.  The budget  was included  in                                                                   
the  governor's FY  25  Operating Budget  and  was an  annual                                                                   
ongoing  request.   Representative  Hannan  asked   what  the                                                                   
anticipated   length  of   time   before  geothermal   energy                                                                   
production  in Alaska  would be  realized.  She wondered  how                                                                   
long the  commitment was to  "see it through"  to production.                                                                   
Ms.  Werdon responded  that  DNR's geothermal  program  would                                                                   
identify geothermal  potential in order to  attract producers                                                                   
to  the state  and  invest. She  was  not  familiar with  the                                                                   
timelines of the permitting process for a project.                                                                              
                                                                                                                                
JOHN  CROWTHER, DEPUTY  COMMISSIONER,  DEPARTMENT OF  NATURAL                                                                   
RESOURCES,   responded  that   the  initial   results   in  a                                                                   
geothermal  program should be  seen within  the next  year or                                                                   
two. A  multi-year process was  anticipated for a  company to                                                                   
undergo exploration  and if successful it would  take several                                                                   
years  before there  was  a  project concept.  He  elaborated                                                                   
that one of  the core purposes of the legislation  beside the                                                                   
data  collection   program,  was   making  the   leasing  and                                                                   
development   terms   more   attractive   and   workable   to                                                                   
geothermal  producers.  He  noted  that DNR  had  two  active                                                                   
exploration licenses,  and one of  the two was  evolving into                                                                   
a lease posture.  He believed that HB 74 would  help with all                                                                   
phases of the  current projects. The goal of  the anticipated                                                                   
lease  was  to  develop a  project,  which  entailed  several                                                                   
years  of  onsite  visits and  several  additional  years  of                                                                   
onsite development as a general timeframe.                                                                                      
                                                                                                                                
1:46:21 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster  wanted  to proceed  with  the  presentation                                                                   
before getting into the "nuts and bolts of the bill."                                                                           
                                                                                                                                
Mr. Clifton continued  on slide 7 titled "Overview  of HB 74"                                                                   
that  began  the   next  section  of  the   presentation.  He                                                                   
advanced to slide 8 titled "Purpose of HB 74:"                                                                                  
                                                                                                                                
     Modernize Alaska's geothermal exploration program:                                                                         
                                                                                                                                
     • Greater potential for providing affordable,                                                                              
     renewable energy to rural communities and remote                                                                           
     natural resource extraction projects                                                                                       
                                                                                                                                
     • Promote clean energy industry job creation:                                                                              
                                                                                                                                
      Align geothermal licensing with the oil and gas                                                                           
          exploration license  program, thereby increasing                                                                      
          feasibility for companies  to develop resources                                                                       
                                                                                                                                
     • More time for a company to identify and prove                                                                            
     resource to convert to leases                                                                                              
                                                                                                                                
     • Conversion to leases based on completion of work                                                                         
     commitment and submission of exploration plan instead                                                                      
     of proving discovery of commercial resource                                                                                
     • Doubles maximum acreage allowed for exploration                                                                          
                                                                                                                                
   • Repeals rental/royalty modification after 20 years                                                                         
   of production, providing stability and predictability                                                                        
     for investors in geothermal energy projects                                                                                
                                                                                                                                
•  Reform definitions for geothermal resources  and fluids to                                                                 
 account for technological advancements in the geothermal                                                                       
   industry                                                                                                                     
                                                                                                                                
Mr. Clifton indicated  that the bill had been  heard in prior                                                                   
sessions and was  similar to prior bills. He  emphasized that                                                                   
the bill  did not  change anything  for federal, private,  or                                                                   
native lands  and only  applied to  state lands. He  believed                                                                   
that geothermal  could  be a component  of energy  production                                                                   
solutions  in Alaska.  He  reported  that there  was  renewed                                                                   
interest  in geothermal  and one  of the  main obstacles  was                                                                   
the  short timeline  for the  current permit  system and  the                                                                   
high  bar   for  converting   the  leases   into  long   term                                                                   
development. The goal was to modernize the program.                                                                             
                                                                                                                                
Representative Edgmon  wanted clarification on  two renewable                                                                   
energy grant  program projects  that possibly related  to the                                                                   
information on slide  8. Mr. Clifton replied  that the grants                                                                   
through the  renewable grant  program were doing  feasibility                                                                   
studies  for   running  power   lines  to  the   two  current                                                                   
potential projects  he had mentioned. He elucidated  that the                                                                   
projects  with active  permits and  leases were  at Mt.  Spur                                                                   
and  the  other  was on  Augustine  Island.  Co-Chair  Edgmon                                                                   
recalled  that   the  fiscal   note  would  help   staff  the                                                                   
geothermal  program. He  related  that  the renewable  energy                                                                   
grant program  was funded at $15  million in the  prior year.                                                                   
The two geothermal  projects were high on the  list at number                                                                   
2 and 3. He  deduced that there had been some  work in DNR on                                                                   
geothermal analysis.                                                                                                            
                                                                                                                                
Representative  Josephson  asked  for  a description  of  the                                                                   
bullet   on    slide   8    regarding   the    rental/royalty                                                                   
modifications.  Mr.  Clifton   answered  that  currently  the                                                                   
language  in  the statute  was  broad  enough that  it  could                                                                   
allow  for increased  rental/royalty  modifications after  20                                                                   
years.  He  relayed   that  the  economics  of   the  project                                                                   
changing  during the  financing  term was  pointed  out by  a                                                                   
lessee  as being  a significant  obstacle  to obtaining  long                                                                   
term financing.                                                                                                                 
                                                                                                                                
1:52:30 PM                                                                                                                    
Representative  Galvin  ascertained  that  geothermal  was  a                                                                   
 newer  market"   and  that  transmission  was   the  biggest                                                                   
obstacle  to  getting  the  power  to  market.  She  pondered                                                                   
whether the  bill was  putting the  "cart before the  horse."                                                                   
She asked if working on transmission should be prioritized.                                                                     
Mr.  Crowther agreed  that  the  transmission  and access  to                                                                   
markets  was critical  for  the projects  to  go forward.  He                                                                   
indicated  that  for  a  successful  project  the  "frontend"                                                                   
information gathered  by the division  was necessary  for the                                                                   
project and  licensing terms to  perform the  exploration and                                                                   
develop the project,  which included transmission.  He voiced                                                                   
that  it had  to happen  all at  once. Representative  Galvin                                                                   
surmised  that the  idea was  to  get good  data, expand  the                                                                   
potential geographical  areas, and  get more time  to develop                                                                   
a  project  that  would  be  more   attractive  to  "outside"                                                                   
producers.  She  wondered whether  the  overall  goal was  to                                                                   
potentially  export  energy  or create  the  opportunity  for                                                                   
Alaskans  to  have   more  reliable  low  cost   energy.  Mr.                                                                   
Crowther   responded   that   the   exciting   potential   of                                                                   
geothermal  were  the renewable,  low-cost,  and  sustainable                                                                   
long-term  elements. However,  there were  new evolutions  in                                                                   
the  energy  and  demand  markets  that  were  enabling  more                                                                   
accessible  geothermal  development.   He  communicated  that                                                                   
"core  to the  department's interest  was  the production  of                                                                   
the  resource  but  also the  energy  security  benefits  for                                                                   
instate use.   Long term renewable  power at low rates  was a                                                                   
huge boon  to the economy  and consumer. The  global interest                                                                   
in geothermal  was due to  new applications and  technologies                                                                   
that  can bring  demand for  its  development. He  delineated                                                                   
that HB  74 set the stage  for the underlying resource  to be                                                                   
identified,  explored,  and  set-up  for  development  versus                                                                   
solving the  larger issues like transmission.  Representative                                                                   
Galvin  commented that  the oil  and gas  industry was  well-                                                                   
established  in  the  state  that   provided  some  certainty                                                                   
regarding  the   marketability  of   oil  and  gas,   by  the                                                                   
producers and in  terms of revenue generation  for the state.                                                                   
She  hoped  that  the bill  would  address  marketability  so                                                                   
Alaskans  could   enjoy  clean   energy  at  low   costs  and                                                                   
potentially  attract other  businesses  in need  of low  cost                                                                   
power  to Alaska.  She  hoped DNR  was  considering a  global                                                                   
perspective with geothermal development.                                                                                        
                                                                                                                                
1:59:05 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster wanted  to  finish the  presentation  before                                                                   
more discussion following Representative  Hannan's question.                                                                    
                                                                                                                                
Representative    Hannan    referred     to    Representative                                                                   
Josephson's  question regarding  rental/royalty  modification                                                                   
and  wanted to  know if  it was  in alignment  with what  was                                                                   
currently in  oil and gas  exploration licenses.  Mr. Clifton                                                                   
responded that there  was nothing like it in the  oil and gas                                                                   
statutes; they could  not be revised upwards  only downwards.                                                                   
He reiterated  that the  language in  the current  geothermal                                                                   
statute was confusing  and suggestive, and the  provision was                                                                   
included to "clean up" the statute.                                                                                             
                                                                                                                                
Mr.  Crowther added  that the  language  was not  functional.                                                                   
The  statute  stated  that  renegotiation  was  inherently  a                                                                   
mutual activity  and "implied  some sort  of an authority  to                                                                   
compel" but  there was not  a further statutory  mechanism to                                                                   
act. The department  was unsure that the statute  was viable.                                                                   
He added that  the statute was identified by  financiers as a                                                                   
disincentive.  Representative   Hannan  emphasized  that  the                                                                   
bill was presented  as trying to match with oil  and gas. She                                                                   
was  aware of  royalty modification  language regarding  gas.                                                                   
She  was  wondering  why  it   was  being  repealed  but  not                                                                   
replaced  with corollary  oil and gas  statutes. She  thought                                                                   
the statutes  should be  consistent. Mr. Crowther  understood                                                                   
Representative  Hannan's point. The  department viewed  it as                                                                   
a different type  of provision than the current  authority in                                                                   
the  statutory   section  regarding   oil  and   gas  royalty                                                                   
modification.  There   were  some  differences   in  how  the                                                                   
projects  proceeded  and  the legislation  made  the  general                                                                   
framework very  consistent. He indicated that,  if necessary,                                                                   
the discussion might  come at some point post  development in                                                                   
the future.                                                                                                                     
                                                                                                                                
2:02:24 PM                                                                                                                    
                                                                                                                                
Mr.  Clifton continued  to  Slide  9 titled  "DNR  Geothermal                                                                   
Leasing and Permitting History:"                                                                                                
                                                                                                                                
Present                                                                                                                         
     Mount Spurr Two leases in the Mount Spurr area, issued                                                                     
    as permits in 2021 and converted to leases in 2023.                                                                         
                                                                                                                                
     Augustine  Island  Prospecting  permit in  the  southern                                                                   
     part  of the volcanic  island issued  in 2022,  expiring                                                                   
     August 2024.  A second permit for extended  areas around                                                                   
     that permit was awarded in January 2024.                                                                                   
                                                                                                                                
2013                                                                                                                            
     Augustine  Island  26  tracts  were  offered.  Only  one                                                                   
     tract  was  leased  to  a   private  individual  and  no                                                                   
     exploration  work  was conducted  as  a  result of  that                                                                   
     lease sale.                                                                                                                
                                                                                                                                
2008                                                                                                                            
     Mount  Spurr 16  tracts  were leased  to  Ormat and  one                                                                 
     private  individual. Ormat  purchased 15  leases  in the                                                                   
     2008  sale and  drilled on  southern  flank of  volcano.                                                                   
     They  didn't  find  adequate temperatures  in  wells  to                                                                   
     pursue  the project.  The State has  the data  available                                                                   
     on the Division of Oil & Gas website.                                                                                      
                                                                                                                                
1986                                                                                                                            
     Mount Spurr  on June 24,  1986, DNR offered  2,640 acres                                                                   
     in  two tracts.  Both tracts  received  bids. The  lease                                                                   
     for Tract 1  expired in 1996, and the lease  for Tract 2                                                                   
     was terminated in 1990.                                                                                                    
                                                                                                                                
1983                                                                                                                            
     Mount  Spurr DNR held  its first  geothermal lease  sale                                                                 
     in the  Mount Spurr area  on May 17, 1983.  10,240 acres                                                                   
     in  16 tracts  were  offered in  Competitive  Geothermal                                                                   
     Lease Sale  1. One tract  received a bid. The  lease for                                                                   
     that tract was terminated in 1992.                                                                                         
                                                                                                                                
Mr.  Clifton   summarized  that   the  permits,   similar  to                                                                   
exploration licenses  were only valid  for two years  and had                                                                   
a  high bar  to meet  to  become leases.  He  noted that  the                                                                   
Augustine Island lease  was set to expire in  August 2024. He                                                                   
pointed to  the Mount  Spurr activity  and reported  that the                                                                   
leases expired before  the developer could find  the resource                                                                   
and  invest  in  development.   He  hoped  that  the  current                                                                   
permittees find the resource.                                                                                                   
                                                                                                                                
Mr.  Clifton continued  to  slide  10 titled  "Leasing  Under                                                                   
Current Law                                                                                                                     
                                                                                                                                
     Application and call for competing proposals:                                                                              
                                                                                                                                
     • If competing proposals ? competitive lease sale                                                                          
                                                                                                                                
     • If no competing interest ? issue prospecting permit                                                                      
     with two-year time limit                                                                                                   
                                                                                                                                
   • This bill replaces two-year permits with five-year                                                                         
     licenses modelled after our modern oil and gas                                                                             
     exploration licensing program (AS 38.05.131134)                                                                            
                                                                                                                                
     • Conversion to lease:                                                                                                     
                                                                                                                                
     • Permit (current): "showing of a discovery of                                                                             
     geothermal resources in commercial quantities"                                                                             
                                                                                                                                
     • License (bill): after work commitment is met                                                                             
     Both processes require Best Interest Finding and                                                                           
     public input opportunity prior to award of permit,                                                                         
     license, or lease                                                                                                          
                                                                                                                                
          o Royalties are set by AS 38.05.181(g): 1.75% of                                                                      
          gross revenue for the first 10 years of                                                                               
            production, then 3.5% of gross revenue after 10                                                                     
            years                                                                                                               
                                                                                                                                
Mr.   Clifton  clarified   that   the  similarities   between                                                                   
geothermal  and  the oil  and  gas  program referred  to  the                                                                   
aspect of land  management and resource disposal.  The energy                                                                   
produced  from  a  geothermal  well could  not  be  put  into                                                                   
barrels  and  transported  to   distant  markets.  Geothermal                                                                   
needed  to  be  connected  to   transmission  lines  and  its                                                                   
limitations  were  the  reason the  royalty  provisions  were                                                                   
significantly  different. He  pointed  to the  last point  on                                                                   
the slide regarding  royalties and remarked that  they were a                                                                   
percentage  of gross revenue  because  there were no  barrels                                                                   
to measure. He  stressed that the permit and  license process                                                                   
required  a Best  Interest  Finding  that included  a  robust                                                                   
public process.                                                                                                                 
                                                                                                                                
Mr.  Clifton   continued  on   slide  11  titled   "Sectional                                                                   
Summary                                                                                                                         
                                                                                                                                
     Section (Agency) Summary                                                                                                   
                                                                                                                                
     1 (AOGCC) Grants Alaska Oil & Gas Conservation                                                                             
     Commission (AOGCC) authority to pursue primacy of                                                                          
     Class V injections wells for geothermal energy                                                                             
                                                                                                                                
     2 (AOGCC) Removes unnecessary reference to AS 41.06                                                                        
     from AS 31.05.030(m) (see Section 10)                                                                                      
                                                                                                                                
     3  (DNR) Changes  permits  to licenses;  adds  exemption                                                                   
     for   geothermal   resources  intended   for   domestic,                                                                   
     noncommercial, or small-scale industrial use (same as                                                                      
     Section   11);   removes  preferential   rights   clause                                                                   
     (inappropriate  for  commercial   development  of  State                                                                   
     resources)                                                                                                                 
                                                                                                                                
     4  (DNR) Changes  permit  to  license; extends  term  of                                                                   
     licenses  (formerly  permits) from  two  to five  years;                                                                   
     replaces lease conversion requirement of commercial                                                                        
     discovery  and  development  plan with  work  commitment                                                                   
     and exploration plan                                                                                                       
                                                                                                                                
     5 (DNR) Changes permit to license                                                                                          
                                                                                                                                
     6 (DNR) Changes  permits to licenses;  increases maximum                                                                   
     acreage  from 51,200  to 100,000;  moves rental  fees to                                                                   
     be set by regulation                                                                                                       
                                                                                                                                
     7 (DNR)  Amends AS 38.05.181(f)  to grant leases  for 10                                                                   
     years,  with  opportunity  for  a  five-year  extension,                                                                   
     with standard indefinite extension by production                                                                           
     Repeals  opportunity  for  DNR  commissioner  to  modify                                                                   
     rent and royalty rates after 20 years of production                                                                        
                                                                                                                                
     8  (DNR) Adds  three new  subsections AS  38.05.181(ik)                                                                    
     to modernize  unitization statute for  geothermal leases                                                                   
     to match the model used for oil & gas                                                                                      
                                                                                                                                
     9   (DNR)  Replaces   AS   38.05.965(6)  definition   of                                                                   
     geothermal resources (same as Section 14)                                                                                  
                                                                                                                                
     10  (AOGCC) Amends  AS 41.06.020(e),  clarifies that  AS                                                                   
     41.06  does not  limit DNR's  authority over  geothermal                                                                   
     resource management on state land                                                                                          
                                                                                                                                
     11   (AOGCC)  New   subsection   AS  41.06.020(f)   adds                                                                   
     exemption   for   geothermal  resources   intended   for                                                                   
     domestic, noncommercial, or small-scale industrial use                                                                     
     (see Section 3)                                                                                                            
                                                                                                                                
     12 (AOGCC)  Adds new subsection AS 41.06.057  to provide                                                                   
     for  penalties  for violations  of  geothermal  statutes                                                                   
     (like oil & gas AS 31.05.150)                                                                                              
                                                                                                                                
     13  (AOGCC)   Amends  AS   41.06.060(4)  definition   of                                                                   
     geothermal  fluid to remove  temperature references  and                                                                   
     better conform with other changes in this bill                                                                             
                                                                                                                                
     14  (AOGCC)  Replaces  AS   41.06.060(5)  definition  of                                                                   
     geothermal resources (same as Section 9)                                                                                   
                                                                                                                                
     15  (AOGCC) Repeals  AS 41.06.005(b)  and AS  41.06.030,                                                                   
     since geothermal units are managed by DNR                                                                                  
                                                                                                                                
     1620  (AOGCC/DNR)  General provisions  for applicability                                                                   
     and   effective  dates,   including  applicability   for                                                                   
     prospecting   permits   issued    or   currently   being                                                                   
     processed.                                                                                                                 
                                                                                                                                
Mr.  Clifton informed  the committee  that slide  11 was  his                                                                   
attempt  to  succinctly  summarize  the entire  bill  on  one                                                                   
slide  that could  be used as  a reference.  He continued  to                                                                   
Slide 12 titled "Sections 36: Permits to Licenses                                                                               
                                                                                                                                
     •  Provisions in  these sections  replace "permit"  with                                                                   
     "license."                                                                                                                 
                                                                                                                                
     •   Within   DOG,   "permits"  are   for   surface   use                                                                   
     authorizations.    For   subsurface,   "licenses"    and                                                                   
     "leases" are issued.                                                                                                       
                                                                                                                                
     •  Adopting   the  exploration  licensing   program  for                                                                   
     geothermal  resource management  conforms with  existing                                                                   
     processes for                                                                                                              
     oil and gas.                                                                                                               
                                                                                                                                
     • Section 17  allows for conversion of  existing permits                                                                   
     to licenses.                                                                                                               
                                                                                                                                
Mr.  Clifton   illuminated  that  permits  were   issued  for                                                                   
surface  activities such  as roads,  pipelines, power  lines,                                                                   
and facilities  versus licenses were  a pathway to  lease the                                                                   
subsurface resource.                                                                                                            
                                                                                                                                
Mr.  Clifton  continued  on  Slide   13  titled  "Section  3:                                                                   
Private Use Exemption                                                                                                           
                                                                                                                                
     • New language:                                                                                                            
                                                                                                                                
          A prospecting license or lease is not required                                                                        
          under this section to explore for, develop, or                                                                        
          use   geothermal   resources  if   the   geothermal                                                                   
          resource  is intended for domestic,  noncommercial,                                                                   
          or small-scale industrial use.                                                                                        
                                                                                                                                
     • Intent:                                                                                                                  
                                                                                                                                
          •  Clarify that  domestic  users  of ground  source                                                                   
      heat pumps don't need an authorization from DNR                                                                           
                                                                                                                                
          •  Encourage  the  use   of  geothermal  energy  to                                                                   
          provide  affordable  energy  in  non-utility  scale                                                                   
          applications                                                                                                          
                                                                                                                                
2:08:30 PM                                                                                                                    
                                                                                                                                
Mr.   Clifton  turned   to   Slide  14   titled   "Commercial                                                                   
Geothermal  Power  Plants  VS   Non-Commercial  Systems."  He                                                                   
explained the graphic  depicting an example of  commercial as                                                                   
compared  to  non-commercial   geothermal  power  plants.  He                                                                   
emphasized  that   non-commercial  systems  do   not  produce                                                                   
enough to market the energy.                                                                                                    
                                                                                                                                
Mr. Clifton advanced to slide 15: "Section 3: "Preferential                                                                     
Rights Provision:"                                                                                                              
                                                                                                                                
   • Current statute grants preferential rights to a                                                                          
     surface owner to apply for a geothermal prospecting                                                                        
     permit once notice is received of an existing                                                                              
     application                                                                                                                
                                                                                                                                
          • Inappropriate for a surface owner to have a                                                                         
     preferential right to the State's mineral estate                                                                           
                                                                                                                                
   • Surface owners may still pursue domestic geothermal                                                                      
     developments for their own uses                                                                                            
                                                                                                                                
          •  Need  well permits  from  AOGCC  if hazards  may                                                                   
          exist                                                                                                                 
                                                                                                                                
          •  Need   environmental  review  or   permits  from                                                                   
          agencies   such  as  Department   of  Environmental                                                                   
          Conservation,  Fish & Game, DNR Division  of Mining                                                                   
          Land & Water, or federal agencies                                                                                     
                                                                                                                                
          •   Examples   of   permitting   requirements   are                                                                   
          detailed in a supplemental slide                                                                                      
                                                                                                                                
   • Geothermal licenses and leases are not surface use                                                                       
     authorizations                                                                                                             
                                                                                                                                
          • They only provide the exclusive right to                                                                            
          explore for and develop the subsurface resources                                                                      
                                                                                                                                
          • Public notice is a part of the license issuance                                                                     
        process and surface owners can participate                                                                              
                                                                                                                                
          • Surface use authorizations require public                                                                           
          notice and direct notice to any affected surface                                                                      
          owners                                                                                                                
                                                                                                                                
Mr. Clifton summarized that preferential rights were seen                                                                       
as a hurdle by potential developers and investors.                                                                              
                                                                                                                                
Mr. Clifton moved to slide 16 titled "Sections 4 & 7: Terms                                                                     
& Work Commitment                                                                                                               
                                                                                                                                
     • Changes prospecting permit to license and increases                                                                      
     term from 2 to 5 years                                                                                                     
                                                                                                                                
     • Creates greater opportunity for success of                                                                               
     noncompetitive geothermal program                                                                                          
                                                                                                                                
     •   Conversion    to   noncompetitive    lease   through                                                                   
     completion of agreed upon work commitment                                                                                  
                                                                                                                                
   • Current process for oil and gas exploration license                                                                        
                                                                                                                                
     • Commitment expressed in dollar figure                                                                                    
                                                                                                                                
     • Annual reporting and performance assessments are                                                                         
     required                                                                                                                   
                                                                                                                                
     • Amends AS 38.05.181(f) for geothermal leases                                                                             
                                                                                                                                
     • Geothermal leases last for 10 years, with                                                                                
    opportunity for a five-year extension, and standard                                                                         
     indefinite extension by production                                                                                         
                                                                                                                                
     • Repeals opportunity for DNR commissioner to                                                                              
    renegotiate rental and royalty rates for geothermal                                                                         
     leases after 20 years of production                                                                                        
                                                                                                                                
Mr. Clifton continued to slide 17 titled "Section 6:                                                                            
Acreage Limit and Rent                                                                                                          
     •  Maximum  acreage a  lessee  may hold  increases  from                                                                   
     51,200 to 100,000 acres                                                                                                    
                                                                                                                                
          • Geothermal systems can underlie very large                                                                          
          areas                                                                                                                 
                                                                                                                                
          • Enables explorers to more effectively delineate                                                                     
          resource                                                                                                              
                                                                                                                                
     •  Rental  fees  to  be set  by  regulation  instead  of                                                                   
     statute                                                                                                                    
                                                                                                                                
          • Enables DOG to be nimbler in response to market                                                                     
          changes                                                                                                               
                                                                                                                                
2:12:39 PM                                                                                                                    
                                                                                                                                
Mr. Clifton advanced to slide 18 titled "Sections 9, 13, &                                                                      
14: Geothermal Resources Definition                                                                                             
                                                                                                                                
     "Geothermal  resources" means  the natural  heat  of the                                                                   
     earth; the  energy, in whatever form, below  the surface                                                                   
     of  the earth  present in,  resulting  from, or  created                                                                   
     by, or which  may be extracted from, such  natural heat;                                                                   
     and  all   minerals  in   solution  or  other   products                                                                   
     obtained   from   naturally   heated   fluids,   brines,                                                                   
     associated  gases, and  steam, in  whatever form,  found                                                                   
     below  the  surface of  the  earth; but  excluding  oil,                                                                   
     hydrocarbon gases, or other hydrocarbon substances.                                                                        
                                                                                                                                
     "geothermal   fluid"  means   liquids,  brines,   water,                                                                   
     gases, or steam  naturally or artificially  present in a                                                                   
     geothermal system;  "geothermal fluid" does  not include                                                                   
     oil,   hydrocarbon    gases,   or   other    hydrocarbon                                                                   
     substances;"                                                                                                               
                                                                                                                                
     • Modern definition for geothermal resources                                                                               
                                                                                                                                
     •   Not   limited   by   temperature   because   current                                                                   
     technology  enables  development  of  cooler  geothermal                                                                   
     systems                                                                                                                    
                                                                                                                                
     • Ensures all  the State's mineral estate  resources are                                                                   
     captured in definition                                                                                                     
                                                                                                                                
     •  Distinguishes  geothermal   fluids  from  hydrocarbon                                                                   
     resources                                                                                                                  
     • Same definition being applied to both DNR & AOGCC                                                                        
     statutes                                                                                                                   
                                                                                                                                
Mr.  Clifton emphasized  that  the definitions  were new  and                                                                   
the  department had  consulted  several  different states  to                                                                   
see   how  other   states  updated   their  definitions.   He                                                                   
elaborated  that   one  of  the  main  points   was  DNR  was                                                                   
eliminating the  temperature limitation, which  was currently                                                                   
120 degrees Celsius  and was no longer an  appropriate limit.                                                                   
He exemplified  Chena Hot  Springs that  was producing  power                                                                   
at  roughly  80  degrees  Celsius.   He  noted  that  it  was                                                                   
potentially  viable   to  take  even  cooler   resources  and                                                                   
produce    commercial   power.    Retaining   an    arbitrary                                                                   
temperature in statute did not make much sense.                                                                                 
                                                                                                                                
Mr. Clifton presented Slide 19 titled "Minerals or Gases                                                                        
                                                                                                                                
     • Why this is an issue:                                                                                                    
                                                                                                                                
          •  In some  places,  minerals such  as lithium  are                                                                   
          being extracted  from geothermal fluids  as part of                                                                   
          the production system                                                                                                 
                                                                                                                                
          •  Helium and  hydrogen  are  sometimes present  in                                                                   
          geothermal fluids and could also be produced                                                                          
                                                                                                                                
          • These  are all valuable resources  and production                                                                   
          should be encouraged                                                                                                  
                                                                                                                                
     • What happens if these resources are produced:                                                                            
                                                                                                                                
          •  The  geothermal   lease  grants  access  to  the                                                                   
          State's  subsurface,  so  no  additional  lease  or                                                                   
          permit  is needed  for  associated extraction  from                                                                   
         fluid as part of the geothermal operation                                                                              
                                                                                                                                
          •  Minerals  and gases,  except  hydrocarbons,  are                                                                   
          part  of the  geothermal  fluid,  so royalties  for                                                                   
          produced  minerals  or gases  would  be paid  under                                                                   
          the terms of the geothermal lease                                                                                     
                                                                                                                                
          •   Production   of   dissolved   minerals   would,                                                                   
          however, need  a mining license from  Department of                                                                   
          Revenue and pay taxes under AS 43.65                                                                                  
                                                                                                                                
        o Royalties for geothermal leases are set by AS                                                                         
          38.05.181(g):  1.75%   of  gross  revenue  for  the                                                                   
          first 10 years of production, then 3.5% of gross                                                                      
          revenue after 10 years                                                                                                
                                                                                                                                
Mr.  Clifton   shared  that  the  potential   for  extracting                                                                   
minerals   or  non-hydrocarbon   gases   from  the   produced                                                                   
geothermal  fluid  was  possible,   and  the  issue  was  not                                                                   
anticipated   or  considered   in   prior  legislation.   The                                                                   
department  worked through  how  it could  function and  deal                                                                   
with the situation was delineated on the slide.                                                                                 
                                                                                                                                
2:15:37 PM                                                                                                                    
                                                                                                                                
Representative  Galvin  referred  to slide  6  regarding  the                                                                   
fiscal note and  questioned what was intended  to be produced                                                                   
based on the fiscal  note. She deduced that much  of the work                                                                   
listed  on the  slide  were things  that  the industry  would                                                                   
invest  in. Mr.  Crowther  answered that  it  was not  unlike                                                                   
many other  resource industries  like mining. The  department                                                                   
devoted a significant  amount of funding to  general geologic                                                                   
information about  where a resource  was located  and "passed                                                                   
the baton to  industry" for further exploration.  He believed                                                                   
that  geothermal  was  similar;  the  division  characterized                                                                   
where  possible  geothermal  resources  existed  and  letting                                                                   
industry  further explore  the  resource.  He expounded  that                                                                   
industry wanted  to focus on a  specific area and  not engage                                                                   
in  general  area  wide  exploration.  Representative  Galvin                                                                   
deemed  that  maybe because  geothermal  was  a new  type  of                                                                   
energy industry,  it would  need to  be examined  differently                                                                   
and invested  in differently. She  expected to see  work like                                                                   
processing  leases, oversight,  public  input processes,  and                                                                   
ensure  that  there  was promised  investment,  etc.  on  the                                                                   
fiscal note. However,  she saw that much of  DNR's work would                                                                   
be  front-end in  exploration.  She wondered  why the  fiscal                                                                   
note  was so  different from  her  expectation. Mr.  Crowther                                                                   
responded  that the  department had  significant capacity  to                                                                   
manage  subsurface  resources,  which  was the  reason  those                                                                   
type of costs was  not included in the fiscal  note. The same                                                                   
staff that  was engaged in  hydrocarbon and other  subsurface                                                                   
management  had  the  expertise   to  manage  the  geothermal                                                                   
resource.                                                                                                                       
                                                                                                                                
Co-Chair Foster requested a review of the DNR fiscal note.                                                                      
                                                                                                                                
2:20:45 PM                                                                                                                    
                                                                                                                                
Ms. Werdon reviewed  the DNR fiscal impact  note allocated to                                                                   
Geological  & Geophysical  Surveys. She  reiterated that  the                                                                   
details were  on slide 6. She  delineated that the  data that                                                                   
would  encompass  broad  areas  of  the  state  and  identify                                                                   
favorable  areas   for  geothermal  exploration   to  attract                                                                   
explorers and  developers to  Alaska. She reiterated  several                                                                   
of the  bullet points  on slide 6  that listed the  technical                                                                   
work DNR  would perform  in gathering  data. She  exemplified                                                                   
that at Pilgrim  Hot Springs both  airborne  and ground based                                                                   
surveys  helped identify  where   the  controlling fault  for                                                                   
geothermal was located.  Field crews mapped out  the findings                                                                   
and   used  water   samples  to   determine  the   subsurface                                                                   
temperatures  and identify the  potential to produce  energy.                                                                   
The data  would be  made available  to the  public through  a                                                                   
variety  of  sources.  She  spoke  about  the  potential  for                                                                   
federal   grant   funds   to   further   explore   geothermal                                                                   
resources.                                                                                                                      
                                                                                                                                
2:25:04 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster clarified  that  the new  DNR fiscal  impact                                                                   
fiscal note allocated  to Geological and  Geophysical Surveys                                                                   
totaled $1 million in the following operating expenditures:                                                                     
Personal  Services   $400  thousand;  Travel   $10  thousand;                                                                   
Services  $550 thousand;  and  Commodities  $40 thousand.  He                                                                   
asked  about the 2  full-time  positions noted  on page  1 of                                                                   
the fiscal note  but observed that 3 positions  were included                                                                   
in the  analysis. He  wondered what  the position  count was.                                                                   
Mr. Crowther  explained that  two of  the positions  were new                                                                   
and  one was  currently within  the department  and would  be                                                                   
funded  through the  fiscal note.  He  summarized that  there                                                                   
were two new positions but three total in the program.                                                                          
                                                                                                                                
Co-Chair Foster  asked for a  summation of the  Department of                                                                   
Commerce, Community  and Economic Development  (DCCED) fiscal                                                                   
note.                                                                                                                           
                                                                                                                                
2:26:58 PM                                                                                                                    
                                                                                                                                
STEVE  DAVIES, SENIOR  PETROLEUM  GEOLOGIST,  ALASKA OIL  AND                                                                   
GAS     CONSERVATION      COMMISSION,     ANCHORAGE      (via                                                                   
teleconference), cited  the new zero Department  of Commerce,                                                                   
Community  and  Economic  Development   (DCCED)  fiscal  note                                                                   
allocated to the  Alaska Oil and Gas Conservation  Commission                                                                   
(AOGA).  He  was  unable  to  discuss  the  fiscal  note  and                                                                   
reported that the  chairman of the commission  would speak to                                                                   
it at a forthcoming hearing.                                                                                                    
                                                                                                                                
Representative  Hannan inquired about  section 3 on  slide 15                                                                   
regarding preferential  rights. She  asked what  would happen                                                                   
if  a commercial  enterprise was  involved;  would they  gain                                                                   
access   to  someone's   surface  rights   if  there   was  a                                                                   
commercially  viable resource  via  a lease  obligation.  Mr.                                                                   
Crowther  replied   that  the   subsurface  estate   was  the                                                                   
dominant  access  via  statute.  He  elucidated  that  if  an                                                                   
entity  had a geothermal  lease,  it had the  right to  enter                                                                   
the surface as  necessary to develop the resources.  He added                                                                   
that  the entity  did not  have  an unfettered  right and  in                                                                   
almost  all  cases, worked  cooperatively  with  the  surface                                                                   
owner  to create  mutual  agreements on  how  and where  that                                                                   
surface   was   accessed.   The   department   had   existing                                                                   
regulation   to    set   bonds   to   prevent    unreasonable                                                                   
interference  in  the  event  a  reconciliation  between  the                                                                   
parties could  not be  reached. A process  was in  place, but                                                                   
it was  rarely used.  Representative  Hannan offered  that in                                                                   
oil and  gas the infrastructure  could be besides  the access                                                                   
point and  fairly far removed  from it. She  ascertained that                                                                   
in geothermal,  it was all  in concentrated footprints  and a                                                                   
developer could  place their equipment, etc. on  private land                                                                   
because   the  commercial   lease  allowed   access  to   the                                                                   
"superior" subsurface  mineral estate. Mr.  Crowther answered                                                                   
that  in the  event that  the private  surface ownership  was                                                                   
separate   from   the   state   subsurface   ownership,   the                                                                   
demarcation  line would  need  to be  negotiated between  the                                                                   
parties  including   state  entities.   He  added   that  the                                                                   
subsurface  owner  did not  have  the right  to  unreasonably                                                                   
interfere  without compensation.  Ultimately, the  subsurface                                                                   
owner  would have  the right  to site  a facility  if it  was                                                                   
necessary  to  develop the  resource.  Representative  Hannan                                                                   
cited  the Chena  Hot  Springs and  asked  whether they  were                                                                   
exempted from  the bill.  Mr. Crowther  replied that  the hot                                                                   
springs owned both  subsurface and surface rights  and were a                                                                   
private  resource  privately owned  and  did not  need  state                                                                   
rights of access.                                                                                                               
                                                                                                                                
2:32:47 PM                                                                                                                    
                                                                                                                                
Representative Josephson  referenced Section 3  and cited the                                                                   
deletion   of  statute   38.05.381,  written   in  1971   and                                                                   
rewritten most  recently in 2010.  He wondered how  in regard                                                                   
to  the overriding  interest  of the  subsurface  leaseholder                                                                   
that  the statute  ever became  law. He  speculated that  the                                                                   
bill  was  proposing   the  change  prior  to   dispute  over                                                                   
ownership interests.  He doubted that there was  much private                                                                   
property  on  Mt.  Spur.  Mr.  Clifton  responded  that  many                                                                   
Alaska statutes were  copy and pasted from  old federal laws.                                                                   
He expounded  that the statutes  under 38.05.180 for  oil and                                                                   
gas had  been revised  many times  and often through  lessons                                                                   
learned  from   past  development.  The   state's  geothermal                                                                   
resources  had never  been produced  and there  had not  been                                                                   
enough  activity in  the  industry. There  was  no reason  to                                                                   
focus  on the  statute and  revise  it. He  noted that  other                                                                   
states like  Utah and Nevada  had been updating  statutes and                                                                   
regulations   and   DNR   looked   to   those   statutes   in                                                                   
consideration  of the  legislation. Representative  Josephson                                                                   
shared  that he  had recently  traveled to  the community  of                                                                   
Dutch Harbor  where  a  geothermal resource exploration,  the                                                                   
Makushin  Geothermal Project  was underway.  The project  was                                                                   
designed to produce  inexpensive power to seafood  plants and                                                                   
the community.  He reported  that the community  discontinued                                                                   
investment  due to  much  disruption to  the  land. He  asked                                                                   
what could be  learned about the Dutch Harbor  obstacles that                                                                   
might help with the bill.                                                                                                       
                                                                                                                                
2:37:11 PM                                                                                                                    
                                                                                                                                
Mr.  Clifton  responded that  he  did  not know  the  details                                                                   
since  it   was  a  private   resource  owned  by   a  native                                                                   
corporation.  He understood that  there were some  challenges                                                                   
with   some  federal   permitting.   He   was   aware  of   a                                                                   
presentation in  the Senate Resources Committee  in the prior                                                                   
year   that   contained   more  details,   but   he   advised                                                                   
Representative  Josephson  to  engage  in a  discussion  with                                                                   
those directly involved.                                                                                                        
                                                                                                                                
Co-Chair  Edgmon  was  considering   the  opportunities  that                                                                   
might  be  viable in  the  state  in  light of  prior  failed                                                                   
projects in Naknek  and Makusin and the amount  of money that                                                                   
it cost  to take  a helicopter  to Mt.  Spur from  Anchorage,                                                                   
etc. He  believed  that it was  the most  speculative  of all                                                                   
the  renewable  energy  when compared  to  wind,  hydro,  and                                                                   
solar.  He surmised  that the ability to access  the resource                                                                   
was "extremely difficult".  He offered that there  was a case                                                                   
to be  made that  the program  did not have  to be  so costly                                                                   
each  year.  He  noted  the  difficulties  of  hiring  highly                                                                   
skilled  employees  in  any agency.  He  concluded  that  the                                                                   
opportunities in  the state for  geothermal existed  but were                                                                   
likely  not  enough   to  be  commercialized;   it  was  very                                                                   
speculative.   He  referenced   HB   152  (Renewable   Energy                                                                   
Fund/Task Force/Assist-  Chapter 31  SLA 08 -  05/22/2008) in                                                                   
2008 that  created the  Renewable Energy  Grant Fund.  He was                                                                   
not dismissive  of the efforts  and supported the  effort but                                                                   
wondered whether if  the data aligned itself more  to oil and                                                                   
gas  exploration. Mr.  Crowther  shared  that the  department                                                                   
saw  the need  for  the  legislation.  He believed  that  the                                                                   
fiscal  note was  about  $1 million  less  than drilling  one                                                                   
well  and much  more  about the  ability  to collect  general                                                                   
information  that DNR  had increasing  capacities  to do.  He                                                                   
pointed to  the burgeoning interest  in geothermal  power due                                                                   
to technological  advancements in geothermal power  in remote                                                                   
locations  and   its  lower  temperatures   applications.  He                                                                   
believed that  the legislation  and the divisions   desire to                                                                   
open  up  information  and help  apply  the  advancements  in                                                                   
Alaska  was  beneficial.  He  thought  there  was  a  lot  of                                                                   
prospectivity   and  geothermal  could   be  a   huge  energy                                                                   
resource  in  the   state  in  long-term.  There   were  many                                                                   
benefits   in  attracting   and   attaining  new   commercial                                                                   
interests in  Alaska. Co-Chair  Edgmon thought that  the same                                                                   
reasoning  could be  said  about  a gas  line  in Alaska.  He                                                                   
appreciated the bill.                                                                                                           
                                                                                                                                
2:43:12 PM                                                                                                                    
                                                                                                                                
Representative  Coulombe  referenced   slide  4  that  stated                                                                   
"However,  only  very  localized  areas  will  have  all  the                                                                   
ingredients  for cost-effective  geothermal energy  use.  She                                                                   
asked what were  the ingredients that made  it cost effective                                                                   
and  how was  it known  that it  would only  be in  localized                                                                   
areas. Mr.  Crowther responded  that there  were 5  criteria.                                                                   
He  communicated  that  historically,   there  was  not  much                                                                   
geothermal activity  in Alaska.  He believed that  currently,                                                                   
the  context  was  shifting, and  the  department  wanted  to                                                                   
disprove  the statement.  Representative  Coulombe cited  the                                                                   
fiscal note and  asked if the $1 million was  included in the                                                                   
governor's  request. Mr.  Crowther  replied  that the  fiscal                                                                   
note matched the governor's request.                                                                                            
                                                                                                                                
Co-Chair  Foster clarified  that if  the bill  were to  pass,                                                                   
the  conferees  could  square  up any  discrepancies  in  the                                                                   
fiscal note.                                                                                                                    
                                                                                                                                
2:46:40 PM                                                                                                                    
                                                                                                                                
Mr. Clifton and Mr. Crowther made  general closing comments.                                                                    
                                                                                                                                
HB  74   was  HEARD  and   HELD  in  committee   for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
2:47:51 PM                                                                                                                    
HOUSE BILL NO. 388                                                                                                            
                                                                                                                                
     "An  Act  relating  to  state  loans  for  oil  and  gas                                                                   
     projects in  the Cook Inlet sedimentary  basin; relating                                                                   
     to the Alaska  Energy Authority; relating  to the Alaska                                                                   
     Industrial   Development  and   Export  Authority;   and                                                                   
     providing for an effective date."                                                                                          
                                                                                                                                
2:48:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TOM MCKAY, SPONSOR,  explained that  the bill                                                                   
was  one of  a "portfolio"  of  bills  designed to  stimulate                                                                   
increased  gas production  in  Cook  Inlet. He  reminded  the                                                                   
committee  that Cook  Inlet served  a closed  market and  was                                                                   
limited to 70  Billion Cubic Feet (bcf) production  per year.                                                                   
He  indicated  that  importing  LNG was  not  possible  until                                                                   
2030.  The legislation  was  intended to  close  the gap.  He                                                                   
summarized that  HB 388 provided  a mechanism  through Alaska                                                                   
Industrial  Development  and  Export  Authority  (AIDEA),  to                                                                   
loan  money  to  operators  in  Cook  Inlet  who  lacked  the                                                                   
resources to drill  new wells in existing and  proven new gas                                                                   
fields. The bill  offered a framework but did  not commit any                                                                   
funding. He read the sponsor statement (copy on file):                                                                          
                                                                                                                                
     Based  on  the  projected  shortage of  Cook  Inlet  gas                                                                   
     production  in both the near-future  and years  to come,                                                                   
     Southcentral Alaska  risks becoming reliant  on imported                                                                   
     liquefied  natural gas (LNG).  This dependency  not only                                                                   
     threatens to  destabilize our energy prices  but also to                                                                   
     erode the  economic foundations of our  state, impacting                                                                   
     every Alaskan.  HB 388 is  a potential solution  to this                                                                   
     problem and  is designed  to bolster our  state's energy                                                                   
     independence  and economic  stability by leveraging  gas                                                                   
     that  is   in  the  ground   but  not  currently   being                                                                   
     developed.                                                                                                                 
                                                                                                                                
     Reserve-Based   Lending  is  an  asset-based   financing                                                                   
     mechanism  in the oil  and gas  industry in which  loans                                                                   
     are made  based on either  undeveloped or  developed and                                                                   
     producing  oil and gas  assets. The  amount of  the loan                                                                   
     is  based on  the value of  the borrower's  oil and  gas                                                                   
     reserves.  This  bill proposes  the  establishment of  a                                                                   
     Cook  Inlet   Reserve-Based  Lending  Fund   to  support                                                                   
     increased  oil   and  gas  production  in   Cook  Inlet,                                                                   
     ensuring   that   we  continue   to   prioritize   local                                                                   
     production    over   expected   costly    LNG   imports.                                                                   
     Recognizing   the  challenges   of  attracting   private                                                                   
     capital  to Cook  Inlet  gas plays,  HB  388 proposes  a                                                                   
     solution  to finance  projects  essential for  enhancing                                                                   
     affordable gas production for Alaskan's.                                                                                   
                                                                                                                                
     This  innovative funding  mechanism will  not only  help                                                                   
     avoid  the potential  economic  impacts associated  with                                                                   
     importing  liquefied  natural  gas,  but also  ensure  a                                                                   
     more   secure  and   self-reliant   energy  future   for                                                                   
     Alaskans.  By  making  prudent,  interest-aligned  loans                                                                   
     against  oil and gas  reserves,  the state can  catalyze                                                                   
     critical     infrastructure    developments,     thereby                                                                   
     safeguarding  and  expanding Cook  Inlet's  contribution                                                                   
     to our energy supply.                                                                                                      
                                                                                                                                
     I urge  my colleagues  of the  33rd Legislature  and the                                                                   
     people  of Alaska to  support HB 388  as a  step towards                                                                   
     energy development,  economic resilience, and  the long-                                                                   
     term prosperity of our great state.                                                                                        
                                                                                                                                
2:52:22 PM                                                                                                                    
                                                                                                                                
TREVOR JEPSEN,  STAFF, REPRESENTATIVE  TOM MCKAY,  introduced                                                                   
the  PowerPoint  presentation  "HB 388  Cook  Inlet  Reserve-                                                                   
Based  Lending"  dated April  19,  2024  (copy on  file).  He                                                                   
began on Slide 2 titled "Cook Inlet Gas Shortage                                                                                
                                                                                                                                
     South  Central will  face an  increasing gas  production                                                                   
     shortage in the coming years                                                                                               
                                                                                                                                
          ? Fallback solution to Cook Inlet gas is LNG                                                                          
          imports                                                                                                               
                                                                                                                                
          ? LNG imports estimated to be significantly more                                                                      
          expensive, however exact increase is currently                                                                        
          speculative                                                                                                           
                                                                                                                                
Mr.  Jepsen  recounted  that   a  projected  Cook  Inlet  gas                                                                   
shortage  threatened  the  energy  security  of  Southcentral                                                                   
Alaska. A potential  shortfall was expected as  early as 2027                                                                   
increasing  through  2040.  He   cited  the  Ditman  Research                                                                   
opinion  poll   from  July  2023  that   showed  Southcentral                                                                   
residents held a  "high level of opposition"  to imported LNG                                                                   
and  a "high  level of  support"  for implementing  financial                                                                   
incentives  to  increase  Cook  Inlet  gas  production.  Many                                                                   
experts  believed that  gas  imports would  be  significantly                                                                   
more expensive  than locally produced  gas. He  believed that                                                                   
the legislature  owed a solution to Alaska  residents through                                                                   
increased  exploration  and  production.  He pointed  to  the                                                                   
graph  on slide  2 that  portrayed fuel  price forecasts  for                                                                   
the  next  16 years  from  the  Alaska Energy  Authority.  He                                                                   
remarked that  by simply  hoping the  price for imported  LNG                                                                   
would cost  the same  as Cook  Inlet gas  and not  taking any                                                                   
action  was  not  in  the  best   interest  of  Alaskans.  He                                                                   
believed  that HB  388 represented  a  proactive approach  to                                                                   
development  of  Cook  Inlet  gas  reserves.  He  added  that                                                                   
private sector  capital had not  been secured due  to project                                                                   
economics in a highly competitive global market.                                                                                
                                                                                                                                
Mr.  Jepsen continued  to  slide 3  titled  "Cook Inlet  Gas:                                                                   
Private Capital Attraction Issues                                                                                               
                                                                                                                                
     Expensive, risky, or low rate of return projects have                                                                      
     difficulty in the private market                                                                                           
                                                                                                                                
     ? Oil and gas projects are highly capital-intensive                                                                        
     investments competing for limited capital in a world                                                                       
     of (relatively) unlimited projects                                                                                         
                                                                                                                                
     ? Nature of Cook Inlet as a stranded gas market                                                                            
     further complicates funding issues for private                                                                             
     investment                                                                                                                 
                                                                                                                                
Mr.  Jepsen  voiced  that  the  petroleum  industry  faced  a                                                                   
"complex  global  environment"  engaging in  exploration  and                                                                   
development amidst fluctuating prices and other factors.                                                                        
Financial  institutions  were   confronted  with  limitations                                                                   
related   to   capital   necessitating   collaboration   with                                                                   
entities  that  helped  mitigate  some risk  such  as,  local                                                                   
governments  that   were  stake   holders  in  oil   and  gas                                                                   
development.  He identified  that the  primary issue  in Cook                                                                   
Inlet  gas development  was  attracting  private capital  for                                                                   
"proven and  highly probable reserves."  If only so  much gas                                                                   
a  year  could be  sold,  the  potential  rate of  return  on                                                                   
investment  could decrease due  to the  time value  of money,                                                                   
making a project uneconomical.                                                                                                  
                                                                                                                                
Mr.  Jepsen  continued  on  slide   4  titled  "Reserve-Based                                                                   
Lending (RBL)                                                                                                                   
                                                                                                                                
                                                                                                                                
        o Financing structure for independent oil and gas                                                                       
          companies                                                                                                             
       o "Borrowing-base" type of loan based on the                                                                             
          projected Net Present Value (NPV) of cash flows                                                                       
      generated by the underlying hydrocarbon assets                                                                            
                                                                                                                                
        o Began in onshore Texas in the 1970's; use                                                                             
          accelerated for UK North Sea plays in the 1970's                                                                      
          and 1980's                                                                                                            
                                                                                                                                
     o A state-funded RBL program would balance lower                                                                           
          project rates of return against the avoidance of                                                                      
          the impact of higher and unstable energy prices                                                                       
          on Alaskans                                                                                                           
                                                                                                                                
Mr. Jepsen  explained that repayment  of a RBL  loan happened                                                                   
through the  sale of oil and  gas from the assets.  The value                                                                   
of  RBL  was  periodically  adjusted  to  reflect  shifts  in                                                                   
underlying   assumptions  like   production  volume,   market                                                                   
prices,   evaluation   of   reserves,   taxation,   etc.   He                                                                   
delineated that  RBL was an  established financing  tool with                                                                   
origins in the  United States. The market was  segmented into                                                                   
two  primary regions,  the  U.S. and  International  markets.                                                                   
Due  to   the  Alaska   Constitution,  Alaskan   RBL  lending                                                                   
structures  would mimic  the international  market  structure                                                                   
because the  mineral rights belonged  to the state.  He added                                                                   
that  state funded  RBL financing  would  not necessarily  be                                                                   
for the  full amount of the  project and in many  cases would                                                                   
be one of many financing mechanisms.                                                                                            
                                                                                                                                
Mr.   Jepsen   continued   on   slide   5   titled   "Reserve                                                                   
Classifications                                                                                                                 
                                                                                                                                
        o Not all "reserves" are equal:                                                                                         
                                                                                                                                
               3 classifications: Proven (P1), Probable                                                                         
               (P2), and Possible (P3)                                                                                          
                                                                                                                                
Mr.  Jepsen  elaborated  that  the  deterministic  method  of                                                                   
calculating   reserves   was    based   on   known   geology,                                                                   
technology, and  economic conditions.  The method  employed a                                                                   
single set  of values  that represented  a best estimate  for                                                                   
each  parameter in  order to  estimate reserves  and was  the                                                                   
most  common estimation  technique.  He  delineated that  the                                                                   
probabilistic  method  estimated  reserves  by  incorporating                                                                   
the uncertainty  in key parameters of the  calculation, which                                                                   
resulted  in  a  range of  estimated  reserves  at  different                                                                   
levels   of  probability.   The   method   provided  a   more                                                                   
comprehensive  view of  risk and enabled  decision makers  to                                                                   
better grasp  the range of  outcomes. He determined  that the                                                                   
best  way to  approach reserve  classification was  to use  a                                                                   
combination of  both methods. According  to the chart  on the                                                                   
slide,  he  reported  that  Proved  (P1)  correlated  to  P90                                                                   
reserves,  Probable  (P2)  reserves correlated  to  P50,  and                                                                   
Possible  related to  P10  reserves. He  noted  that a  state                                                                   
funded program  would focus on  proven reserves and  the bill                                                                   
made the distinction.                                                                                                           
                                                                                                                                
3:00:34 PM                                                                                                                    
                                                                                                                                
continued  on slide  6  titled "HB  388  Cook Inlet  Reserve-                                                                   
Based Lending                                                                                                                   
                                                                                                                                
        o Establishes Cook Inlet Reserve Based Lending fund                                                                     
          under  AIDEA  outside   of  their  revolving  fund;                                                                   
          conforms  fund  to current  AIDEA  dividend  policy                                                                   
          and  defines funding sources.  Also allows  for the                                                                   
          creation of AIDEA subsidiaries to issue loans.                                                                        
                                                                                                                                
        o Does not specify an appropriation, simply creates                                                                     
          the fund  allowing legislature flexibility  to fund                                                                   
          directed projects                                                                                                     
                                                                                                                                
        o Introduces reporting requirement for AIDEA to                                                                         
          deliver  to  the legislature  at  the beginning  of                                                                   
          each  new session  regarding  potential Cook  Inlet                                                                   
          RBL projects                                                                                                          
                                                                                                                                
        o Funds may be used for reserve-based loans deemed                                                                      
          necessary to  increase oil and gas  production from                                                                   
          the Cook Inlet Sedimentary Basin                                                                                      
                                                                                                                                
Mr.  Jepsen concluded  that  HB 388  allowed  AIDEA to  issue                                                                   
loans to the  private sector with lower rates  of return than                                                                   
typically allowed.                                                                                                              
                                                                                                                                
3:01:44 PM                                                                                                                    
                                                                                                                                
Representative  Stapp   ascertained  that  the   state  would                                                                   
capitalize  an account  and let  companies' loan  on a  state                                                                   
owned asset;  the oil and gas  reserve, and when the  gas was                                                                   
produced, they  would sell it back  to "us." He asked  if his                                                                   
assessment  was fair.  Mr. Jepsen  answered  that they  would                                                                   
receive the  loan based on the  value of the  produced asset.                                                                   
The revenue  and profit were  associated with  extracting the                                                                   
asset,  which was  how the  loan value  would be  calculated.                                                                   
Representative Stapp  inquired as to who owned  the asset. He                                                                   
proposed  that the  state did.  Mr. Jepsen  responded in  the                                                                   
affirmative,  which   was  why  the  lending   structure  was                                                                   
fashioned  after  the international  market  loan  structure.                                                                   
Representative  Stapp  hypothesized  the scenario  of  asking                                                                   
the North  Rim Bank for a  loan using its Anchorage  asset as                                                                   
collateralization  for  the  loan  and paying  back  via  its                                                                   
business model.  He wondered if  he should expect to  get the                                                                   
loan  by using  the  banks asset  as  collateral. Mr.  Jepsen                                                                   
replied  that the  comparison  was  "apples to  oranges"  and                                                                   
that the  two were not comparable.  He voiced that  there was                                                                   
 significant  value  to  gas extraction,  which was  what the                                                                   
loan  was  based  upon.  The  state  could  not  extract  the                                                                   
reserves    itself,    therefore   the    scenario    brought                                                                   
"significant  value" to the  state. He  remarked that  it was                                                                   
necessary  for  a third  party  to  conduct the  activity  to                                                                   
bring the revenues  to the state. Representative  Stapp asked                                                                   
what  happened to  the state's  funding if  the state  "gives                                                                   
them the  money to  develop our  gas and  they go  bankrupt."                                                                   
Mr. Jepsen responded  that there was a level of  risk as with                                                                   
all  loans  and  AIDEA  had the  discretion  to  perform  the                                                                   
financial due diligence.                                                                                                        
                                                                                                                                
Representative  McKay  interjected  that  the  bill  did  not                                                                   
authorize  lending  money  to  anyone,  but  it  set  up  the                                                                   
framework  that could be  enacted under  another bill  in the                                                                   
future.  He replied  that  if a  company  went bankrupt,  the                                                                   
assets were  still in  existence and  the likely outcome  was                                                                   
that another  operator would take  over and assume  the loan.                                                                   
The loan  payments were  from the sale  of the produced  gas.                                                                   
He emphasized  that there  was no risk  to the state  with HB
388 and  pointed to  bullet point  4 on  slide 6. He  offered                                                                   
that  the  bill  required  AIDEA to  assess  the  Cook  Inlet                                                                   
situation  and recommend  projects. He  recommended that  the                                                                   
committee  take a  hard look  at the  bill. He  characterized                                                                   
the legislation  as an  evaluation program  to find  out what                                                                   
was available  in Cook  Inlet as  a basis  for a decision  on                                                                   
how to proceed.                                                                                                                 
                                                                                                                                
3:06:36 PM                                                                                                                    
                                                                                                                                
Representative  Stapp asked whether  AIDEA currently  had any                                                                   
debt or bonds issued to Blue Crest or Furie.                                                                                    
                                                                                                                                
3:06:58 PM                                                                                                                    
                                                                                                                                
BRANDON  BREFCZYNSKI,  DEPUTY   DIRECTOR,  ALASKA  INDUSTRIAL                                                                   
DEVELOPMENT    AND   EXPORT    AUTHORITY,   ANCHORAGE    (via                                                                   
teleconference),  responded that AIDEA  had a loan  with Blue                                                                   
Crest with  a balance  of $13  million. Representative  Stapp                                                                   
asked  what the  purpose  was of  the  loan. Mr.  Brefczynski                                                                   
answered  that the  purpose was  to finance  the rig and  the                                                                   
man camp.                                                                                                                       
                                                                                                                                
Representative  McKay   interjected  that  the   rig  drilled                                                                   
several  oil  wells  at  the   Cosmopolitan  field  and  were                                                                   
currently  producing.  He  voiced  that  the  investment  was                                                                   
providing  a  return  to  the   state.  Representative  Stapp                                                                   
responded that  the point  to his inquiry  was the  state was                                                                   
already  providing investment  money.  He  wondered if  there                                                                   
was anything  that prevented  AIDEA from  issuing more  loans                                                                   
to   the  producers.   Mr.  Brefczynski   responded  in   the                                                                   
negative. He expounded  that AIDEA currently has  the ability                                                                   
and  had issued  loans  to finance  Cook  Inlet efforts.  The                                                                   
authority  provided a  loan to  HEX for  $7.5 million,  which                                                                   
was  repaid. He  deduced  that clarity  in  the statutes  was                                                                   
"better"  even though AIDEA  could finance  projects  in Cook                                                                   
Inlet and had the  ability to structure the size  of its debt                                                                   
using a reserve  based model. He appreciated  the clarity the                                                                   
bill offered.                                                                                                                   
                                                                                                                                
Representative  McKay  added that  there  were two  different                                                                   
fields at  Cosmopolitan: an  oil field and  a gas  field. The                                                                   
rig that  AIDEA provided  money for was  an onshore  oil rig.                                                                   
The  legislation was  focused  on gas  extraction  and was  a                                                                   
completely different project.                                                                                                   
                                                                                                                                
Representative Stapp  inquired what type of  asset evaluation                                                                   
was performed  when companies  were awarded  loans to  ensure                                                                   
the  loan   would  be  repaid.   He  wondered   if  potential                                                                   
production  was factored  in or the  company's balance  sheet                                                                   
was reviewed.  Mr. Brefczynski  replied that it  included all                                                                   
of the  above. He related  that the "extensive  due diligence                                                                   
process"  included  hiring  a contractor  to  review  assets,                                                                   
review  the  company's  fiscal  model,  and  vetting  through                                                                   
AIDEA's investment committee and board.                                                                                         
                                                                                                                                
3:11:11 PM                                                                                                                    
                                                                                                                                
Representative  Hannan asked  about slide  6 and referred  to                                                                   
the  second  bullet  specifically   the  language,  "allowing                                                                   
legislature  flexibility to fund  directed projects"  related                                                                   
to the  dividend created. She  asked if the bill  would offer                                                                   
more  legislative authority  to  give direction  internal  to                                                                   
AIDEA's decision making regarding eligible projects.                                                                            
                                                                                                                                
Mr. Jepsen responded  that one of the most  important aspects                                                                   
of the  bill was  the reporting  mandate that required  AIDEA                                                                   
to  review Cook  Inlet  Reserve  Based Lending  projects.  He                                                                   
indicated  that the  provision  was not  in current  statute.                                                                   
The  projects were  evaluated  by  such measures  as  project                                                                   
cost  estimate, potential  recoverable  gas,  and the  amount                                                                   
necessary to  be appropriated to  the fund. The  bullet point                                                                   
addressed  the  created  fund that  offered  the  legislature                                                                   
flexibility   to  fund  the   projects  analyzed   by  AIDEA.                                                                   
Representative  Hannan  relayed  that  she  consistently  was                                                                   
asked  why the  legislature did  not  direct projects  within                                                                   
AIDEA.  She understood  the legislature  could  not make  the                                                                   
decisions regarding  AIDEA's loans. She ascertained  that the                                                                   
bill created  the flexibility  for the legislature  to decide                                                                   
which Cook  Inlet RBL projects  should be funded.  Mr. Jepsen                                                                   
responded  in the  affirmative.  Representative Hannan  asked                                                                   
if it  would limit  the projects  to only  those included  in                                                                   
AIDEA's  report. Mr.  Jepsen  answered  that the  legislation                                                                   
did  not replace  AIDEA's  current  RBL lending  ability.  He                                                                   
furthered  that  for  most  of the  projects  AIDEA  was  not                                                                   
making  RBL  type  loans  because   they  did  not  meet  the                                                                   
fiduciary responsibility  due to  lower rates of  return. The                                                                   
legislature  could  choose  to   capitalize  these  types  of                                                                   
projects via the authority in the bill.                                                                                         
                                                                                                                                
3:14:58 PM                                                                                                                    
                                                                                                                                
Representative   Josephson   reported    that   historically,                                                                   
AIDEA's  returns  had  only  been  in  the  3  percent  range                                                                   
anyway.  He pointed  to the  first  bullet point  on slide  6                                                                   
focusing  on the  language  "Establishes  Cook Inlet  Reserve                                                                   
Based Lending  fund under  AIDEA outside  of their  revolving                                                                   
fund;" He  asked if the revolving  fund was the  typical loan                                                                   
fund with  funds lending out  and loan payments  repaying the                                                                   
fund.   Mr.  Brefczynski   responded   in  the   affirmative.                                                                   
Representative  Josephson  asked if  AIDEA  had "hundreds  of                                                                   
millions of dollars"  of unencumbered funds.  Mr. Brefczynski                                                                   
replied  that AIDEA  had a  "cash  position" but  also had  a                                                                   
project  pipeline in  the range  of $400 to  $500 million  of                                                                   
potential   projects.  He   reported  that   the  money   was                                                                   
accounted for.  Representative Josephson  asked if  a portion                                                                   
of the unencumbered  funding would be incumbered  for the RBL                                                                   
program   in   the   bill.   Mr.    Brefczynski   asked   for                                                                   
clarification.  Representative  Josephson  assumed that  some                                                                   
of  AIDEA's unencumbered  loan  funds  would  shrink to  some                                                                   
degree  for the  purposes of Cook Inlet RBL.  Mr. Brefczynski                                                                   
responded  that it  would only  be  if the  board decided  to                                                                   
move its  own receipts into the  RBL fund for an  active loan                                                                   
application.  He furthered  that if the  legislature  were to                                                                   
appropriate general  fund (GF) money  to the fund  the amount                                                                   
would be  designated only  for RBL. Representative  Josephson                                                                   
asked  that if  the legislature  approved  a recommended  RBL                                                                   
the  funding  would   be  AIDEA  dollars  and   not  GF.  Mr.                                                                   
Brefczynski  answered that  the  funding could  be either  or                                                                   
AIDEA funding  or GF.  He voiced that  for the likelihood  of                                                                   
AIDEA  to  approve a  loan  below  market interest  rates  it                                                                   
would likely  need GF funding.  The authority was  subject to                                                                   
the  prudent  investor  rule   and  other  policies  and  was                                                                   
limited in  supporting loans  below interest rates.  However,                                                                   
in  the  past,  the legislature  had  appropriated  money  to                                                                   
AIDEA  for  the   Interior  Gas  Utility  (IGU)   project  in                                                                   
Fairbanks at a lower market rate.                                                                                               
                                                                                                                                
3:20:15 PM                                                                                                                    
                                                                                                                                
Representative  Stapp  summarized   that  a  private  company                                                                   
would collateralize  the state's  asset, lend state  money to                                                                   
the company  by net present cash  value repaying the  loan in                                                                   
sales  to   the  state.  He   wondered  what   mechanism  was                                                                   
available  to limit  the  company's  profit margin  from  the                                                                   
system he described.                                                                                                            
                                                                                                                                
Representative  McKay responded  that the  company would  not                                                                   
sell the product  to the state. He communicated  that the gas                                                                   
would be  sold to utilities and  the company would  repay the                                                                   
loan  from  the  sales  revenue.   The  utilities  price  was                                                                   
regulated by the  Regulatory Commission of Alaska  (RCA), and                                                                   
he  doubted that  a windfall  profit  situation could  result                                                                   
from the  provisions in the  bill. He reminded  the committee                                                                   
that  the  Regulatory  Commission  of  Alaska  regulated  the                                                                   
price of  gas produced in Cook  Inlet and sold  to utilities.                                                                   
Representative  Stapp  referred  to the  price  controls.  He                                                                   
deemed that the  problem with the demand was at  the end user                                                                   
point  of sale.  He wondered  if  there was  a higher  profit                                                                   
margin via  the utilities paying  more money for  gas whether                                                                   
it would make  the economics of the project  more valuable to                                                                   
the  producers.   Representative  McKay  could   not  predict                                                                   
future  gas  prices  in  Cook Inlet.  He  believed  that  gas                                                                   
produced in Cook  Inlet would be cheaper than  importing LNG.                                                                   
He commented  on other  legislation put  forward to  mitigate                                                                   
the  situation that  included  royalty relief.  He viewed  HB
388  as  another  way  to  incentivize  more  gas  production                                                                   
activity in  Cook Inlet  if the  royalty relief bills  failed                                                                   
to  increase  production.  He  warned  that  if  the  private                                                                   
sector  lost interest  and left  Cook Inlet  the state  would                                                                   
have  to  operate an  Alaska  oil  and  gas company.  He  was                                                                   
attempting to  design bills that  left the work in  the hands                                                                   
of  the private  sector  while  the  state assisted  via  the                                                                   
financial  aspect.  He  maintained  that  the  bill  did  not                                                                   
currently commit  any funds.  The bill facilitated  determing                                                                   
how  much  more gas  could  be  produced  in Cook  Inlet  and                                                                   
whether it was worth investing in the private sector.                                                                           
                                                                                                                                
3:24:48 PM                                                                                                                    
                                                                                                                                
Representative  Stapp wondered  why  the state  did not  just                                                                   
purchase a  jackup rig. He asked  if the state  had purchased                                                                   
a rig  in the past.  Mr. Jepsen  answered in the  affirmative                                                                   
and added  that the  Endeavor rig  was roughly $140  million,                                                                   
and the state's portion was $20 million.                                                                                        
                                                                                                                                
3:25:24 PM                                                                                                                    
                                                                                                                                
MARK  DAVIS,  ATTORNEY,  ALASKA  INDUSTRIAL  DEVELOPMENT  AND                                                                   
EXPORT AUTHORITY,  ANCHORAGE (via teleconference),  confirmed                                                                   
that  the rig  cost $140  million and  AIDEA contributed  $23                                                                   
million and made  a return on the investment.  Representative                                                                   
Stapp asked  what happened  to the  rig. Mr. Davis  responded                                                                   
that  it was  moved to  South Africa  by one  of the  state's                                                                   
partners  that purchased  the state's  portion. He  furthered                                                                   
that   while  in   operation,  the   state  drilled   several                                                                   
abatement  holes and determined  that some  of the  areas did                                                                   
not  contain  oil  and  gas  reserves.  He  voiced  that  RBL                                                                   
created  a   borrowing  base   rather  than  resource   based                                                                   
lending.  Representative  Stapp  asked  if  the  state  could                                                                   
bring back  the rig.  Mr. Davis answered  that if  would need                                                                   
to be purchased.  He noted that there was  another jackup rig                                                                   
in Cook Inlet.                                                                                                                  
                                                                                                                                
Representative McKay  did not think  it was advisable  to buy                                                                   
large  marine   drilling  equipment  which   had  significant                                                                   
liability.                                                                                                                      
                                                                                                                                
3:27:05 PM                                                                                                                    
                                                                                                                                
HB  388  was   HEARD  and  HELD  in  committee   for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Foster reviewed the agenda for the following                                                                           
meeting.                                                                                                                        
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
3:28:08 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:28 p.m.                                                                                          
                                                                                                                                

Document Name Date/Time Subjects
HB388 Presentation ver. D 4.12.24.pdf HFIN 4/19/2024 1:30:00 PM
HB 388
HB388 Sponsor Statement ver. D 4.12.24.pdf HFIN 4/19/2024 1:30:00 PM
HB 388
HB388 Sectional Analysis ver. D 4.12.24.pdf HFIN 4/19/2024 1:30:00 PM
HB 388
HB388 Summary of Changes (S to D) 4.12.24.pdf HFIN 4/19/2024 1:30:00 PM
HB 388
HB 74 Public Testimony Rec'd by 042524.pdf HFIN 4/19/2024 1:30:00 PM
HB 74