02/03/2010 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB312 | |
| Overview by Tony Palmer, Transcanada Alaska: Agia Update/open Season | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 312 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 3, 2010
1:05 p.m.
MEMBERS PRESENT
Representative Craig Johnson, Co-Chair
Representative Mark Neuman, Co-Chair
Representative Kurt Olson
Representative Paul Seaton
Representative Peggy Wilson
Representative David Guttenberg
Representative Scott Kawasaki
Representative Chris Tuck
MEMBERS ABSENT
Representative Bryce Edgmon
COMMITTEE CALENDAR
HOUSE BILL NO. 312
"An Act authorizing an advisory vote on use of Alaska permanent
fund earnings for an in-state natural gas pipeline; and
providing for an effective date."
- MOVED CSHB 312(RES) OUT OF COMMITTEE
OVERVIEW BY TONY PALMER, TRANSCANADA ALASKA: AGIA UPDATE/OPEN
SEASON
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 312
SHORT TITLE: ADVISORY VOTE ON IN-STATE GAS PIPELINE
SPONSOR(s): REPRESENTATIVE(s) CHENAULT
01/25/10 (H) READ THE FIRST TIME - REFERRALS
01/25/10 (H) RES, FIN
02/03/10 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
REPRESENTATIVE MIKE CHENAULT
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as the sponsor of HB 312.
LAURA ACHEE, Director of Communications
Alaska Permanent Fund Corporation
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 312, answered
questions.
MERRICK PEIRCE
Salcha, Alaska
POSITION STATEMENT: Opposed HB 312.
TONY PALMER, President
TransCanada Alaska, LLC;
Vice President
Alaska Development
TransCanada
Calgary, Alberta, Canada
POSITION STATEMENT: Continued the PowerPoint presentation and
update on TransCanada's Alaska Pipeline Project that he began on
February 1, 2010.
ACTION NARRATIVE
1:05:27 PM
CO-CHAIR MARK NEUMAN called the House Resources Standing
Committee meeting to order at 1:05 p.m. Present at the call to
order were Representatives Olson, P. Wilson, Seaton, Guttenberg,
Tuck, Kawasaki, Johnson and Neuman.
HB 312-ADVISORY VOTE ON IN-STATE GAS PIPELINE
1:05:48 PM
CO-CHAIR NEUMAN announced that the first order of business is
HOUSE BILL NO. 312, "An Act authorizing an advisory vote on use
of Alaska permanent fund earnings for an in-state natural gas
pipeline; and providing for an effective date."
1:06:35 PM
REPRESENTATIVE MIKE CHENAULT, Alaska State Legislature, sponsor
of HB 312, said the various options for an in-state natural gas
pipeline need to be looked at and HB 312 would give legislators
the opportunity to hear the voices of Alaskans when it comes to
the energy needs of the state. The bill would provide that the
following question appear on the ballot [of the next statewide
primary or general election]:
After paying annual dividends to residents and
inflation-proofing the Alaska permanent fund, should
permanent fund investment earnings be appropriated to
help pay the costs of constructing an in-state natural
gas pipeline?
1:08:11 PM
REPRESENTATIVE CHENAULT noted that the issue of routes is kept
out of the question because this is about Alaska and not any
specific region. He said [the sponsors] are interested in
having conversations with Alaskans on what is seen as the
biggest problem and how to address it. This bill would not pay
for an in-state gasline, but it would be one of many options
that are out there. With the energy crisis that is looming for
Alaska in the forthcoming years, HB 312 would provide Alaskans
an opportunity to say whether they think the State of Alaska
should be involved in the in-state energy needs of the state.
1:10:07 PM
CO-CHAIR NEUMAN said he has heard loud and clear from many
people that they want an in-state gasline and he thinks it is a
good idea to ask Alaskans what they want to do. While this
would be advisory, legislators work for the people and it would
be a directive. Given there are laws regarding use of the
permanent fund, HB 312 would be part of the process in following
those rules. It has always been a concern that politicians
would spend the Alaska Permanent Fund [earnings] on pet projects
and other things. Because it asks for authorization to use
permanent fund [earnings], HB 312 is part of a process that asks
Alaskans what they want done with their money.
REPRESENTATIVE CHENAULT replied that legislators cannot spend
the corpus of the Alaska Permanent Fund, and he thinks that most
Alaskans know that. However, the legislature could at any time
spend all of the fund's earnings, but the legislature has not
"cracked that egg" because it would be political suicide. This
bill is asking whether Alaskans are interested in forwarding an
in-state gasline if money is available after dividends and
inflation-proofing. Excess earnings are put back into the fund
to determine what the next [dividend] will be, so this would
have a minimal effect, although he does not know the number.
1:12:33 PM
REPRESENTATIVE P. WILSON, in reference to the chart of earnings
in the committee's packet, noted that since the permanent fund
has been in effect, the earnings have dropped eight times from
one year to the next. This represents money that was just lost
when it could have been used to the benefit of the state, and
this is something that needs to be thought about.
REPRESENTATIVE CHENAULT responded that every person wishes he or
she was smart enough to get in on the lull and out on the high,
but there has been a good return to the permanent fund overall
since it was enacted, despite the ups and downs of the market.
1:15:12 PM
REPRESENTATIVE SEATON, in regard to the ballot question itself,
surmised that the earnings could be used for any number of
options, such as a loan that is repaid, investment in an equity
share, or a subsidy for construction where no repayment is
received so that the tariff could be lowered.
REPRESENTATIVE CHENAULT answered he thinks all options should be
on the table, but these discussions cannot occur without knowing
how Alaskans think about it and is why this question is being
put forward. It is probably more about the future needs;
Alaskans are looking for a long-term energy supply that grows
Alaska, not something that just gets the state by year to year.
1:17:18 PM
CO-CHAIR JOHNSON inquired how much money has been put into the
Alaska Permanent Fund as opposed to how much has been paid out
in dividends.
LAURA ACHEE, Director of Communications, Alaska Permanent Fund
Corporation, responded that $14 billion has been put into the
permanent fund over its 30 years of existence; these funds have
come from the mineral royalties required by the constitution and
additional appropriations from the general fund. In that same
time period, about $17.5 billion has been paid out in dividends.
Today, the fund is worth just under $34 billion. Thus, more has
been paid out than taken in and there is still $34 billion.
This is an amazing conversion of a non-renewable natural
resource into a renewable financial resource, and it shows what
a success the fund has been.
CO-CHAIR JOHNSON said his point is that Alaska has a healthy
fund and he would like to hear what the people have to say about
putting more of it to use in the state.
MS. ACHEE, at the request of Representative P. Wilson,
reiterated that $14 billion has been put into the fund and $17.5
billion has been paid out.
1:20:54 PM
CO-CHAIR NEUMAN opened public testimony.
MERRICK PEIRCE noted that he serves on the board of the Alaska
Gasline Port Authority, but that he is offering his own point of
view in opposing HB 312. He said the voters of Alaska have
already weighed in on what they would like to do with the
gasline. In the 2002 election, voters overwhelmingly voted to
build the all-Alaska gasline from the North Slope to Valdez. If
the legislature had funded the law passed by the voters - the
same voters who had the wisdom to create the permanent fund -
the state would now have a gasline providing affordable energy
for Alaska and a new source of state revenue, as well as bigger
dividends. Instead, today there are certain legislators who
have expressed contempt for the voters' wishes suddenly
pretending that they care what the voters think.
MR. PEIRCE maintained that a "bullet line" does not provide
affordable energy because it does not have an economy of scale
and would therefore have high tariffs and a high cost of gas for
Alaskans. A "bullet line" would not provide new revenue for the
state, and it would undermine the voter's preferred option by
attempting to siphon gas away from that project.
1:22:33 PM
MR. PIERCE related that last week Tony Palmer and Paul Pike [of
the Alaska Pipeline Project] stated that, best case, the line
into Canada would not be delivering gas until 2020. It was also
heard that the high cost of the line into Canada has raised the
tariffs to Alberta to around $3.50 [per million British thermal
units (MMBtu)]. "We" can project that tariffs may be as high as
$6.00 to get gas to Chicago. Meanwhile, the massive amount of
shale gas in the Lower 48 has caused the Lower 48 gas industry
to proclaim that there is a 100-year gas supply in the Lower 48.
At year-end 2009, "ConocoPhillips" applied to the Federal Energy
Regulatory Commission (FERC) to export this excess gas from what
was to have been a liquefied natural gas (LNG) import facility
in Texas. In Kitimat, British Columbia, another LNG import
terminal is now preparing to export LNG. Additionally,
"ExxonMobil" just invested $31 billion in XTO Energy Inc., a
shale gas company that has over 11 trillion cubic feet in proven
reserves and another 50-60 trillion in estimated reserves. This
answers the question of where U.S. consumers will be getting
their gas - it will be from shale deposits and not a gasline
from Alaska with high risk and high tariff.
1:24:13 PM
MR. PEIRCE pointed out that in about five years the Trans-Alaska
Pipeline System (TAPS) throughput is projected to be 500,000
barrels per day or less, and the consequences for Alaska are
dire. Only been the high price of oil that resulted from the
Iraqi oil production going offline in 2003 as the U.S. invaded
that country has sheltered Alaska. Iraq oil production is now
going back online from the second largest reserves in the world
and that could result in significant declines in world oil
prices, which would have significant impacts on Alaska revenue
as TAPS throughput continues to decline.
MR. PEIRCE said Alaska must get to work on the only viable gas
project and that is the all-Alaska gasline to Valdez. Alaska
needs the affordable energy, particularly the Interior, and
Alaska must have a new source of revenue. Alaska cannot wait 10
years. He disagreed that a "bullet line" would expand Alaska's
options and said it actually reduces the options.
1:25:43 PM
CO-CHAIR NEUMAN commented that HB 312 only asks the people
whether they would like to be involved. He agreed there is a
lot of gas in the Lower 48, and that TAPS is going down, the
cost of government is going up, and everything that can be done
must be done to create an in-state gas pipeline.
1:26:27 PM
REPRESENTATIVE KAWASAKI referenced an amendment that may be
proposed that would put this question to the voters during the
next primary election. He asked what happens if the voters pass
the proposition and what happens if they deny it.
REPRESENTATIVE CHENAULT responded that no one has a crystal ball
as to what would happen for either a yes or no vote. It would
allow legislators to have the option to look at the excess
earnings of the Alaska Permanent Fund for funding a project.
The bill does not stipulate either a "bullet line" or the "all-
Alaska line;" it only talks about a gasline in Alaska. If the
people say no, then legislators would know that under this
scenario the people do not want to invest that particular fund.
1:28:16 PM
REPRESENTATIVE KAWASAKI noted that the sponsor earlier said the
legislature can already use the permanent fund's earnings.
Therefore, he inquired, is this off the table if the people vote
no, and this legislature will never approach that issue again.
REPRESENTATIVE CHENAULT said he cannot say whether the
legislature would approach the issue again. However, if the
vote is no, he would suggest there are very few legislators who
would have the ambition to utilize that fund over the objection
of the citizens of Alaska.
REPRESENTATIVE KAWASAKI said he would like to lodge his
complaint against HB 312.
1:29:36 PM
REPRESENTATIVE GUTTENBERG stated that while he likes where the
sponsor is going as far as providing more options, his concern
is that it would be an advisory vote in a primary election and
primaries can have low voter turnout. Additionally, given there
are so many [pipeline] options, he thinks this nebulous part of
the question will lead to lots of misinformation within the
public and people will be arguing about what legislators'
motives are and whether the purpose is to get more money to
TransCanada or a "bullet line." This dialogue will get lost in
all the rhetoric and will make the issue harder because there is
no focus to it. Thus, there will be an answer to a question
that is not specific enough in asking something. He said he
thinks legislators should be involved with the people of the
state and that there is an inherent interest in the state
participating in, and building, some structure that provides
long-term, reliable, and affordable energy - even at a
subsidized rate for the people - because building out the
state's economy is probably one of the most important things
legislators can do.
REPRESENTATIVE CHENAULT agreed that discussion is out there.
However, if the question is not asked, the answer will never be
known. Numerous people in his district are saying in-state gas
is needed and it is needed now. This bill would allow
legislators to ask the question, see what the response is, and
decide whether that is a viable option that can be utilized;
but, if it is an option that Alaskans do not want legislators to
use, then legislators will need to look at other ways to finance
a project if the state gets to that point in time. If the state
runs out of energy by not trying to push something forward, "it
is shame on every one of us."
1:33:28 PM
REPRESENTATIVE TUCK said he is trying to imagine what the voters
are going to want to know. One thing they might want to know is
whether it would be a percentage of the earnings, all of the
earnings, or up to the legislature to decide, should the
advisory vote pass.
REPRESENTATIVE CHENAULT explained that it is not all of the
earnings, it is the excess earnings. To answer the advisory
question, citizens need to understand that it would be after a
permanent fund dividend is paid, after the fund is inflation-
proofed, and if there are any excess earnings. If the people
approve the proposition, it would have to be looked at on a
year-to-year basis to determine whether there are excess
earnings and whether there is a project to use them on.
REPRESENTATIVE TUCK clarified that he was referring to the
excess earnings, and reiterated his question.
REPRESENTATIVE CHENAULT said how much would be utilized is an
issue that would be looked at in the future and would be based
upon other funding sources and the type and size of the project.
1:36:16 PM
REPRESENTATIVE TUCK, in regard to Alaskans having a need for gas
right now, inquired whether Representative Chenault sees that
need as gas for export for the revenue or as the provision of
low-cost natural gas to Alaskans.
REPRESENTATIVE CHENAULT responded that he does not know what
opportunities lay ahead and gas export may be one of those
opportunities. However, if an in-state gasline is not built
there will be no opportunities.
1:38:05 PM
REPRESENTATIVE GUTTENBERG commented that past experience shows
the public will not limit its dialog to just what the question
says. Once the ballot proposition leaves the legislature and
gets to the public, there will be no restrictions on what the
dialog is. He said he will support the bill, but fears there
will be a loss of focus because it is not specific enough.
CO-CHAIR NEUMAN said he hopes the public talks about it.
CO-CHAIR JOHNSON stated he does not think dialog is a bad thing.
The vote will give legislators guidance regardless of the
outcome. He said he supports getting more information from his
constituents and is not afraid of the answer to the question,
one way or the other, because it would give him direction.
Because this is one of the biggest decisions legislators will be
making, he would like some guidance from constituents.
1:41:13 PM
REPRESENTATIVE SEATON noted that a dividend was nearly not paid
out in 2003, and since then the legislature has not appropriated
any of the money from the earnings back into the fund's corpus
as was previously done. He is concerned this could become an
issue of reducing the earnings such that dividends could not be
paid the following year, which could result in a no vote on the
ballot proposition. He asked whether a no vote would be
interpreted as Alaskans not wanting to invest in a pipeline or
as Alaskans not wanting to use permanent fund earnings to invest
in a pipeline.
REPRESENTATIVE CHENAULT answered that his interpretation of a no
vote would be that the people do not oppose investing in a
pipeline, but rather they oppose investing those particular
funds in a pipeline. He added that if constituents have other
ideas, legislators will hear them during the process.
1:43:49 PM
REPRESENTATIVE TUCK related that he is not against the idea of
having the people decide whether they want to invest in an in-
state gasline; he is only looking for answers to the questions
that have come to him. He asked what the public should expect
as the rate of return from this investment - potential revenues
to the state from the selling of gas or gas for Alaskans.
REPRESENTATIVE CHENAULT responded there are many options, such
as using the money to take an equity position or using it as an
investment that subsidizes the tariffs to lower them for that
particular project. He agreed that people will have these
questions and have already had them, and he has told them that
it is unknown what position would be taken in a pipeline if one
is built - it just gives the option to have that conversation.
1:45:44 PM
CO-CHAIR NEUMAN moved the committee adopt Amendment 1 as
follows:
Page 1, line 6:
Delete "or general"
REPRESENTATIVE GUTTENBERG objected for purposes of discussion.
He asked whether the question would still be on the primary
ballot even if the bill is not passed until the last day of this
session.
CO-CHAIR NEUMAN said he supports Amendment 1 exactly for the
reason of the discussions occurring here today. There are lots
of questions and no time to waste, so the sooner the answer to
this ballot question is known, the better.
1:47:42 PM
REPRESENTATIVE SEATON inquired whether Amendment 1 is supported
by the sponsor.
REPRESENTATIVE CHENAULT replied he has no problem with the
amendment because the [August 2010] primary election will have a
number of issues on the ballot, which might bring more people
out to vote in the primary.
1:48:28 PM
REPRESENTATIVE GUTTENBERG said he opposes Amendment 1 and if it
fails he will offer an amendment that goes the other way. He
maintained that, historically, contentious issues have not
increased the primary turnout in Alaska, especially at the end
of August. A lot more people participate in a general election
and he would support that over a primary election.
Additionally, there will be a new legislature and everybody and
everything will be in play. The timeline will not change as far
as the proposition's impact on the full legislature. Therefore,
it is much more appropriate that this question be on a general
election than a primary.
1:49:26 PM
REPRESENTATIVE TUCK asked if the decision on whether it is the
primary or general election was a decision the sponsor had
expected this committee to make or a decision to be made in
another way.
REPRESENTATIVE CHENAULT answered he thinks that is part of the
legislative process and the legislature will make the
determination as to which election dates it supports.
1:50:24 PM
REPRESENTATIVE GUTTENBERG maintained his objection to the
amendment.
A roll call vote was taken. Representatives Olson, Seaton, P.
Wilson, Neuman, and Johnson voted in favor of Amendment 1.
Representatives Guttenberg, Kawasaki, and Tuck voted against it.
Therefore, Amendment 1 passed by a vote of 5-3.
CO-CHAIR NEUMAN closed public testimony and opened committee
discussion.
1:52:25 PM
REPRESENTATIVE KAWASAKI outlined the reasons why he will object
to reporting HB 312 from committee. He said no new options are
actually placed on the table as far as using permanent fund
earnings and the bill could result in the opposite. It will not
take long for some folks to start the rally cry that the bill
raids the Alaska Permanent Fund, which means there may be
negative and untrue attacks on this particular legislation.
Bringing the proposition up on the primary ballot sets a bad
precedent for future elections. Additionally, it is easy to
vote yes or no, but knowing the substance behind the bill is
what is important and hard to do. Representative Kawasaki said
he does not like advisory votes in general because they can be
used as a way for the legislature to shirk its responsibility of
leading. He feared that if the answer in the primary election
is that the public does not want to use permanent fund earnings,
this legislature will have bound the hands of future
legislators, which he does not think is a good thing. Fewer
people vote in the primary, he continued, and even fewer will
take the time to learn what this advisory vote will or will not
do. Given that few people vote in the primary, this is advice
that is unacceptable to him. Legislators conduct polls and have
regular contact with their constituents to learn what people are
thinking, and this advisory vote gains nothing but the potential
for a lot of dissent.
1:57:10 PM
CO-CHAIR JOHNSON stated he is in regular contact with his
constituents, but this is a statewide issue. There are
legislators whose constituents may not receive any direct
benefit from this and he would like to know how those people
feel. When spending other people's money, he wants to know what
everyone in the state thinks.
REPRESENTATIVE OLSON understood Representative Kawasaki to be
saying that his no vote on HB 312 is to represent all the people
who will not be voting in the primary.
REPRESENTATIVE KAWASAKI responded that he does not track what
Representative Olson is saying.
1:59:37 PM
REPRESENTATIVE GUTTENBERG reiterated that a vote in the primary
means the sampling will not be as large as it would be in a
general election, and a large sampling is what is wanted in a
polling. The nebulous aspect of the question will mean to him
that people are voting yes or no for a variety of reasons.
Every legislator knows that the Alaska Permanent Fund is the
third rail and a legislator does not get near it unless he or
she is specific and knows exactly what he or she wants to do.
People will not read past permanent fund, they will not read
investment earnings, some will understand the difference and
some will not, legislators' motives will not be understood, and
consequently some people will challenge what legislators are
doing. However, his biggest concern is that the answer to the
ballot proposition will be interpreted differently by each
legislator. The ballot question is not focused enough and
confusion on a ballot initiative results in a no vote. The
state is not close enough to a clear description of what it
wants to do; for example, TransCanada is not before the
legislature with a specific project nor is an in-state sponsor.
This question does not get legislators to an answer that is
politically useable or even useable for political cover.
2:02:42 PM
CO-CHAIR NEUMAN urged that members talk to bill sponsors prior
to committee hearings to better get their questions answered.
REPRESENTATIVE TUCK pointed out that some questions do not occur
to him until he hears someone else speak. He said he is not
opposed to the idea of using the permanent fund [earnings] and
having a ballot vote in this regard. His earlier questions
about the intent were to lay it out tighter so it does not get
convoluted. He is concerned it could become a big public
messaging battle, and the battle can be reduced by answering
these questions up front. His support for keeping the general
election in the body of the bill is because it would provide a
better representation of those turning out to vote and thus a
better idea of the people's overall intent. A survey he sent to
his constituents is now coming back and many Alaskans are
confused on the gasline issue. Therefore, he thinks people may
have some insecurities about making a decision to make an
investment. People are expecting their elected representatives
to know, and while he is not claiming he knows everything, he is
trying his hardest to learn the issues and as he does he is
communicating back to his constituents so that as he learns,
they learn. He is bringing all of this forward so the bill can
be improved, if needed, before it goes on to the advisory vote.
2:05:44 PM
CO-CHAIR NEUMAN agreed that legislators' work is cut out for
them to get out and talk to people.
REPRESENTATIVE TUCK added that the sponsor's statement says it
is perceived that Alaska is taking a shotgun approach to a
gasline, and this is adding to the confusion for constituents.
2:06:11 PM
REPRESENTATIVE SEATON noted he is pleased it is being said on
the record that if the proposition fails it does not mean people
do not want to invest in a pipeline, but rather they do not
specifically want to use this mechanism. If people in other
parts of the state do not agree to this, it does not mean they
do not care about the economics of Southcentral Alaska because
that is not the question on the ballot. The question on the
ballot is whether to use the earnings of the Alaska Permanent
Fund, which is a different question. He fears there will be a
lot of confusion in messages. An advisory vote does not bother
him, but he is concerned that mistaken use of the term permanent
fund dividend [rather than permanent fund earnings] will add to
the confusion and get a different result. As this goes forward,
it will be imperative for legislators to be clear with
constituents about exactly what is on the ballot.
2:08:17 PM
CO-CHAIR JOHNSON moved to report HB 312, as amended, out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSHB 312(RES) was
reported from the House Resources Standing Committee.
The committee took an at-ease from 2:09 p.m. to 2:12 p.m.
^OVERVIEW BY TONY PALMER, TRANSCANADA ALASKA: AGIA UPDATE/OPEN
SEASON
OVERVIEW BY TONY PALMER, TRANSCANADA ALASKA: AGIA UPDATE/OPEN
SEASON
2:12:13 PM
CO-CHAIR NEUMAN announced that the next order of business is the
continuation of an overview by Tony Palmer, TransCanada Alaska:
AGIA Update/Open Season.
2:12:34 PM
TONY PALMER, President, TransCanada Alaska, LLC; Vice President,
Alaska Development, TransCanada, stated he is chairman of the
management committee of the Alaska Pipeline Project (APP). He
reminded members that on 2/1/10 he finished with a review of the
Alberta route alternative for the pipeline project licensed
under the Alaska Gasline Inducement Act (AGIA). Today he is
addressing the Valdez route alternative which begins on slide 12
of his PowerPoint presentation. He explained that the capital
cost estimate for a pipeline from the North Slope to Valdez,
including a gas treatment plant (GTP) at Prudhoe Bay, ranges
from $20-$26 billion. He pointed out that all figures being
presented are in 2009 dollars. The target in-service date is
2020, the same date as the Alberta option. The tariff range,
including fuel, [from the GTP to Valdez] is $2.45-$3.15 per
million British thermal units (MMBtu).
MR. Palmer noted that any party wishing to move gas on this
alternative will also have to arrange, either themselves or with
another party, for liquefaction of the gas at Valdez. Parties
will also have to arrange ships to take that gas to U.S. or
international markets. Those costs are not included in these
estimates. As described in its AGIA application, [TransCanada]
has never contemplated doing a liquefaction plant itself.
Potential customers for this option are the large producers at
the North Slope, which are fundamentally in that business around
the world, or some other players downstream.
2:15:07 PM
MR. PALMER, in response to Co-Chair Neuman, explained that the
reason for expressing estimates in 2009 dollars is to provide
consistency in the numbers. The capital cost estimates were
completed in mid-2009 and this is why these numbers are being
used. It allows for comparison of where things are at today as
the project moves forward to in-service in 2020.
2:16:04 PM
REPRESENTATIVE GUTTENBERG understood that a lot of the
escalating costs have to do with the spread between the value of
the American dollar [which is now less than] the Canadian
dollar. He asked whether currency traders provide a long-term
forecast in regard to this situation, given that it used to be
the other way around.
MR. PALMER responded that APP has made an estimation looking at
the forward curve and forecasts of what that may be. He agreed
that this does change and has changed significantly in the last
two years. He related that the State of Alaska provided
applicants with a specific exchange rate for use in their
applications, and he believes this was so the state could
compare a number of potential applications across the board.
Many parties are predicting that in the next couple of years one
Canadian dollar will be 93 cents U.S., which is a higher level
than APP has predicted here. He said he thinks APP used a 1.1
factor for the Canadian dollar. He pointed out that the U.S.
dollar could also be affected by what it does relative to the
Japanese yen, the euro, and Korean currency because that is
where some of the materials for this project will be coming
from. This variable is part of the reason for the capital cost
and tariff ranges that APP is providing here.
2:19:23 PM
REPRESENTATIVE KAWASAKI asked why the cost of a liquefaction
plant was not included in figuring out the tariff terms, given
that the AGIA application required an alternative to Valdez.
MR. PALMER replied that this was included as a fallback
alternative when the AGIA application was made in 2007. Some
legislators pressed that it be more than just an alternative and
APP has done so. This was done on a similar basis as for the
gas treatment plant and the Alberta option. TransCanada does
not have the expertise to put forward a proposal for
liquefaction. It is a matter that potential customers are in a
position to provide and if they wish to do so, he suspects they
will do so under their own proposal rather than asking APP. So,
yes, in the AGIA application it was put forward as an
alternative as a fallback; now APP is putting it forward as a
full alternative.
REPRESENTATIVE KAWASAKI said that a specific portion of the AGIA
must-haves calls for a detailed description and defines what
those are. The descriptions APP has here and in the application
do not seem as complete as he would like them.
2:22:14 PM
MR. PALMER, in response to Representative Seaton, explained that
the Valdez option is for a 3.0-billion-cubic-feet-per-day
treatment plant and a 48-inch pipeline from Prudhoe Bay to
Valdez carrying 3.0 billion cubic feet per day (Bcf/d). The
volume and diameter were requested by potential customers.
2:23:19 PM
CO-CHAIR JOHNSON, in reference to the pipeline route map
depicted on slide 2, inquired whether entry into the Alberta Hub
is based on the solid red line or the dotted red line.
MR. PALMER explained that the Alberta Hub is a notional point,
not a physical location. Entry is at TransCanada's principle
pipeline system within Alberta, depicted by the blue lines.
Once this is done and the receipt toll is paid, the gas is at
the hub. For the Alberta option, a new contiguous pipeline [the
solid red line beginning at Prudhoe Bay] has been included all
the way to Boundary Lake, Alberta, because those facilities are
required. Between Boundary Lake and Caroline, Alberta, APP will
build the facilities as necessary, which is why this portion is
depicted as a dotted [red] line. That portion may or may not be
a contiguous pipeline to move Alaskan gas to market because APP
may only need to loop the existing pipelines, meaning that
partial pipelines would be built to supplement the existing
pipelines shown in blue. This would minimize the cost for
Alaskan gas and for other customers. If parties wish, APP could
build a contiguous pipeline all the way to Caroline, but he
suspects customers will likely not want that.
2:25:08 PM
CO-CHAIR JOHNSON asked why, since distance is money, the
proposed pipeline is not being brought into the hub just east of
Fort Nelson.
MR. PALMER answered that the route shown on slide 2 is the route
approved by the Northern Pipeline Agency and is the approved
route for this project through Canada. TransCanada proposed in
its AGIA application two years ago, and still proposes, that
customers will have the alternative to opt to deliver out of
this system at Fort Nelson and into TransCanada's "blue-line
system" at that point - commercially, not physically - and he
recalls that that would provide Alaskan customers a savings in
the range of 15-20 cents [per MMBtu]. If a customer opts to do
this, it will have to opt to go into the Alberta Hub;
TransCanada called that the Fort Nelson option in its
application. The savings comes from Alaskan and Alberta
shippers sharing the piece of pipe between Fort Nelson and
Boundary Lake. It would not change the physical pipeline, but
it would change the commercial arrangement between customers.
2:26:49 PM
MR. PALMER, in response to Co-Chair Johnson, said the numbers
that he recalls from two years ago, in the event that a customer
chose to deliver into the Alberta Hub at Fort Nelson and have
TransCanada seek that from its regulator, would be a savings of
15-20 cents per MMBtu. It only makes sense for TransCanada to
seek that if the customer chooses to go into the "blue system"
which is the hub; if the customer chooses to go off on another
system, then that would make no sense.
2:27:36 PM
MR. PALMER, in response to another question from Co-Chair
Johnson, stated that at or upstream of Boundary Lake, customers
now have under APP's new proposal the alternative to go off on
other systems. Customers could also decide to put gas into
TransCanada's system, which he hopes they will do. If they do
so, then TransCanada would contract with Foothills Pipe Line
Ltd. (Foothills) to construct the necessary facilities to
Boundary Lake and beyond Boundary Lake under the Northern
Pipeline Act. He pointed out that the blue lines on slide 2
that go east, southeast, and southwest from Caroline to Monchy,
Saskatchewan, and to Kingsgate, British Columbia, are pipeline
facilities owned by Foothills and the facilities within Alberta
are contracted to [TransCanada's] Alberta system.
2:28:43 PM
CO-CHAIR JOHNSON surmised that the top of TransCanada's pipeline
system east of Fort Nelson [depicted in blue] is part of the
Alberta Hub.
MR. PALMER replied that TransCanada's proposal, the Alaska
Pipeline Project proposal, goes to Boundary Lake and beyond if
necessary. He said APP is not proposing to go across directly
east from Fort Nelson into the blue line because there is
insufficient capacity in the blue line to transport Alaska's
gas.
2:29:48 PM
CO-CHAIR NEUMAN observed that TransCanada's pipeline system is
primarily in Alberta. He inquired whether there is a different
tax structure in Alberta.
MR. PALMER answered that the red line through British Columbia
to Caroline, Alberta, is Foothills pipeline. The line that goes
southeast through Alberta and ultimately through Saskatchewan to
Monchy is also Foothills pipeline, as is the line going
southwest down to Kingsgate. They are all British Columbia and
federally regulated. Until last year, TransCanada's blue system
in Alberta was provincially regulated, but it is now federally
regulated by the National Energy Board. So, there really is no
difference in regulation at the present moment. The Foothills
pipeline is certificated under the Northern Pipeline Act.
2:31:14 PM
MR. PALMER, in response to Co-Chair Johnson, said he does not
know off the top of his head what the capacity is of the
pipeline that is located east of Fort Nelson. However, he knows
it is not 4 billion cubic feet per day (Bcf/d).
CO-CHAIR JOHNSON asked whether it would be more efficient to
loop the aforementioned line than to build the proposed new
pipe.
MR. PALMER responded that TransCanada's proposal is to build the
pipeline to Boundary Lake and that is the certificated route in
Canada; [TransCanada] is not proposing the alternative Co-Chair
Johnson is describing. Therefore, no analysis has been done on
this question. A significant piece of pipe would have to be
built from Fort Nelson east and he estimates that the savings in
terms of mileage is modest. That pipeline would then be
significantly farther north in Alberta than it would be at
Boundary Lake. It would take a significant amount of work by
TransCanada to evaluate whether that would provide a lower cost.
2:32:34 PM
MR. PALMER, in response to Representative P. Wilson, stated that
the numbers presented on slide 12 for the Valdez option are for
a 25-year contract term. He does have numbers for a 20-year
term and will provide them if members wish, but he has not
represented them on this chart.
2:33:27 PM
MR. PALMER commenced his presentation, noting that the Henry Hub
gas price is located in Louisiana (slide 12). The price for gas
delivered to West Coast U.S. markets via the re-gas terminal in
Baja, California, Mexico back up to San Diego market, should be
reduced by about 75 cents per MMBtu. He said he has denoted oil
prices on this slide because Asian markets are priced off an oil
basis. Any potential customer will have to make an estimate as
to whether that will still be the case when this project goes
in-service 10 years from now.
2:34:27 PM
MR. PALMER moved to slide 13 and explained that the black line
on the graph is the forecast of oil prices from the U.S.
Department of Energy's Annual Energy Outlook (AEO) at the time
when [TransCanada] made its AGIA application, and at that time
the forecast [for the years 2020 through 2030] was for about $60
per barrel of oil (bbl). In 2010 the AEO forecast [for the
years 2020 through 2030] was for oil prices well above $100 bbl.
He pointed out that there is a large difference in the
forecasted oil prices for AEO 2007/AEO 2008 and AEO 2009/AEO
2010. However, he continued, this is not the case for the gas
price forecasts shown on slide 11. Thus, the U.S. Department of
Energy's two most recent forecasts are indicating a significant
change in the oil to gas ratio.
2:35:38 PM
MR. PALMER, in response to Co-Chair Neuman, said he believes the
U.S. Department of Energy is predicting there will be a surplus
of natural gas in North America relative to oil. If this
becomes the case, such ratios have not been seen since 1982. In
further response, he said that in 1975 the natural gas price was
44 cents per MMBtu and the oil price was $11.16 [per barrel], an
oil to gas ratio of 25:1. The ratio declined from that point
and 1981 was the last time it was above 16:1, which was the
ratio in 2009.
2:37:27 PM
MR. PALMER turned to slide 14 and highlighted the milestones
that are required to move the project forward out of the
development stage. Alaska Pipeline Project expects to get
conditioned bids and, if that occurs, APP will have to work with
those producers and shippers to resolve those issues.
Regardless of the open season outcome, APP is obliged to
continue with environmental, engineering, and field work to
advance to the major permitting in the U.S. and Canada.
Environmental contracts were recently awarded to URS Corporation
and to AECOM for the Alaska fieldwork that will commence spring
2010. He emphasized that APP will meet its AGIA obligations,
but it will advance the project in-step with commercial and
regulatory breakthroughs by all parties because it does not want
to get ahead of the remainder of the components of the project.
It is important that both the project's and the state's monies
are spent prudently. Lastly, Alaska Pipeline Project will
continue to seek alignment with "BP" and "ConocoPhillips" as APP
believes that is the best way to succeed in the project.
2:40:05 PM
REPRESENTATIVE P. WILSON surmised that advancing the project in-
step with commercial and regulatory breakthroughs means APP will
either speed up or slow down to meet those breakthroughs.
MR. PALMER answered correct, all while meeting AGIA obligations.
Alaska Pipeline Project cannot stop if nothing is happening as
it is obligated to continue to apply to the Federal Energy
Regulatory Commission (FERC).
2:40:50 PM
REPRESENTATIVE KAWASAKI, in regard to continuing to seek
alignment with "BP" and "Conoco," asked what negotiations have
occurred recently.
MR. PALMER responded that for more than two years his company
has made offers to the very high levels of those companies and
to-date there has been no take-up of that offer by either
company, so no negotiations have been undertaken to date. He
added that negotiations with "ExxonMobil" commenced in fall 2008
and they came together in June 2009.
2:42:35 PM
MR. PALMER returned to his presentation and discussed the
commercial and regulatory milestones that are needed to advance
the project out of the development stage by other parties (slide
15). Producers and shippers that have conditions precedent with
APP will have to work with the project to try to resolve those
conditions. Alaska Pipeline Project has heard publicly that
producers want to resolve upstream fiscal and production levels
at Prudhoe Bay, Point Thomson, and other fields with the state
and the Alaska Oil and Gas Conservation Commission (AOGCC).
Alaska Pipeline Project is not a party to that. Lastly,
producers and shippers will have to arrange downstream
transportation and secure final gas markets and, if they choose
to export the liquefied natural gas (LNG), they will have to get
an export permit to move the LNG to international markets.
2:43:50 PM
MR. PALMER said the counterpart milestone is that the State of
Alaska needs to resolve with shippers and producers the upstream
tax or production issues. Also, the state needs to continue to
facilitate project permitting so the project can proceed
expeditiously. He noted that the U.S. government has a federal
loan guarantee in place and legislation in place. Alaska
Pipeline Project would like the U.S. government to determine
whether the $18 billion loan guarantee will be changed and to
set out the terms and conditions under which that loan will
become effective; this goes to what the ultimate interest rate
will be for the project. The interest rate is critical because
it affects the toll and ultimately affects the viability. In
its analysis, APP assumed the existing legislation of $18
billion plus inflation, and assumed the loan guarantee would
provide an interest rate benefit relative to a non-guaranteed
interest rate. If the U.S. government were to increase that
amount or provide access to the Federal Financing Bank, the
interest rate would be lower for the project and this would
improve the tolls.
2:45:35 PM
MR. PALMER, in response to Representative Seaton, explained that
APP has applied the existing legislation for the loan guarantee
to both the Valdez and Alberta options. When gas is exported,
there is a limit as to what the guarantee value can be; but,
based on APP's analysis to date, that is not a material matter
at this point. Any changes in the legislation will be applied
as APP moves forward.
2:46:35 PM
MR. PALMER returned to his presentation and noted that the
government of Canada, Alaska Natives, and Canadian First Nations
need to facilitate project permitting and alignment (slide 15).
He then summarized his presentation (slide 16): the open season
will be conducted May-July 2010 provided FERC approves APP's
plan; APP is offering a $500-million-per-year improvement in the
commercial terms versus AGIA; APP believes both the Alberta and
Valdez options are technically and commercially viable; the
project, as well as producers, shippers, and governments, must
achieve regulatory and commercial breakthroughs to move from the
development phase; and the best opportunity to align all
stakeholders and to make the project a success will be provided
by TransCanada, ExxonMobil, and the State of Alaska working
together through the AGIA structure.
MR. PALMER added that it is time to align to make this project
go forward, and this is being sought so that the project is a
success for Alaskans as well as for North American and global
markets. The project will provide thousands of jobs and massive
revenues and it will open up a new basin for Americans. He
noted that all of APP's open season information is available at
www.thealaskapipelineproject.com and the FERC website as well.
2:48:55 PM
CO-CHAIR NEUMAN commented that Alaska's gas must compete
globally and in the Lower 48 and to do that APP must have a
price structure.
MR. PALMER replied that APP does recognize the competition, and
this is what he described to members on 2/1/10. The world is a
different place than it was two years ago and will likely be
different again in two more years, five years, and thirty-five
years, and APP must compete. He hopes he has shown that APP is
competing; for example, APP has offered a $500 million per year
toll reduction, which he outlined on 2/1/10.
CO-CHAIR NEUMAN said he is referring more to slide 15 and the
things that the Alaska State Legislature should be looking at.
MR. PALMER concurred. Alaska Pipeline Project will do what it
can and hopes that other parties will also stretch to make this
project a success.
2:50:28 PM
REPRESENTATIVE KAWASAKI inquired what the State of Alaska could
do to encourage alignment with "BP" and "ConocoPhillips."
MR. PALMER suggested that alignment of the last two parties
would be facilitated if the State of Alaska continues its
alignment to advance this project, supports the AGIA structure,
and resolves the items listed on slide 15. If the project is
stalled, slowed, or postponed, stakeholders will go in different
directions. He said local opposition kills projects, despite
federal approvals and alignment of customers and sponsors.
2:53:01 PM
MR. PALMER, at Co-Chair Neuman's request, reviewed the process
for open seasons. He explained that the process is established
by regulatory fiat in the U.S. and Canada, and is a process that
must be undertaken by companies proposing pipelines. The
pipeline company must provide to potential customers the costs
for the project, potential tariffs, and commercial terms. The
customer has the opportunity to examine the formal written offer
as well as to have discussions with the company's
representatives. This has already occurred for this project and
is part of the reason for APP's commercial offering, and will
continue through the open season. If approved by FERC, the open
season for this project will occur from May-July 2010. During
this May-July time period, potential customers will seek even
more information than what APP has provided on its website. If
potential customers sign confidentiality agreements with APP,
they will see thousands of pages of support material as to how
APP derived the capital costs. At the end of July 2010, those
potential customers will make an offer for what APP has
described or an offer with certain conditions.
2:56:04 PM
MR. PALMER, in response to Representative Olson, said APP has an
AGIA confidentiality agreement on file with the administration
under the AGIA statute. Certain legislators signed agreements
in the past to obtain certain information. However, the
confidentiality agreements that he was just describing are to
allow APP's customers to see the confidential definition of how
APP derived the capital costs and other components. Many of the
potential customers have already executed confidentiality
agreements with APP to protect their information through the
discussion stage and those will continue forward into detail
data rooms after the open season starts.
2:57:07 PM
MR. PALMER, in response to another question from Representative
Olson, said there will be different stages of data rooms. The
first will be available to the public and the bulk of that is
already sitting at TransCanada's and FERC's websites. The
second stage will go to the issue of land holdings and so on,
and he thinks that will be accessible to a number of parties.
However, the materials on APP's capital cost estimates will only
be available to potential customers; legislators will be unable
to see that information. In further response to Representative
Olson, Mr. Palmer said he is not familiar with the tiered
information basis used by former Governor Frank Murkowski's
administration; he was describing only what Alaska Pipeline
Project will be doing.
2:58:10 PM
CO-CHAIR NEUMAN noted that people who wanted information about
what happened earlier with contracts between TransCanada, the
state, and other companies signed confidentiality agreements.
He himself did this to make sure he was more informed. He urged
members and the public to review the information that is
available on the committee's website, as well as the sites
mentioned by Mr. Palmer.
2:59:36 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:59 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 312.pdf |
HRES 2/3/2010 1:00:00 PM |
HB 312 |
| HB 312.Sponsor Statement.pdf |
HRES 2/3/2010 1:00:00 PM |
HB 312 |
| HB 312.ERA Balance.pdf |
HRES 2/3/2010 1:00:00 PM |
HB 312 |
| HB 312.Perm Fund Balances.jpg |
HRES 2/3/2010 1:00:00 PM |
HB 312 |
| HB312.REV-TAX-02-02-10.pdf |
HRES 2/3/2010 1:00:00 PM |
HB 312 |
| HB 312.REV-APFC-02-01-10.pdf |
HRES 2/3/2010 1:00:00 PM |
HB 312 |