Legislature(1999 - 2000)
04/29/1999 05:10 PM House O&G
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
April 29, 1999
5:10 p.m.
MEMBERS PRESENT
Representative Jim Whitaker, Chairman
Representative Fred Dyson
Representative Gail Phillips
Representative Scott Ogan
Representative John Harris
Representative Allen Kemplen
Representative Tom Brice
Representative Harold Smalley
MEMBERS ABSENT
Representative Brian Porter
COMMITTEE CALENDAR
*HOUSE BILL NO. 170
"An Act establishing the Alaska Gas Corporation, a public
corporation, and providing for its structure, management,
responsibilities, and operation."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 170
SHORT TITLE: ALASKA GAS CORPORATION
SPONSOR(S): SPECIAL COMMITTEE ON OIL & GAS
Jrn-Date Jrn-Page Action
3/31/99 625 (H) READ THE FIRST TIME - REFERRAL(S)
3/31/99 625 (H) O&G, RES, FIN
4/22/99 (H) O&G AT 5:00 PM CAPITOL 17
4/22/99 (H) <BILL POSTPONED TO 4/29>
4/29/99 (H) O&G AT 5:00 PM CAPITOL 17
WITNESS REGISTER
HANK HOVE, Mayor
Fairbanks North Star Borough
PO Box 71267
Fairbanks, Alaska 99707
Telephone: (907) 459-1000
POSITION STATEMENT: Supported HB 170.
BEN NAGEAK, Mayor
North Slope Borough
PO Box 69
Barrow, Alaska 99723
Telephone: (907) 852-0200
POSITION STATEMENT: Encouraged the legislature to view HB 170 in
a positive light.
DAVE COBB, Mayor
City of Valdez
PO Box 307
Valdez, Alaska 99686
Telephone: (907) 835-4313
POSITION STATEMENT: Supported HB 170.
DAVE DENGEL, City Manager
City of Valdez
PO Box 307
Valdez, Alaska 99686
Telephone: (907) 835-4313
POSITION STATEMENT: Discussed the amendment.
BILL WALKER, Attorney
City of Valdez
Walker Walker Wendlandt & Osowski
550 West 7th, Suite 1850
Anchorage, Alaska 99501
Telephone: (907) 278-7000
POSITION STATEMENT: Offered information regarding the amendment.
MANO FREY, Executive President
Alaska AFL-CIO
2501 Commercial Drive
Anchorage, Alaska 99501
Telephone: (907) 272-4571
POSITION STATEMENT: Encouraged the moving forward of HB 170.
ACTION NARRATIVE
TAPE 99-15, SIDE A
Number 0001
CHAIRMAN JIM WHITAKER called the House Special Committee on Oil and
Gas meeting to order at 5:10 p.m. Members present at the call to
order were Representatives Whitaker, Dyson, Phillips, Ogan, Harris,
Kemplen, Brice and Smalley. Representative Porter was excused.
HB 170-ALASKA GAS CORPORATION
CHAIRMAN WHITAKER announced that the only order of business before
the committee would be HOUSE BILL NO. 170, "An Act establishing the
Alaska Gas Corporation, a public corporation, and providing for its
structure, management, responsibilities, and operation."
Number 0075
CHAIRMAN WHITAKER explained that HB 170 would establish the Alaska
Gas Corporation which would be a publicly owned entity. "The
purpose of the Alaska Gas Corporation is to procure, transport, and
market natural gas from Alaska's North Slope to the world." He
acknowledged that many questions have arisen during the
consideration of this and those questions will be addressed.
Chairman Whitaker emphasized that this will not be a "closed door,
secretive deal," but rather "an open and honest review of an
economic opportunity for all the people of Alaska." He informed
the committee that the makers of the constitution demanded through
Article VIII, Section 2, "That the legislature provide for the
utilization, development, and conservation of all natural resources
belonging to the state for the maximum benefit of its people."
That is the basic premise of HB 170. Chairman Whitaker informed
the committee that there will be a series of hearings on HB 170 and
the topics that surround it. He announced that no public testimony
would be taken today, but noted there will be opportunity for that
later.
REPRESENTATIVE HARRIS moved that the committee adopt the proposed
committee substitute (CS), Version LS0694\H, Chenoweth, 4/23/99, as
the working document before the committee. There being no
objection, it was so ordered.
Number 0410
HANK HOVE, Mayor, Fairbanks North Star Borough, stated that he
supported HB 170. He read the following statement into the record:
I believe, along with Mayor Cobb of the City of Valdez
and Mayor Nageak of the North Slope Borough, that this
bill is potentially one of the most important pieces of
legislation to come before the body this year. It is
creative, it is innovative, and it represents "out of the
box" thinking, and as Fairbanksan, I am extremely pleased
and proud of the fact that its originator was our very
own Representative Jim Whitaker.
This bill, for the first time, envisions a practical
means by which Alaska can develop it's vast natural gas
deposits on the North Slope. It overcomes the obstacles,
real or imagined, that our oil producers have cited for
years as reasons why Alaska's gas must remain stranded.
It places the interest of Alaska first and, instead of
being placed well down the line in priority of
development as it competes with other petroleum
producers' fields throughout the world, it could quite
probably move Alaska natural gas to a position at or near
the top of the priority list. The bill proposes to
eliminate the necessity of waiting for gas to liquids
technology to advance to the point where this method of
gas utilization might become economic which conceivably
may never happen. It provides the opportunity and the
means by which Alaska can devise and control its own
destiny concerning this important natural resource which
has been, essentially, "locked up" by the oil producers
for far too long.
MAYOR HOVE read from the April 16, 1999 issue of the World Gas
Intelligence which follows:
In Alaska, takeover of Arco by BP will increase BP Amco's
stake in the Prudhoe Bay field, with this 26-trillion
cubic feet of reserves from 21 percent to 53 percent,
while reducing the likelihood of an eventual LNG contract
there.
MAYOR HOVE continued with his prepared statement which follows:
This bill would make available, for the first time,
sufficient quantities of natural gas to communities along
the length of the pipeline that have suffered
economically from a lack of access to an affordable
source of energy. The bill envisions a maximization of
return to the residents of the State of Alaska from the
production and sale of this resource while retaining the
important private enterprise economies that would result
from competition in the construction and operational
phases of the project.
In addition to the benefits of access, we envision the
distribution to every village and community in the state
significant sums derived from the revenue stream from the
sale of gas. This could have the effect of ending the
necessity of communities throughout the state having to
appeal to the legislature each year for municipal
assistance and revenue sharing money. With this
provision set in statute, there would no longer be the
need for the endless and frequently unproductive
discussions surrounding this issue.
And finally, and perhaps most importantly, the bill may
very well represent Alaska's financial salvation well
into the Twenty-first Century. The financial difficul
ties associated with declining crude production in the state are
well known to all of us. The revenue resulting from this
production and sale of the huge gas deposits is vitally important
to every resident of this state if we are to find our way out of
the financial briar patch in which we are currently located. It
will ensure that our children and grandchildren have a bright
future in Alaska and can look forward to the prospect of living,
working and playing in this great state. I believe this bill
deserves the serious consideration of every member of this
committee as well as every member of the legislature. I urge you
to give the bill all of the consideration that it deserves.
Number 0712
REPRESENTATIVE PHILLIPS pointed out that there would only be one
source of revenue large enough to do this which is the permanent
fund. In attempting to develop a long-term financial plan, the
public has opposed going into the permanent fund. Therefore, that
will be a consideration for this legislation.
MAYOR HOVE explained that HB 170 contemplates the issuance by the
State of Alaska of revenue bonds sufficient to fund the
construction of the pipeline and associated assets. He pointed out
that method is beneficial because the bonds would be exempt from
taxation. That exemption would probably result in several
percentage points below the cost of capital that might have to be
paid under a private enterprise scheme such as contemplated under
last year's HB 393. Under HB 393, capitalization under different
models was determined to be between 7.5 percent and 10.5 percent.
Tax exempt revenue bonds could be around five percent which changes
the entire complexion of such a project. Last year, under a
private financing scheme, at market rates that were not tax exempt,
the project probably could not have been considered even marginal
with regards to viability. However, changing the cost of capital
as under HB 170, changes everything. By early analysis, this
project could result in gas priced on the world market at the
middle and possible lower end.
REPRESENTATIVE PHILLIPS commented that she would like to have
assurances and verification, as the process continues, that tax
exempt bonds would be a factor. She indicated that she was not
sure of that at this time.
REPRESENTATIVE OGAN said that those bonds would have to be
collateralized with something such as the assets of the permanent
fund.
MAYOR HOVE stated that he believed the bonds would be
collateralized by the revenue stream.
CHAIRMAN WHITAKER agreed that the revenue bonds would be
collateralized by the project. He pointed out that GO bonds are
not contemplated to fund this program.
Number 0980
BEN NAGEAK, Mayor, North Slope Borough, testified via
teleconference from Barrow. He began by thanking Mayor Hove, Mayor
Cobb, and Representative Whitaker for working on this issue. He
commented that in his travels over Prudhoe Bay, he has seen the gas
being burned. Much money is leaving those wells which should be
generating revenue for the state. This legislation helps the state
realize some benefits from the natural gas, although many hoops
must be passed through before the Alaska Gas Corporation is
established. He commented that the bottom line is the economic
feasibility of the project as well as the benefits brought to the
state.
MAYOR NAGEAK acknowledged the recent legislative discussions
regarding the declining revenues with which everyone will have to
deal. This is an opportunity for the legislature to consider a
plan that would benefit all municipalities in Alaska. Mayor Nageak
encouraged the legislature to review HB 170 in a positive light and
to move forward with the feasibility study. The feasibility study
would contain specific information related to this project. Mayor
Nageak commented that this is a workable solution to Alaska's
situation.
REPRESENTATIVE PHILLIPS said she was encouraged by Mayor Nageak's
comments. She cited the issue of land and possible contributions
as one that will certainly arise between Mayor Nageak and Mayor
Cobb. That issue may be a significant factor in whether this
project is feasible.
Number 1353
MAYOR NAGEAK reiterated the importance of everyone working
together. The issue of gas is not new. He discussed a meeting of
mayors in Fairbanks in which there were discussions regarding the
cost of the pipeline by a private sector entity. Mayors have met
on this and other issues numerous times and now this is up to the
legislature.
CHAIRMAN WHITAKER asked Mayor Nageak to expand on his meeting in
New York with bonding fundants. He asked if Mayor Nageak discussed
the possibility of revenue bonding for a project of this nature.
MAYOR NAGEAK informed the committee that real interest was
expressed at that meeting and there were questions regarding the
gas pipeline. He believed that those at the meeting were looking
for leadership with regards to addressing declining revenues. This
project is one such answer to the declining revenues. Mayor Nageak
pointed to the importance of rating agencies which review the
viability of the finances of any entity as well as how that entity
deals with such problems as revenue shortfalls. Mayor Nageak said
that a good rating from a rating agency often results in revenue
and GO bonds being very attractive to bonding agencies.
Number 1567
DAVE COBB, Mayor, City of Valdez, testified via teleconference from
Valdez. Mayor Cobb believed that HB 170 provides Alaska with one
of its few remaining opportunities to control its own future. The
North Slope gas is currently not being developed and the
projections are that it will not be developed for the future which
impacts the local communities. Mayor Cobb stated that the
potential growth of communities along the pipeline corridor and
those throughout Alaska would be phenomenal with the development of
gas. He informed the committee that currently, there is a company
interested in coming into Valdez to establish an iron ore reduction
plant. That company would need 20 billion cubic feet of natural
gas annually. Such a situation would provide 30 to 50 jobs in
Valdez which would not be available if Alaska waits for the oil
industry to develop the gas pipeline.
MAYOR COBB echoed prior comments regarding the fiscal state Alaska
is in and the need to look "outside the box" for manners in which
to solve Alaska's problems and develop the state's natural
resources. Mayor Cobb noted that the communities have developed an
amendment to HB 170 which would address the needs and concerns of
each community in Alaska. Every Alaskan community should be a
beneficiary of the revenues from this project. He reiterated the
previous comments regarding the need to review all aspects of this
project in order to determine its feasibility, although he believed
it to be feasible for the state. He noted concerns regarding the
proposed merger, specifically what would the merger mean to the
development of gas on the North Slope. Mayor Cobb emphasized his
support of HB 170 and encouraged review of the bill.
REPRESENTATIVE PHILLIPS informed Mayor Cobb that much interest was
sparked with regards to his comments of the possible iron ore
reduction plant because there are some Kenai Peninsula legislators
on this committee who have been working to have that located on the
Kenai Peninsula.
MAYOR COBB stated that many communities are "hamstrung" regarding
new development in the state from industries besides the oil
industry. Unless there are available supplies of gas throughout
the state, development such as iron ore reduction or manufacturing
cannot be accomplished.
CHAIRMAN WHITAKER noted that there is an amendment, LS0694\H.2,
Chenoweth, 4/29/99, which has been mentioned. He said that the
rules seem to indicate it appropriate to discuss the amendment in
conjunction with the CS without having to adopt the amendment.
Chairman Whitaker invited Mayor Hove and Mayor Cobb to join the
committee at the table to provide the committee with the reasoning
behind the amendment.
MAYOR HOVE noted that when HB 170 was described to himself, Mayor
Cobb and Mayor Nageak there was also discussion regarding a revenue
stream that would have the capacity to retire all the debt
associated with the project as well as to provide a significant sum
to be distributed to Alaskan residents. He informed the committee
that the three mayors were invited by Chairman Whitaker to develop
a plan with certain assumptions as provided by Chairman Whitaker.
The plan was achieved and can be defended. Mayor Hove viewed this
project as a substitute for the eventual elimination of municipal
assistance and revenue sharing.
MAYOR HOVE explained that the model would take 25 percent of the
projected profit stream from the Alaska Gas Corporation and devote
that to distribution across the state. Therefore, 75 percent of
the revenue stream was left for the State of Alaska to utilize as
it wished. Mayor Hove noted that every community would receive a
$50,000 minimum payment annually irrespective of the community's
size. The balance of the available funds would be distributed on
a pro rata share depending upon population. The plan also provides
for a payment in lieu of taxes payment above the pro rata amount to
the North Slope Borough, the Fairbanks North Star Borough, and the
City of Valdez due to the effects of the pipeline in those
communities. The pipeline would attract additional residents and
therefore create an additional need for public infrastructure which
would be funded through that payment. Mayor Hove commented that
this plan is fundamentally supportable. He said that all three
mayors agree that the plan has at its core an equitable and fair
distribution of the profit stream from the Alaska Gas Corporation.
Number 2108
DAVE DENGEL, City Manager, City of Valdez, commented that the plan
attempts to spread the wealth to all Alaskan communities. He
reiterated Mayor Hove's explanation that the plan would distribute
25 percent of the revenue to the municipalities and leave 75
percent available to the state to be appropriated as the
legislature sees fit. Of the 25 percent, the payment in lieu of
taxes for the three affected communities would be taken off first.
He explained that the assets of the Alaska Gas Corporation are tax
exempt and therefore, real property would be located within the
boundaries of the three specified municipalities, although those
municipalities would not be able to tax that property. After that
amount was taken off the top, the remaining sum would be divided by
the state's population. Mr. Dengel reiterated that all cities,
regardless of population, would receive a minimum of $50,000.
MR. DENGEL pointed out that boroughs take on a greater
responsibility area wide. Therefore a methodology was developed in
order to provide funds to the city within a borough and provide the
borough with a large portion due to its area wide responsibilities.
He explained that the plan takes the general fund budget of each
community and compares that to the general fund budget of the
borough which results in a ratio. That ratio was multiplied by the
per capita dividend for the entire borough which is the city's
share. Then all of the city's dividends within that borough would
be added, that sum would be subtracted from the whole of the
borough and the result would be distributed to the borough.
REPRESENTATIVE KEMPLEN referred to page 4, Article 4 of the
amendment which reads, in part, "The corporation shall provide gas
to every community in the state that requests provision of it." He
inquired as to how that would work, for instance, in Bethel.
MAYOR HOVE explained that the language was present in order that a
community that wished to construct a pipeline to a take-off point
on the main gas line would be free to do so. If the community
chose to do so, the community would also receive as much gas as
required. Clearly, in the case of Bethel that would be
impractical.
Number 2308
REPRESENTATIVE BRICE commented that he could foresee a plant on the
Yukon River loading barges and taking the gas up and down the Yukon
as an alternative to heating oil. Representative Brice said that
was a good provision which he appreciated.
CHAIRMAN WHITAKER said that the concern was that the Alaska Gas
Corporation would be responsible for bearing the cost of building
such spur lines. With regard to Representative Brice's scenario,
Chairman Whitaker commented on how this project could create so
many more opportunities for the state.
REPRESENTATIVE OGAN concurred with Representative Brice's scenario.
However, this language should be clarified such that the language
translates that the corporation shall sell and provide the gas to
the community at the equivalent of the spigot of the well-head at
the pipeline.
MR. DENGEL stated that the purpose of the language was that the
community would request a valve at the pipeline and that community
would pay the well-head price plus the transportation cost to the
point. The community would then be responsible to get the gas from
that valve to its destination.
MAYOR HOVE announced that he would provide the committee with
information based on the methodology explained by Mr. Dengel.
Mayor Hove referred to a spreadsheet entitled, "HB 170 Alaska Gas
Corporation Community Dividend Program," that was provided to the
committee. He noted, "This is per billion dollars of profit. So,
you get to choose how much profit you think...and apply the
appropriate multipliers." He informed the committee that the
following communities would receive the specified community
dividend: Fairbanks North Star Borough - $12,735,369(annually);
City of Fairbanks - $1,805,615; Kenai Peninsula Borough -
$6,367,886; Ketchikan Gateway Borough - $1,056,630. He reiterated
that was per billion in profit. He reviewed the corresponding
community dividend amounts for other communities as listed on the
spreadsheet.
TAPE 99-15, SIDE B
CHAIRMAN WHITAKER noted that the committee packet includes a memo
from Roger Marks, Department of Revenue. Page 2 of that memo
includes a matrix entitled, "Net Cash Flow to State - North Slope
Gas," which provides some preliminary numbers which Chairman
Whitaker noted were very conservative figures. The chart
illustrates that a price of $2.50 per thousand cubic feet of gas
equates to $10 per barrel of oil which is very conservative.
Chairman Whitaker said that a more realistic figure is provided at
a price of $3.50 per thousand cubic feet of gas which equates to
$17.00 per barrel of oil. He pointed out that at the year 2020,
the numbers provided by Mayor Hove could be roughly doubled. If
the state is very lucky and oil reaches $22 per barrel, the
equivalent gas price is $4.50. Chairman Whitaker emphasized that
the numbers are huge.
Number 2399
REPRESENTATIVE KEMPLEN expressed his concern regarding Article 4 of
the amendment. The language does not refer to the size of the
natural gas pipeline and therefore no upper limit of size is
specified. He noted that the primary market for natural gas is
export. Therefore, he believed that there could be the possibility
of conflict between the amount of natural gas available for export
and the amount wanted by the local communities. This could be more
problematic for those communities with a major project such as the
iron ore smelting project already mentioned. Representative
Kemplen recommended that the committee review inserting an upper
limit and ensure that the export aspect of this is economically
viable.
MR. DENGEL deferred to Bill Walker, the author of this amendment.
Number 2326
BILL WALKER, Attorney, City of Valdez and the firm of Walker Walker
Wendlandt & Osowski, testifying via teleconference from Anchorage,
acknowledged that there would be challenges, but viewed the
amendment as a start. With regard to the size of the line, Mr.
Walker said that would have to be further developed in the
legislation. Mr. Walker pointed out that the economics of the gas
line under HB 393 is certainly different than under HB 170. Under
HB 393, the authority had to be available for export under
long-term contract in order to make it feasible financially. He
commented that under HB 170 it appears that the local communities
would have a higher priority.
REPRESENTATIVE PHILLIPS commented that the amendment is an
interesting concept. With regard to profit-sharing with
municipalities, Representative Phillips stressed the need to ensure
that at no time will the state be required to pay out this money to
municipalities, if a point is reached in any given year where there
is no profit on this line. Therefore, that language would need to
be worked out. Also the language regarding the issues of the
boroughs and the cities needs to be clarified, particularly for
those areas that are not encompassed within a borough.
CHAIRMAN WHITAKER interjected that the issue of boroughs and cities
could be commented on by Mayor Hove.
REPRESENTATIVE PHILLIPS said that she did not see the answer in the
language and therefore, was uncomfortable with the language.
CHAIRMAN WHITAKER announced that he was not planning on taking any
action on this legislation; this is the first of many hearings.
MAYOR HOVE stated that no distinction was made between organized
and unorganized governments, but every village is represented on
the spreadsheet and shares on the pro rata basis.
REPRESENTATIVE PHILLIPS agreed, but pointed out, "... if you are
encompassed a borough, the borough also gets money which is more
money into that area. So, that's the language I want to verify and
clarify."
Number 2162
MAYOR HOVE used Fairbanks as an example. Fairbanks is not
consolidated and includes two organized cities and one borough. In
Fairbanks' case, the ratio of its funded budgets for a given year
is the determinant of how much money each receives. If Fairbanks
was consolidated, the borough would receive every dollar available
on the pro rata basis. As it is, the portions for the City of
North Pole and the City of Fairbanks is subtracted from the borough
government's entitlement. Clearly, a unified government such as
Juneau would receive everything.
MR. DENGEL explained, "What we did with boroughs and cities is we
would just take the total population of the borough and that was
the pot that we worked off from when we divided back up to the
cities and then borough.... There's not additional money going
into a borough, ..., there's 10,000 people in the borough, they'd
get whatever 10,000 times the per capita ...." He recognized that
the language may need clarification.
REPRESENTATIVE HARRIS referred to the definitions section. He
noted that the definition for "project" is fairly site specific.
However, the majority of gas consumers would not live in those
specified areas. Is there any language in the legislation
mandating that the Alaska Gas Corporation construct a spur to the
area with the most demand?
MAYOR HOVE informed the committee that it was agreed upon that this
natural resource be first put to use by Alaskans at beneficial
rates to Alaskans. For example, there would not be petroleum
refiners adjacent to our oil pipeline and producing products that
are not that competitive. The language fashioned would allow any
community to construct a pipeline to the point of transmission and
take as much gas as the community could use. The prices would
compensate the public corporation for its cost of capital and
operations to that point on the pipeline.
Number 1978
MAYOR HOVE used Anchorage as an example, as it will probably face
a gas shortage from the Cook Inlet field in a few years. He noted
the possibility that Anchorage could construct a properly-sized
pipeline from Anchorage to Glennallen to receive access to gas in
the pipeline itself. The language in the legislation would make it
possible then for Anchorage to receive an unending supply of
take-offs in the quantities desired. With regard to take-offs,
Mayor Hove pointed out that gas is compressible which means that
gas taken off can be made up through "artful operation of
compression stations." For example, if gas is taken off in
Fairbanks, the pressure can likely be increased north of Fairbanks
to make up for the gas lost in order to ensure that the pipeline is
fully utilized to the tidewater.
MAYOR HOVE stressed that the mayors wanted to ensure access at
affordable prices. Furthermore, they wanted to establish the
Alaska Gas Corporation as a common carrier through competitive
contracts with private industry and only hold the corporation
responsible for the transmission of gas from the North Slope to
tidewater. Everyone else wanting to hook up would have to do so at
their own expense.
REPRESENTATIVE OGAN referred to page 1, line 8 of the amendment
which he interpreted as dedicating 25 percent of the profit to a
special purpose. That is prohibited Article 9, Section 7 of the
constitution. He wondered if the language "Subject to
appropriation for the purpose," was utilized to meet the
constitutional question.
CHAIRMAN WHITAKER said, "That would not be my intent. And if we
need to amend the constitution in order to ensure that this is a
constant revenue stream to the municipalities, then I would suggest
that we do that."
MAYOR HOVE viewed this as a form of enterprise in which the state
government will be involved. The profits from that enterprise will
go to the state's general fund and the legislature will
periodically make the appropriate appropriations to the
municipalities. In that way, Representative Ogan's constitutional
concern is avoided.
CHAIRMAN WHITAKER concurred with Mayor Hove, however he expressed
concern that it is easy to not appropriate.
REPRESENTATIVE KEMPLEN referred to page 3, line 17 of the amendment
which utilizes the same language, "Subject to the appropriation for
the purpose." Since these impact grants would be appropriated
during construction, these grants would not be able to come from
the profits of the line. Therefore, Representative Kemplen
inquired as to where the funding for these impact grants would
come. Is it anticipated that the funds would come from the
proceeds of the revenue bonds or from the general fund itself?
MAYOR HOVE said that it is the intention that the revenue derived
from the sale of revenue bonds, one percent, would fund the impact
grants.
REPRESENTATIVE KEMPLEN asked if that was allowable for distribution
as bond monies. He was unsure that the proceeds from revenue bonds
could be used.
MR. WALKER stated that would be a cost of the project and would
qualify for financing in that method, just as an additional cost of
constructing the project. Mr. Walker agreed that he based that
upon his past experience with bonding procedures.
Number 1670
REPRESENTATIVE PHILLIPS commented that in order to make a profit
from the pipeline, an export of the gas will have to occur. At
what point is there a balance between the amount of gas dedicated
for export in order to provide gas to the local entities at the
well-head price. She asked how will it be balanced, if the state's
demand exceeds the amount exported which allows local entities to
utilize the gas at the well-head price.
MAYOR HOVE said that Alaska would not be able to put a dent in the
quantity of gas in the pipeline, unless Alaska grew by a order of
magnitude. He indicated that Anchorage's needs could be met
without negative impacts. In any event, the state would derive the
revenue in the same amount from its residents as it would from
sales in Korea, for example. The language reflects that "we" will
pay the cost of transportation to the point of take-off. No
communities would be requesting any type subsidy for the purpose of
access. Mayor Hove pointed out that although Alaska is the
provider of energy to a large portion of the United States, if not
the world, Alaskans pay more for their energy than most. That was
puzzling to Mayor Hove, who felt that energy policy should be
changed.
REPRESENTATIVE PHILLIPS commented then that the first step would be
to ensure that there are contracts to sell this gas before moving
forward.
CHAIRMAN WHITAKER agreed, but noted that the cost must be
determined first which is at the heart of this feasibility study.
REPRESENTATIVE OGAN read Article VIII, Section 5 of the Alaska
Constitution which reads as follows: "FACILITIES AND IMPROVEMENTS.
The legislature may provide for facilities, improvements, and
services to assure greater utilization, development, reclamation,
and settlement of lands, and to assure fuller utilization and
development of the fisheries, wildlife, and waters." He assumed
that "lands" also referred to resources which would upon an initial
reading provide the constitutional authority. Representative Ogan
requested that Legal Research and Services be contacted for an
opinion on the constitutional authority in this case.
Number 1440
MANO FREY, Executive President, Alaska American Federation of Labor
and Congress of Industrial Organizations (AFL-CIO), testified via
teleconference from Fairbanks. He supported this legislation
moving forward. Mr. Frey commented that the AFL-CIO has strong
relationships with Yukon Pacific, Alyeska, and Alaska's oil
industry. He looked forward to working on this legislation as it
moves through the legislature. This is visionary and an
opportunity for the state to be involved in the entire scope of a
resource that belongs to all of Alaska. Furthermore, this would
ensure that Alaskans are trained for all aspects of this. Mr. Frey
encouraged this legislation being moved forward.
CHAIRMAN WHITAKER asked if there were any questions of Mr. Frey.
There bing none, the discussion amongst the committee continued.
REPRESENTATIVE OGAN pointed out that thus far, the committee has
heard from those that have something to benefit from this
legislation. This is a major departure in policy for the state to
become involved in the pipeline.
Number 1147
MAYOR HOVE noted that he is an average businessman and that is how
he tends to approach things. He said, "Because of my work on HB
393 last year, and because of my recognition and, I think the
recognition of everyone who was working with that bill, we were
really on the bubble as far as creating margins was concerned.
There wasn't much, if any, margin to create there under that
circumstance where we had to rely on private financing either
through equity or through straight flat out debt or bonds. The
fact that, the internal ... capitalization rate that oil companies
use that we were told, at least for the purpose of evaluation of
taps is in the area of 10 percent. And when you can then think in
terms of selling bonds that cost you half of that, 5 percent, that
changes everything." Therefore, it should be a public corporation
because only public corporations can sell revenue bonds of that
nature. In response to how such can be justified, Mayor Hove said
it is the only way the project will be achieved. Mayor Hove
pointed out that this legislation limits the function of the public
corporation owned by Alaskans to the "negotiation and execution of
contracts with private enterprise firms engaged in design,
construction, and ultimately operation." Mayor Hove understood
that to be all the corporation would do and he was comforted with
that knowledge. Mayor Hove stressed that if something as
encompassed in HB 170 is not attempted, Alaska's natural gas
resource would still be stranded.
REPRESENTATIVE KEMPLEN referred to the legal opinion regarding the
exemption of the incomeable earnings. If the Alaska Gas
Corporation is just a shell for a private sector operation, he was
unsure that the corporation would qualify for the tax benefits. He
suggested clarification regarding the shape and form of this
corporation and its relationship with the state.
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CHAIRMAN WHITAKER stated that Representative Kemplen was correct
and noted the need for further study. Even if the project is
determined by the IRS not to be properly designed to receive
tax-exempt status, Congress can provide a specific exemption for
the project. The Alaska Railroad Corporation operates under such
a situation.
REPRESENTATIVE HARRIS reminded the committee that the legislature's
work on gas last year resulted in a sponsor group which he wanted
to continue. He indicated that there has been an effort put
together by Arco and four other companies to attempt a project. He
hoped the work on this legislation did not slow their investment in
a solution.
CHAIRMAN WHITAKER concurred with Representative Harris regarding
the sponsor group continuing its work. He announced his intent to
provide other interested parties with the opportunity to come
forward.
MAYOR HOVE informed the committee that he went to San Francisco
last March to sell the last portion of a general obligation bond
issue for school construction in the amount of $27 million. He
explained that such a process requires discussions with
underwriters and rating agencies about the desirability of the
community. During one of the breaks, Mayor Hove mentioned that he
was going to be involved in a project in Alaska which would require
a large amount of capital which he estimated to be in the $7 or $8
billion range. He inquired as to how such a revenue bond issue be
structured. Mayor Hove said that the group was so focused on this
possibility that the group could not be brought back to task on the
$27 million general obligation bond.
REPRESENTATIVE PHILLIPS commented that it is encouraging to know
that Alaska's economic stability and passage of trust and financial
legislation have helped those corporations in Alaska that would be
eligible for such a project.
Number 0501
MAYOR HOVE pointed out to the committee that the Fairbanks' Borough
Assembly passed a resolution in support of this legislation.
CHAIRMAN WHITAKER pointed out that this is an accomplishable task.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil & Gas meeting was adjourned at 6:34 p.m.
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