02/10/2004 01:14 PM House O&G
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= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
February 10, 2004
1:14 p.m.
MEMBERS PRESENT
Representative Vic Kohring, Chair
Representative Jim Holm, Vice Chair
Representative Cheryll Heinze
Representative Lesil McGuire
Representative Harry Crawford
Representative Beth Kerttula
MEMBERS ABSENT
Representative Norman Rokeberg
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 296
"An Act making an appropriation to the Alaska Natural Gas
Development Authority; and providing for an effective date."
- MOVED SSHB 296 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 296
SHORT TITLE: APPROP: NATURAL GAS DEVELOPMENT AUTHORITY
SPONSOR(S): REPRESENTATIVE(S) CROFT
05/02/03 (H) READ THE FIRST TIME - REFERRALS
05/02/03 (H) O&G, RES, FIN
01/20/04 (H) SPONSOR SUBSTITUTE INTRODUCED
01/20/04 (H) READ THE FIRST TIME - REFERRALS
01/20/04 (H) O&G, RES, FIN
02/10/04 (H) O&G AT 1:00 PM CAPITOL 124
WITNESS REGISTER
MARK GNADT, Staff
to Representative Eric Croft
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented SSHB 296 on behalf of
Representative Croft, sponsor.
NELS ANDERSON JR.
Dillingham, Alaska
POSITION STATEMENT: Testified in support of SSHB 296 and
SB 241, the companion bill.
HAROLD HEINZE, Chief Executive Officer
Alaska Natural Gas Development Authority (ANGDA)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SSHB 296; provided
information and answered questions about ANGDA's need for
additional funding to complete its work relating to the route
for the natural gas pipeline.
STEVEN PORTER, Deputy Commissioner
Office of the Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: During hearing on SSHB 296, provided
information and answered questions.
PAUL FUHS, Lobbyist
for Backbone 2
Anchorage, Alaska
POSITION STATEMENT: During hearing on SSHB 296, provided
information and answered questions; also outlined Backbone 2's
objectives for the natural gas pipeline.
ROBERT VALDATTA, Member
City Council
City of Seward
Seward, Alaska
POSITION STATEMENT: Testified in support of SSHB 296; noted
that Seward has passed a resolution for a total "all-Alaskan"
gas pipeline.
WILLARD DUNHAM, Member
City Council
City of Seward
Seward, Alaska
POSITION STATEMENT: Testified in support of SSHB 296; provided
information and answered questions.
ACTION NARRATIVE
TAPE 04-3, SIDE A
Number 0001
CHAIR VIC KOHRING called the House Special Committee on Oil and
Gas meeting to order at 1:14 p.m. Representatives Kohring,
Holm, Heinze, Crawford, and Kerttula were present at the call to
order. Representative McGuire arrived as the meeting was in
progress.
HB 296-APPROP: NATURAL GAS DEVELOPMENT AUTHORITY
[Contains brief discussion of HB 395 and HB 420]
CHAIR KOHRING announced that the first order of business would
be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 296, "An Act making an
appropriation to the Alaska Natural Gas Development Authority;
and providing for an effective date."
CHAIR KOHRING said the committee was going to hear a
continuation of HB 395 and HB 420, but the work to combine those
bills is still ongoing. Consequently, the [resulting] bill is
not ready to be brought back to the committee and thus will be
held over until a subsequent meeting.
CHAIR KOHRING noted that Representative Rokeberg was in
Fairbanks for the [Conference of Alaskans].
Number 0129
MARK GNADT, Staff to Representative Eric Croft, Alaska State
Legislature, presented SSHB 296 on behalf of Representative
Croft, sponsor. He noted that Representative Croft is also
currently in Fairbanks "keeping a close eye on the 55
delegates." Mr. Gnadt characterized SSHB 296 as an
appropriation to the Alaska Natural Gas Development Authority
(ANGDA). He said this bill had been introduced last year. The
reason for the sponsor substitute is to raise the appropriation
amount to what was asked for by ANGDA itself, which is where the
$2.5 million figure came from. This bill would help to support
ANGDA, which is the voter-created authority created to look into
the options of the LNG [liquefied natural gas] project. It may
now be expanding to help lots of other developments of bringing
Alaska's natural gas to market, he said.
MR. GNADT said to date, ANGDA has received $350,000; the minimal
amount it would take to get started. He said [ANGDA] had done a
great job with so far but it had reached a point, as mentioned
in House Finance Committee testimony, that it cannot continue
its work without any more appropriations. Hopefully, he said
this bill will be a vehicle for [ANGDA] to get the money it
needs to fulfill the voter mandate to research bringing natural
gas to market.
Number 0368
NELS ANDERSON JR., testified, he noted that he is a former state
Representative and a member of the Senate. He said he was one
of the sponsors of the Alaska natural gas pipeline initiative
passed in 2002, and he is really looking forward to this money
being appropriated so ANGDA can move ahead with the work it
needs to do before the June 15 deadline. Mr. Anderson said he
appreciates the sponsor substitute for HB 296, and is in
support. He stated his belief that the $2.15 million that ANGDA
has requested is necessary, and he urged the [legislature] to
pass it as quickly as possible. Mr. Anderson said he is also in
support of SB 241, the companion bill to SSHB 296, which also
requests $2.15 million for ANGDA. Residents of [rural] Alaska
look at this to answer several questions facing them, he said.
The cost of energy in rural Alaska is very high. In Dillingham,
heating oil is $2.20 per gallon, gasoline is $2.85 per gallon,
and electric energy is 20 cents-plus per kilowatt-hour. The
surrounding villages have much higher costs for energy needs.
MR. ANDERSON said it is thought if low cost energy came from
stranded gas on the North Slope, it would help [residents of
rural Alaska] bring down the cost of energy by utilizing that
gas to generate electricity at a lower cost than what is
currently being done with diesel. In addition, he said this is
seen as an opportunity to provide low cost energy to revive the
salmon industry in [rural Alaska]. Mr. Anderson remarked, "I
think most of you know that we have been going from one disaster
to another, and I'm not sure if 2004 is going to be any better."
He said one rumor is that fish are going to be sold for between
30-35 cents per pound. Those are disastrous rumors if they are
true, he remarked.
MR. ANDERSON said fishermen cannot make a living from that kind
of a price for salmon. He said this relates to low cost energy
from natural gas in that [the state] could develop a on-shore
year-round value added seafood processing capability if there
was low cost energy available. Mr. Anderson said low cost
energy would allow [fishermen] to hold large amounts of salmon
in freezer facilities, and also provide the capability of
producing world-class salmon products.
MR. ANDERSON remarked, "We see this also as a way of, ... once
the gas is online, to get gas into the treasury to help us ...
pay some very serious budget crunches, because I know all of you
have schools in your districts that are cutting back severely."
He said the University of Alaska needs more money to educate
[Alaska's] people for development prospects for the future.
Very serious "life-held" safety considerations are being cut
back because of the lack of money in the treasury, he said. Mr.
Anderson remarked, "We see a gas pipeline being built very, very
soon as a way of creating jobs that we in Bristol Bay ... in
addition to putting new money into the treasury that we need to
provide money for these services that we see being cut back."
He urged the committee to expeditiously move SSHB 296 forward.
Number 0756
HAROLD HEINZE, Chief Executive Officer, Alaska Natural Gas
Development Authority (ANGDA), testified. Noting that he had
sent down a packet of information, he said he didn't intend to
refer to everything in it in great detail. Bringing attention
to the outline contained in the packet, he remarked:
In terms of the Alaska Natural Gas Development
Authority, ... spoken by the sponsor's representative,
we have been preceding since the start of this fiscal
year with about $350,000 total funding. We have, at
this point, basically expended that money, and we are
not able to take on any additional work until we
receive further funding. I have detail for you there,
so that by almost of a contract categories, if ... you
would, how we would propose to spend an additional
$2.15 million dollars.
That money basically broadly covers three things.
One, it provides us with the expert information, so
that we can deal with the business structure of ANGDA.
Keeping in mind that our business contribution to
moving this project forward is to have the lowest cost
of service possible to take advantage of the fact that
we are a public agency. We enjoy certain tax and
financing advantages because of that.
Secondly, the money provides the development of a
model and the performance of what I call an
integrative analysis [testimony interrupted because of
technical problems].
The committee took a brief at-ease.
MR. HEINZE resumed his testimony:
The work here is, again, cover the business structure
of the authority in which we are trying to achieve the
lowest cost of service possible. We are developing a
model and it will provide a basis for an integrative
analysis of the benefits of the authority's work to
Alaska and Alaskans.
... Finally, there is money included in there for the
verification of the ... key elements in the design-
cost estimate that's scheduling of the projects.
MR. HEINZE explained that he'd provided a sheet of information
in which details of the 11 elements were included as the
requirements in Ballot Measure 3 [put forth in the 2002
election] for the development plan to be developed by June 15 of
this year. He said those 11 items are listed and that he'd
cross-referenced how the money would be used to satisfy those 11
elements.
Number 1013
MR. HEINZE said the events of the last few weeks have caused
those thinking about and working on the gas issue to kind of
rethink some things. He remarked:
In particular, the entry of MidAmerican [Energy
Holdings Company] into the issue. Interject some new
opportunities in our mind. We are certainly aware
that the state has before it two applications for
highway projects. We've long taken the position that
we would like the opportunity to both contribute
towards that process and to interact with the sponsors
of those projects.
... In particular, as we've kind of looked at what's
going on right now on the stranded gas applications, I
... wrote out three areas that if broadly, I thought
we could help in. Number one is, frankly, doing the
work - just the actual review, ... processing, ...
understanding, and evaluation of these applications is
going to take a lot of work by (indisc.) resources.
For instance, we have already started to work on the
benefit analysis portion, and that would seem to be an
important component in the state's considerations of
the applications and all the terms ... of other deals
that may be made. Secondly, because of the uniqueness
of our business structure, there may be ways that we
can help improve the market ability of the gas for the
sponsors.
... This would represent a way the state might
contribute for moving the project forward with,
frankly, not having to give up something. Being in a
positive mode rather than give up mode, and we'd like
to certainly be partial to that.
Number 1147
MR. HEINZE continued:
I am very excited about the possibility that somebody
else is interested in building a project out there.
We would love to find a way to align our project with
them. It would help, probably, the finances of both
projects, but maybe even more importantly, we would
like to make sure that the benefits of North Slope gas
accrue to Alaska and Alaskans, so even with these two
stranded gas applications, we see the authority as a
very positive player, ... and we are working towards
that end.
Again, we see ourselves as working as part of the
administration's team. Right now, Mr. Porter and
myself spend a great deal of time working through the
contracts that we're issuing and would like to issue.
Making sure that the state receives good and valuable
information that helps in all regards the (indisc.)
gas issue.
... He and I, in the past, have talked about this
concept, that I think he'll tell you more about, where
it seems wise for the state to look at all the
elements of North Slope gas in ... one pot ... and
figure out how to fund it.
Number 1243
MR. HEINZE continued:
To that end, Mr. Porter had a long discussion with my
board yesterday, and as a result of that discussion,
the board unanimously passed a resolution in support
of the proposal you're going to hear from him on
funding.
... I've written it out there for you, but basically
it just says the board of the Alaska Natural Gas
Development Authority supports the appropriation of $3
million dollars in the remainder of FY 04 to the
Department of Revenue for work related to bringing
North Slope gas to market.
We certainly see our funding as part of that, and we
believe that ... we can contribute to the total
interest of the state, as well as move forward towards
our project. Obviously, there's a lot of questions,
and things about that I don't know at this point
because it's a dynamic process that, in my mind at
least, we'll know over the next couple months.
... On the very last page of my exhibit; I did go
through some alternative sort of scenarios that I made
up, and it just seems to me that the level of funding
we were requesting was an appropriate level to carry
out any of those scenarios, and ... I thought that was
encouraging to me.
Number 1329
REPRESENTATIVE HOLM remarked:
In light of the fact that Flint Hills is in the
process of buying Williams Petroleum in Fairbanks; I
noticed on your presentation to us some time ago that
you had a petrochemical plant possibility in the
Valdez area; have you considered since Flint Hills is
a huge petrochemical corporation in other places of
the world that that should not be considered more in
the North Pole area rather than down towards Valdez.
MR. HEINZE said the delineation of the petrochemical area on
that chart was one of convenience. In general, he said people
think of the petrochemical industry at tidewater "that doesn't
mean in the Alaskan case, for instance, that that's necessarily
where it would have to be." Mr. Heinze said in the funding
request he included an amount of $20,000, which is called "down
the stream concepts." He said the idea would be for ANGDA
itself not to get into the petrochemical business, but to look
at some of the more unique ideas and possibilities. Mr. Heinze
suggested that it may be desirable for Alaska to produce home
insulation material for use in the state. He said the value
that might add to the economy might be very large, and it is
those opportunities he thinks the state should look into. He
remarked, " I ... am not biased towards any one location or
whatever; ... I've got to figure there's ways that
entrepreneurial people will figure to move things around."
Number 1475
REPRESENTATIVE KERTTULA told Mr. Heinze that he'd done a
remarkable job with very little and she and the committee really
appreciate it. She asked if the full amount [of the
appropriation] will go directly from the Department of Revenue
(DOR) back to ANGDA. She remarked, "So that you have enough
money to get us forward," and said she wanted to ensure that Mr.
Heinze has secretarial help and supplies. Representative
Kerttula said she thought the intent is also to be able to give
[ANGDA] enough money so that it can physically go forward, and
asked Mr. Heinze if these funds will be brought right back to
him.
Number 1535
MR. HEINZE remarked:
It is my understanding that what we are proposing here
is that the Department of Revenue receive $3 million
dollars. ... Certainly, our need for funds is part of
the totality that is on the table in that $3 million
dollars. Exactly the when, why, and how, of that
money coming back is a process that would operate
between the authority and, in this case, Mr. Porter as
the deputy commissioner of revenue, and frankly that's
what we've been doing all along anyway.
... I guess I would just suggest to you that I'm
comfortable in my ability to ... justify the
expenditures and the value we would receive for those
expenditures. I'm very comfortable in making our case
and ... meeting our priorities, our needs, and that.
On the other hand, I have no problem entering into
this in a flexible sort of way also, because I do
believe that the events of the last few weeks have
changed the whole spectrum of opportunities for us on
North Slope gas in ways that I would not have thought
of ... a month or even two months ago, and I would
like the opportunity to maneuver a little bit as part
of the administration's team and let ANGDA make what
contributions we can, as well as to pursue some ideas
we have as to how to move the whole cause forward.
MR. HEINZE said almost all of this money is contractor money and
is [not meant] to hire a lot of employees. He explained that he
will have to hire some temporary employees to help monitor and
direct the contract to work. He said his intention is to not
have to do that himself. He noted that he does have a executive
assistant and that position may need to be expanded depending on
the demands that are placed on that employee at this point.
REPRESENTATIVE HEINZE said she wanted to ensure he had the
resources [necessary] to get the information, and that she knew
Mr. Heinze was doing a good job.
Number 1682
REPRESENTATIVE HEINZE asked Mr. Heinze if his authority is
broadened in SSHB 296.
MR. HEINZE remarked:
The authority in ... [SSHB 296] as it exists right
now, simply, has the same mission as it always has
had. This just provides funding to do a certain kind
of work. Again, it's the actual things we do to sort
of delve in the detail, and until you get down to the
very details of the spending plan, it's not clear
exactly what kind of things are going on here.
What the money does provide is for the authority to
understand itself in a business-plan sense very well.
What it is weak in, and purposely so, is in the more
design and engineering side of the project, and that's
okay because work in that area can be pushed forward
into the next phases. Remembering again, that the
$2.5 million dollars is not an end unto itself, it
just gets you one step closer, and there is a huge
funding requirement that comes up beyond this that we
have to decide about.
REPRESENTATIVE HEINZE asked what assurance Mr. Heinze would have
that the money would go to ANGDA, and in doing all this where is
the difference in ANGDA's perimeters.
MR. HEINZE remarked:
In this case, broadly, what we're recommending is from
the authority's point of view is that our specific
request for the $2.15 million dollars be included as a
broader request for $3 million dollars. Certainly, it
is our intent to participate to whatever extent we can
in any of the Stranded Gas Act applications, working
with those sponsors, doing whatever we can do to
contribute towards the state effort.
So in that sense, yes, our scope is probably
broadened. It is taking on some other
responsibilities that I probably hadn't thought about
a month ago or two months ago. So there is some
change there. As far as our statutory requirement,
there is no change in this bill.
Number 1873
STEVE PORTER, Deputy Commissioner, Department of Revenue (DOR),
explained that as Mr. Heinze had stated, [DOR] did visit with
ANGDA the previous day and ANGDA did support the resolution and
recommendations that the department made in that the amount of
this legislation be increased to $3 million, and that the
appropriation be directed through DOR for North Slope gas work
in general. That would basically cover both Stranded Gas Act
negotiations and ANGDA's responsibility underneath [Ballot
Measure 3], he said. He remarked:
One of the things we have found with the authority,
over time, is as we look at those elements that are
required - the 10 or 11 elements required in the
statute - ANGDA has come to us a number of times and
asked us if we could not provide them with extra seats
from our staff that wouldn't necessarily require a
contract or funding, but would allow us to help them
out ... and assist them.
We have done it on occasion. On occasion, we have
actually had reports that we were able to provide them
with information, so that the information was already
available and neither one of us had to contract that
out. There are other situations now, as we find
ourselves in, is that we may actually be doing our own
research on the Stranded Gas Act that parallels the
Alaska Natural Gas Development Authority.
That seems appropriate to kind of look at those
resources as a whole and look at the projects as a
whole and begin to make decisions .... The goal from
the state is to provide the authority ... with all the
finances they need to meet the requirements already in
statute.
Our goal as well though is to make sure that,
especially in the short term, ... we provide the
authority with the finances and the support from a
research standpoint to position themselves to be able
to participate in whatever way they can in the current
negotiations, so at least in the immediate focus some
of those feasibilities ... [that] come forward may not
relate to the overall project development plans, but
we may want to restructure the timing of when some of
those obligations are met.
Number 2017
REPRESENTATIVE KERTTULA asked Mr. Porter about restructuring the
timing.
MR. PORTER remarked:
The authority moves forward without acknowledging that
you have two Stranded Gas Act negotiations going on.
The timing and the types of research they would do ...
could be quite different in meeting their obligations
under these statutes, ... basically, to prepare,
develop, and plan. Our recommendation to them is to
recognize those things that are going on around them,
and if there are things and research that needs to be
done to support the overall negotiations, ... that are
doing those first.
... Stranded Gas Act negotiations need that
information, as well as the authority needs that
information, so they can move forward.
MR. HEINZE said he had not "formed anything hard in his mind,"
but in the course of discussion over the last week or so, it has
become clear to him that ANGDA may miss its deadline of June 15
by a month or two. What would be gained in taking the time to
work on some other aspects of this may be a project that not
only is demonstrative and feasible, but actually has a much
higher probability of going forward, he explained. Mr. Heinze
remarked, "This is one of those where I think there's a hard
trail between meeting the exact deadline and finding ourselves
in a place where it's a dead end, and even if we find the
project feasible, but if we were not able to build the momentum
to go forward, it could be a dead end." He said he thought it
was worth a couple of months of maneuvering to see if the
probability of the project going forward can be greatly
increased by tying it to other things that are going on and that
need to go on in the short term.
REPRESENTATIVE KERTTULA remarked, "Well, I hear the wisdom in
that." She asked what should be done about the fact that there
was an initiative with a deadline, and she said what Mr. Heinze
was saying certainly sounds reasonable. She told Mr. Porter
that she wants the assurance that Mr. Heinze and ANGDA are going
to get the funding they need and deserve to do the work for DOR,
and also meet their obligations. She commented that she knows
that is subject to funding.
MR. PORTER remarked:
I spent a substantial amount of time on that very
issue yesterday with the authority, and apparently
convinced them that that in fact is the case because
we did get a unanimous, basically, vote from them in
support of us. That is our intent ... to support them
fully with moving them toward other statutory
obligations while, at the same time, encouraging them
to participate fully in ... the project (indisc.) we
have before it.
REPRESENTATIVE HEINZE asked if it was correct that it was for
all stranded gas projects or permitting.
MR. PORTER said [DOR] currently has two stranded gas
applications before it that the state is negotiating, one with
ConocoPhillips Alaska, Inc., BP, and ExxonMobil Corporation, and
a second one with MidAmerican Energy Holdings Company
("MidAmerican") and their partners Cook Inlet Region,
Incorporated (CIRI), and Pacific Star Energy. He said those two
contracts are going to require a substantial amount of work and
effort on behalf of the state. As a parallel to that, there is
also the Alaska Natural Gas Development Authority. He said the
$3 million is basically to cover both ANGDA and the additional
costs [the department] believes will be incurred by the state to
negotiate those.
Number 2291
REPRESENTATIVE HEINZE said she wanted to ensure that there is
enough money for both, and asked if it would be possible to come
up short on the funding for the authority after the permitting
is already done.
MR. PORTER remarked:
It might be helpful to understand that beneath the
Stranded Gas Act, we have the ability to negotiate
with the applicants a reimbursement agreement of up to
a million and a half dollars per application. That is
specific (indisc.) contractors to fulfill our
responsibilities underneath those applications.
So it ... is very specific on ... what we can spend
that million-and-a-half for, but it does provide us
with some additional funding just based on those
contracts. This funding would be that type of funding
that is outside of the million and a half
reimbursement agreement that we might execute in bill
companies.
... There are things that the state might need to do
on the standpoint of staffing and resources that would
not be reimbursable underneath that contract. We
believe that the amount of money ... we have placed
before the committee is sufficient to meet both those
needs.
Number 2406
PAUL FUHS, Lobbyist for Backbone 2, noting that the group is a
nonpartisan citizen's organization, told members that Backbone 1
was formed to stand up for Alaska's interests in the merger of
BP and Arco, and is now really focused on the gas [pipeline]
issue. He said he is really appreciative of everything being
heard today because it looks like people are supporting this.
The administration's on board, Senator [Gene] Therriault has a
companion bill in the Senate, and it looks like the funding is
going to be there, he said. Mr. Fuhs said [the committee]
absolutely needs this information because the decisions that are
going to be made right now on gas [pipeline] development are
some of the most [important] decisions that will be made for the
future of the state "and maybe forever."
MR. FUHS said he couldn't think of any other project since the
oil pipeline that is going to have this kind of impact on the
state, both on the private business side and also on the
government side, in terms of fiscal revenue for Alaska. The gas
pipeline is the fiscal plan for Alaska, he said. He indicated
that the revenues from a gas pipeline are estimated to be up to
$1 billion. This is the way that the state is going to fund the
government through resource development. There's no other
project or industry that can provide these kind of revenues to
Alaska, he said.
MR. FUHS said part of the real advantages of the development
authority is the income tax exemption, which is 30 percent of
net revenues. Noting that people have said this project is
uneconomic, he said that's just not true, and no data has been
provided to show that it is. He said there is do data on the
Canadian pipeline, there is no data at all, he remarked, "You
are being asked to make these decisions completely blind." That
is why this information is so important that is going to come
out of this money that the state is spending; the data can be
used to help judge the Stranded Gas Act applications and so
forth, he said.
Number 2496
MR. FUHS said [Backbone 2] is in support of this expansion.
Addressing a previous question by Representative Heinze, he said
Senator [Scott] Ogan does have a bill which will broaden the
authority for them to be able to look at whether a tax exemption
applied to a Canadian highway [pipeline] would make it more
economically feasible. He said people have said it's really not
feasible without federal subsidies and it looks like those
subsidies aren't going to be forthcoming. He remarked:
I think what Harold was trying to say is rather than
look at ... the stranded gas applications, they're
going to come to us and say, '... Give up all your
royalties or give up your severance taxes or
production taxes, so we can have this project, and
what the authority can say is, 'Well, maybe we could
give you a tax break and give you the same thing where
Alaska doesn't have to give up its benefits,' and if
we get the all-Alaskan project that people voted on,
then we're going to get a lot more benefits from the
ownership of that project.
MR. FUHS noted that he had provided members with a 12-page
executive summary entitled "Alaska's Strategic Interests in
North Slope Gas Development," which he said may be the first
example of an attempt to try to comprehensively put these issues
together. It is a very complex issue, and it is really hard to
stay on top of what is going on and what the state's interests
are, so he tried to do that, he said. Noting that he had also
provided a poll that was recently taken in January by Ivan Moore
Research, Mr. Fuhs said [Ballot Measure 3] passed 2 to 1 by the
voters, and now those numbers have gone up even higher in the
latest poll that [Backbone 2] has. He stated:
They show, for preference of Alaskans, LNG to Valdez,
65.5 percent favor that, and the highway route 19.3
percent, well, that's almost 3 to 1, for those people
who do have an opinion. The other 15 percent are
undecided.
Number 2591
MR. FUHS said [Backbone 2] feels very strongly that Alaskans are
behind this project. One of the most critical things that can
happen on these stranded gas negotiations is to stand up and
negotiate for the interests of the people of Alaska. He said he
thinks what ANGDA needs, more than anything, is a supply of gas
for the project, and the commitment that the gas will be made
available. Under the economic models being looked at, the oil
companies would make $720 million a year selling the gas; doing
nothing more than turning a valve on the North Slope for 2.2
billion cubic feet of gas a day, he said. Mr. Fuhs said he
thought it was a pretty good return for no additional investment
on the part of [the oil companies]. He remarked, "We're really
hopeful ... as you consider the Stranded Gas Act negotiations
that you look at that gas supply."
MR. FUHS suggested that, as Mr. Heinze had said, maybe there's
some combination that could allow this project to go forward
now. Addressing a previously stated question from
Representative Heinze, he said one advantage of the Alaska
project is that it's already permitted and can go forward now.
"Maybe in conjunction with one of the other people that have
applied under the Stranded Gas Act," he suggested. Mr. Fuhs
remarked, "Later on, when they sort through all the permitting
and Native land claims, and redo the treaty with Canada, and all
the other things that it's going to take to consider a Canadian
pipeline, if that comes around, then they can build that too,
and that would be great." He said [Backbone 2] is not against a
Canadian project, but [instead] is saying that there is no
reason to delay one minute for moving ahead for the "all-Alaskan
project" that the people of Alaska voted for.
Number 2653
REPRESENTATIVE CRAWFORD said [the state] had been ready to build
a pipeline since it got done with the oil line and that he
thought the people have spoken loudly. He remarked, "It's time
for us to get moving." Representative Crawford said he would be
open to any suggestions on what can be done by legislators to
help move this forward as quickly as possible.
MR. FUHS mentioned the group's web site at "backbone2.org" and
said the web site provides a wealth of background information,
including: economic analyses, project descriptions, the RCA
[Regulatory Commission of Alaska] decision on the pipeline
tariffs, and the Federal Trade Commission (FTC) ruling on the BP
merger. He told members that they would probably be receiving
some [correspondence] because the web site makes it possible to
e-mail each legislator by district, and he remarked, "People of
Alaska are going to be able to communicate with you on this
issue, through our web site."
REPRESENTATIVE HOLM asked Mr. Fuhs if he'd considered the fact
that municipalities exact a great percentage of dispensable
income by having the pipelines go through their property, and
how it would adversely impact them to have the properties taken
away without PILT [Payment in Lieu of Taxes] or some form of
payment.
MR. FUHS remarked:
If you'll look at ... the 11 steps that are necessary
in there, one of those is to negotiate municipal
revenue sharing with those local communities and that
would be Payment in Lieu of Taxes, that is one of the
things that the authority is charged with doing. And
I think ... they also should look at it as more
general revenue sharing also, not just the communities
that it goes through, because a lot of our communities
are hurting. Some of them ... are going bankrupt
right now because they don't have municipal revenue
sharing and this could be a source of that. The
voters did vote on that, and it is required as part of
the ... ANGDA process.
Number 2784
REPRESENTATIVE HOLM said he was curious about the idea of a
public or private ownership or some combination thereof. He
asked Mr. Fuhs what he envisioned at this time with MidAmerican
"entering into the equation."
MR. FUHS said in order to enjoy the income tax exemption, ANGDA
would have to own discreet portions of the pipeline. He
remarked:
I think you could do a combination, maybe, with
MidAmerican that'd come down a certain way, maybe, the
Delta or something like that, and the authority take
it the rest of the way to Valdez and own the
liquefaction plant. If you did it in discreet pieces
like that, I think you could still preserve the tax
exemption, but they do have to own it, and it's not
unusual for governments that their own resources to do
this.
MR. FUHS said almost every government in the world that owns
their resources has an ownership in the transportation and
production. He noted that Nigeria has 70 percent ownership, and
West Africa has 50 percent ownership. He suggested that if an
African country can figure out how to do it, he didn't see why
[Alaska] can't.
REPRESENTATIVE HEINZE remarked, "I've heard that ... if ANGDA is
not funded, that basically, to fold our tents and go home." She
asked, at that point, what would happen to the people's
initiative.
MR. FUHS said he thought [the initiative] would just die, and
the decision that the legislature is making is whether this is
going to go forward and if the will of the people is going to be
respected. He said the bill is basically like a mini-
supplemental budget bill because if it goes through and it looks
like it's moving both sides, it has an immediate effective date,
that money will be available immediately, and that's the way
that it needs to be. Mr. Fuhs remarked, "They need to get going
on this analysis, they need the information, and so do you."
Number 2876
REPRESENTATIVE HEINZE asked Mr. Heinze if, in the case that a
gas pipeline is built, could a "spur line" be built to provide
gas to Cook Inlet. She asked if that is in ANGDA's authority.
MR. HEINZE stated that the ballot measure specifically speaks to
a [gas pipeline] running from Prudhoe Bay to Valdez, and a spur
line running from Glennallen into the Cook Inlet area. Within
that is a lot of maneuver room because the first 530 miles from
Prudhoe Bay to Delta is exactly the same route as the highway
route, so there is a tremendous possibilities of combination
there, Mr. Heinze explained. He said it is not really until
Delta that the two projects kind of split off. Mr. Heinze
remarked, "So there are all kinds of circumstances I can
visualize where we may be able to either work with or pick up
from or get to or all kinds of different relationships with
these various sponsors." Within the statutory direction of the
authority, he said he didn't see any problem at all in dealing
with them. He said it's well within the context of trying to
find a feasible project that will get the gas to market, can be
undertaken, and more importantly, can be financed. Mr. Heinze
said the part that's exciting to him is the interaction with not
only the existing proposal that's been on the table for a long
time, but with a new set of people proposing a project. He said
the dynamics that brings to it are very significant.
TAPE 04-3, SIDE B
[Not entirely on tape, but taken from the Gavel to Gavel
recording on the Internet, was Representative Heinze's remark
that there are three Arco past presidents: Kevin Meyers of
ConocoPhillips, Ken Thompson of Pacific Star Energy, and Harold
[Heinze].]
REPRESENTATIVE HEINZE, noting that she had participated in
hearings on the electrical grid, said the "projections are six
to seven years and we're out of gas and our entire grid is in
jeopardy." She said she is trying to figure out a way to get
gas to Cook Inlet.
Number 2950
MR. HEINZE replied that he thought the governor, in talking to
the legislature, highlighted the importance of gas in the Cook
Inlet area. He suggested that there is a very broad recognition
within the administration and within [ANGDA's] authority about
the fact that there is a significant price and supply issue
related to gas in Cook Inlet. He said the belief is that the
spur line concept included in the ballot measure that was passed
offers a tremendous opportunity for at least a generation's
worth of gas at a reasonable price "into the area." Mr. Heinze
remarked, "We think that's a tremendous benefit of a project,
and I think as our benefit analysis proceeds that will show up
as one of the larger things that we are actually impacting by
our project."
CHAIR KOHRING remarked, "If we don't build a spur line, we can
develop some coal bed methane out there."
Number 2896
ROBERT VALDATTA, Member, City Council, City of Seward, mentioned
a presentation made in January. He said the City of Seward has
passed a resolution for a total all-Alaskan gas pipeline or "if
it goes the other way, we're concerned that we're not going to
get equal opportunity that these other two companies are going
to get the lion share of the money; we're not." He said it was
stated during the presentation that Seward could be a support
facility for training and the shipping of materials. Mr.
Valdatta added that maybe Seward could be a pump station to the
barges that service the coastal villages. He remarked, "We
appreciate your support on this, and we're wide open ... for all
the assistance we can get."
REPRESENTATIVE HEINZE asked if Seward was one of the cities that
voted the "no-competence in the legislature."
MR. VALDATTA said no.
Number 2823
WILLARD DUNHAM, Member, City Council, City of Seward, testified.
He said as Mr. Valdatta mentioned, [ANGDA] gets equal billing
with the other two projects, and it seems like in the
publications of that and the stories that have been covered, it
hasn't been that way. Mr. Dunham said there was enough concern
to pass a resolution in support of it, and one reason for the
early support of the [gas pipeline] is that it looked like it
was the only plan that gave any consideration to the coastal
cities. Mr. Dunham remarked:
We feel this is very important, ... even though the
secondary of coming up with a pipeline, the highway
line as a feeder line down to Southcentral, it still
did not include in its project the idea of service to
coastal cities for liquefied gas. So I would urge
you, in your consideration, ... fund this. One, I
think it's because the people have voted for it.
MR. DUNHAM said the support is still there, and that the point
Representative Heinze brought up about the power and the energy
sources for Southcentral is very true. He said he has been on
one of the energy committees and has studied the energy and
supply in Southcentral. He remarked, "We're going to have a
serious problem if we don't get stabilization of the gas, we're
going to see costs go out of sight on us much like California is
seeing now." He urged funding for ANGDA, so it would have the
opportunity to continue.
CHAIR KOHRING asked Mr. Valdatta to provide his office with
copies of the resolutions that the City of Seward had passed.
Number 2690
CHAIR KOHRING, upon determining no one else wished to testify,
closed public testimony.
CHAIR KOHRING said with regard to the government's involvement
in infrastructure development of this nature, he has a
philosophical disagreement with this. He said Harold Heinze,
his staff, and the board that was appointed by the governor are
the consummate professionals, and he has a lot of respect for
them. Chair Kohring said in his mind it should be strictly
private sector. He noted he has concerns about appropriating
money to an authority that is pursuing a project that should be
done privately, and he said the committee has disagreements on
that. Chair Kohring said he appreciates the work of the
authority, which he noted has done an outstanding job. He
remarked, "If they can make it happen, they would be the ones to
do that." He noted that the committee did not receive any
testimony from the private sector, and he said he wondered what
the opinion was.
Number 2593
REPRESENTATIVE McGUIRE commented that she thought Mr. Heinze,
the people involved in the initiative, and Backbone 2 have done
a great job. She said she didn't see it as a direct threat to
private industry, instead she sees it as Alaskans caring about
getting a gas pipeline moving and wanting to see it go forward
as quickly as possible. Representative McGuire said private
industry may not want to move as quickly as [the state] does,
which is fine, and maybe the [private sector] chooses to stay
out of this project because it's not economic for them now or
maybe "they chose to jump on board."
REPRESENTATIVE McGUIRE said she what she thought was phenomenal
about this process, the bill, and what has happened with the
initiative, is how much Alaskans have come to learn about this.
Representative McGuire said when she came to serve in the
legislature, one of her first standing committees was the House
Resources Standing Committee, and she was overwhelmed with how
little she knew about resource development in Alaska. She said
"yet we all know" it's one of the most important things about
[Alaska], because "we" are so fortunate to have such an
abundance of natural resources. She said she thought it was
great because it is showing the process of how a project is laid
out, the types of things that need to be considered, and the
benefits that come back to Alaskans.
REPRESENTATIVE McGUIRE said Representative Heinze made a great
point that the Cook Inlet area is running out of gas. She
remarked, "People in rural areas would say well we never had it,
so boy are you lucky you're running out; we never had it; we
have diesel." She said if private industry wants to "come on
board" later, Mr. Heinze has made it clear and has been very
open and receptive to that possibility.
REPRESENTATIVE MCGUIRE said when that time comes, [the state]
will know a little better about what kind of a deal it wants.
"That is our role; the shareholders for us are Alaskans," she
remarked. She said she didn't see it as a threat, and noted
that [members] have different opinions on it. She said she is
proud of it and is delighted it is going forward. She said she
looks forward to hearing another update from Mr. Heinze.
Number 2470
REPRESENTATIVE KERTTULA moved to report SSHB 296 out of
committee with individual recommendations. There being no
objection, SSHB 296 was reported from the House Special
Committee on Oil and Gas.
CHAIR KOHRING stated that because SSHB 296 is an appropriations
bill there is no accompanying fiscal note.
ADJOURNMENT
The House Special Committee on Oil and Gas meeting was recessed
at 2:10 p.m. [The meeting was reconvened February 19, 2004.]
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