Legislature(2007 - 2008)BARNES 124
04/21/2007 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB177 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 177 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 21, 2007
1:04 p.m.
MEMBERS PRESENT
Representative Carl Gatto, Co-Chair
Representative Craig Johnson, Co-Chair
Representative Vic Kohring
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Bryce Edgmon
Representative David Guttenberg
Representative Scott Kawasaki
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Anna Fairclough
COMMITTEE CALENDAR
HOUSE BILL NO. 177
"An Act relating to the Alaska Gasline Inducement Act;
establishing the Alaska Gasline Inducement Act matching
contribution fund; providing for an Alaska Gasline Inducement
Act coordinator; making conforming amendments; and providing for
an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 177
SHORT TITLE: NATURAL GAS PIPELINE PROJECT
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/05/07 (H) READ THE FIRST TIME - REFERRALS
03/05/07 (H) O&G, RES, FIN
03/06/07 (H) O&G AT 3:00 PM BARNES 124
03/06/07 (H) -- MEETING CANCELED --
03/08/07 (H) O&G AT 3:00 PM BARNES 124
03/08/07 (H) -- MEETING CANCELED --
03/13/07 (H) O&G AT 3:30 PM HOUSE FINANCE 519
03/13/07 (H) Heard & Held
03/13/07 (H) MINUTE(O&G)
03/15/07 (H) O&G AT 3:00 PM BARNES 124
03/15/07 (H) Heard & Held
03/15/07 (H) MINUTE(O&G)
03/19/07 (H) O&G AT 8:30 AM CAPITOL 106
03/19/07 (H) Heard & Held
03/19/07 (H) MINUTE(O&G)
03/20/07 (H) O&G AT 3:00 PM BARNES 124
03/20/07 (H) Heard & Held
03/20/07 (H) MINUTE(O&G)
03/21/07 (H) O&G AT 5:30 PM SENATE FINANCE 532
03/21/07 (H) Heard & Held
03/21/07 (H) MINUTE(O&G)
03/22/07 (H) O&G AT 3:00 PM BARNES 124
03/22/07 (H) Heard & Held
03/22/07 (H) MINUTE(O&G)
03/23/07 (H) O&G AT 8:30 AM CAPITOL 106
03/23/07 (H) Heard & Held
03/23/07 (H) MINUTE(O&G)
03/24/07 (H) O&G AT 1:00 PM SENATE FINANCE 532
03/24/07 (H) -- Public Testimony --
03/26/07 (H) O&G AT 8:30 AM CAPITOL 106
03/26/07 (H) Heard & Held
03/26/07 (H) MINUTE(O&G)
03/27/07 (H) O&G AT 3:00 PM BARNES 124
03/28/07 (H) O&G AT 7:30 AM CAPITOL 106
03/28/07 (H) Heard & Held
03/28/07 (H) MINUTE(O&G)
03/28/07 (H) O&G AT 8:30 AM CAPITOL 106
03/28/07 (H) Heard & Held
03/28/07 (H) MINUTE(O&G)
03/29/07 (H) O&G AT 3:00 PM BARNES 124
03/29/07 (H) Heard & Held
03/29/07 (H) MINUTE(O&G)
03/30/07 (H) O&G AT 8:30 AM CAPITOL 106
03/30/07 (H) Heard & Held
03/30/07 (H) MINUTE(O&G)
03/31/07 (H) O&G AT 1:00 PM BARNES 124
03/31/07 (H) -- MEETING CANCELED --
04/02/07 (H) O&G AT 8:30 AM CAPITOL 106
04/02/07 (H) Heard & Held
04/02/07 (H) MINUTE(O&G)
04/03/07 (H) O&G AT 3:00 PM BARNES 124
04/03/07 (H) Moved CSHB 177(O&G) Out of Committee
04/03/07 (H) MINUTE(O&G)
04/04/07 (H) O&G RPT CS(O&G) NT 3DP 2NR 2AM
04/04/07 (H) DP: RAMRAS, DOOGAN, OLSON
04/04/07 (H) NR: SAMUELS, KAWASAKI
04/04/07 (H) AM: DAHLSTROM, KOHRING
04/04/07 (H) O&G AT 8:30 AM CAPITOL 106
04/04/07 (H) -- MEETING CANCELED --
04/05/07 (H) O&G AT 3:00 PM BARNES 124
04/05/07 (H) -- MEETING CANCELED --
04/10/07 (H) RES AT 1:00 PM BARNES 124
04/10/07 (H) Heard & Held
04/10/07 (H) MINUTE(RES)
04/11/07 (H) RES AT 1:00 PM BARNES 124
04/11/07 (H) Heard & Held
04/11/07 (H) MINUTE(RES)
04/12/07 (H) RES AT 1:00 PM BARNES 124
04/12/07 (H) Heard & Held
04/12/07 (H) MINUTE(RES)
04/13/07 (H) RES AT 1:00 PM BARNES 124
04/13/07 (H) Heard & Held
04/13/07 (H) MINUTE(RES)
04/14/07 (H) RES AT 1:00 PM BARNES 124
04/14/07 (H) Heard & Held
04/14/07 (H) MINUTE(RES)
04/16/07 (H) RES AT 1:00 PM BARNES 124
04/16/07 (H) Heard & Held
04/16/07 (H) MINUTE(RES)
04/17/07 (H) RES AT 1:00 PM BARNES 124
04/17/07 (H) Heard & Held
04/17/07 (H) MINUTE(RES)
04/18/07 (H) RES AT 1:00 PM BARNES 124
04/18/07 (H) Heard & Held
04/18/07 (H) MINUTE(RES)
04/19/07 (H) RES AT 1:00 PM BARNES 124
04/19/07 (H) Heard & Held
04/19/07 (H) MINUTE(RES)
04/20/07 (H) RES AT 1:00 PM BARNES 124
04/20/07 (H) Heard & Held
04/20/07 (H) MINUTE(RES)
04/21/07 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
GEORGE BERRY
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 177.
MIKE LITTLEFIELD, Business Agent
Teamsters Local 959
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 177.
PETER CAPTAIN, SR., Vice President
Tanana Chiefs Conference
Fairbanks, Alaska
POSITION STATEMENT: Related that the Tanana Chiefs Conference
supports the project labor agreement (PLA) in AGIA.
JOHN CORBETT
Laborers Local 942
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of the PLA within HB
177.
SAMANTHA FONOTI
Laborers Local 942
Fairbanks, Alaska
POSITION STATEMENT: Stated her agreement with the testimony of
Mr. Corbett regarding HB 177.
ERIC FONTENOT
Laborers Local 942
Fairbanks, Alaska
POSITION STATEMENT: During hearing of HB 177, emphasized the
importance of constructing a gasline.
DIRK TAYLOR
Laborers Local 942
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 177.
JACOB HOWDESHELL
Laborers Local 942
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 177.
EMALY SPENCER
Laborers Local 942
Fairbanks, Alaska
POSITION STATEMENT: During hearing of HB 177, testified in
support of Governor Palin's [proposal].
ROBERT PURCELL
Laborers Local 942
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of the PLA in HB 177.
BRYAN LINT
Laborers Local 942
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of the PLA in AGIA.
JERRY WALKER
Fairbanks, Alaska
POSITION STATEMENT: During hearing of HB 177, expressed
concerns.
JAY QUAKENBUSH, President
Fairbanks Building and Construction Trades Council
Fairbanks, Alaska
POSITION STATEMENT: During hearing of HB 177, testified in
support of the PLA.
DANIEL FIRMIN
Laborers Local 942
Fairbanks, Alaska
POSITION STATEMENT: During hearing of HB 177, agreed with [the
PLA amendment].
GERALD KW BROWN
Fairbanks, Alaska
POSITION STATEMENT: Urged passage of HB 177.
JERRY MEHLBERG
Valdez, Alaska
POSITION STATEMENT: During hearing of HB 177, said that he has
developed a long-range concept that will better use the $500
million incentive.
JERRY MCCUTCHEON
Anchorage, Alaska
POSITION STATEMENT: During hearing of HB 177, testified that
there won't be a gasline.
PAUL LAIRD, General Manager
Alaska Support Industry Alliance
Anchorage, Alaska
POSITION STATEMENT: Testified that HB 177 may be the last and
best chance to make a North Slope gas project a reality, but
only if it's fixed before passage.
PAUL KENDALL
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 177, encouraged the
committee to thoroughly discuss the critical details of the
plan.
AVES THOMPSON, Executive Director
Alaska Trucking Association (ATA)
Anchorage, Alaska
POSITION STATEMENT: During hearing of HB 177, expressed
concerns.
MAYNARD TAPP
Anchorage, Alaska
POSITION STATEMENT: During hearing of HB 177, testified that
the [state] should do the deal now.
ERIC DOMPELING, Vice President
Alaska Support Industry Alliance
Anchorage, Alaska
POSITION STATEMENT: Testified that HB 177 must acknowledge the
interests of not only Alaskans, but those of the project
developer, the transporter and the North Slope producers and
shippers.
KEVIN KNOX
Laborers Local 942, Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 177 and the PLA
amendment.
TAMMIE WILSON
Fairbanks, Alaska
POSITION STATEMENT: Thanked the committee for including the PLA
in HB 177.
JOSEPH BOYLE
Local 942
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of the PLA included in
HB 177.
RON MCPHETERS, President
Laborers Local 341
Palmer, Alaska
POSITION STATEMENT: Urged the committee to leave the PLA
language in HB 177.
MEG LUM, Apprentice
Laborers Local 341
Chugiak, Alaska
POSITION STATEMENT: Encouraged the committee to enforce the PLA
in HB 177.
TIM SHARP, Business Manager
Alaska District Council of Laborers
Fairbanks, Alaska
POSITION STATEMENT: During hearing of HB 177, testified on the
PLA.
LISA PEGER
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 177.
DAVE MCCLURE, Executive Director
Bristol Bay Housing Authority;
Chairman, Board of Southwest Alaska Vocational Education Center
Dillingham, Alaska
POSITION STATEMENT: Testified in support of CSHB 177(O&G),
specifically the PLA provision.
ANDY ANDERSON, Deputy Director
Bristol Bay Housing Authority
Dillingham, Alaska
POSITION STATEMENT: During hearing of HB 177, testified in
support of an equitable PLA.
DAVID VAN TUYL, Manager
Gas Commercialization
BP Exploration (Alaska) Inc.
Anchorage, Alaska
POSITION STATEMENT: Expressed concerns with CSHB 177(O&G).
WENDY KING, Director of External Strategies
ANS Gas Development Team
ConocoPhillips Alaska, Inc.
Anchorage, Alaska
POSITION STATEMENT: During hearing of HB 177, answered
questions.
BILL MCMAHAN, Commercial Manager
Alaska Gas Development Group
ExxonMobil Corporation
Houston, Texas
POSITION STATEMENT: During hearing of HB 177, answered
questions.
ACTION NARRATIVE
CO-CHAIR CARL GATTO called the House Resources Standing
Committee meeting to order at 1:04:12 PM. Representatives
Gatto, Johnson, Seaton, Roses, Edgmon, Kawasaki, Kohring, and
Wilson were present at the call to order. Representative
Guttenberg arrived as the meeting was in progress.
Representative Fairclough was also in attendance.
HB 177-NATURAL GAS PIPELINE PROJECT
1:04:30 PM
CO-CHAIR GATTO announced that the only order of business would
be HOUSE BILL NO. 177, "An Act relating to the Alaska Gasline
Inducement Act; establishing the Alaska Gasline Inducement Act
matching contribution fund; providing for an Alaska Gasline
Inducement Act coordinator; making conforming amendments; and
providing for an effective date." [CSHB 177(O&G) was before the
committee.]
1:05:52 PM
GEORGE BERRY said that recently he read that Governor Palin
enjoys an 83 percent approval rating, which he opined means that
her form of government is that which the people desire. Mr.
Berry said that the Alaska Gasline Inducement Act (AGIA) is most
welcome to him for it clearly and definitively places a gasline
proposal on the table for a fair and open assessment by citizens
as well as legislators. He noted that recently an Anchorage
Daily Newspaper article by former Governor Wally Hickel
discussed the state's rights in relation to the oil and gas
leaseholders. Mr. Berry stressed that his message today is that
representatives need to use the state's leverage at its highest
level. The AGIA legislation is the best way to get the gas
players to the table. He then recalled recent testimony from BG
Gas, a worldwide gas transmission producer, that related that
third party owners of a gas transmission line is more common
than producer ownership. He opined that the third party
pipeline owner is more interested in production and throughput
versus producers who don't generally hold those same ideals. In
regard to changes and amendments to HB 177, a project labor
agreement would be a very positive amendment as it will ensure
local hire of Alaskan residents.
1:09:21 PM
MR. BERRY, in conclusion, stated his support of AGIA and
requested that the committee move it forward this session.
1:09:39 PM
MIKE LITTLEFIELD, Business Agent, Teamsters Local 959,
paraphrased from the following written testimony:
Teamsters Local 959 represents 5000 active and/or
retired members throughout the state of Alaska. Many
of our members worked untold hours some years ago, to
construct the oil pipeline. We still have members
working on the North Slope or in Slope-related jobs
within the oil industry.
For over thirty years we have discussed construction
of a gas pipeline here in Alaska. Many of our members
planned on going from their oil construction jobs to
gas-related jobs; however, to date, the majority have
given up on that idea.
The previous administration negotiated a deal with the
oil producers, which was brought to the legislative
body last year. As all of you are aware, that effort
failed.
Before you this afternoon is HB 177, the Alaska
Gasline Inducement Act or AGIA, presented by Governor
Palin and her new administration. Teamsters Local 959
would like to go on record thanking Governor Palin and
her team for the hard work put in thus far on AGIA,
which we believe may be the necessary framework for
construction of a gas pipeline in Alaska.
Some say AGIA is a huge risk, destroying an
opportunity for an Alaska gas line. Some say the bill
favors the pipeline builders rather than the gas
owners. Some even say the state should not tell
bidders what to bid. Those of us representing workers
believe that AGIA may well be the vehicle needed to
move the gas pipeline project closer to reality.
In our view, AGIA is a tool for Governor Palin to use
while doing her job in leading our state, just as our
members need tools to perform their jobs on day-to-day
basis. The governor and her staff have presented a
very aggressive schedule that contains quantifiable
results.
The previous committee and the governor should be
applauded for including a commitment to negotiate a
project labor agreement in HB 177 as well. We do not
believe any pipeline company would disagree that a
project labor agreement (or PLA) is not justifiable on
a construction project of such magnitude. With a PLA
in place, we will be able to define the training needs
of workers, legally require local hire through hiring
halls, and define wages, hours and working conditions
to assure stability during the construction of this
project. We thank Governor Palin and her staff for
their efforts in this area. Additionally, we request
the committee include a definition of Project Labor
Agreement, that would support the language included in
the CS for SB 104 Judiciary Committee.
As you continue your committee work on the AGIA
legislation, please remember the gas pipeline is vital
to the future economic growth of this state. Here is
a window of opportunity for us to move forward. Such
opportunity will not last forever. Give Governor
Palin the tools she needs to perform her job on behalf
of all Alaskans. Support the passage of HB 177.
1:13:28 PM
CO-CHAIR GATTO announced that he expects this legislation to
reach the House Finance Committee this week and the goal is for
the legislation to be passed out by the end of session.
1:14:03 PM
PETER CAPTAIN, SR., Vice President, Tanana Chiefs Conference,
informed the committee that recently the Tanana Chiefs
Conference (TCC) passed a resolution supporting an AGIA PLA,
which he read.
1:17:44 PM
CO-CHAIR GATTO turned to the issue of the Alaska hire preference
provision in HB 177. He offered that there will be many good
jobs after the pipeline is constructed and delivering gas.
Therefore, he requested that people are trained for long-term
jobs after the construction is complete. He highlighted the
various aspects of the project requiring workers from management
to workers at the gas treatment plant. The goal, he opined, is
to fill as many of the positions with Alaskans.
1:19:17 PM
JOHN CORBETT, Laborers Local 942, testified in support Governor
Palin's AGIA amendment to include a PLA, which means locals will
go to work first and be the last to be laid off. Furthermore,
it means that the wages he earns could be put back into Alaska.
He related his goal to be able to build a house and raise his
family in Alaska.
1:20:55 PM
SAMANTHA FONOTI, Laborers Local 942, noted her agreement with
Mr. Corbett's testimony.
1:22:23 PM
ERIC FONTENOT, Laborers Local 942, informed the committee that
he has been living in Alaska for the last seven years after
initially arriving with the U.S. Army. He recalled his time
working with "NorConn" and the discussions he has heard relating
that attempts to get a gasline have been going on for the last
30 years. Mr. Fontenot opined that a gasline needs to be
constructed for more than just the jobs it will create, but also
for the gas Alaskans could use. Furthermore, a gasline could
reduce the strain on Alaska's economy.
1:25:06 PM
CO-CHAIR GATTO thanked Mr. Fontenot for his service in the U.S.
Army. He then explained that the gas has constantly been used
to reinject into the ground to push the oil out. Therefore, the
gas has been useful and has pushed the life of Prudhoe Bay from
20 years to 30 years. At this point, the gas is ready to be
shipped. Co-Chair Gatto expressed his hope that within five
years the gas will be in the line.
1:26:28 PM
DIRK TAYLOR, Laborers Local 942, related his support for HB 177.
He said this legislation [will result] in a lot of jobs for
people living [in Alaska] who will put the money back into the
state's economy. Furthermore, Alaskans will take pride in this
job, pride that those in the Lower 48 won't necessarily have.
1:27:39 PM
JACOB HOWDESHELL, Laborers Local 942, noted his agreement with
Mr. Taylor's testimony and the amendment to AGIA. He opined,
"It will be long-term economic solution putting trade workers to
work, not just in the construction but in the maintenance and
the operations."
1:28:15 PM
EMALY SPENCER, Laborers Local 942, testified in support of
Governor Palin's [proposal] because it provides jobs that allow
her to support her children and work for her children in the
future.
1:29:29 PM
ROBERT PURCELL, Laborers Local 942, opined that through the PLA
in AGIA much more community building through jobs will result.
Mr. Purcell related, "It means a lot to me to be able to say
that I'm an apprentice in a laborer's program and that they're
going to give me the training that I'm going to need not only to
help with the pipeline but also to work in future jobs that come
after work." He highlighted that it's important to be able to
provide for his children and also have a pension plan that
allows him to be able to retire. In conclusion, Mr. Purcell
stated his support for the PLA in AGIA.
1:30:49 PM
BRYAN LINT, Laborers Local 942, testified in support of the PLA
in AGIA. He expressed the need for the pipeline to go through.
Mr. Lint related that all the training in the apprenticeship
program is helping him and he would like to be able to use that
knowledge at work.
1:32:21 PM
JERRY WALKER provided the following testimony:
I, respectfully address you today as an individual who
is proud to have lived and worked in the great state
of Alaska for 18 years. I am appreciative of the
administration's efforts and your careful
considerations to be responsible stewards of our
resources. I remind you today of one very important
theme and from that ask four questions for your
careful consideration as you continue this critical
process. The theme is the free enterprise system and
state government's role within.
Question 1) Is the purpose of AGIA [to] enhance your
role as legislators to induce private enterprise by
providing $500 billion in their risk-reward analysis?
Or, should it merely be to ensure an open for business
environment that is characterized by minimal
interference? Please consider being less prescriptive
and more general in your objectives for your bid
requirements.
Question 2) Who best can evaluate risk and potential
reward, private enterprise or state government? If,
as legislators, you want to evaluate risk, I suggest
you focus on how we, as a state, deal with the
probable negative growth without individuals and
companies willing to invest required capital. Please
... consider being less prescriptive and more general
in your objectives for bid requirements.
Question 3) Is the real question of fiscal stability
more important ... for potential shippers of our
natural resources that we as a state have sold and
hope to sell more of? Or, should it be for both
current and future generations of Alaska to determine
how we can pay for expected services? Please consider
fixing severance tax rates that will prompt investment
in Alaska.
Question 4) Do we really think we can expect current
and future owners of our natural resources to compete
in a global marketplace when, under the proposed bill
two commissioners will be responsible to pick the
winner? Please consider allowing for more proposals
that will encourage more competition in our project
such that the ultimate winner will be better prepared
to compete globally, and hence provide more fiscal
stability to Alaskans for many years to come. I
respect your commitment to Alaskans, present and
future. I thank you for your careful consideration
and request your responsible action and ultimate
decision to this bill in this legislative session that
is ... soon to expire.
1:35:46 PM
JAY QUAKENBUSH, President, Fairbanks Building and Construction
Trades Council, said that labor organizations in Alaska are
poised to train and employ Alaskans. He opined that a PLA will
provide an opportunity to further the investment of [labor
organizations] in the state and help the employment application
of this job, which provides the pipeline licensee and the state
assurity that the pipeline will be built on time and under
budget. In response to Co-Chair Gatto, Mr. Quakenbush confirmed
that a PLA wouldn't restrict laborers to be union members. The
laborers on the project would be working under the terms and
conditions of a bargaining agreement as would any other laborer
on the project. Therefore, non-union members could possibly be
working for the same wage as union members. In further response
to Co-Chair Gatto, Mr. Quakenbush confirmed that these non-union
laborers would be required to pay union dues that would go
towards the laborer's representation under the collective
bargaining agreement.
1:39:13 PM
DANIEL FIRMIN, Laborers Local 942, noted his agreement with the
others who have testified [from the Laborers Local 942] and
stated his agreement with the amendment to AGIA.
1:39:57 PM
GERALD KW BROWN applauded the effort and work that the committee
puts into these meetings. He then noted his agreement that a
PLA is a very important part of the process. He said that he
sent all the committee members an email of some observation
points he had after hearing Marty Massey's testimony, which he
said took him aback. It seems that the three [companies] that
have control of the gas don't really want to participate in this
process. He expressed hope that some kind of fairness in how
the gas from the North Slope is distributed can be achieved.
Whether the aforementioned is part of AGIA or separate
legislation, it needs to be reviewed, he opined. In fact, [the
state] may need to mandate some release of the gas on an annual
process. Mr. Brown mentioned that he was very impressed by Mr.
Keanan's testimony and his third party observation. He
expressed hope that the committee saw the need for the
production of gas and the demand that will result. Mr. Brown
said, "I hope that AGIA does give a fair, balanced approach to
distributing gas from Alaska." In conclusion, Mr. Brown urged
that the committee pass HB 177.
1:43:20 PM
CO-CHAIR GATTO clarified that AGIA is legislation that simply
allows the state to find someone who will be called a licensee,
who will then have the most to do with moving the gas to market.
The legislature's work is done when it finishes with AGIA and
develops a structure from which the administration can select a
licensee.
1:44:46 PM
MR. BROWN turned to the issue of those who work on the North
Slope, but reside outside of the state. He suggested a state
income tax might encourage people to be residents in the state
because the tax refund could be tailored to residency.
1:45:58 PM
JERRY MEHLBERG began by informing the committee that he retired
after working 20 years in the oil industry on the Alaska
pipeline. He further informed the committee that he is a
mechanical administrator and a licensed journeyman plumber. He
related his support of some type of inducement to get the
gasline built and in operation. Mr. Mehlberg then said that he
has developed a long-range concept that will make much better
use of the $500 million incentive. He opined that his concept
would dovetail with Governor Palin's commitment to reduce
greenhouse gases; place the Railbelt [communities] and most
other electric utilities on a common state strategy; would
probably eliminate the need for construction of coal-fired
plants, as is being discussed for the Matanuska-Susitna Valley;
reduce electrical costs for everyone; and would help the
producers maintain oil production while providing them a good
economic and environmental incentive. Mr. Mehlberg said that
his plan is comprehensive, and therefore he inquired as to who
he should talk to about his plan.
1:47:51 PM
CO-CHAIR GATTO suggested that the House Special Committee on
Ways and Means would be the appropriate venue for such.
1:48:24 PM
JERRY MCCUTCHEON began by indicating that Co-Chair Gatto should
apologize to those whom he has lead to believe that there will
be a gasline. He then provided the following testimony:
The legislature and the Governor Palin have not been
honest with the public. They have led the public to
believe there's going to be a gasline when, in fact,
there will not be a gasline. Palin's press released
that she was not going to lobby the legislature on her
gasline legislation outside of her staff repeatedly
cherry-picking, misleading information to give to the
legislature and the public. I doubt if her lobbying
the legislature would do much good; they have already
served notice that they are going to take their time
and do it their way. I think Palin has finally come
to the conclusion she cannot obtain any semblance of
an open season, thus no hope of a gasline. The
outcome for Palin's gasline is nil to nonexistent.
The most damaging presentation occurred when the
exasperated Senator French, chairman of Senate
Judiciary, said and asked of Cathy Forester of the
[Alaska] Oil and Gas Conservation Commission after he
could not get her to give him any amount of gas or any
time the gas could be available. ... French said,
"Well, we still have the 2.7 bcfd." Cathy replied,
"Somebody would have to apply to the [Alaska] Oil and
Gas Conservation Commission for that 2 bcfd offtake or
some portion of it and the AOGCC would have to rehear
the Rule 9, the 2.7 bcfd and after the hearing there
would be no gas available." Thus, the once available
gas, for at least the last 20 years, Rule 9 gas
offtake of 2.7 bcfd is now nonexistent. It exists on
paper only and if you try to apply for it, it isn't
going to be there. There is no gas available for a
gasline, nor is there any indication of when there
will be gas available for a gasline, if ever. And,
I'll bet on the later. Having predicted the
disappearance of the 2.7 bcfd ever since it was first
allowed, I will predict that the 2.7 bcfd will
disappear again in 10 years, in 20 years. The
illusion of a gas offtake for a gasline will always be
like chasing a rainbow, it will always be just ahead
and never there when one gets to where they thought it
was. The gas offtake is like a mirage, just over the
hill but never there. Every time it comes to take the
gas, the reservoir will have to be evaluated as if it
were a new discovery and a new discovery with all the
infrastructure in place. And, we will always be faced
with the need for the gas for oil production. Palin
was cognizant of the need for the rehearing of the 2.7
bcfd gas offtake. She was chairman of the [Alaska]
Oil and Gas Conservation Commission, she must have
known what the outcome of a rehearing would be. Palin
just tried to scammer through in hope that the
legislature would not find out ...
1:52:38 PM
CO-CHAIR GATTO interrupted Mr. McCutcheon to inform him that he
had to conclude his testimony in the next few seconds.
1:52:50 PM
MR. MCCUTCHEON opined that he has a right to be heard and that
the courts would uphold that he has a right to be heard by the
legislature as well as the public.
CO-CHAIR GATTO explained that Mr. McCutcheon needed to summarize
his comments as every witness has a certain amount of time due
to the many who want to speak.
MR. MCCUTCHEON said that if this legislation ends up in court,
he would be present and give the co-chair the opportunity to
testify as to why he didn't allow [folks to heard]. He then
reiterated his right to be heard [by the court] as well as by
the public. He then emphasized that there's a big difference
between [the court] and the legislature taking testimony and
burying it somewhere.
1:53:20 PM
PAUL LAIRD, General Manager, Alaska Support Industry Alliance,
paraphrased from the following written testimony [original
punctuation provided]:
Our 400-plus member companies provide the goods and
services that make Alaska's oil, gas and mining
industries possible, and provide more than 30,000
Alaskan jobs.
First and foremost, the Alliance wants a gas project
... sooner rather than later, and with the greatest
long-term benefits for the State of Alaska, Alaskan
workers, Alaskan businesses and all Alaskans. We
believe this act will fail in its objective of
achieving a gas project unless key changes are made
prior to passage:
First, bid requirements set out in the bill are too
prescriptive and should be replaced with broad
objectives. Bid requirements will limit competition in
the application process. The prescriptive nature of
the bill guarantees that creative and mutually
beneficial approaches that address the state's needs
will never be explored, and it likely will preclude
some prospective applicants from participating.
Second, the bill places too much emphasis on
mitigating the short-term financial risks incurred by
the pipeline builder and too little on addressing the
much longer-term and greater risks of gas shippers. It
offers shippers a non-binding "trust-me" commitment
for fiscal stability lasting a fraction of the project
life, and does nothing to fix severance tax rates that
the administration admits won't work.
Third, the $500 million incentive is unnecessary. It
has the potential to turn pretenders into contenders
for a state license, and we're skeptical about placing
Alaska's future into the hands of any entity that
requires a $500 million contribution in order to
pursue a $30 billion project. Applicants that need to
be "bought" with the $500 million may not be worth
acquiring.
We're also concerned about provisions mandating the
use of rolled-in tariff rates for pipeline expansions,
establishing a virtual monopoly for the state's
licensee at the possible expense of other qualified
projects and allowing a pair of commissioners too much
leeway in how they select a licensee.
The Alaska Gasline Inducement Act may be our last and
best chance to make a North Slope gas project a
reality, but only if it's fixed before it's passed. In
order to succeed, the bill must reflect the interests
of Alaskans, of the developer and transporter and of
North Slope producers and shippers. Thank you.
1:56:18 PM
[Co-Chair Gatto passed the gavel to Co-Chair Johnson.]
PAUL KENDALL provided the following testimony:
Nearly all things send signals, signs, or indications
of things that have been or things to come, in some
form of another. You folks, because the producers
have sent you confusing, admonishing, conflicting,
minimal, and uncertain signals, must prepare for a
worst case scenario in direct proportions to the
signals you have received from the producers. This
makes it all the more important that you stay focused,
in the queue, ... and above all "The United as
Alaskans mode we stand." I strongly, therefore,
believe that you should gather and pass the initiative
or whatever it takes to stay in session for the rest
of the year. You have to pay yourselves a decent
salary for you and your families. There are many
critical details to come and more need for insights
into a few more critical sectors, as I will list
below. To mention a few of those: The capacity needs
to be discussed in totality. The take, the take, and
the take really needs to be a cautious discussion.
Social impacts infrastructure, tailgating large
projects such as Agrarium and ARR, the gas price
charges to residential users at a true and actual
cost. The Texas company purchase of Enstar, the GTP,
the coal gasification process, hydrogen gas, several
others are in need of an unhurried, methodical and
professional accounting for an awareness, testimonies,
and hearings. It is therefore, again, that I strongly
urge the following in addition: that you contact the
governors or their designees of Los Angeles, San
Francisco, Sacramento, Seattle, Portland, and other
leading cities located south and southwest of the
Alberta Hub. You should invite their emissaries to
come to Alaska ... for a roundtable forum on energy
needs of those states and Alaska's role. Because we,
as Alaskans, feel compelled to reach out to our fellow
Americans to see if they're in need of our resources
before we should send them elsewhere. The reason you
should do this also is number one: it is the right
thing to do, it is the honorable thing to do, it is
the American thing to do, it is the Alaskan thing to
do, it is a smart business decision, it is a necessary
component for a decision, especially if you get forced
to a co-venturing position. Finally, in conclusion,
ladies and gentlemen, I am having a great time
learning so much about the gas piping, shipping
industry. I am anxious to see how the take is divided
... and I only regret one thing and that is that no
one is paying me to learn this .... In closing, ...
this is to the governor, the House, the Senate, the
unforeseen and the unseen or unheard others who work
behind you in support of you, should I forget I am
enjoying watching ... you all work together for the
benefit of us all. What a great job and legacy all of
you are part of it. This process you are involved in
now is, in my opinion, how our society will need to be
represented now and on into the future. Just as
Alaska is a new frontier for many, so it is that you
all may represent the new frontier for how our society
will need to be represented by the new public servants
of the future. It has to be an open and full-time
commitment process called a job. I thank you and
thank you on the behalf of those other people that
feel the same way. Thank you.
2:01:02 PM
AVES THOMPSON, Executive Director, Alaska Trucking Association
(ATA), paraphrased from the following written testimony
[original punctuation provided]:
The Alaska Trucking Association is a state wide
organization representing trucking interests from
Barrow to Ketchikan for more than 49 years. Our more
than 200 members represent all of the diverse trucking
operations in the state and many associate members who
provide goods and services to our industry. On behalf
of ATA, I thank you for the opportunity to testify on
the subject of AGIA.
The highest priority of the Alaska Trucking
Association is to get a gas line built, up and running
and delivering Alaska's gas to market. We applaud the
Governor and her team for promptly presenting AGIA to
the legislature for their consideration.
We believe like others, that AGIA has a chance to
bring a gas line to fruition. We also believe that
certain changes must be made to make the gas line a
reality. I will address some of the important issues
as we see them.
Bid requirements of the bill are far too specific.
The better approach may be to set performance
specifications or expectations or outcomes and let the
bidders address how they will meet those expected
outcomes. There may be other ways to reach these
mutually beneficial outcomes, and the prescriptive
nature of the current bill guarantees we will never
hear the alternatives.
The bill needs clear and objective criteria for
evaluating applications. Some recommendations for
criteria are:
Best financial return to the state,
Lowest level of risk of delays due to lawsuits, etc,
Highest probability of success,
Jobs, instate use of gas, etc.
Expansion provisions for adding gas to the line.
The bill places too much emphasis on mitigating the
short-term financial risks incurred by the pipeline
builder and too little to address the much longer-term
and greater risks of gas shippers. Fiscal certainty
is an important issue for those that will be asked to
commit to long term firm transportation agreements
worth billions of dollars over the life of the
agreements. Some notion of future tax or royalty law
or at least, policy must be part of the deal.
As a corollary to the previous point, we feel the $500
million giveaway is unnecessary and imprudent as we
would like to see the successful licensee be
financially capable of making their decisions based on
the sound economics of the project rather than a
subsidy or handout from the state.
It seems that existing shippers should not be forced
to subsidize new shippers by sharing the cost of
pipeline capacity expansions. It would seem more
equitable and predictable to provide that the new
shippers pay the cost of expansion.
These are a few of our concerns and I'm sure you will
hear from others today as they share their testimony.
The Alaska Trucking Association is eager for this
project to succeed and stands ready to assist in any
way to help make this dream a reality.
[Co-Chair Johnson returned the gavel to Co-Chair Gatto.]
2:04:21 PM
MAYNARD TAPP paraphrased from the following written testimony
[original punctuation provided]:
I am a citizen of Alaska since 1990 and Alaskan in
spirit since 1954 when my dad worked in Barrow for the
Coast Guard.
DO THE DEAL NOW
At Thursday's spot price for natural gas at $7.510 per
MMBTU the states share @12.5% would be $0.94 per
MMBTU.
If 1MMBTU is approximately 1,000 Cubic feet then, at a
production of 4.5 Billion Cubic feet per day, the
state of Alaska revenues loss is $4,224,375 per day.
I worked on the Gasline Study from Jan 2001 until
March 2002 (15 months) this study spent approximately
$125MM to get near the end of Conceptual Design. We
accomplished a lot during that timeframe. Everyone
worked hard and fast. The results of that effort
indicated that the producer's wanted to move forward
with the pipeline project.
It will take any new player at least 15 months say 450
days to get to the point where the producers study
ended. At $4.2MM per day that totals $1.9 billion
dollars loss in state revenues just to get to the
place we are today, close to the end of Conceptual
Design.
At the same time Prudhoe Bay production is declining
at 6% per year and therefore the related state
revenues from the oil production is declining at the
same rate. And at the same time competing projects and
technologies are moving forward.
The chart I am including in my testimony is one that I
attained when working with a world class engineering
company. It is used to help them determine the amount
of contingency used at any point during the lifecycle
of a project. It is, therefore, a measure of
confidence that a project has regarding known and
unknown costs. These milestones cannot be compressed.
You already have two to three years of testimony.
Will you learn anything more in the next 15 months and
$1.9 billion in lost revenues.
2:06:46 PM
CO-CHAIR GATTO inquired as to what Mr. Tapp means by "Do the
Deal Now" as he said he thought that's what is occurring now.
2:06:55 PM
MR. TAPP opined that under AGIA it seems that the process is
starting over again. He reiterated that most of the legislature
has already had two years of testimony and experience on the
matter. Therefore, he opined that the legislature could pick up
and negotiate under the last governor's proposal. There is
enough information from the prior administration to pull
together a deal, modify it, and sign it. He suggested that
doing so could result in an open season within a year or two,
rather than 36 months. Mr. Tapp said that he supports Governor
Palin's openness and transparency with AGIA, but the concern is
that 15 months will be lost.
2:08:10 PM
ERIC DOMPELING, Vice President, Alaska Support Industry
Alliance, paraphrased from the following written testimony
[original punctuation provided]:
When I came to Alaska 37years ago, there was a term
that doesn't get used as much today "We don't care how
they do it outside!" Over the course of those 37
years, things have changed in Alaska; we now provide
roughly 20% of the oil consumed in the United States;
the revenue that comes from that oil development
supports the state economy. But it was not the State
that risked the capital to explore and develop those
leases.
AGIA is intended to expand resource sales, this time
the gas associated with North Slope Oil. Gas has been
produced at Prudhoe Bay for 30 years and in that time
has been an economic boon by maintaining pressure at
Prudhoe Bay which in turn has allowed an additional 3
billion barrels of oil to be produced. Today that
gas, that 8 Billion Cubic Feet of Gas, being produced
with the oil and reinjected everyday is creating a
handling issue and needs to be shipped to market.
This gas project will be world class by any
definition, but we are not alone in the development of
World Class Resources. There is a project already
underway in Qatar that has 1,500 trillion cubic feet
of known reserves, 42 times larger then all 35
trillion Cubic Feet of gas currently producible on the
North Slope. The Pipelines are in place the Tankers
are built and the expansion is moving forward.
We have heard for years from oil producers that any
project must compete globally for capital investment
and be judged on the return on the capital invested.
Based on that factor alone Construction and expansion
of any project will not be prescribed; but determined
by the economics.
The North Slope gas project will ultimately not be a
political decision, it will be an economic decision by
a resource leaseholder, whether they have known
reserves or are exploring hoping to develop future
reserves. In a free market, the tariffs will
determine if a line gets built or expanded. In order
to promote a project the States role should be to
ensure that the resource owners know what the terms
and conditions will be, I urge you not to leave the
tax issue open to interpretation. Open ended
contracts expose both sides of any agreement to
litigation not construction.
The efforts of Governor Palin and her team, to advance
The North Slope gas project, through AGIA; are
applauded by all Alaskans including the members of the
Alliance. However, the Inducement Act as currently
drafted does not include clear objective criteria for
evaluating the economics of a project, without those
economic objectives this project will not move
forward. Attempts by government entities to determine
economic viability do not have an enviable track
record. Let the market decide by asking for a "Best
Proposal" offer that is open and transparent and can
be judged by the merits of the economics, because in
the end it all comes down to the Tariff!
I spoke earlier about Alaskan's not caring how things
are done outside! Today we compete in a Global
Market, let us not focus only on Alaska's wants, but
focus on how we compete for the development of our
resources in that Global arena. The Alaska Gasline
Inducement Act may be the best opportunity to make a
North Slope gas project a reality, If it is to
succeed, the bill must acknowledge the interests of
not only Alaskans, but those of the project developer,
the transporter and the North Slope producers and
shippers.
Thank you for your time, this concludes my testimony.
2:12:04 PM
MR. DOMPELING, in response to Co-Chair Gatto, explained that the
Alaska Support Industry Alliance is a trade organization of 400
different members representing roughly 30,000 employees in the
state. He mentioned that the organization encourages the
responsible development of Alaska's natural resources.
2:12:53 PM
KEVIN KNOX related his support of AGIA and the PLA amendment to
it. He opined that the PLA will ensure that local people will
go to work first and be the last to be laid off. Furthermore,
the wages earned [by Alaskans] will be put back into Alaska.
2:14:00 PM
TAMMIE WILSON thanked the committee for including the PLA in HB
177. She then related that her son has benefited from the
Department of Labor & Workforce Development (DLWD) grant to
become a heavy diesel mechanic. The aforementioned will allow
her son to immediately enter the operators' union where he can
make good wages and have a retirement and pension plan.
Furthermore, this training will allow him to build a house,
raise a family, and spend his money in Alaska.
2:16:05 PM
JOSEPH BOYLE, Local 942, informed the committee that he is a
recent graduate of the Laborers Local 942 apprentice program.
He testified in support of the PLA included in HB 177 as it
means that he can continue working and have a future.
2:16:57 PM
RON MCPHETERS, President, Laborers Local 341, informed the
committee that he represents 6,000 members statewide through the
District Council of Laborers. He urged the committee to leave
the PLA language in HB 177.
2:18:20 PM
MEG LUM, Apprentice, Laborers Local 341, informed the committee
that she is currently obtaining her trade skills during her
apprenticeship program. She related her excitement for the
gasline, which she hoped will be a source of employment for
those reinvesting income in the state. Ms. Lum said that AGIA
must include a PLA, which will ensure Alaska hire on one of the
most important projects that Alaska has seen. She opined that
Alaska's economy can be kept strong and apprentices like herself
can be kept in the state with the security of a decent wage and
benefits. She then related that she looks forward to working on
the gasline to maintain her independence as a single mother and
taxpayer. She concluded by encouraging the committee to enforce
the PLA in AGIA.
2:19:31 PM
REPRESENTATIVE SEATON pointed out that another committee made a
change in the PLA such that a pipeline applicant is required to
use the DLWD's job centers and Internet hiring program, to the
extent practical. He asked if using the in-state hiring
processes is detrimental to the PLA.
MS. LUM said that she wasn't familiar with that.
2:20:23 PM
TIM SHARP, Business Manager, Alaska District Council of
Laborers, began by addressing Representative Seaton's question.
He informed the committee that when the Fort Knox Mine was
built, people from the Lower 48 were instructed to go directly
to the job service centers to sign up and inform personnel that
they had been in Alaska for a month and intended to stay. The
aforementioned meant that such individuals [were considered]
Alaskan residents and were then referred to the Fort Knox Mine.
Therefore, Mr. Sharp opined that such a requirement isn't going
to threaten the PLA, but it threatens the goal of putting
Alaskans to work first and keeping them to the end. He
highlighted that previous testimony has illustrated that
Laborers Local 341 and 942 have over 60 years of training and
putting Alaskans to work in Alaska. Mr. Sharp said that he is
present to support the governor in getting the gas to market as
well as Alaskans building the pipeline. He then reminded the
committee that the constitutional definition of an Alaskan
resident is 30 days, with the intent to stay. The PLA is the
only way to legally raise the bar in defining legal residency in
Alaska. The Alaska District Council of Laborers only allow
folks to sign up on the hiring hall list [after one year in
state.] The aforementioned increases the good outcome allowing
Alaskans to go to work on these projects. Furthermore, [the
PLA] allows the building and construction trades to perform
training. He noted that it takes three to five years to turn
out journeyman. With regard to legacy jobs, Mr. Sharp opined
that a properly crafted PLA with legacy jobs and Alaska hire
requirements in mind could be beneficial in the long-term
outlook. He highlighted that oil companies are on record saying
that the [pipeline can't be built] without organized labor and
organized labor has said it can't be done without a PLA. Mr.
Sharp specified that he doesn't want to slow AGIA down, but does
want to maximize the benefit to Alaskans.
2:24:11 PM
REPRESENTATIVE SEATON requested that Mr. Sharp obtain the Senate
Judiciary Standing Committee's language change to the PLA and
email the committee his comments.
MR. SHARP agreed to do so.
2:25:40 PM
LISA PEGER began by saying that she is representing The Common
Sense Activist Party, of which she is the only member. Ms.
Peger said that she supports HB 177. However, she cautioned the
committee with regard to the consolidation of power such that
it's placed in the hands of only one or two people. She then
expressed the need for competition such that new producers can
come on line cheaply because competition breads efficiency. She
pointed to Canada as an example with its 3,000 oil and gas
producers whereas in the U.S. basically three producers produce
and distribute all the country's oil and gas. The producers,
she opined, are the least likely group to want to develop the
gas line quickly. She then opined that energy costs make
everything escalate, including the cost of labor and housing.
Ms. Peger turned to the trillions of dollars of gas and
suggested that all the problems that producers have identified
can be addressed. With regard to financial certainty, she again
reminded the committee that this is trillions of dollars. She
then suggested that the $500 million inducement could be an
option rather than a given.
MR. PEGER told the committee that the state government is
spending $30,000 per Alaska worker per year, most of which is
for labor. Therefore, she suggested that it may be time to
freeze the 3 percent Consumer Price Index (CPI) and any wage
hikes until the gas is flowing. She characterized the CPI as a
phony thing and that educators and government workers don't need
to be given 3 percent more. In conclusion, she reiterated her
support for AGIA.
2:31:32 PM
DAVE MCCLURE, Executive Director, Bristol Bay Housing Authority;
Chairman, Board of Southwest Alaska Vocational Education Center,
paraphrased from the following written testimony [original
punctuation provided]:
I support the CSHB 177, and specifically, subsection
17 of Section 43.90.130, which includes a project
labor agreement in the application process. This PLA
is vital to ensuring residents of our region, and our
state, are hired for the workforce to be employed
during construction and operation of the pipeline.
During the construction of our Voc Ed Center, we
created a partnership and project labor agreement with
the trade Unions in the State, in coordination with
Alaska Works Partnership, which was highly beneficial
to the residents of the region. The facility was
completed with at least 85% local labor, both
journeyman and apprentices. Including that project
and in subsequent years, we have had over 120 local
folks enrolled in a general building maintenance
repair and apprenticeship programs, with ten percent
of those folks gaining journeyman status.
I also support Section 43.90.470, concerning job
training programs. I ask that this section include
reference to training centers, including those in
Anchorage, Fairbanks, and the rural regional training
centers such as the Southwest Alaska Voc Tec Center,
the People's learning Center in Bethel, the centers in
Kotzebue and St. Marys.
In conclusion, the Project Labor Agreement and use of
the training centers in the State of Alaska are
critical and crucial for maximizing the use of Alaska
workers in this important project.
2:33:11 PM
ANDY ANDERSON, Deputy Director, Bristol Bay Housing Authority,
paraphrased from the following written testimony [original
punctuation provided]:
My statement is short and addresses the labor
provision and is in support of an equitable Project
Labor agreement.
My responsibilities for the last 14 years include the
construction of Affordable Housing and associated
infrastructure in the Bristol Bay region. As such, it
is my responsibility to ensure that Federal, State and
local funds allocated to low to moderate income
housing are shepherded towards providing the maximum
quantity of safe, decent, and affordable housing for
every dollar spent while maximizing local labor.
At the time I started this job, skilled building
trades almost did not exist in the 32 communities BBHA
serves. This paucity of local building skills forced
contractors to import a majority of their labor. The
creation of the Southwest Alaska Vocational Education
Center, or SAVEC, through the leadership of a
dedicated core of local leaders with the financial
support of Federal, State and local agencies, and with
a major part being played by the Alaska Works
Partnership, Inc. has slowly, but effectively,
reversed that situation. Mr. McClure has provided
numbers of SAVEC training graduates that have allowed
affordable home construction labor in the region to be
95% locally sourced.
Institutions such as SAVEC, with the training and
financial input of Alaskan unions, will be needed to
ensure that Alaskan residents are prepared to
construct and operate the gas pipeline.
I emphasize that it was the cooperation, training and
financial support of the union trade organizations and
advocates and their steadfast support to provide the
training and entry level opportunities for village
residents that has made this, by any measure, a
successful effort.
The pipeline and other future major public and private
constructions will be a successful with the labor
leadership, organization and demonstrated capabilities
of the local unions and their organizations, ensuring
maximum participation of Alaskan residents.
2:35:59 PM
CO-CHAIR GATTO announced that the committee would be in recess
until 3:00 p.m.
3:03:56 PM
CO-CHAIR GATTO reconvened the meeting at 3:03 p.m. and noted
that public testimony will remain open. He then announced that
the remainder of the meeting will be a roundtable during which
the committee will hear concerns from the producers regarding
concerns they have regarding previous testimony.
3:06:14 PM
DAVID VAN TUYL, Manager, Gas Commercialization, BP Exploration
(Alaska) Inc. (BP), paraphrased from the following written
testimony [original punctuation provided]:
Chairman Gatto and Members of the House Resources
Committee, we appreciate the opportunity to address
you regarding points that have been made over the last
few days. We recognize you have a very busy schedule,
and we will make our comments brief.
My name is Dave Van Tuyl, representing BP. With me
here is Wendy King, representing ConocoPhillips and I
believe Bill McMahon with ExxonMobil is joining us by
telephone. While I represent BP, these points I will
be providing in testimony have been jointly prepared
with ConocoPhillips and ExxonMobil.
The first and most important point I want to leave
with you is that we fundamentally disagree with the
characterization of the Alaska Gas project economics
as recently presented by Antony Scott.
We have concerns over many different statements made
by Mr. Scott, but in the interest of time I'll limit
my comments to addressing three key concerns.
1. Underlying economic methodology - Decoupling the
Upstream from the Midstream
2. Nature of firm shipping commitments
3. The importance of long term cash flow in investment
decision making
We appreciate this opportunity to state our concerns.
I suggest that I go thru my talking points here in
about 10 or 15 minutes and then we are available to
spend all the time the committee wants to answer your
questions.
And I'm confident that, especially with Ms. King here,
you won't be shy about asking questions.
3:07:37 PM
Point Number 1 - Project Economics
We are very concerned that the economic analysis
presented by Mr. Scott to this committee is very
misleading.
Economics
· Without the commitment of capital to the pipeline or
the huge financial obligation required for Firm
Transportation (FT) for the midstream facilities,
there is no way to realize value from the sale of gas.
Thus, any analysis of the project that excludes
midstream capital and FT is incomplete.
· In reality, major gas pipeline projects are built on
the back of long-term, firm transportation
commitments. For example, two recent gas pipeline
projects are Alliance and Rockies Express. Alliance
required 15 year shipping commitments, and Rockies
Express required 10 year commitments. And both of
those projects are significantly smaller in scale than
the Alaska gas pipeline project.
· And because these commitments are just that, legally
binding commitments, they need to be accounted for
when evaluating project economics. These commitments
were ignored in Mr. Scott's analysis of the economics.
· That analysis suggests that the upstream project can
be developed without a commitment to the midstream.
· Because that method ignores the FT obligation, the
resulting assertion that our upstream economics are so
robust is patently incorrect. In fact, the upstream
pays for the midstream. It does this through firm
transportation commitments. These commitments cannot
be ignored.
· In order to evaluate the economics of any project,
you must account for the commitments that are
necessary to enable the project to move forward.
· We must evaluate economics on the complete project,
that is on an integrated basis (top to bottom) to
properly account for total project risk and determine
whether the project is economic. Any decision to
invest will be based on integrated project economics.
· To analyze a project correctly, one needs to look at
both the costs and the benefits together, that is, we
need to evaluate the benefits of the reserves along
with the cost of the commitments required to produce
those reserves. In fact, that's the way we do our
project analysis.
3:10:22 PM
· To conclude our discussion on the economics I wanted
to just touch on reserve booking.
· We agree with the Administration that being able to
add reserves to our books is a benefit - that's the
lifeblood of our business. But we don't book reserves
at any cost. They need to be economically
recoverable.
· And we don't book the "value" of our reserves. Any
value attributed to those reserves will be determined
by the cost of the commitments and the investment
required to get those reserves to market. Hopefully
we can get the gas to market cheaper than the market
price.
· Remember that for gas, the transportation cost is a
very significant portion of the value of the gas
itself - that makes gas projects with a large
transportation component inherently risky.
· When we add reserves to our books, which we hope to
be able to do for Alaska's gas resource, Wall Street
will notice. They will also notice when we inform
them of the firm transportation commitments required
to underpin the project, and the cost of the project
to develop those reserves.
· So to summarize our concern with the
characterization of the economics, we disagree with
rd
Mr. Scott's analysis that with a 3 party pipeline the
upstream business can be analyzed separately from the
midstream investment. That analysis ignores the
commitments required to develop the upstream. And
therefore we believe that analysis is fundamentally
flawed.
3:12:08 PM
REPRESENTATIVE ANNA FAIRCLOUGH, Alaska State Legislature,
inquired as to why the Rockies project, which is over 800 miles
in length, isn't comparable in some way.
MR. VAN TUYL specified that the two projects he mentioned are
about an order of magnitude smaller in terms of cost. The
Rockies Express project cost about $4 billion, while the
projected costs of the Alaska project in 2001 was $20 billion.
With increased costs since 2001, there has been speculation that
the cost of the Alaska project could be as high as $30 billion.
Similarly, the Alliance project is about a $3.7 billion
investment and moves 1.6 billion cubic feet a day, whereas the
Alaska project is expected to move 4.5 billion cubic feet a day.
3:13:26 PM
REPRESENTATIVE FAIRCLOUGH inquired as to why the costs to run
800 miles in the Rockies Express project are so different from
that of the Alaska project. She acknowledged that
transportation would be a factor as would the cost of materials
at the time of construction, but maintained that it seems to be
quite a difference for what seems to be fairly comparable
mileage.
3:14:01 PM
MR. TUYL pointed out that the project evaluated in 2001 was
3,600 miles. He said that it's known that 2,100 miles of pipe
has to be built to transport gas into Alberta since no
transportation system exists today to get gas that far.
Although it's not known whether new pipe will have to be built
from Alberta south, that was assumed to be the case for the
purposes of comparison. The aforementioned results in another
1,500 miles to transport gas from Alberta to the upper MidWest
market, which totals 3,600 miles.
3:15:02 PM
CO-CHAIR GATTO related his understanding that the $30 billion
estimate is a Chicago estimate rather than an Alberta estimate.
MR. TUYL confirmed that the $30 billion estimate assumes new
pipe is built to Chicago. However, even if new pipe isn't built
out of Alberta, there will need to be firm transportation
commitments to move gas out of Alberta, even on existing pipe.
3:15:34 PM
MR. TUYL continued:
Point Number Two
The second point we want to emphasize is to ensure we
have a common understanding of the nature of these
firm transportation commitments we've just talked
about.
Nature of Firm Transportation Commitments
FT is a binding commitment made by a shipper to a
pipeline company in an open season to secure capacity
on the pipeline for a specified duration at a
specified cost
There are a few important facts to be clear on about
FT
FT is binding legal obligation. It becomes binding
once the necessary conditions are met, including the
pipeline coming into operation.
Mr. Scott has claimed that the Producers say that FT
is "exactly like debt". I'm not aware of any of us
having said that in testimony. Long term commercial
commitments like FT are often characterized as "debt-
like", and must be reported to the SEC.
The core issue is whether the FT commitments require
the producers to absorb the substantial majority of
the risk associated with the project.
FT is a financial obligation, and it is certain that
the lenders would have recourse to the financial
security provided by the producers' FT, should the
pipeline company fail to meet its obligations.
Therefore, FT cannot be ignored if a project is to be
evaluated properly.
3:17:14 PM
CO-CHAIR GATTO interrupted Mr. Van Tuyl and related his
understanding that Mr. Van Tuyl is saying that the SEC wants to
know what the debt would be.
MR. VAN TUYL clarified that the SEC requires [producers] to
report long-term commercial commitments. In further response to
Co-Chair Gatto, Mr. Van Tuyl specified that BP's annual report
includes a host of information, including assets, debt, and
debt-like obligations. Therefore, the annual report includes
long-term commercial commitments.
3:17:49 PM
CO-CHAIR GATTO asked if gas in the ground can be reported as an
asset.
MR. VAN TUYL clarified that gas in the ground can be reported as
an asset once it reaches a status called proven. The vast
majority of gas in Alaska isn't proven, he related. The other
portion of the gas that's proven is that used for field fuel,
which is a small fraction of the known resource. The gas would
become proven once there's a demonstrated method to move the gas
to market.
3:18:22 PM
CO-CHAIR GATTO surmised then that all of the known Prudhoe Bay
reserves that have been used to push the oil out are considered
unproven.
MR. VAN TUYL referred to them as a nonproven resource.
3:18:40 PM
REPRESENTATIVE FAIRCLOUGH asked if the term proven is a
financial term or a term used within the oil and gas industry.
MR. VAN TUYL confirmed that the term proven is a term of art
that is used by the SEC to establish a certain quality of
resource that has reached a certainty of being developable. To
reach proven status, certain hurdles have to be crossed. In
further response to Representative Fairclough, Mr. Van Tuyl
confirmed that the term proven is a recognized accounting term.
3:19:40 PM
REPRESENTATIVE WILSON surmised then that nonproven means that
the resource is known to be present, but it hasn't went through
the steps to make it proven.
3:19:46 PM
WENDY KING, Director of External Strategies, ANS Gas Development
Team, ConocoPhillips Alaska, Inc., interjected that she has
heard the term "probable reserves" and "possible reserves",
although those definitions don't seem to be as clearly
established. The proven category, although there are
distinctions within it, is a defined term, she said.
3:20:10 PM
REPRESENTATIVE GUTTENBERG asked if there are times when it is
advantageous not to finish the process that would move a reserve
from unprovable to provable.
MR. VAN TUYL answered that the primary motivation is to develop
resources. Therefore, the commercial motivation is to obtain
resources and develop through the value chain from known
possible to probable and to ultimate development. The
motivation is to continue to advance.
3:20:59 PM
REPRESENTATIVE GUTTENBERG said:
One of the things that brings up a question for me is
the amount of gas that's provable up there versus
that's not provable that might be probable or
otherwise or speculative if it's there. We understand
... there needs to be a lot more gas than what is
currently proven or being able to pull off Prudhoe.
So, you might know there's more gas up there and not
want it proven, but as soon as it becomes economically
viable you just finish that process and it becomes a
proven reserve. And there you're going forward with
it.
3:21:41 PM
REPRESENTATIVE ROSES related his understanding that when the gas
is in the ground, one would have a good idea that it's present
after it has been discovered. In fact, the gas may be injected
into the oil to obtain more oil. However, until there is a way
to deliver that gas to market, it doesn't become proven.
Therefore, he surmised that the term "marketable" would be
synonymous with "proven."
MR. VAN TUYL responded that Representative Roses has provided a
fairly apt description. He pointed out that there's an aspect
of commercial viability of the resource that is considered when
advancing the resource from possible to probable to proven.
3:22:55 PM
REPRESENTATIVE ROSES opined that once a transportation
commitment is made, regardless of the price, it is a risk
because whether it's delivered or not there will be payment.
The risk is that the entity can't deliver the volume to which it
committed. Therefore, he surmised that it becomes a debt the
first day that the entity can't deliver what it committed to
deliver.
MR. VAN TUYL stated his agreement that Representative Roses
comments are a reasonable summary. He then noted that the one
thing that is certain about a FT commitment is that the entity
making that commitment will ultimately make good on that
obligation to the pipeline company to which the commitment is
made, which is why it's a legally binding obligation that can't
be ignored. "Hopefully, in association with making that
commitment for that period, you're also able to deliver gas.
But that's not a known; what's known is that that firm
transportation commitment is a legally binding obligation," he
specified.
3:25:11 PM
REPRESENTATIVE ROSES recalled when Mr. Van Tuyl said that the
economics have been misrepresented. He further recalled that
Mr. Van Tuyl said that as a part of that [committed] volume and
the commitment to inject gas into a pipeline to be delivered, a
company can't ignore the value of that without calculating the
costs because without the costs the "borrow ability" is unknown.
He related his understanding that Mr. Van Tuyl was referring to
knowing the costs, beginning to end, in order for investors to
commit to a specified amount of gas.
MR. VAN TUYL noted his agreement with Representative Roses. He
added that the gas only flows down the pipeline if there was an
upfront commitment made to the builder of the pipeline for the
transportation capacity for a period of time. The commitment,
which is a real obligation, had to be made first in order to
allow the gas to flow. Therefore, the two have to be evaluated
in concert, he highlighted.
3:26:42 PM
REPRESENTATIVE WILSON inquired as to whether [the producers]
have ever experienced not having the amount of gas committed.
MR. VAN TUYL said there are always risks on the deliverability,
the ability to actually move gas to the pipeline on a day-to-day
basis. Mr. Van Tuyl confirmed that it has happened for BP, and
said he could obtain statistics for the committee.
MS. KING noted that she has worked for Conoco in the United
Kingdom on the Southern Gas Basin producing known assets. One
winter it was particularly cold in the United Kingdom and there
was an unexpected event that caused the company not to be able
to deliver gas for an extended period of time, even in known
producing fields. However, she said that she didn't have any
collective statistics.
3:28:31 PM
CO-CHAIR GATTO related his understanding that each of the terms
probable, possible, and proven all have an associated number.
He said, "P90 for proven. You're sitting on the gas, you've
pumped it for 20 years, you know it's there, you're allowed to
say it's 90 percent proven." He then posed an assumption that
Prudhoe Bay is 90 percent proven, which he said doesn't sound
like a risk.
MR. VAN TUYL clarified that proven is a term of art with SEC
reserve booking methodology. The resource that is known about
at Prudhoe Bay is not a proven resource, although it's a known
resource. Proven requires certain steps of commerciality.
3:30:06 PM
CO-CHAIR GATTO asked then if the gas moves from known to proven
when the gas is available to be placed in the pipe.
MR. VAN TUYL explained that typically as a project matures, it
would move through the reserve categorization. At the point of
committing funds to develop the project, the SEC or the
company's auditors would view that as a commitment to the
project and sufficient commercial viability since the company is
willing to place more investment into the project. At that
point, the reserve is placed into the proven category, which has
subcategories. Until this point, the resource isn't a proven
resource.
3:31:15 PM
CO-CHAIR GATTO posed a situation in which the producer isn't the
pipeline builder. As the pipeline is being built, the producer
is waiting for the opportunity to bid for the reserves. At that
point, would the producer review all the gas it has determined
to be proven and decide that the FT would be made, he asked.
"Is there some thing that happens at the moment you make your FT
in a pipeline you do not own, you've taken on a responsibility
to pay for the shipment of whatever FT you have but you've also
gained the asset, the bookable reserve," he said.
MR. VAN TUYL pointed out that each company will have its own
thresholds and standards of reserve booking. He said he didn't
know if he could tell the committee definitively when a bookable
reserve would occur in the aforementioned scenario.
3:32:45 PM
MS. KING requested that questions regarding how companies might
view things with respect to making decisions during an open
season be addressed on an individual basis.
MR. VAN TUYL pointed out that an open season is a competitive
process and the [producers] are competitors who need to be able
to act independently and compete.
3:33:27 PM
BILL MCMAHAN, Commercial Manager, Alaska Gas Development Group,
ExxonMobil Corporation, regarding the progression of the booking
of reserves, said that as a project gets closer to startup,
individual companies may become more confident. He said that
one strategy could be to book a portion of the proven reserves
as key milestones are made. For instance, a portion of proven
reserves could be [booked] when the pipeline company makes
commitments in the open season, obtains its permits, or when the
pipeline company sanctions or funds the project. Mr. McMahan
said that he hasn't viewed the booking of the proven reserves in
this project as a singular event as it could be a series of
events.
3:34:42 PM
CO-CHAIR GATTO likened the situation to a funnel in which the
wide part of the funnel says there's no certificate and there's
100 percent uncertainty while the narrow portion of the funnel
says that the certainty is 5 percent. Therefore, at some point
between the 100 percent and 5 percent lies a significant amount
of certainty and the company is willing to book certain amounts.
MR. MCMAHAN noted his agreement with the aforementioned
characterization. As uncertainty narrows, the confidence to
represent the gas resource to the investment community as proven
increases.
3:35:30 PM
REPRESENTATIVE FAIRCLOUGH returned to the matter of cost
fluctuations and FT commitments. With regard to Ms. King's
example in the United Kingdom, Representative Fairclough
inquired as to whether the company has a clause within the
contract addressing acts of God or war that resulted in a
company's inability to move gas that didn't require the producer
to pay the shippers in these instances.
MS. KING said that the agreement in that particular instance is
confidential. However, she offered that force majeure clauses
are typical clauses in some arrangements. She explained that a
pipeline entity is subject to a component of the charge called
the demand charge, which must be paid whether gas is delivered
or not. Ms. King related her anticipation that a pipeline
entity negotiating firm shipping commitment would discuss how to
handle a force majeure event.
3:36:47 PM
REPRESENTATIVE FAIRCLOUGH asked whether a pipeline entity would
negotiate some flexibility in any contract in order to reduce
the risk from the demand clause in case something unforeseen
happened.
MR. VAN TUYL explained that typically on a gas pipeline project
a completion guarantee governs until the pipeline is put into
service. Therefore, the entity that is building the pipeline
has a guarantee to its lenders that the project will be
completed. Until that point, the holders of the FT commitment
aren't binding. Typically, once a project is placed in service
the FT commitment is binding. For example, if the pipeline is
in operation but something happens on the upstream end and the
pipeline entity is unable to deliver gas to the project, the
pipeline entity isn't excused from that obligation to deliver
the gas. However, if there's some reason that the pipeline is
unable to receive gas, that would typically relieve the pipeline
entity of delivering gas until the pipeline is again able to
receive gas. As mentioned earlier, the aforementioned is the
subject of a negotiation between the pipeline company and the
shipper.
3:38:33 PM
REPRESENTATIVE ROSES inquired as to at what point in the process
from reserves, to probables, to known reserves, to an FT
commitment does that commodity become the most valuable for
getting investors to participate in a project.
MR. VAN TUYL opined that the commodity would be most valuable
once it's able to be placed in a market, provided the market
wants to accept that commodity. Therefore, the investment has
been delivered, provided that it has been delivered in a manner
that the commodity can be delivered to the market at a cost
below the price of the commodity.
MS. KING reminded the committee of the testimony she provided on
Monday when she tried to illustrate the gated decision-making
process. Clearly, a critical milestone would be the open
season. She noted that more engineering and environmental
permitting work will continue in parallel with the FERC
certification process. Furthermore, during that time the
pipeline entity will continue to receive updated cost estimates
and more market information. Ms. King said that the question is
a bit unanswerable because there isn't knowledge as to what will
happen in the market. The aforementioned is what she said she
was trying to illustrate with her testimony on Monday. "There's
going to be uncertainties and we're going to do all that we can
in developing a project to try to mitigate those risk and
uncertainties in advance, but you don't know what's going to
happen, for example, to the price of steel or the cost of
labor," she said.
3:41:36 PM
CO-CHAIR GATTO related his understanding that this conversation
is leading to the determination of what the net present value
is. He recalled that Mr. Scott presented a different net
present value than that [of the producers].
MR. VAN TUYL said that his testimony will briefly touch on that.
3:42:16 PM
REPRESENTATIVE ROSES related that his anticipation was that Mr.
Van Tuyl would [specify that the point in the process a
commodity becomes the most valuable for getting investors to
participate in a project] is when the firm commitment is made.
However, he recalled that Mr. Van Tuyl said that's also the
point at which it's classified as the greatest risk.
MR. VAN TUYL confirmed that the point at which there's a firm
transportation is a great risk because the pipeline entity
doesn't know whether it can enter the market and obtain a
sufficient price for the commodity to cover the costs for the
duration of the firm transportation commitment.
REPRESENTATIVE ROSES surmised then that if it is the greatest
asset and potentially the greatest risk, the pipeline entity
would try to maximize the amount put into it in order to
capitalize on the greatest potential asset. Therefore, the
pipeline entity will want to ensure the price is as low as it is
in all aspects in order to minimize the potential risk.
MR. VAN TUYL agreed with Representative Roses, adding that there
are certain things that the pipeline entity can try to control
or at least influence to reduce those risks it can. If the
pipeline entity controls the risks that it can, it increases the
likelihood that the pipeline entity will have a good outcome.
3:43:55 PM
CO-CHAIR GATTO asked if [BP] would care about the risk if it
were the pipeline owner.
MR. VAN TUYL opined that the pipeline owner will want to ensure
that it has customers for a long time in order to have an
expandable project with more customers. Therefore, he opined
that the pipeline owner would want to have a project that
attracts customers. He pointed out that part of the dynamic is
that if an entity is just a pipeline company, the only source of
revenue is from the rate base. Therefore, the pipeline company
is motivated to increase the rate base and the tariff while
ensuring the customers remain. The aforementioned is different
from an entity that wants to maximize the value of the resource,
which would desire the lowest cost project.
3:44:56 PM
CO-CHAIR GATTO surmised then that since this pipeline is
certainly a monopoly pipeline, the builder wouldn't have much of
an interest, except to ensure that it cost quite a bit. He
asked if that would be expected from an entity that is only
building the pipeline.
MR. VAN TUYL answered that as a resource owner [BP] would
certainly have the motivation to deliver a low cost project to
prevent the aforementioned situation. A [resource owner] would
want a low capital and low operating cost project in order to
ensure the value of the resource is maximized over time.
3:45:40 PM
REPRESENTATIVE SEATON highlighted that this exact problem has
occurred with a producer-owned pipeline in TAPS, at least for
the interstate portion.
MR. VAN TUYL responded, "We do want the lowest possible capital
cost project." He then noted that FERC will adjudicate the
rates associated with the project and review the return on
equity and the cost of debt.
3:47:22 PM
REPRESENTATIVE SEATON said he agreed that [the producers] want
the lowest cost project, but whether it's the lowest tariff is a
different discussion. With regard to the portion of risk being
borne by the pipeline company for delays, the risk is on the
pipeline owner and those doing the debt service on the pipeline
because FT doesn't go into effect until the pipeline is in
service.
3:48:28 PM
MR. VAN TUYL returned to his prepared testimony and concluded
the portion addressing the nature of firm transportation
commitments:
And generic statements about treatment of long term
commercial commitments is dangerous. Commitments of
the magnitude required to underpin this project are
massive in both the dollar amount and the likely
duration.
These commitments will create their own weather in the
financial markets - they must be considered.
3:49:21 PM
Point Number Three
The third and final point we wanted to emphasize this
afternoon is that confidence in future cash flows is
very important in evaluating the commercial viability
of any investment decision. That is particularly true
for a commitment as large as the Alaska gas pipeline
project.
Mr. Scott suggested that cash flows beyond 10 years
are effectively inconsequential in financial decision
making on this project That's not true.
3:49:53 PM
CO-CHAIR GATTO interjected that he didn't believe that Mr. Scott
ever used the word "inconsequential" but rather made the point
that it was significantly abbreviated.
3:50:11 PM
MR. VAN TUYL said he would accept Co-Chair Gatto's correction,
but opined that the point stands that the implication was the
focus is on the cash flows for the first 10 years and beyond
that they become less important. The [producers], he related,
don't believe that to be true. Mr. Van Tuyl then returned to
his prepared testimony:
Cash flows further out in time tend to have less
effect on NPV - this is true
But cash impact years into the future will indeed be
real
Many factors are used to evaluate a go - no-go
decision for a project, not just one economic
yardstick like NPV
In evaluating the economics of projects, we look at
many different measures. NPV, IRR and PI are just
some of the measures which are considered.
The ability of a project to generate long-term cash
flow is also an important consideration to investors.
It's important to bear in mind that we expect the FT
commitments we just talked about will be in effect
well beyond 10 years.
So those making long terms commitments want to know
that they'll be able to make good on them. Lenders
will want to know this, too.
3:51:24 PM
REPRESENTATIVE GUTTENBERG inquired as to what Mr. Van Tuyl views
as the duration of the FTs in the first open season in a normal
project versus that of Alaska's project.
MR. VAN TUYL specified that the duration of the FT can vary and
depends upon the project. The Alliance pipeline going from
Alberta into the Chicago area was 15 years for 1.6 billion cubic
feet a day, $3.7 billion project. The Rockies Express pipeline
had a 10-year FT. Because the Alaska project is significantly
larger in the size, cost, and nature of the project, the
expected FT required should be commensurately longer. He said
that he couldn't say with certainty the duration of the FT. He
then highlighted that an important trend to know is that in
general the longer the term of the FT, the lower the risk on the
pipeline. Therefore, the lower the toll charged by the
pipeline. The aforementioned illustrates the benefit to the
shipper to be able to enter into longer FT because of the lower
toll, but that must be weighed against the risk of entering into
that longer commitment.
3:52:51 PM
CO-CHAIR GATTO mentioned that he has a Lukens Energy Group
report by Dr. Jay Lukens, dated June 30, 2005, that includes a
profile showing that from about 0-12 years, it's a 100 percent
and from 12-15 years, it's 97 percent. He noted that it's a 4.3
bcf Alaska gas reserve profile. Therefore, he surmised that
[the duration of the FT] would be at least 15 years.
3:53:54 PM
MR. VAN TUYL continued with his prepared remarks:
Let's consider this point from a different
perspective.
When making a decision to purchase a home that you
know you'll live in for 30 years, will the interest
rate on your mortgage still matter after 10 years? I
think it will.
Will the property tax assessment no longer matter
after 10 years? Or the property tax rate?
They certainly will matter, because cash generation is
an important factor in personal budgeting, just as it
is to a major corporation in making an investment
decision.
Getting this project right has enough challenges of
its own, let alone when we have such fundamental
disagreement with how the project is characterized.
Thank you for the opportunity to share these concerns
with you.
As I mentioned at the start, we have many other
concerns with Mr. Scott's testimony, but I've limited
these remarks this afternoon to these three areas.
That concludes the testimony prepared by BP,
ConocoPhillips and ExxonMobil unless Wendy or Bill
have anything to add. The three of us would be happy
to answer any questions
3:55:19 PM
MR. MCMAHAN said that he wanted to reinforce what Mr. Van Tuyl
has shared in regard to Mr. Scott's analysis. With regard to
the TAPS tariff dispute, Mr. McMahan said that the difference
between the proposed gasline and TAPS is that TAPS is complete
and running now. Therefore, the cost of TAPS is known. The
owners of TAPS are simply trying to receive the return on their
agreed upon investment. He acknowledged that it's
understandable that shippers on TAPS would like a lower tax,
which is what they're requesting. The FERC has been given the
authority to settle this difference of opinion. Mr. McMahan
said that the focus thus far on lowest possible cost is because
the Alaska gasline hasn't yet been built.
3:56:37 PM
CO-CHAIR GATTO related his understanding that Mr. McMahan is
referring to the TAPS settlement methodology. Under that
methodology, the RCA would determine the tariff if the pipe were
completely within the state and the product didn't leave the
state.
MR. MCMAHAN said that is his understanding as well.
3:57:08 PM
CO-CHAIR GATTO further related his understanding that the oil
goes to Valdez and if it's used in the state the tariff is $2
whereas if the oil is placed on a boat, the tariff is over $5.
The aforementioned is a huge discrepancy, which certainly
impacted those who didn't own the pipeline but wanted to ship
oil. He related his belief that the state is one of those
entities. He related his understanding that the aforementioned
hasn't been decided, but will be decided by FERC.
MR. MCMAHAN said that's correct.
3:58:07 PM
MS. KING added that [the producers] will further expand on its
comments if allowed to do so in future committees.
3:59:09 PM
MS. KING said that the three points brought before the committee
today are the areas of focus. She then turned to the issue of
reserves and highlighted that one of the critical issues will
always be the deliverability of those reserves. The gas in the
ground is different than the rate at which the gas can be
produced. Therefore, assumptions and decisions will have to be
made in relation to the 20- to 25-year shipping commitments
being contemplated. Furthermore, the lead time is substantial.
4:01:14 PM
REPRESENTATIVE ROSES recalled that one witness today testified
that AGIA is a joke as there aren't enough reserves and by the
time the gas is pumped in the pipeline to get the oil out, it's
a waste of time and money. He asked if the producers would care
to comment.
4:01:41 PM
MR. VAN TUYL said that the producers don't share that view. The
producers committed $125 million to advance the project and
demonstrate sufficient confidence that the producers would be
able to get the gas to market. He said that the producers
continue to be encouraged about the prospects of this project
being able to deliver this gas to market. He mentioned those at
BP like to talk about a 50-year future, which is only possible
if Alaska's gas goes to market. Furthermore, BP believes the
aforementioned is possible and thus it makes a lot of other
things possible, such as developing heavy oil on the North Slope
and extending the life of TAPS. Therefore, [the producers] are
absolutely committed to getting Alaska's gas to market while
recognizing the regulatory hurdles.
4:03:35 PM
MS. KING drew attention to her previous testimony and reminded
the committee that ConocoPhillips worked very hard since 2000 to
advance the gasline project. ConocoPhillips, she related,
believes there is potential value in this project and want to
continue to pursue that. However, ConocoPhillips doesn't
believe the project is without risk as there are no guarantees
in regard to the project economics. Still, ConocoPhillips is
continuing to work to advance the gasline project.
4:04:10 PM
REPRESENTATIVE SEATON recalled that most of [ConocoPhillips']
testimony has been about upstream in the aspects of AGIA. He
further recalled testimony that the royalty inducements and the
90-day switching from royalty in-value to royalty in-kind is
problematic for [the producers]. Therefore, there was some
discussion of doing royalty in-value with the guarantee that the
producers would supply to in-state residential and commercial
markets. Representative Seaton asked if that's something in
which the producers are still interested.
MR. VAN TUYL said that [BP] is interested in pursuing any means
that is mutually agreeable to mitigate those risks. He
emphasized that switching from royalty in-value to royalty in-
kind is incompatible with the long-term contracts required as
well as the purchase and sell agreements.
MS. KING confirmed that [ConocoPhillips] wants to continue to
find a way to work the entire area of the resource inducements
prior to an open season. Therefore, the producers would like to
continue a conversation with the governor and the legislature on
this matter.
4:06:46 PM
REPRESENTATIVE SEATON commented that the high side of in-state
use on residential and commercial would probably be .3 bcf. He
then highlighted that many portions of AGIA ensure that there is
gas for in-state use. He asked if the producers view the
elimination of the switching with the assurance that the
producers would supply the in-state gas at distance-sensitive
rates as beneficial.
MR. MCMAHAN said that this example highlights the need to make
AGIA objective driven. If the [producers] understand the
state's needs through AGIA, then that will free up the
applicants to propose innovative ways to meet the state's needs.
Given that freedom, it would be possible for an applicant to
address the concerns with switching and its incompatibility with
FT commitments while addressing the state's need for ensuring
gas is available and deliveries are made in state.
4:09:31 PM
REPRESENTATIVE SEATON surmised then that from ExxonMobil's
perspective, the switching is problematic.
MR. MCMAHAN replied yes.
4:10:08 PM
CO-CHAIR GATTO related his understanding that when gas is
shipped down the pipe and the state takes it as in-kind, there
is space, a vacuum, going down the line. He inquired as to what
happens to that available space for new gas.
MR. MCMAHAN responded that it depends on when the gap occurs.
If it's known going into the open season that the state is going
to take gas in-kind and deliver it to an in-state market, then
the pipeline constructor will be able to design the pipe
downstream of that point so that there isn't an unused portion
of capacity. However, if that in-state delivery materializes
after the design and construction of the pipeline, then there
could be some unused capacity downstream of that point and for
which there would need to be payment. The lenders who will loan
the money to build this project will need to be paid for the
entire line.
4:11:47 PM
CO-CHAIR GATTO surmised then that a pipeline builder would
prefer that there not be any offtakes.
MR. MCMAHAN replied no, the pipeline builder would prefer to
know the location and the volume of the offtakes in order to
design the pipeline to match that service.
MR. VAN TUYL pointed out that the Alaska Natural Gas Pipeline
Act actually envisions an in-state use study to be conducted
prior to the initial open season, presumably to design the
pipeline appropriately and avoid the aforementioned situation.
4:12:47 PM
CO-CHAIR GATTO said he would guess that the size of the pipe
wouldn't change following an offtake.
MR. VAN TUYL answered that it would depend on the magnitude of
the offtake. Typically, an offtake could be accommodated with
the design of the compression system downstream. He said that
there could be a smaller diameter pipe, if there's a significant
change in the offtake.
CO-CHAIR GATTO related his understanding that the administration
wants to write regulations such that the larger the offtake, the
longer lead time companies would have for switching. Co-Chair
Gatto expressed concern with the amount of offtake.
4:13:47 PM
REPRESENTATIVE SEATON recalled that discussions about the
previous package generally considered allowing for future growth
in use will probably amount to about .3 bcf for all residential
and commercial in-state use. However, that doesn't include
something like Nikiski LNG or Agrium or another industry. The
chief concern, he opined, in AGIA is to ensure that commercial
and residential uses are covered.
MS. KING said that those order of magnitude figures are
consistent with some of the previous studies. She reminded the
committee that FERC will require an in-state needs study prior
to an open season in order to address services of in-state
needs.
4:15:10 PM
CO-CHAIR GATTO, upon determining no one else wished to testify,
announced that public testimony is closed.
4:15:27 PM
REPRESENTATIVE EDGMON posed a situation in which the legislation
is passed, signed by the governor, and is fairly similar to the
legislation as it stands today. He surmised that such a
situation would be unacceptable to the producers and they won't
be able to participate. Therefore, he questioned where such a
situation would leave the producers.
MR. VAN TUYL said if CSHB 177(O&G) passes, BP wouldn't be in a
position to submit a bid. He reminded the committee that BP, in
its testimony, has highlighted the chief concerns it has that
would need to be addressed to place BP in a position of
submitting a bid. Mr. Van Tuyl emphasized that BP hopes that
the legislation will arrive in a structure that will allow BP to
submit a bid because BP wants to be able to submit a bid. He
related that the company will be focused on getting the
legislation in a structure that allows the maximum chance for
the construction of a gasline.
4:17:44 PM
REPRESENTATIVE EDGMON asked whether his characterization of
fundamental differences is an overstatement.
MR. MCMAHAN confirmed that there are fundamental differences
with CSHB 177(O&G). As currently drafted, AGIA is very
prescriptive in the way in which the state expects a proposal to
be tabled. Mr. McMahan noted his agreement with Mr. Massey's
earlier testimony that AGIA in its current form actually limits
competition. Therefore, Mr. McMahan recommended the
substitution of less prescriptive legislation that clearly lays
out the objectives the state has, invites applicants to propose
how to best meet those objectives, and specifies selection
criteria that the state will use to determine which applicant
best meets the state's objectives.
4:19:08 PM
CO-CHAIR GATTO recalled that Ms. King suggested use of the term
"bid variables" rather than "must-haves." He opined that "bid
variables" sounds completely like the previous administration's
goal of having the [applicants] tell the state what they need
and the state giving it to [the applicant]. Co-Chair Gatto
identified the aforementioned as the problem. The very issue is
that the "must haves" are very tolerable, although they do limit
the competition in some ways. The legislature wants a pipeline,
he stressed. He then related his expectation that an
independent company will have the most interest in the gasline.
The producers, he opined, seem to be saying that they might not
bid, but fall short of saying that they won't bid. He then
highlighted the magnitude of this project in terms of importance
to Alaska and the country as a whole. Co-Chair Gatto begged the
producers to not give up on this project. He informed everyone
that the committee would consider amendments on Monday and as of
yet he hasn't received any from the producers. He mentioned his
hope that the producers will provide some amendments Monday.
Co-Chair Gatto then passed out amendments to the committee.
[HB 177 was held over.]
4:24:29 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 4:24 p.m.
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