Legislature(2015 - 2016)HOUSE FINANCE 519
02/18/2016 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Aklng Update: "funds Expended & Fy17 Funding Requests" | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 18, 2016
1:34 p.m.
1:34:55 PM
CALL TO ORDER
Co-Chair Neuman called the House Finance Committee meeting
to order at 1:34 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Bryce Edgmon
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
David Teal, Director, Legislative Finance Division; Lacey
Sanders, Analyst, Legislative Finance Division; Bruce
Tangeman, Vice President of Administration and Finance,
Alaska Gasline Development Corporation; Miles Baker, Vice
President of Government Relations and External Affairs,
Alaska Gasline Development Corporation; Speaker Mike
Chenault.
PRESENT VIA TELECONFERENCE
Frank Richards, Vice President, Engineering and Program
Management, Alaska Gasline Development Corporation.
SUMMARY
AKLNG UPDATE: "FUNDS EXPENDED & FY17 FUNDING REQUESTS"
Co-Chair Neuman reviewed the agenda for the meeting.
^AKLNG UPDATE: "FUNDS EXPENDED & FY17 FUNDING REQUESTS"
1:37:11 PM
LACEY SANDERS, ANALYST, LEGISLATIVE FINANCE DIVISION,
explained that she had been asked to present a summary of
the AKLNG fund codes. She turned to her handout entitled:
"Summary of AKLNG Fund Codes" (copy on file). The page one
fund codes were listed as follows:
· 1229 AGDC-ISP: In-State Natural Gas Pipeline Fund -
The fund code was established with the passage of HB 4
(Alaska Gasline Development Corp; RCA) (2013 Chapter
11 SLA 13) which created the In-State Natural Gas
Pipeline Fund. The code was utilized for Alaska
Gasline Development Corporation (AGDC) direct
expenditures from the fund.
· 1232 ISPF-I/A: In-State Natural Gas Pipeline Fund -
Interagency - The fund code was established in
conjunction with 1229. The fund code was used when
AGDC worked with other agencies; monies would be
passed through from the fund via Reimbursable Services
Agreements (RSA) and the code tracked funds that were
spent in other agencies for in-state natural gas
pipeline related work.
o 1229 AGDC-ISP only tracked direct operating costs
and did not include expenditures for large
contracts.
o The In-State Natural Gas Pipeline Fund was
capitalized via an appropriation of $355 million
with passage of HB 4.
· 1235 AGDC-LNG: Alaska Liquefied Natural Gas Project
Fund - The fund code was established with the passage
of SB 138 (Gas Pipeline; AGDC; Oil & Gas Prod. Tax)
(2014 Chapter 14 SLA 14). The code was utilized for
Alaska Gasline Development Corporation (AGDC) direct
expenditures from the fund.
· 1236 AKLNG I/A: Alaska Liquefied Natural Gas Project
Fund I/A - The fund code was established with the
passage of SB 138. The fund code was used when AGDC
worked with other agencies; monies would be passed
through from the fund via Reimbursable Services
Agreements (RSA) and the code tracked funds that were
spent in other agencies for Alaska Liquefied Natural
Gas Project Fund (AKLNG) related work.
· 1241 GF/LNG: General Fund/LNG - The fund code was
established during the current special session. The
fund tracked direct UGF (Undesignated General Funds)
appropriations related to the AKLNG project within
each individual department.
Ms. Sanders addressed the first fund codes on page one.
Co-Chair Neuman asked for clarification regarding the first
two codes related to AGDC expenditures for the in-state gas
pipeline fund. He wondered whether the codes tracked the
project description but not the expenditures for the
project. Ms. Sanders replied that AGDC direct operating
expenditures included lease space, personal services,
commodities, etc. She continued to explain that other
payments for large contracts were not included in the code.
1:42:49 PM
Ms. Sanders turned to the spreadsheet on page 2. She
pointed out that the document included a summarized history
of each of the fund codes and where it was being used. She
cited the first chart titled "FY 17 Governor's Amended
Request" was a summary of all of the funding requested by
the governor for the AKLNG project and the associated
agencies. She noted that the Department of Law's (DOL)
AKLNG expenditures were incorrectly appropriated as UGF in
FY15, FY 16, and FY17, which would be corrected.
Co-Chair Neuman asked her for clarification. Ms. Sanders
explained that each of the fund codes identified in the
summary were listed across the top of the chart and each
agency was listed on the side with the associated funding
request by agency under the appropriate code.
Representative Gara asked how the DOL expenditures were
reported. Ms. Sanders responded that the expenditures were
being changed from pure UGF and the corresponding fund code
1004 to the appropriate code 1241 GF/LNG.
Representative Gara wanted to know how the request showed
up in the department. He surmised that in the department's
budget the funding showed up as a receipt and then
department expenditure. Ms. Sanders responded in the
affirmative.
1:46:31 PM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, (LFD)
interjected that the 1004 UGF code should had never been
used for any of the natural gas work. He relayed that
specific expenditure tracking was not possible using the
straight UGF codes. The division was changing DOL's budget
requests for all three fiscal years to the 1241 code. The
correction allowed for precise tracking of expenditures. In
addition, in FY 16 the FY 1229 AGDC-ISP code which tracked
direct expenditures for the internal operations of AGDC and
for contracts with vendors was inappropriately used for a
Department of Natural Resources (DNR) appropriation. He
stated the code was used in error and that DNR did not
possess the authority to sign contracts under the code and
the funding should not have been appropriated. He directed
the committee to correct the codes in the Supplemental
budget bill.
Co-Chair Neuman interjected that HB 3001 (APPROP: LNG
PROJECT & FUND/AGDC/SUPP.) directed the use of proper fund
codes to properly track the appropriations and
expenditures. Mr. Teal agreed. He remarked that codes
needed to be used properly to ensure accurate fund
tracking. He stated that AGDC could inform the committee of
the funds balances and the purpose of LFD's testimony was
to explain the fund codes. The division was aware of
funding sources and monies appropriated did not track
contracts signed by AGDC which precluded LFD from tracking
the account balances. He commented that the division had
difficulty obtaining information regarding the balances of
the funds due to confusion over cash balances versus
unobligated balances. He elucidated that cash balances
contain some appropriated money that might be obligated and
cautioned against using cash balances.
1:51:36 PM
Representative Gattis wondered why the legislature had not
imposed accounting of AGDC monies from its inception.
Ms. Sanders explained that LFD provided tracking of
appropriations that were made. Since AGDC was in charge of
the fund the corporation accounted for the balances in the
fund.
Co-Chair Neuman suggested that the legislature would have
to go to the department for an accounting of AGDC funds.
Mr. Teal pointed to DOL's fund code error in FY 17, using a
general fund code. He detailed that in FY 15 and FY 16 the
tracking code was not established because all pipeline
funds were supposed to pass through AGDC as the
coordinating agency. The departments did not want to
coordinate spending with AGDC. He pointed out that the 1241
GF/LNG code made up the bulk of the money; in FY 17 the
amount was $30.5 million. In FY 16 most of the
appropriation should be coded under 1241 but the
approximately $9 million appropriated to DNR was coded
improperly. He alerted the committee that AGDC could code
the expenditures with more specificity in their system to
account for the GF spending. He said that "the legislature
was relying on the agencies and its proper coding of
expenditures in order to track" them. He reiterated that
LFD can only track the appropriations and not the
expenditures.
Vice-Chair Saddler wanted to know what 1235 AGDC/LNG fund
code was for. Ms. Sanders explained that the fund code was
for AGDC's operating costs related to the AKLNG project.
Both projects accounts were separated because of statutory
requirements that required independent accounting for AKLNG
and the in-state natural gasline project.
Mr. Teal added that the codes were set up for the same
purpose; code 1229 and code 1235 were used for AGDC's
internal operating budgets for each project.
1:57:56 PM
Representative Wilson asked whether the legislature made a
mistake. She wanted to know if the legislature should have
appropriated the funds "to one group so somebody was
accountable" instead of "four or five." Mr. Teal answered
that the legislature was able to track "where the money
went" but lost AGDC's coordinating role.
Co-Chair Neuman interjected that the money was trackable
through the departments.
Representative Wilson stated that AGDC would have to
request spending information from each agency in order to
track and coordinate the various funds expenditures. Mr.
Teal thought that was a "good question" for AGDC. He
repeated that LFD could report what funds the agencies
received but not how the agency spent the money or whether
the funds were spent according to AGDC's direction. He
declared that AGDC could not coordinate money that was
directly appropriated to a department. Representative
Wilson confirmed that that was her point; to have one
agency coordinate the projects spending. She thought that
could be accomplished through "much more bookkeeping" on
AGDC's part assuming that the departments would provide
spending information on a regular basis. She hoped the
accounting would be fixed.
Representative Wilson wanted the ability to determine
whether the department was spending on items to help move
the projects forward at the necessary time.
Representative Edgmon thought that the whole point of the
presentation was to demonstrate that LFD had a system that
enabled tracking of the funds going forward. Mr. Teal
relayed that the Co-Chair's request was to present the fund
codes in order to better understand the departments'
presentation on the balance of the funds. He shared that
LFD's purpose was to inform the committee about the codes,
how the codes were set up, and how LFD tracked the
appropriations. He thought that the presentation raised
more questions than answers about specific expenditures.
2:04:06 PM
MILES BAKER, VICE PRESIDENT OF GOVERNMENT RELATIONS AND
EXTERNAL AFFAIRS, ALASKA GASLINE DEVELOPMENT CORPORATION,
introduced the PowerPoint Presentation: "Natural Gas
Project Funding & Expenditures" dated February 18, 2016
(copy on file). Mr. Baker began with slide 2:
"Natural Gas Pipeline Development."
2009: Legislature begins taking deliberate steps to
develop an in-state pipeline, independent of other
producer led North Slope commercialization efforts.
2011: Alaska Stand Alone Pipeline (ASAP) plan
developed and delivered to the Legislature. Plan
further optimized during 2012.
2013: Alaska Gasline Development Corporation (AGDC)
established as an independent, public corporation -
$355+ million investment towards ASAP (HB 4).
2014: State participation in Alaska LNG project
authorized (SB 138), Joint Venture Agreement executed
and Pre-Front End Engineering and Design (Pre-FEED)
begins.
2015-2016: AGDC progressing two North Slope natural
gas pipeline project options: Alaska LNG primary and
ASAP backup.
Mr. Baker delineated that the $355 million appropriation in
2013 was deposited into the newly created In-State Natural
Gas Pipeline Fund, which was managed by Alaska Gasline
Development Corporation (AGDC). In 2014, with passage of SB
138 (Gas Pipeline; AGDC; Oil & Gas Prod. Tax) [2014 -
Chapter 14 SLA 14] the Liquefied Natural Gas Pipeline Fund
was established for the Alaska LNG (AKLNG) project.
Currently AGDC administered two projects: The first was the
AKLNG project which was the highest priority for the
corporation. Secondly, the ASAP project was being
maintained as a back-up project if ASAP was halted.
Co-Chair Neuman requested that Mr. Baker identify any funds
that were initially appropriated for the ASAP project and
were used for the AKLNG project.
2:08:44 PM
In response to a question by, Vice-Chair Saddler, Mr. Baker
clarified that the In-State Natural Gas Pipeline Fund was
used to advance the ASAP project and the off-take work to
develop in-state delivery from a natural gas project.
Co-Chair Neuman wondered what the origin of the
authorization for use of the in-state fund was. Mr. Baker
responded that HB 4 (Alaska Gasline Development Corp; RCA)
[2013 - Chapter 11 SLA 13] granted broad authorization for
a project plan and additional language that covered AGDC to
deal with in-state gas issues "in general."
BRUCE TANGEMAN, VICE PRESIDENT OF ADMINISTRATION AND
FINANCE, ALASKA GASLINE DEVELOPMENT CORPORATION, offered
further clarification. He delineated that originally the
in-state fund was appropriated for the ASAP project.
Subsequently, the AKLNG project was "layered in." The
corporation worked with its external auditors to develop a
cost allocation method. The method established what the
corporate requirements were for operations expenditures
when drawing funds from both fund sources to fund corporate
operations.
Co-Chair Neuman asked whether AGDC had the ability to
explain expenditures from either of the funds. Mr. Tangeman
answered in the affirmative.
2:11:32 PM
Representative Wilson asked whether all of the funds were
allocated to AGDC or were some funds provided to various
agencies. Mr. Baker answered that both funds were used by
AGDC to develop the projects or pay for its operations and
were in the corporation's control. He elaborated that the
legislature appropriated additional funds for agency use
and were handled through Reimbursable Service Agreements
(RSA). The "determination" whether to use the money for the
intended purpose was based on a contractual arrangement
between AGDC and the department in support of work to move
the project forward.
Mr. Tangeman pointed to the $25 million [Additional
Capitalization for HB4 Fiscal Note Agency Work (FY14)]
appropriation on Slide 3 to be used for RSA work performed
by other agencies. He revealed that AGDC ascertained the
stage each project was in to determine whether the
projected spending in a fiscal note's out years was
necessary at the time. He exemplified a Department of
Environmental Conservation (DEC) fiscal note that projected
the need for two positions in the second year. When DEC
requested the funding for the positions AGDC determined
that the services were not necessary at the time and did
not authorize the funding. He indicated that the fiscal
note contained the projected need but it was AGDC's job to
determine whether the services or employees were warranted
at the time.
Representative Munoz asked when the work for the in-state
line merged with the work for the AKLNG project. She noted
various funding for both projects that existed in "silos"
and wondered "at what point" the expenditures "came
together." Mr. Baker responded that AGDC was following the
policy, statute direction, and appropriations given by the
legislature to move both projects forward. One project
currently has a higher priority than the other. The
corporation perceived that at some point a policy decision
to stop the ASAP project would be issued. He voiced that as
long as ASAP was maintained as a fall back plan some
expenditures were necessary to keep the project viable. He
offered that AGDC's role was to manage the projects. The
agencies had other roles outside of AGDC. He indicated that
"where it made more sense" for certain departments to
perform project work like permitting and design
specifically for a project, the funding was funneled
through AGDC in its role as manager.
2:17:04 PM
Representative Munoz asked whether any of the AGDC
employees worked on both projects. Mr. Tangeman indicated
that all 18 of the employees at AGDC were overseeing the
corporate functions and assisting the work on both
projects.
Representative Munoz remarked that AGDC's budget on slide 5
had two separate expenditures for travel totaling $464
thousand. The in-state gas travel budget was $200 thousand
and $264 thousand for AKLNG. Mr. Baker explained that the
page depicted a summary of AGDC's expenditures. He agreed
with the figures and reminded Representative Munoz that the
corporation was working from two separate funds, one for
each project and the corporation's total expenses were
derived from a portion of the in-state fund and a portion
of the AKLNG fund.
Mr. Tangeman interjected that the travel actuals for FY 14
was $85 thousand and for FY 15 was $73 million. He related
that AGDC was a fairly young entity that was given funding
and built a budget over the last few years and there was
not a lot of history to base budgets on. The travel budget
items were significantly less than projected. He commented
that the "bottom-line" to the corporations budget was that
the money was being appropriated from a "lump sum" and
whatever monies was not spent on travel remained in the
fund and available for the project for any other need.
2:22:06 PM
Co-Chair Thompson wondered whether at any point in time
AGDC was asked to forward fund for work that the
corporation thought was unnecessary. Mr. Baker replied in
the negative.
FRANK RICHARDS, VICE PRESIDENT, ENGINEERING AND PROGRAM
MANAGEMENT, ALASKA GASLINE DEVELOPMENT CORPORATION (via
teleconference), explained that the corporation entered
into the RSA contracts with the agencies on a fiscal year
basis. Each year AGDC reviewed the scope of work necessary
for a department to complete the contractual work and the
department's budget and appropriated only for work that was
necessary and was completed in the fiscal year.
Co-Chair Thompson repeated his question. Mr. Richards
responded in the negative. He indicated that the
corporation was very "stingy" with their funds. He shared
that Department of Transportation and Public Facilities
(DOT) was appropriated $700 thousand in a fiscal note and
AGDC cut the work activity to $200 thousand. He emphasized
that AGDC only authorized agency funds for work that was
"absolutely necessary at the time."
2:24:49 PM
Mr. Baker pointed to slide 3: "In-State Pipeline Fund: Cash
Flows." He explained that the in-state fund existed since
2014. The $17.184 million balance shown as the starting
balance on July 1, 2013 was the unobligated balance
reappropriated from the Alaska Housing Finance Corporation
(AHFC) funding used for the early development of the ASAP
concept. He communicated that the original appropriation of
$330 million was the amount projected to bring the ASAP to
a project sanctioning decision. Beginning in FY 14 through
FY 19, $25 million was appropriated for agency support
work. He offered to supply more information regarding how
much RSA work was completed and which departments received
RSA funding. The money was funded on the assumption that
ASAP was going into construction by FY 17.
2:27:04 PM
Co-Chair Neuman asked Mr. Baker to provide the detailed
funding information from the departments.
Representative Munoz asked whether the state was close to a
sanctioning decision on the ASAP project. Mr. Baker
responded that the FEED (Front End Engineering and Design)
stage of the ASAP project was completed on December, 2014.
Mr. Baker elaborated that the Regulatory Commission of
Alaska (RCA) recourse tariff filing, open season, and
project sanctioning would have taken place last year but
was put on hold based on the decision to advance the AKLNG
project.
Representative Munoz asked how long the completed
commercial work was usable if the project was reactivated
in the future. Mr. Richards replied that the FEED work was
still available to the corporation and characterized the
work as a "very detailed and definitive plan to construct
the project."
Representative Munoz was trying to understand whether the
information was usable in the future. Mr. Richards
responded affirmatively.
Representative Gara asked if everything in red was an
expenditure on slide 3 and if all expenditures were solely
for the ASAP project. Mr. Baker answered in the affirmative
and explained that the exception was in the FY 16 and FY 17
projections that included in-state gas work. He expounded
that regardless of which project moved forward AGDC was
responsible for developing in-state offtakes. Last year
AGDC began the offtake work in "earnest." In FY 16, $16
million out of the $19 million appropriation was "ASAP
specific." The corporation also began engineering and
commercial work for the in-state gas portion.
2:31:58 PM
Representative Gara believed that the in-state gasline or
ASAP project would never be built and that two pipelines
were a "waste of money." He wondered how much money the
state was spending on two separate pipelines. He cited the
FY 16 $19 million [$19.231 million] expenditure for ASAP
and asked how much was applicable to AKLNG. Mr. Richards
answered that the $16 million ASAP figure mentioned by Mr.
Baker was utilized for the completion of the major
engineering studies for waterways crossings, civil works,
materials site selection, and environmental reviews for
cultural resource and wetlands. He detailed that the work
was specifically done for ASAP but was also relevant to
AKLNG. In 2015, AGDC worked collaboratively with the AKLNG
project and developed a common alignment for two pipeline
segments. He defined that the segments stretch from Prudhoe
Bay to the Susitna River crossing in Southcentral Alaska
where both projects share a common right-of-way and a
common center line. The engineering work benefitted both
the ASAP project and the ALNG project. He noted the $1.3
million appropriation [Appropriation 2015 Gasline Special
Session SB 3001 In-State Receipt Authority] for in-state
receipt authority for work AGDC conducted for AKLNG. The
corporation continued to work "extensively" with AKLNG to
utilize the knowledge and information that was obtained for
ASAP in the development of AKLNG. He emphasized that AGDC
took "quite seriously" the legislature's directive not to
duplicate work and to maximize the value of the work for
both projects.
2:35:10 PM
Representative Gara asked about the expenditures listed for
ASAP in FY 16 and FY 17; $5 million for in-state gas work
and $4.3 million for ASAP. He wondered whether any of the
money was needed for the "large" line. Mr. Richards
explained that the funds represented the funding for ASAP
in FY 17 and was necessary to complete the Supplemental
Environmental Impact Statement (SEIS). He explained that
the work included the regulatory process lead by the Army
Corp of Engineers studying the impacts of the new routing
alignment (common alignment) for ASAP, which resulted in
regulatory development for both projects. If approved, the
completed SEIS in 2017 would grant AGDC a Section 404
Wetlands permit and a federal right-of-way permit across
federal lands along the routing alignment. The completed
SEIS would grant AGDC all of the state and federal right-
of-ways lands on the common alignment from Prudhoe Bay to
Southcentral Alaska and would be available for any gasline.
He continued that the in-state gas work was also common
for any gasline project because of the legislative mandate
to provide gas to Alaskan communities at commercially
reasonable rates, which included determining the best
methods for gas delivery to communities.
2:38:03 PM
Representative Gara understood the directive but wanted to
know if any portion of the expenditures for ASAP or in-
state gasline was not necessary for the large line. Mr.
Richards responded that both projects were at two different
stages of development. He reiterated that the SEIS work was
following the Army Corps of Engineers process and following
the National Environmental Policy Act. The AKLNG project
was being led by the federal Energy Regulatory Commission
under Section 3 as an integrated LNG project, which was in
the pre-FEED stage. He restated that the AGDC work effort
for the SEIS benefitted the AKLNG environmental work.
Representative Gara maintained that he did not want any
money spent on in-state gasline or ASAP work that was not
relevant to moving AKLNG forward. He queried what the
definitive amount of money was that had been spent on in-
state or ASAP, which was unnecessary for the AKLNG gasline.
He wanted to make a policy decision regarding whether to
expend any funds for any in-state gasline work.
Mr. Richards responded that he did not have the specific
dollar amount.
Co-Chair Neuman requested an estimated response.
Mr. Richards stated that he was not able to provide an
appropriate estimate and would follow-up.
Representative Gara reiterated his request for FY 16 and
the cost proposals for FY 17 amounts of funding for ASAP
and the in-state gasline that was not necessary for the
larger AKLNG gasline. He stressed that he asked the same
question four times. He was concerned about the budget
deficits.
Mr. Tangeman interjected that the question related to
Representative Munoz's inquiry regarding the shelf life of
completed work on the ASAP project that could be used for
any gasline project and that AGDC would determine what work
was near completion and was applicable to any gasline
project going forward.
2:44:04 PM
Co-Chair Neuman surmised that the amount of money for the
completion of the SEIS was $4.310 million. He wondered
whether anymore ASAP funds were required for AKLNG.
Mr. Baker shared that 85 percent of AGDC's corporate
overhead was charged to the in-state fund due to its
inception under HB 4 and the accompanying appropriation. He
related that the AKLNG money was set up to fund the
project's cash calls an only a relatively small operating
component that was associated with 6 new positions was the
projected overhead. The majority of the corporation's
overhead was covered under the in-state fund.
Co-Chair Neuman stressed that the misperception was
"exactly why" the legislature developed new fund codes in
order to specify expenditures. He referenced the remarks
that AKLNG was the priority project. He cited the $10.1
million request in FY 17 under fund code 1229 AGDC/In-state
pipeline on slide 3 and the $2.8 million request in FY 17
under fund code 1235 AGDC/Alaska Liquefied Natural Gas
Project fund both for corporate operating costs. He
questioned why the operating costs were utilized from in-
state funds when the project was not the corporation's
priority and stated that was crux of the committees
concern. He felt that the operational costs should have
been requested from the AKLNG account and stressed that
AKLNG should be the priority. He felt that $10.1 million
was a substantial amount of money. He asked for reports in
order to understand the "whole picture." Mr. Tangeman
agreed to provide that information.
Representative Pruitt asked who determined or approved the
AGDC budget. Mr. Tangeman stated that the board of
directors was responsible for budgeting. Representative
Pruitt asked whether the board was able to approve the use
of more money if necessary. Mr. Tangeman answered in the
affirmative. He indicated that the projects do not align
with the budget cycle but AGDC assumed that the pre-Feed
work would be completed and would enter the FEED stage in
the next fiscal year. If FEED was not achieved the monies
could be reappropriated.
2:50:08 PM
Representative Pruitt clarified that by the end of FY 17
the requests should accomplish the pre-Feed stage and lead
into FEED. Mr. Tangeman affirmed. Representative Pruitt
wondered whether the board could use the funding "for
things outside of AGDC" or non-operating costs such as
contracting. Mr. Baker suggested that there were two things
to remember. The first was that both funds were created by
statute and its use was defined by very specific language.
The corporation through its board of directors had broad
authority on how to spend the capital within the statutory
framework of the fund. He revealed that AGDC had the
statutory authority to expend money from both funds without
further appropriation. However, the corporation was
obligated under the Executive Budget Act to request its
operating money as part of the state's operating budget.
The board authorized its capital expenditures, which were
driven by the narrow framework of the ASAP and AKLNG
projects.
Representative Pruitt asked whether the legislature had to
approve the "$13 million." Mr. Baker answered that
legislative approval was necessary to authorize the
operating funding requests that were essentially for
personal services and the associated corporate overhead.
The corporation initially was granted the authority for 38
public employees but per legislative directive AGDC had to
request the authority to spend out of that fund. He
remarked that "hypothetically" AGDC could replace its
employees with contractors and spend capital dollars in the
event of a lack of operating appropriation but felt the
approach was not prudent. Representative Pruitt asked
whether the "$14 million" was not expendable without
legislative approval. Mr. Tangeman replied that AGDC viewed
any balance as "seed money for the next stage."
Representative Pruitt asked whether the approved funding
could be used for "anything outside of AKLNG or AGDC" or
any other project or "opportunity to commercialize North
Slope gas." Mr. Baker responded in the negative.
Co-Chair Neuman indicated that he was postponing the DNR
overview to a later date.
2:57:02 PM
Vice-Chair Saddler asked whether the $14 million remaining
in the in-state gas fund could be utilized for AKLNG. Mr.
Baker responded in the negative. Vice-Chair Saddler
questioned why the in-state line operating costs were $10
million and AKLNG operating costs were only $2.8 million.
He alluded to Mr. Baker's testimony regarding corporate
structure and wondered "what was the corporate structure
that demanded the disparity" in spending. Mr. Baker
explained that when the in-state gasline project fund and
AGDC was established the only mission for the corporation
was to develop and sanction an in-state gas pipeline. When
AKLNG was adopted the funding AGDC received was
specifically for project work and not operating expenses.
The corporation had initially only anticipated the need for
6 new employees for the AKLNG project and planned to
leverage the existing structure and organization and watch
how the project unfolded. He elaborated that over the past
two years the corporation spent the majority of its time on
AKLNG. The corporation engaged in discussions regarding
currently operating under the same corporate structure as
under HB 4. The corporation discerned that the most
relevant time to make decisions regarding a new structure
was at the time the AKLNG project entered the FEED stage
and a special legislative session was called. The
corporation assumed that questions concerning ASAP's
endurance would be answered at that point. He agreed that
on "the surface it looked odd" that so much of the
corporation's overhead was charged to a "fund" that was
originated to "advance a project." He noted that when AKLNG
was brought on AGDC did not transfer money from the in-
state fund to 50 percent of AKLNG operating costs and
instead developed the cost allocation methodology.
Co-Chair Neuman asked why the legislature could not pull
the money away from ASAP fund and reallocate it to AKLNG.
Mr. Tangeman responded that AGDC funded "very large" cash
calls for the project each month. He voiced that it was
AGDC's responsibility to perform the oversight and due
diligence when participating as an equal partner in the
project. The corporation wanted to get to the point to
where a decision was made and the fund sources were
combined and the state was moving into the AKLNG FEED
stage. He reported that AGDC was showing the legislature
what the fund sources were and giving a picture of what the
corporation needed exiting pre-FEED and entering FEED
stages.
3:04:11 PM
Vice-Chair Saddler thought that tracking the progress and
the movement of large amounts of monies that were
appropriated for specific purposes was fitting. He thought
that there had been a number of surprises and "frustrating
developments in the whole gas line saga." The legislature
wanted to ensure the money was being appropriately spent.
Mr. Tangeman understood the legislatures concern and
related that AGDC's job was to move the project from pre-
FEED into FEED.
Representative Wilson wanted to understand where the money
was being spent. She referred to slide 5 and asked if out
of the $10.448 million [in-state fund] in operating costs
$7.2 million was for personal services. Mr. Tangeman noted
that $5.998 million was applicable to the $10 million but
the $1.509 million was applicable to the AKLNG fund.
Representative Wilson asked how many actual people were
employed for AGDC. Mr. Baker restated that the $5.998
million was for in-state gasline expenditures.
Representative Wilson asked how many people the number
represented. Mr. Tangeman answered that represented 32
PCN's. Representative Wilson asked how many people AGDC had
actually hired. Mr. Tangeman replied that the corporation
hired 16 employees. Representative Wilson asked whether
that represented and average salary of $374.875 thousand
per employee. Mr. Tangeman clarified that the $5.998
million represented the budgeted amount of 32 PCN's which
were never fully filled. The actual salary was quite a bit
less. Representative Wilson wondered how many years AGDC
could have employed 32 people. Mr. Baker replied that when
the corporation was created the legislature authorized 32
employees. Representative Wilson assumed that the personal
services money not expended was part of the remaining
balance of $14 million. Mr. Baker responded in the
affirmative.
Co-Chair Neuman asserted that the committee was cutting the
budget for necessary services for seniors, health and human
services, and public safety and was "squeezing dimes" for
necessary services. He felt that AGDC was acting like state
funding was limitless. He demanded some actual statements
of the actual costs with factual justifications for the
expenses. He thought that the "mood of the committee" was
to scrutinize AGDC's budget requests. He wondered why AGDC
was requesting funding for commercialization when
uncertainty existed about whether a pipeline would
ultimately be built. He expressed his frustration over the
governor hiring gasline consultants at a cost of $1 million
per year. He reminded the corporation that its budget
requests would be measured against every other budgetary
need in the state. He restated his request for
documentation justifying every budget item.
3:13:14 PM
Representative Gara referenced slide 3. He cited the FY 17
funding request of $5 million for the in-state gas line
work and the appropriation in FY 16 of over $19 million. He
declared that if a large gas pipeline project was approved
in-state delivery was guaranteed, so why spend on in-state
work now until a purchaser for the large gas pipeline was
found and the pipeline was a certainty. He maintained that
a large pipeline project would inevitably deliver gas in-
state. Mr. Richards responded that the work could be
deferred. He noted that the corporation was following the
direction of the legislature and its board. Representative
Gara was glad to hear the work could be delayed. He voiced
that performing work to develop offtakes for a pipeline
that might not be built was senseless and he desired
delaying in-state work. He wanted a discussion regarding
whether AKLNG was going to move ahead before budgeting
additional funding.
Co-Chair Neuman reported that the EIS work was most likely
necessary. He was trying to figure out how a buyer could be
found without determining the price of gas, which was
predicated on the cost to deliver the gas to market. He
understood why AGDC was performing the work.
Representative Gara suggested that the "main pipe" for
export gas was the most expensive portion of work. He
clarified that he was talking about the $5 million and some
portion of the $19 million for offtakes and not the EIS
work. However, he also wondered whether continuing the EIS
work was necessary. He reported that his main concern was
delaying in-state offtake work. Mr. Richards explained that
AGDC was responsible for examining the in-state needs in
terms of the environmental and social impacts under the
resource report development and was performing the work in
2016.
3:19:20 PM
Representative Guttenberg asked what part of the budget
matched the work that the producers and the partners were
performing and could be reduced. Mr. Baker referred to page
4 that showed the AKLNG fund project cash calls. He
indicated that the funding represented the contractual
commitment to the AKLNG project as a 25 percent owner. He
commented that AGDC "had a very good idea" of the costs
associated with the FEED process due to managing the FEED
work for ASAP. He maintained that AGDC had the
responsibility to properly manage the "substantial
oversight component" during the AKLNG FEED stage.
Representative Guttenberg did not want in-state work placed
on the "back burner." He believed that rural Alaska and the
Interior paid high costs for power relative to the rest of
the state and wanted the in-state work prioritized.
Co-Chair Neuman asked whether AGDC was presenting its
bottom-line budget request. Mr. Baker pointed to page 5 and
noted that the blue column on the right represented AGDC's
FY 17 requests which were seeking spending authority for
funds already appropriated. Co-Chair Neuman requested
better accounting for the funding requests. He believed
that AGDC should have provided more specific detail.
Mr. Tangeman voiced that the budget was prepared prior to
the fall 2015 special session and was a "place holder"
budget. Co-Chair Neuman relayed that the last special
session ended last October and felt the corporation had
adequate time to produce an updated budget.
Representative Gara certainly wanted all of the offtakes
possible to serve the state. He clarified that he was
uncertain the in-state work was currently necessary or
warranted until the decision to build a large pipeline was
determined. He cited the $10.1 million in-state request on
slide 5 shaded in blue and the $9.3 million request on page
3 and requested clarification. Mr. Baker explained that the
blue shaded figures on page 5 represented the operating
budget for the corporation and the other expenditures were
capital project expenditures. In essence, when the
legislature initially capitalized the fund for $69.835
million (shown on slide 4) AGDC justified how it would
spend the capital funding and was not mandated to request
future capital expenditures.
3:30:02 PM
Representative Pruitt discussed his understanding of the
AGDC budget. He noted the Inter Agency funding listed in
the LFD document and asked what the checks and balances
were for departmental spending and wondered why it was not
depicted in AGDC's budget slides. Mr. Baker scrolled to
slide 3 and reported that the $25 million figure
represented the combined departmental fiscal note for HB 4.
He conveyed that as the departmental money was requested
via RSA's and authorized the funding was shown as part of
the project expenditure figure of $65.925 million in the
following line. He reminded Representative Pruitt that AGDC
would provide the detailed RSA information to the
committee. Representative Pruitt wondered whether the
inter-agency receipt money could be spent without AGDC
approval. Mr. Baker reiterated that AGDC had to approve the
RSA work that was necessary and adjusted the work
accordingly. He noted the only exception was the $9 million
reappropriated to the Department of Natural Resources (DNR)
in FY 15 for gas commercialization work which was directly
appropriated and did not require an RSA. He reiterated that
pure RSA work was accomplished via a contract between the
department and AGDC and that the corporation determined the
work. Representative Pruitt asked whether the same
statutory guidelines applied to the RSA money. Mr. Baker
responded in the affirmative.
Co-Chair Neuman asked Ms. Pitney to provide a breakdown of
$9 million appropriation to DNR for gas commercialization.
Co-Chair Neuman reviewed the agenda for the following day.
ADJOURNMENT
3:37:31 PM
The meeting was adjourned at 3:37 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2016 02 18 AGDC Historical Spending Finance Committees.pdf |
HFIN 2/18/2016 1:30:00 PM |
|
| DNR DOL DOR Fin Committee AKLNG Budget 2-18-16 v6.pdf |
HFIN 2/18/2016 1:30:00 PM |
|
| LFD AKLNG HFIN 2 18 16.pdf |
HFIN 2/18/2016 1:30:00 PM |
|
| AGDC Response Hawker HFIN.pdf |
HFIN 2/18/2016 1:30:00 PM |
|
| AKLNG HFIN Lummus Contract QA.pdf |
HFIN 2/18/2016 1:30:00 PM |