Legislature(2015 - 2016)JNUCAP124
04/08/2015 02:05 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB105 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 8, 2015
2:05 p.m.
MEMBERS PRESENT
Representative Benjamin Nageak, Co-Chair
Representative David Talerico, Co-Chair
Representative Mike Hawker, Vice Chair
Representative Bob Herron
Representative Craig Johnson
Representative Kurt Olson
Representative Paul Seaton
Representative Andy Josephson
Representative Geran Tarr
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 105
"An Act relating to the programs and bonds of the Alaska
Industrial Development and Export Authority; related to the
financing authorization through the Alaska Industrial
Development and Export Authority of a liquefied natural gas
production plant and natural gas energy projects and
distribution systems in the state; amending and repealing bond
authorizations granted to the Alaska Industrial Development and
Export Authority; and providing for an effective date."
- MOVED CSHB 105(RES) OUT OF COMMITTEE
HOUSE BILL NO. 112
"An Act repealing the Alaska Commercial Fisheries Entry
Commission and transferring its duties to a commercial fisheries
entry division established in the Department of Fish and Game
and the office of administrative hearings; and providing for an
effective date."
- BILL HEARING POSTPONED
HOUSE BILL NO. 38
"An Act relating to the rapid response to, and control of,
aquatic invasive species and establishing the aquatic invasive
species response fund."
- SCHEDULED BUT NOT HEARD
HOUSE JOINT RESOLUTION NO. 20
Urging the United States Congress to enact legislation to
clarify and recognize each individual state's authority to
manage the fish and wildlife within its borders.
- BILL HEARING POSTPONED
HOUSE CONCURRENT RESOLUTION NO. 6
Proclaiming July 2015 to be Alaska Peony Month.
- BILL HEARING POSTPONED
PREVIOUS COMMITTEE ACTION
BILL: HB 105
SHORT TITLE: AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/11/15 (H) READ THE FIRST TIME - REFERRALS
02/11/15 (H) ENE, RES, L&C, FIN
02/17/15 (H) ENE AT 10:15 AM BARNES 124
02/17/15 (H) Heard & Held
02/17/15 (H) MINUTE(ENE)
02/24/15 (H) ENE AT 10:15 AM CAPITOL 17
02/24/15 (H) Moved CSHB 105(ENE) Out of Committee
02/24/15 (H) MINUTE(ENE)
02/25/15 (H) ENE RPT CS(ENE) 7DP
02/25/15 (H) DP: NAGEAK, WOOL, TILTON, TALERICO,
CLAMAN, COLVER, VAZQUEZ
03/09/15 (H) RES AT 1:00 PM BARNES 124
03/09/15 (H) Heard & Held
03/09/15 (H) MINUTE(RES)
03/14/15 (H) RES AT 1:00 PM BARNES 124
03/14/15 (H) -- Continued from 3/13/15 Meeting --
03/25/15 (H) L&C REFERRAL REMOVED
04/06/15 (H) RES AT 1:00 PM BARNES 124
04/06/15 (H) Heard & Held
04/06/15 (H) MINUTE(RES)
04/08/15 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
FRED PARADY, Deputy Commissioner
Office of the Commissioner
Department of Commerce, Community & Economic Development (DCCED)
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 105, answered
questions on behalf of the administration, sponsor of the bill.
GENE THERRIAULT, Energy Policy and Outreach Director
Alaska Energy Authority (AEA)
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 105, answered
questions on behalf of the administration, sponsor of the bill.
RENA DELBRIDGE, Staff
Representative Mike Hawker
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 105, answered
questions.
JULIE MORRIS, Staff
Representative David Talerico
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 105, answered
questions.
ROBERT PICKETT, Commissioner
Regulatory Commission of Alaska (RCA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 105, answered
questions.
JOHN SPRINGSTEEN, Executive Director
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 105, answered
questions on behalf of the administration, sponsor of the bill.
JAMES HEMSATH, Director
Project Development and Asset Management
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 105, answered
questions on behalf of the administration, sponsor of the bill.
ACTION NARRATIVE
2:05:44 PM
CO-CHAIR DAVID TALERICO called the House Resources Standing
Committee meeting to order at 2:05 p.m. Representatives Herron,
Hawker, Tarr, Johnson, Olson, Seaton, Josephson, Nageak, and
Talerico were present at the call to order.
HB 105-AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT
2:06:14 PM
CO-CHAIR TALERICO announced that the first order of business is
HOUSE BILL NO. 105, "An Act relating to the programs and bonds
of the Alaska Industrial Development and Export Authority;
related to the financing authorization through the Alaska
Industrial Development and Export Authority of a liquefied
natural gas production plant and natural gas energy projects and
distribution systems in the state; amending and repealing bond
authorizations granted to the Alaska Industrial Development and
Export Authority; and providing for an effective date." [Before
the committee was CSHB 105(ENE).]
2:06:44 PM
REPRESENTATIVE HAWKER moved to adopt Amendment 1, labeled 29-
GH1019\H.9, Shutts, 4/7/15, which read:
Page 1, line 2:
Delete "related"
Insert "requiring the Alaska Industrial
Development and Export Authority to deliver to the
legislature reports relating to the Interior energy
project; relating"
Page 5, following line 14:
Insert a new bill section to read:
"* Sec. 8. The uncodified law of the State of
Alaska is amended by adding a new section to read:
REPORT. (a) The Alaska Industrial Development and
Export Authority shall submit quarterly to the
legislature a written report on the Interior energy
project. The authority shall deliver the report to the
senate secretary and the chief clerk of the house of
representatives and notify the legislature that the
report is available. The report must include
(1) a description of project progress on all
components;
(2) an update on the status of local
distribution infrastructure buildout;
(3) to-date and anticipated conversions; and
(4) a financial accounting of funds
expended and funds anticipated to be spent, including
loans, grants, and bonds.
(b) If requested, the Alaska Industrial
Development and Export Authority shall provide a
project briefing on the Interior energy project to the
Legislative Budget and Audit Committee."
Renumber the following bill section accordingly.
REPRESENTATIVE TARR objected for purposes of discussion.
2:07:02 PM
REPRESENTATIVE HAWKER first provided an explanation for all of
the amendments that he will be offering. He assured members and
the public that he stands behind the commitment the legislature
made over the recent years to dedicate efforts to providing
energy cost relief to the people of Interior Alaska. The
legislature has made this issue a priority and has dedicated
substantial financial resources to it, and it is a good public
policy that the legislature needs to stay with. Legislative
bills are proposals of policy and bills draw policy boxes around
things. A bill is introduced so it can be discussed publically
in a manner that allows thinking about it and its consequences
and legislators can decide whether it is a policy to be taken.
The Interior Energy Project (IEP), [with its goal of] providing
energy cost relief to the citizens of Interior Alaska, is very
complicated. The state's commitment of several years ago has
apparently been determined unworkable and now legislators are
looking at redefining that commitment and how to manifest that.
His personal policy in approaching these sorts of things is that
the legislature's job is to draw a box around the policy that it
wants; the legislature provides the parameters around how it
wishes the policy to be developed and executed. He said he is
very concerned that legislators do not micromanage what goes on
inside that box as it generally has unintended consequences.
The amendments he is offering are about defining that policy
box, not micromanaging within that box, legislators are charging
the agency with figuring out what goes on inside the box. These
"do no harm amendments" define the parameters, the borders, that
legislators want the Alaska Industrial Development and Export
Authority (AIDEA) and the Interior Energy Project (IEP) to
operate within.
2:10:46 PM
REPRESENTATIVE HAWKER addressed Amendment 1, saying it is about
preserving the legislature's power of appropriation. The
legislature's ultimate authority is to make the policy calls and
to commit the state's financial resources, he said. But before
doing that the legislature needs to know what it is buying
before writing those checks, and the legislature needs to know
how many more checks will need to be written before the project
is over. To that end Amendment 1 adds a legislative sanctioning
requirement before AIDEA can access the sustainable energy
transmission and supply development (SETS) bonding authorization
that was provided previously to the North Slope gas trucking
project and the bonding authorization that remains in HB 105.
The committee took an at-ease from 2:11 p.m. to 2:12 p.m.
REPRESENTATIVE HAWKER continued addressing Amendment 1, stating
it is about good governance by requiring that the project submit
quarterly reports to the legislature on the progress of the
project, including an ongoing financial accounting. It provides
specific authority for the Legislative Budget and Audit
Committee to request and hold hearings as necessary to review
the project's progress so the legislature can exercise its due
diligence in monitoring the project.
2:13:12 PM
REPRESENTATIVE SEATON observed that the explanatory notes in the
committee packet state that Amendment 1 paves the way for the
Legislative Budget and Audit Committee to hold hearings as
necessary to review AIDEA's progress. He further observed that
page 1, lines 9-21, of Amendment 1 provide for the reporting to
the Legislative Budget and Audit Committee. He said the
amendment language does not appear to give that committee the
authority to change anything, but such authority seems to be
implied in the wording that describes the amendment.
REPRESENTATIVE HAWKER read page 1, lines 19-21, of Amendment 1:
"(b) If requested, the Alaska Industrial Development and Export
Authority shall provide a project briefing on the Interior
energy project to the Legislative Budget and Audit Committee."
He said that language is all there is, there is no more.
REPRESENTATIVE SEATON requested that the sponsor of HB 105 be
able to come forward to talk to the proposed amendment.
FRED PARADY, Deputy Commissioner, Office of the Commissioner,
Department of Commerce, Community & Economic Development
(DCCED), replied that Amendment 1 is straight forward and
continues the ongoing and vital communication that {AIDEA] has
been having with the legislature and this committee, so it is
appreciated.
2:15:48 PM
REPRESENTATIVE TARR observed that in the amendments the words
"energy project" are not capitalized in the phrase "Interior
energy project". She surmised this could be interpreted to be a
little broader than a specific project. For example, in the
PowerPoint presentation before the committee it was named
"Interior Energy Project" as if it is a specific thing. She
asked whether this is something that matters or is of concern.
GENE THERRIAULT, Energy Policy and Outreach Director, Alaska
Energy Authority (AEA), Alaska Industrial Development and Export
Authority (AIDEA), Department of Commerce, Community & Economic
Development (DCCED), responded he doesn't think so, especially
because this is intent language and is not written right into
the codified section of the statute. The Interior Energy
Project, while focused on that core demand within the Fairbanks
North Star Borough (FNSB), was always intended to serve the
larger geographic area of Interior Alaska. Until the economics
work on that core demand, however, it is going to be that much
more challenging to serve any of the communities up and down the
highway system or on the river system because they move together
as one. First, that core demand justifies the very expensive
infrastructure, and then working the economics so that it can
spread beyond the Fairbanks North Star Borough.
2:17:22 PM
REPRESENTATIVE TARR removed her objection to Amendment 1. There
being no further objection, Amendment 1 was adopted.
2:17:40 PM
CO-CHAIR TALERICO moved to adopt Amendment 2, labeled 29-
GH1019\H.5, Shutts, 4/4/15, which read:
Page 1, following line 7:
Insert a new bill section to read:
"* Section 1. The uncodified law of the State of
Alaska is amended by adding a new section to read:
LEGISLATIVE INTENT. It is the intent of the
legislature that the financing authorized in sec. 6 of
this Act be used only for the Interior energy project
described in sec. 6 of this Act."
Page 1, line 8:
Delete "Section 1"
Insert "Sec. 2"
Renumber the following bill sections accordingly.
REPRESENTATIVE HAWKER objected for purposes of explanation.
2:17:54 PM
CO-CHAIR TALERICO explained that his intent with Amendment 2 is
to "have a very clear definition in Section 6 of absolutely what
this legislation intends for us to do." Amendment 2 makes it
very clear to AIDEA and to this committee "exactly what we would
be doing with this legislation."
REPRESENTATIVE HAWKER removed his objection to Amendment 2.
2:18:31 PM
REPRESENTATIVE SEATON objected to Amendment 2 for purposes of
discussion. He requested the sponsor of the legislation to
address the amendment.
MR. THERRIAULT queried whether Amendment 2 should say Section 5
instead of Section 6, pointing out that Section 6 in bill
version 29-GH1019\H, which came out of the House Special
Committee on Energy, deals with a partially used bond
authorization.
RENA DELBRIDGE, Staff, Representative Mike Hawker, Alaska State
Legislature, offered her belief that Amendment 2 is drafted
correctly because, first, a new Section 1 is being inserted
which then renumbers all of the other sections, and therefore
Section 5 of 29-GH1019\H becomes Section 6 in Amendment 2.
JULIE MORRIS, Staff, Representative David Talerico, Alaska State
Legislature, added that it was semantics.
MR. THERRIAULT, given the explanation and that Amendment 1 was
adopted, agreed that Amendment 2 is drafted correctly.
REPRESENTATIVE HAWKER clarified that Amendment 1 had no effect,
each amendment stands on its own. He said it is the inserting
of a new bill section in Amendment 2 that causes the shift from
Section 5 to Section 6.
MR. PARADY noted there is no intent to use the tools of Senate
Bill 23 [passed in 2013 by the Twenty-Eighth Alaska State
Legislature] for a project other than the IEP; Amendment 2 is
straight forward.
2:21:14 PM
REPRESENTATIVE SEATON removed his objection to Amendment 2.
There being no further objection, Amendment 2 was adopted.
2:21:45 PM
REPRESENTATIVE HAWKER moved to adopt Amendment 3, labeled 29-
GH1019\H.7, Shutts, 4/7/15, which read:
Page 1, following line 7:
Insert a new bill section to read:
"* Section 1. AS 42.05.711(b) is amended to read:
(b) Except as otherwise provided in this
subsection and in (o) of this section, public
utilities owned and operated by a political
subdivision of the state, or electric operating
entities established as the instrumentality of two or
more public utilities owned and operated by political
subdivisions of the state, are exempt from this
chapter, other than AS 42.05.221 - 42.05.281 and
42.05.385. However,
(1) the governing body of a political
subdivision may elect to be subject to this chapter;
[AND]
(2) a utility or electric operating entity
that is owned and operated by a political subdivision
and that directly competes with another utility or
electric operating entity is subject to this chapter
and any other utility or electric operating entity
owned and operated by the political subdivision is
also subject to this chapter; this paragraph does not
apply to a utility or electric operating entity owned
and operated by a political subdivision that competes
with a telecommunications utility; and
(3) a natural gas distribution system and
affiliated infrastructure that provides natural gas to
Interior Alaska and receives financing through the
Alaska Industrial Development and Export Authority
sustainable energy transmission and supply development
fund (AS 44.88.660) is subject to this chapter."
REPRESENTATIVE TARR objected.
2:21:52 PM
REPRESENTATIVE HAWKER stated Amendment 3 is an amendment about
consumer protection. It specifically subjects the Interior
Energy Project to rate regulation under the Regulatory
Commission of Alaska (RCA). He explained this is being done
because both AIDEA and the Interior Gas Utility (IGU) are
political subdivisions of the state and, as such, would be
automatically exempt from rate regulation without Amendment 3.
Alaska has a provision in law that generally exempts these
political subdivision entities from rate regulation because when
the public has an issue with a publically-owned entity - say, a
utility managed by a city council - the public can take it up at
the next election by replacing the city council. That is how
consumers can weigh in and protect themselves from a political
management standpoint. However, this very complicated project
is incredibly confusing and the outcome is very uncertain. The
RCA is a quasi-judicial deliberative body responsible for
weighing the facts and ensuring that the public is properly
protected. Currently involved in this Interior Energy Project
is a letter of intent from AIDEA to acquire Fairbanks Natural
Gas (FNG). Testimony from AIDEA is that it doesn't intend to
become a gas company, but will transfer that off to IGU.
However, there is no letter of intent with IGU so as to know
what that is going to look like or how it is going to work.
[The legislature] is affecting the lives of all those citizens
in Fairbanks and North Pole who are going to be dependent upon
these utilities. If AIDEA hands FNG off to IGU it is unknown
what the terms and costs will be, what the cost recovery will
require, and what burden will be placed on the ratepayers.
2:24:57 PM
REPRESENTATIVE HAWKER continued addressing Amendment 3, stating
it is unknown who will be operating the utility. What if the
transaction falls through and AIDEA ends up owning the utility
and it is going to be run by the State of Alaska? What are the
intentions of AIDEA going to be and what is the state's
experience and qualifications to run a public utility? These
questions need to be answered in the process of making the
Interior Energy Project real. However, the magnitude of these
questions and the uncertainty warrants the absolute protection
of the ratepayer that could be provided by the quasi-judicial
oversight of the RCA. These utility customers cannot weigh in
and un-elect the folks at AIDEA like they can do with their
local utility. Additionally, IGU is going to serve a number of
different political subdivisions of the state, so it is not
going to be a situation where a particular subdivision can weigh
in and influence the management of IGU should this project be
handed off to IGU. This consumer protection oversight from the
RCA is to protect ratepayers. The mission of these particular
utilities, through a very complicated section of the law, is to
ensure that the rates charged to those customers are just and
reasonable. That is why there is the RCA and why the RCA
regulates most of the large utilities around the state. Because
IGU is a brand new utility the operator is unknown and there is
no cash flow, so IGU must incur debt for every bit of buildout
that it has. The customers who are going to be affected by all
of these very uncertain items need to have a protective umbrella
to ensure the greatest possible protection government can
provide. Government is doing its best to step in and provide
the energy project on one side of the coin, and it must not be
forgotten that this is going to affect the lives of real people.
In the effort to get less expensive gas to those folks, it is
not wanted to actually end up costing those folks more than
they've got now. Therefore, he has the greatest confidence
that, at this time, imposing RCA rate regulation on the Interior
Energy Project is in the best interest of the consumers in
Fairbanks and legislators as policy makers.
2:28:44 PM
REPRESENTATIVE SEATON requested Mr. Robert Pickett of the RCA to
address the aforementioned.
ROBERT PICKETT, Commissioner, Regulatory Commission of Alaska
(RCA), Department of Commerce, Community & Economic Development
(DCCED), stated the RCA has not taken a position on HB 105 or
any of the amendments at this point.
REPRESENTATIVE SEATON inquired how RCA's regulation of the
Interior Energy Project, AIDEA or a state-owned entity, or
another entity would work, and what the timeframes would be in
those regulatory matters.
MR. PICKETT answered the RCA does not regulate the Interior
Energy Project, it regulates certificated utilities. At this
point in time in Fairbanks there is Fairbanks Natural Gas (FNG),
which has been certificated since the mid-1990s. More recently
there is the Interior Gas Utility (IGU) - it was a contested
proceeding that was concluded in December 2013. He said he must
be somewhat cautious at this point because the RCA has two open
docketed matters with Fairbanks Natural Gas which is becoming
economically regulated for the first time. There is an open
docket with a procedural schedule and a discovery in process and
there is a liquefied natural gas (LNG) purchase agreement
between Harvest and Fairbanks Natural Gas. He said this is a
policy question for the legislature to make. The RCA is a
creation of the legislature through AS 42.05.06 and 42.05.08 and
the RCA will do whatever it is directed.
REPRESENTATIVE SEATON understood, then, that the RCA is
currently regulating or has dockets on regulation of the two
utilities.
MR. PICKETT corrected Representative Seaton's statement, stating
the RCA has two dockets on one of the utilities. During its
certification proceedings, IGU had a list of things that it
wanted attached to its certificate, one of which was to be rate
regulated. The RCA pointed IGU to AS 42.05.711(b) and the fact
that as a municipally-owned utility IGU would specifically have
to petition the RCA to be rate regulated. In its final order
the RCA indicated that IGU would need to file a tariff with the
RCA no later than April 1, 2015, to meet IGU's schedule, but
that did not happen. So, at this point, IGU is not economically
regulated.
2:31:56 PM
REPRESENTATIVE SEATON asked about the timetable and how the
distribution of natural gas would be affected and handled if the
utility is not yet economically regulated and Amendment 3 is
adopted.
MR. PICKETT replied that the utility, once it decides it needs
to be rate regulated, will have to make a filing with the RCA.
He said it is very challenging when starting a new utility from
the ground up. There are always concerns about a small customer
base, large capital expenditure, and how to work that out so it
doesn't become too burdensome for individual ratepayers who sign
up early. There are different mechanisms to use. One case in
point is Goat Lake Hydro in Southeast Alaska, which in the late
1990s created essentially a rate stabilization fund. Given the
number of customers and the amount of capital expenditures for
the dam, things needed to be stretched out until everybody was
on line and so it wouldn't present huge rate shock to the
ratepayers. The ball is going to be in the courts of the IEP
and IGU as far as what their buildout plan is and what kind of a
case they can present.
REPRESENTATIVE SEATON recalled that [in a previous committee
meeting] AIDEA talked about a 40-year payback on the pipe
distribution system, whereas Homer had a 10-year payback. He
inquired whether that fits in with the RCA's guidelines.
MR. PICKETT responded he doesn't see that as an issue because
different utilities have different debt structures. Any of the
bigger utilities will probably have 10-15 different tranches of
debt, all at different terms and interest rates and some as long
as 30 years.
2:34:48 PM
REPRESENTATIVE TARR, in regard to whether this would in fact be
a consumer protection measure, asked whether the opposite could
be true based on the financing and that it could result in the
earlier ratepayers paying more because there would be so many
expenses for the early part of the project and those expenses
not being spread out more evenly.
MR. PICKETT answered that is what he was referring to when he
mentioned a rate stabilization fund. In some fashion the rates
for the people who sign up early are going to need to be
stabilized either through some AIDEA mechanism and through the
loan proceeds, or through some formalized rate stabilization
fund in the case of an entity that has a capital structure of
100 percent coming from the proceeds. It would just be how long
to stretch that out, what amount, and whether the projections
for the buildout are realistic since people will not sign up
otherwise.
2:36:15 PM
REPRESENTATIVE OLSON inquired whether there has been any
dialogue between the board of the Alaska Gasline Development
Corporation (AGDC) and the RCA commissioners, or possibly an
open docket regarding whether the RCA would have potential
jurisdiction over [IGU].
MR. PICKETT replied the RCA doesn't have jurisdiction over
Interior gas at this point. The statute is clear on that and
[IGU] has made no election to have the RCA exercise any
jurisdiction. That was somewhat different than what the
representations were during the contested hearing, but that's
certainly within the right of IGU and the Fairbanks North Star
Borough.
REPRESENTATIVE OLSON clarified his question was whether there
was any dialogue between the RCA commissioners and AGDC's board
on that issue.
MR. PICKETT answered no, not that he is aware of.
2:37:23 PM
MR. PARADY voiced his concerns with Amendment 3, saying that
they rest in the good faith that everyone has while working to
make this project work. It is found in the existing statute on
line 9 of Amendment 3, which states: "(1) the governing body of
a political subdivision may elect to be subject to this
chapter". The Fairbanks North Star Borough (FNSB) is the owner
of the Interior Gas Utility (IGU) and [FNSB] has the ability
under existing statute to seek rate regulation if it is in the
best interest of its taxpayers and citizens. The aforementioned
RCA docket was adjudicated on December 20, 2013, and it states
specifically that the governing body of a political subdivision
may subject itself to regulation under AS 42.05. The statute
states that an election to be subject to AS 42.05 must be made
by the governing body of the subdivision. In the current
instance the governing body is the FNSB Assembly. No ordinance
has been passed by FNSB, therefore under the operation of the
statute IGU is exempt from regulation at this point in time.
The reason that is worth considering is that state legislative
protection is being offered to local government who already
holds the power to provide that protection within its hands.
The maker of the amendment opened his comment noting that the
political subdivision retains the ability to control its utility
rates. That remains true - [FNSB] has the ability to control
IGU. He offered his belief that government governs best that
governs closest to the problem at hand. He said his concerns
with the amendment are that it treats the natural gas
distribution system in Fairbanks North Star Borough differently
than the rest of the state because that statutory provision that
provides for the local borough assembly to elect this option
exists, and exists today, and will still exist into the future.
A complicated regulatory process through the RCA is being added,
when in the startup of this utility there is the issue of
patient capital, low number of customers, and long-term high
capital costs at the beginning, and this would put that through
another filter with the RCA when local government is well
positioned to handle it. The request for RCA regulation is
within the authority of the existing statute and the existing
authority of the Fairbanks North Star Borough Assembly, and
therefore the question that has been raised is addressed in the
current configuration.
2:40:05 PM
REPRESENTATIVE JOSEPHSON asked how Senate Bill 23, passed nearly
unanimously in 2013, treated this question of the trucking
scheme.
REPRESENTATIVE HAWKER recollected that it simply authorized the
investment in that project. Since it was never the subject of a
full legislative process where policy is proposed in legislation
such as this it was never fully vetted, and the Senate Bill 23
amendment was silent on that matter. Senate Bill 23 also did
not contemplate the state, through a state agency, owning a
public utility as in AIDEA owning a company like FNG.
2:41:16 PM
REPRESENTATIVE SEATON stated he is somewhat disturbed by this
because the legislature has been trying to get a gas project
going on a fairly rapid basis to supply the Interior. Given
what was heard from the RCA as well as the complexity, this
could put a big damper on being able to move forward because it
would require some kind of a [sinking] fund or some means to
assure ratepayers that they are not going to be artificially
paying more early on due to the utility having 100 percent debt.
He said he doesn't understand this process well and needs more
information from Fairbanks and others as to how they could
structure this to work and not delay the project. Injecting
another entity into the middle, he said, may not serve the
legislature's purpose of trying to accelerate more reasonable-
cost energy to the Interior.
CO-CHAIR TALERICO inquired whether Mr. Pickett has a comment
regarding the aforementioned.
MR. PICKETT answered that, in some fashion, there is going to be
some mechanism to mitigate rate shock, whether that be through a
fund that is originally funded through loan proceeds or some
mechanism that AIDEA, in the absence of any RCA involvement, is
going to have to figure out.
2:43:56 PM
REPRESENTATIVE TARR, regarding a rate stabilization fund,
surmised that that would only be if Amendment 3 went through and
that it would be a mechanism used through RCA regulation.
MR. PICKETT replied it would be a potential mechanism to look
at. The RCA would look at the entire package and how AIDEA has
structured the financing deal and what is and is not feasible.
REPRESENTATIVE TARR asked whether the possibility exists that
that would be disallowed, that the process would get to a point
where the RCA would say no to that because the financing was too
long term or not enough people or some other factor that would
should show not enough stability.
MR. PICKETT responded the RCA "has already made its finding in
terms of the CPC and in terms of fit, willingness, and ability."
A big part of that was the commitment the legislature had made
through [Senate Bill 23] and also the representations made by
the Fairbanks North Star Borough that at the end of the day it
realizes it is the owner of the utility and will do what it
needs to do to make this a success. Obviously, AIDEA has a
disproportionate influence on this because it is going to be the
funding source and is going to lay out the terms of the
financing, when it is supposed to be paid back, and what portion
may be soft or not as soft. Therefore, AIDEA will be a major
driver in this whole thing, regardless of which way it goes with
the regulatory part.
2:45:42 PM
REPRESENTATIVE SEATON said these are all interwoven parts and he
is unsure about how complicated this would get if legislative
approval is required before AIDEA can offer that and also along
with the RCA's involvement.
MR. PICKETT answered that as indicated by Representative Hawker,
it seems like legislators want to set the general parameters and
give the maximum flexibility to AIDEA to make sure this can
happen.
MR. PARADY noted that adding the RCA to the process in a
mandatory way - currently it's an elective way - adds regulatory
complexity. As was noted in the introduction to Amendment 3,
the RCA is itself a quasi-judicial body and the handling of
filings and cases before that body can, in and of themselves,
cost a substantial sum of money. It is not uncommon for filing
processes to take $1 million to work their way through.
2:47:13 PM
REPRESENTATIVE JOSEPHSON asked whether a rate stabilization
fund, like the one used in the upper Lynn Canal [of Southeast
Alaska], is within the power of the RCA to establish now, or
whether it is something that this bill should address.
MR. PICKETT replied he is not sure the bill should address that.
He explained the Alaska Power Company established a rate
stabilization fund in the late 1990s for a fixed period of time
to mitigate rate shock as the Goat Lake Hydro project came on
line with submarine cables for Haines and Skagway.
2:47:53 PM
REPRESENTATIVE HAWKER provided closing remarks on Amendment 3.
He said today's dialogue points out to him how essential it is
that the legislature provide the consumer protection for the
individuals who will end up one day having to pay rates from
this project. Rate regulation in this case provides nothing
more than protections of Alaska's citizens against bad
management practices, ill-advised management practices, or
simply mistakes on behalf of a dominant entity that is providing
the funding, managing the process, literally going out and
purchasing components of it that are going to be assembled by a
single state agency. He said he is not so sure he is
comfortable with a monopolistic state agency involved here
without some sort of a protective umbrella for the citizens who
will be affected. The committee has heard that initially IGU
wanted to be rate regulated but then discovered it didn't have
to file so it didn't. The committee has heard that the LNG
purchase agreement that AIDEA is currently undertaking with its
purchase of the FNG distribution system is itself before the
RCA, challenged by the attorney general of the State of Alaska
for fear it will result in monopolistic control of the supply
and distribution of energy and requires an anti-trust review.
That is why there is the RCA to protect people. The committee
has also heard that FNG has an application in process to become
rate regulated for the first time. During his 13 years in the
legislature, he related, he has heard complaints from FNG
consumers about what they felt were predatory pricing practices
by that entity. Those consumers have been asking for rate
regulation to protect themselves. There was a judicial agency
that looked to see if those costs were just and reasonable.
2:50:15 PM
REPRESENTATIVE HAWKER continued, stating no one is being treated
differently here. This outside umbrella agency is specifically
wanted to protect those people. There is no assurance
whatsoever that AIDEA is going to engineer a rate stabilization
agreement to protect customers. It is known that the initial
customers at FNG are going to be paying $15 per thousand cubic
feet (MCF) of gas at city gate if the transaction to purchase
Pentex Alaska Natural Gas Company, LLC, goes through. [The
committee] has been told that it is unacceptable for anything
less than $15 at the burner tip for everybody else in the
community with this AIDEA buildout continuing. That is
discriminatory and is why the RCA is needed to protect those
initial consumers against an unfair practice that is perpetrated
unintentionally upon them. Consumers who come into the game
later get cheaper gas with all the state subsidies involved,
while at the same time the state is locking in those earlier
customers to more expensive gas. Whether or not a complicated
process is wanted, this is hugely complicated, and that is why a
judicial agency is needed that can sort out these details and
ensure that the decisions ultimately are in the best interests
of those consumers. He urged the committee members to join him
in passing Amendment 3.
The committee took an at-ease from 2:51 p.m. to 2:59 p.m.
2:59:46 PM
REPRESENTATIVE JOSEPHSON recognized the committee is pressed and
has a lot to do between today and the end of session, but asked
whether the co-chair is willing to invite the testimony of
either the City of Fairbanks or the borough mayor so members
could hear their perspective on this.
REPRESENTATIVE TALERICO replied he doesn't think it wise to
delay working through the amendments. He noted that the mayors
of the City of Fairbanks and the Fairbanks North Star Borough
are present. Responding to Representative Hawker, he returned
to addressing Amendment 3 and asked whether the objection to the
amendment was still maintained.
REPRESENTATIVE SEATON maintained his objection to Amendment 3.
3:01:02 PM
A roll call vote was taken. Representatives Herron, Hawker,
Johnson, Olson, Nageak, and Talerico voted in favor of Amendment
3. Representatives Josephson, Tarr, and Seaton voted against
it. Therefore, Amendment 3 was adopted by a vote of 6-3.
3:02:02 PM
REPRESENTATIVE SEATON moved to adopt Amendment 4, labeled 29-
GH1019\H.6, Shutts, 4/6/15, which read:
Page 2, line 17:
Delete "law"
Insert "the legislature [LAW]"
Page 4, lines 16 - 24:
Delete all material and insert:
"* Sec. 4. AS 44.88.900(16) is amended to read:
(16) "qualified energy development" means a
development in the state that involves
(A) transmission, generation, conservation,
storage, or distribution of heat or electricity;
(B) liquefaction, regasification,
distribution, storage, or use of natural gas, propane,
or propane and air mixture; in this subparagraph,
"distribution" does not include [EXCEPT] a natural gas
pipeline project for transporting natural gas from the
North Slope or Cook Inlet to market unless the
pipeline has a diameter of 12 inches or less and
transports the natural gas to Interior Alaska;
(C) distribution or storage of refined
petroleum products;"
Page 5, line 2:
Following "Alaska":
Insert "as a primary market"
Following "gas":
Insert "delivery and"
Page 5, line 12, following "Section":
Insert "2, ch. 27, SLA 1993, as amended by sec.
19, ch. 111, SLA 1996; sec."
REPRESENTATIVE HAWKER objected for purposes of discussion.
3:02:11 PM
REPRESENTATIVE SEATON explained the committee has been talking
about allowing options to look at the Interior Energy Project
and one of those is gas from Cook Inlet. There is a high
probability, he said, that gas through a small diameter pipeline
from Cook Inlet to Fairbanks would be cheaper, especially in the
long term, than liquefying the natural gas and trucking or
railing it to Fairbanks, and he wants to ensure there is the
ability to look at that. He drew attention to page 1, line 13,
of Amendment 4, which states: "natural gas, propane, or propane
and air mixture". He said the reason for the propane or propane
and air mixture language is that petroleum economists at the
University of Alaska Fairbanks have presented to the House
Community and Regional Affairs Standing Committee that a propane
hydro train coming out of Prince Rupert could deliver propane
cheaper than LNG and possibly cheaper than a natural gas
pipeline. A March 24 [2015] editorial in the Fairbanks Daily
News Miner talks about $12 per thousand cubic feet (MCF) of
natural gas at the North Pole terminal, which is $16 at burner
tip and therefore within range and should be evaluated. A
propane and air mixture is used in regular gas lines with the
natural gas burner tips, so switching back and forth between a
propane and air mixture and natural gas can be done without
having to do any modifications. The big thing with propane is
the ability to supply cheaper energy to customers throughout
Interior Alaska where the population density is not high enough
to support building a pipeline system. Amendment 4 would ensure
that the Interior Energy Project is not just limiting itself to
one way to lower the economics of heat energy to Alaska. Plus,
[propane] can be burned in generators.
CO-CHAIR TALERICO invited the administration to comment.
MR. PARADY stated Amendment 4 incorporates changes already seen
in the Senate. Adding alternatives such as propane is useful,
he said, so the amendment is appreciated.
3:06:06 PM
REPRESENTATIVE HAWKER removed his objection. There being no
further objection, Amendment 4 was adopted.
3:06:22 PM
REPRESENTATIVE HAWKER moved to adopt Amendment 5, labeled 29-
GH1019\H.8, Shutts, 4/6/15, which read:
Page 4, following line 15:
Insert new bill sections to read:
"* Sec. 4. AS 44.88.170(a) is amended to read:
(a) Except as provided in (c) of this section,
nothing [NOTHING] in this chapter prevents the
inclusion in a lease or other agreement relating to a
project of a provision granting the right to purchase
the project, or to renew or extend the lease or
agreement, upon the terms and conditions which may be
provided for in the lease or agreement.
* Sec. 5. AS 44.88.170 is amended by adding a new
subsection to read:
(c) Unless the authority has obtained legislative
approval, the authority may not purchase or acquire
gas reserves or a gas lease or become a working
interest owner of a natural gas lease."
Renumber the following bill sections accordingly.
REPRESENTATIVE TARR objected.
3:06:31 PM
REPRESENTATIVE HAWKER said Amendment 5 is about the legislature
making a policy call that says "we do not wish AIDEA to become a
state-owned oil and gas company." Amendment 5 would require
legislative approval to be granted before AIDEA can purchase or
acquire natural gas reserves or leases, or become a working
interest owner of a natural gas lease. Specifically, it would
amend AS 44.88.170, a catchall section in the authorizing
statutes related to AIDEA's purchase of projects and entering
into various leases, and oil and gas leasing is essentially a
leasing activity. The legislative legal drafters thought this
the best section to place this. The reason for requiring this
legislative approval is that legislators have heard repeatedly
over the past several months about folks in the administration
talking with energy producing companies in the Cook Inlet about
acquiring their gas reserves in the ground and asking those
entities about becoming a working interest owner in order to
establish a gas supply for the Interior Energy Project. Some of
this has gone on without the knowledge of the folks at AIDEA;
two different sides of the administrative government are working
on the same project but not necessarily in coordination. Maybe
it is a good thing for IEP to acquire working interest in the
Cook Inlet, he allowed, but the committee ought to be making a
policy call today that requires legislative permission to do
that. It would be a wholesale change of state policy to
establish an essentially state-owned oil and gas company. The
legislature would not want to enter into that level of change in
its philosophy of managing the state's resources without a great
deal of separate deliberation and consideration.
3:09:20 PM
REPRESENTATIVE HAWKER continued his explanation of Amendment 5,
noting that three Interior utilities are actively involved in
this: Golden Valley Electric Association (GVEA), Interior Gas
Utility (IGU), and Fairbanks Natural Gas (FNG), and possibly
AIDEA. Nothing in Amendment 5 and nothing in the statute
prohibits those entities from working or banding together to do
collaborative buying and to negotiate the best possible
agreements, just like all the other utilities in the state that
have to procure gas from the Cook Inlet through negotiation in
the open market. Those utilities include Homer Electric
Association, Inc. and ENSTAR Natural Gas Company, the company
that he represents. He said he isn't sure it is a good idea for
the legislature to allow the state, with its heavy hand of
regulation and ability to punish entities that do not do what
the state tells them to do, to be able to compete on behalf of
certain utilities against the other utilities of the state. The
state moving into ownership of oil and gas leases in the Cook
Inlet, and bringing to bear its regulatory authorities, could
threaten the stability of what is currently a very delicate
market. Two years ago there was not enough gas in the Cook
Inlet for anything, and while it now appears that there is more
gas, care must be taken with letting the state weigh in too
hard. He urged that the committee provide the policy box for
the folks at AIDEA that says the legislature would prefer AIDEA
not be a state-owned oil company until it brings a specific
proposal to the legislature for specific review and evaluation.
3:11:52 PM
REPRESENTATIVE JOSEPHSON inquired whether AIDEA hasn't already
been involved with the legislature's say-so in the Mustang field
in terms of backing reserves there and using AIDEA's collateral
for that purpose.
REPRESENTATIVE HAWKER replied AIDEA has, as directed by the
legislature, provided financial incentives to help the private
sector develop its own activities, including AIDEA's support of
Furie Operating Alaska, LLC, in the Cook Inlet. However, it is
different in that the state is providing the support for private
sector development as opposed to the state stepping in and
owning the resource itself and becoming a direct part of an
exploration and production activity.
REPRESENTATIVE JOSEPHSON responded by saying, "like AGDC is."
REPRESENTATIVE HAWKER answered AGDC has absolutely nothing to do
with being an exploration and production company.
REPRESENTATIVE JOSEPHSON understood that, but said it is direct
ownership share by a state agency.
REPRESENTATIVE HAWKER responded not of the natural resource.
3:13:27 PM
REPRESENTATIVE HERRON expressed his fear of the state becoming,
in essence, a sub-national oil company and requested Mr. Parady
to comment in this regard.
MR. PARADY replied he has never heard a whisper of conversation
in AIDEA regarding becoming an oil and gas company. He said he
doesn't believe that that has any traction as a workable idea,
the magnitude of that is mindboggling. He noted that AIDEA has
a concern with Amendment 5 because it potentially impacts other
projects and has unintended consequences. He deferred to Mr.
John Springsteen to provide further response.
JOHN SPRINGSTEEN, Executive Director, Alaska Industrial
Development and Export Authority (AIDEA), Department of
Commerce, Community & Economic Development (DCCED), responded he
is concerned Amendment 5 would disrupt AIDEA's ability to do
what the legislature intends AIDEA to do to support resource
development in the state. It would create a hurdle to financing
independent, small and medium sized oil and gas developers.
When AIDEA offers financing to these developers, he explained,
reserves and working interests are often a portion of the
security and collateral for the financing.
3:15:03 PM
CO-CHAIR TALERICO stated he thinks Amendment 5 is aimed at
direct ownership and not financing, in other words [AIDEA's}
name is on the title so to speak. He said he sees a huge
difference between providing the actual collateral to get
financing and being the outright owner. He requested Mr.
Springsteen to comment on this.
MR. SPRINGSTEEN answered the phrase "become a working interest
owner of a natural gas lease" [is of concern]. Often AIDEA is
provided security and collateral in the form of if there is not
performance on the financing that AIDEA would then, as a fact of
default or nonperformance, become a working interest owner of a
natural gas lease since that is the security or collateral that
is offered.
3:16:00 PM
REPRESENTATIVE HAWKER said he can appreciate the argument for
the ability to stake the greatest claim on the collateral of an
entity that [the state] is supporting. He posited that
collateral agreements could be structured so that, should it be
necessary to foreclose, the collateral would go back to the
sovereign, the Department of Natural Resources, where it really
belongs and not into the hands of AIDEA. Amendment 5
specifically says "unless the authority has obtained legislative
approval". This is where if AIDEA wishes to establish a
situation where it could accede to working ownership rights in
active exploration and production development he thinks AIDEA
needs to bring a specific proposal to the legislature to discuss
its merits, which is why this amendment should be passed.
MR. PARADY allowed Representative Hawker's comments are well
founded that, on its plain face, the issue is not material.
However, the language "become a working interest owner of a
natural gas lease" is of substantial concern because it has
unintended consequences to AIDEA's routine operations as
directed by the legislature in the context of financing. The
Mustang operation center is an example and Mr. Springsteen could
elaborate further on the collateral and its collection.
3:17:52 PM
REPRESENTATIVE TARR, regarding the suggestion that in a default
situation the resource should go back to the sovereign, posited
that that would leave AIDEA in a position of being unpaid and
would need to find some way to be paid. She asked how that
situation would be resolved.
MR. PARADY deferred to Mr. Springsteen or Mr. Leonard.
MR. SPRINGSTEEN agreed there would need to be some provision
that AIDEA would be whole in its financing arrangement with the
borrower. He deferred to Mr. James Hemsath for providing detail
on the Mustang opportunity.
JAMES HEMSATH, Director, Project Development and Asset
Management, Alaska Industrial Development and Export Authority
(AIDEA), Department of Commerce, Community & Economic
Development (DCCED), stated that his section is responsible for,
and did the deal with, Brooks Range Petroleum as it relates to
Mustang. He said AIDEA has, through its LLC in partnership with
"CES Singapore Corporation", a 20 percent working interest in
the Mustang field. He continued:
That working interest is important to us in two ways.
One is collateral has been discussed, but it also
defines the very specific stream of revenue that we're
using for our return of revenues for the ownership, or
the leasing of the operating facility, the operating
company Brooks Range. With regard to the working
interest owner, as we put a lien, or, which a working
interest owners and ownership or a lien on a field,
those have to be perfected. You're not halfway in,
you're either a working interest owner or you're not.
You're not a working interest owner only in the case
if something happens in default that that negates the
security that negates the collateral. Quite frankly,
the Department of Natural Resources [DNR] doesn't like
it. We lost almost two months in our project schedule
this year with DNR as we perfected the working
interest ownership with AIDEA. They are very, very
particular on it and they don't like halfway things.
So that aspect of working interest owner is very, very
critical to us in terms of not only collateral on
security on a deal but also in identifying, if
necessary, revenue streams and where they are coming
from.
MR. HEMSATH, regarding AIDEA's investment and ability to have
this kind of collateral in Mustang specifically, stated that
AIDEA's $70 million of investment leveraged almost $700 million
of investment in that field and that simply would not have taken
place if AIDEA hadn't been involved. That aspect of collateral
and working interest ownership was a key component of that deal.
3:20:45 PM
REPRESENTATIVE HAWKER said he understands contracts and where
Mr. Hemsath is going to at this point. The specific issue of
working interest at Mustang is an interesting conundrum. As the
maker of Amendment 5 he said he believes it remains absolutely
critical that the legislature tell the elements that have been
trying to negotiate in-place resources in Cook Inlet for the
Interior Energy Project that this is not something that will be
entered into without further discussion by the legislature. He
recognized the concerns that have been pointed out with Mustang,
but said he still believes the amendment should be passed as it
is. He offered his commitment to working with the folks at
AIDEA as HB 105 moves through its next committee and onto the
floor to find a further amendment that can relieve the concerns
raised by AIDEA today with regard to financing and working
within projects in the North Slope in the manner the committee
has been discussing.
3:21:55 PM
REPRESENTATIVE TARR stated that in addition to the concerns
raised by AIDEA, she is concerned about timing because this
might hinder AIDEA's ability to move forward on the project over
the next eight months and having to wait to come back to the
legislature. If there were other important items before the
legislature things could get pushed out even further. She
inquired whether, in the financing world, that kind of delay
could cause things to fall through by adding uncertainty since
there would be no guarantee that the legislature would give
approval.
MR. PARADY replied timing is of concern and will come up again
when Amendment 6 is discussed.
3:23:38 PM
CO-CHAIR NAGEAK remarked that what the committee is doing today
is protecting the interests of the State of Alaska. The job of
the legislature is to listen to the administration and then
deliberate, that is the process. Legislators need to understand
exactly what the state is getting into. Without amendments and
discussion legislators would be derelict in their duty.
REPRESENTATIVE SEATON said he is supportive of the idea of not
acquiring gas reserves, but uncomfortable with passing an
amendment that has "collateral damage" on the ability of AIDEA
to do other things. He urged that Amendment 5 be redrafted with
all the particulars in it and then passed. That way, the
committee would be voting on an amendment that does not curtail
what the legislature has asked AIDEA to do, such as with Mustang
and others.
REPRESENTATIVE JOSEPHSON stated he thinks AIDEA's officials have
made the case that there is direct linkage between the words
"working interest owner of a natural gas lease" and [AIDEA's]
security and collateral attached to that working interest. This
is a resource development issue, he said, this is what AIDEA
does. There are different mechanisms that are used to foster
oil and gas development. He said Amendment 5 would make some
sense if there was a period full stop after the words "or a gas
lease" and, since it does not, he cannot support it.
3:26:32 PM
MR. PARADY stated that, regardless of the outcome here, AIDEA
would be glad to work with committee members to vet the
language. He said he does not want to lose another period of
time while moving to the close of the legislative session. It
is the legislative discretion of committee members as to whether
it is the withdrawal, redrafting, and bringing of the amendment
back in another form, or adopting and then fixing. However, in
his experience, it is usually best to get it right.
REPRESENTATIVE JOHNSON pointed out that the next committee of
referral for HB 105 is the House Rules Standing Committee [of
which he is the chair] and he is not bashful about fixing
legislation and problems in that committee.
REPRESENTATIVE TARR said she maintains her objection to
Amendment 5 based on the problems brought up. Saying it sounds
like there is an opportunity to rework the wording, she asked
whether the maker of the amendment has a comment on that.
REPRESENTATIVE HAWKER stated he thinks this committee needs to
put on the record its absolute statement about not acquiring
assets in the Cook Inlet, through either leasing or working
interest ownership, to support the Interior Energy Project. The
chairman of the House Rules Standing Committee has said he will
not let HB 105 out of that committee without ensuring the issue
is fixed to the satisfaction of AIDEA. He assured the folks at
AIDEA that this issue will be resolved before the bill gets to
the House floor.
REPRESENTATIVE JOHNSON pointed out that as of today the
legislature is under the 24-hour rule.
REPRESENTATIVE TARR maintained her objection, saying she is not
on the House Rules Standing Committee and will therefore not
have an opportunity to weigh in on this amendment.
3:29:08 PM
A roll call vote was taken. Representatives Herron, Hawker,
Johnson, Olson, Nageak, and Talerico voted in favor of Amendment
5. Representatives Seaton, Josephson, and Tarr voted against
it. Therefore, Amendment 5 was adopted by a vote of 6-3.
3:29:59 PM
REPRESENTATIVE HAWKER moved to adopt Amendment 6, labeled 29-
GH1019\H.4, Shutts, 3/28/15, which read:
Page 5, line 4, following "Alaska":
Insert ", if the Alaska Industrial Development
and Export Authority prepares a project plan and
receives legislative approval of the plan. The project
plan must
(1) identify the source of the natural gas;
(2) include the estimated cost of the
project; and
(3) include the estimated price of natural
gas under the project for natural gas utilities in
Fairbanks before distribution to consumers"
REPRESENTATIVE SEATON objected for purposes of discussion.
3:30:05 PM
REPRESENTATIVE HAWKER said Amendment 6 is about the legislature
maintaining power of appropriation and wanting to know exactly
what it is buying before writing the check, as well as knowing
how many more checks will need to be written after that first
one. The amendment specifically adds a legislative sanctioning
requirement before AIDEA can access the sustainable energy
transmission and supply development (SETS) bonding authorization
that is provided in the bill. The amendment makes no change in
the authority for AIDEA to move forward with the SETS funded
projects. Because there are so many unknowns - from regulatory
authority to rate protection to ownership to security interest -
he would like to have the project plan brought to the
legislature for approval. Amendment 6 requires AIDEA to develop
a project plan before the project can go forward and that
project plan must receive legislative approval, which is very
much as the legislature did with the original project plan for
AGDC. Amendment 6 requires three things that must, at a
minimum, be included in the plan: the source of the gas, cost
of the project, and the price for that gas under the project for
the utilities in Fairbanks before distribution to consumers.
This will provide a sound basis for ensuring that this is a
consumer cost-driven project and the legislature would like to
make that decision and judgement about having met that cost
objective before it invests more. Over $12 million was spent on
the North Slope, which is either going to have to be written off
or recovered in some manner. That $12 million of write-off
might have been avoided had there been a sanctioning requirement
for that first time around. It is important to have a project
that goes forward that meets the price expectancy/demand that
the community has insisted upon, and he also wants to know how
many more checks the legislature will have to write to
accomplish that. According to testimony at the committee's last
meeting, this money is just the tip of the iceberg; a great deal
more government support will be needed to make this project work
and bring gas to all consumers at the price objective. It must
be ensured the legislature is helping the folks in Fairbanks and
that proper decisions are made to preclude falling victim to
having an agency that wants a project for a project's sake that
does not accomplish the goals the legislature wants to establish
as policy direction for it. He said he doesn't want to
micromanage the process, but wants that policy box provided for
AIDEA to put this together and come back to talk to the
legislature about the alternatives AIDEA is studying before the
legislature authorizes the spending of hundreds of millions of
dollars. He urged committee members to support Amendment 6.
3:34:28 PM
REPRESENTATIVE JOSEPHSON stated Amendment 6 is the amendment
that gives him the greatest concern. He said there is danger in
any member being a purist and saying to monitor this sort of
expenditure or to keep hands off in trust of the authority.
Senate Bill 23 was the previous administration's concept. It
didn't work and AIDEA did the responsible thing when it said it
cannot get there at the right burner tip price and is abandoning
that. He said he doesn't know what the alternative is. If the
belief is in natural gas for the Interior, stopping the
nonattainment problem, and keeping an economy going so people
aren't fleeing the city and the borough for lack of ability to
stay there, he hasn't heard of anywhere else to get gas and so
Cook Inlet is being looked at pending a large gasline.
Comparison was made to the Alaska Gasline Development
Corporation (AGDC) and the Alaska LNG Project, but that is up to
a $65 billion project and a very different kind of thing. Lost
money on the North Slope with the LNG trucking is a real issue.
When it comes to these megaprojects there is no question that a
better system is needed to be able to put on the brakes before
the money goes out the door. But, if the committee is going to
have a discussion about lost and sunk costs, it will be here all
day. In the three years he has been in the legislature he has
seen so much spent and some legislators think it would have been
wiser spent in a classroom, for example. Regarding the cost, he
said AIDEA will hear from the consumer just as it did with the
LNG trucking. He noted that in his community there is a fair
amount of subsidizing, either real or effective, of natural gas;
for example, [the state] does not tax gas in the Cook Inlet. He
expressed his concern that AIDEA is being hamstrung. Further,
he queried, what happens if AIDEA determines on, say, April 20,
2016, that it has the package together but the legislature has
adjourned? Amendment 6 is too limiting.
3:37:34 PM
REPRESENTATIVE TARR recalled that the other day's PowerPoint
presentation explained it is a phased approach. Through each
step there is a go or no-go decision; AIDEA got to the final
stage and made a no-go decision on that. In other projects it
has worked on, the legislature hasn't expected that kind of work
to be done without any dollars being spent. It is a real shame
in regard to all the money that has been spent on projects that
will not go forward. At the same time, the legislature did
originally authorize $250 million for the project and if $12
million was spent to get to the decision, then not too much was
eaten up. She questioned whether AIDEA will be able to act
effectively with two amendments that require legislative
approval given that they would not necessarily happen at the
same time. She expressed her concern that Fairbanks could be on
the verge of collapse given [the state's] current situation and
potential job losses in the Fairbanks area, coupled with the
already-high energy prices. Some people are paying as much per
month for heating cost as for their mortgage. She offered her
appreciation for the legislature having oversight on what is
happening and being mindful of the dollars that are spent, but
expressed her fear that the Interior won't survive if the
amendments push out the project by a year or more.
3:40:22 PM
CO-CHAIR TALERICO reminded members that his intention is to move
HB 105 out of committee today and said the bill likely will not
move without these amendments. He further noted the bill has
two more committees of referral.
CO-CHAIR NAGEAK stated there is a lot of institutional knowledge
within the Capitol building that committee members can draw upon
and not have to worry about doing something wrong. The people
with this knowledge can help members get through this process.
Those members involved in natural resource issues have been
through a lot and have the knowledge and experience. He added
that it is good to have different points of view.
REPRESENTATIVE SEATON commented he is unsure how someone would
negotiate to get natural gas if it cannot be used as collateral
or as a working interest ownership to provide a source of
revenue on that gas. A contract cannot be offered because it
must come back to the legislature for approval of the program.
He said he hopes things will get adjusted in the next committee
so that the project will be able to move forward rather than
being stopped.
3:43:02 PM
REPRESENTATIVE SEATON offered Conceptual Amendment 1 to
Amendment 6 as follows: at the end of line 4, after "natural
gas", add "or propane". This will make it consistent with the
previously adopted amendment.
REPRESENTATIVE HAWKER said he has no objection to the conceptual
amendment. There being no objection, Conceptual Amendment 1 to
Amendment 6 was adopted.
3:43:28 PM
MR. PARADY recalled the maker of the amendment stating in his
opening remarks his desire that the legislature discuss openly
and thoroughly the policy box while not micromanaging inside
that box. However, that is exactly what Amendment 6 does, Mr.
Parady said. He stated six reasons for opposing Amendment 6.
First, it will cause substantial delay, particularly in dealing
with the nonattainment status for the Environmental Protection
Agency (EPA) in the Interior region. Second, it will chill the
private investment community as AIDEA works with members of the
private investment community to carry forward as it did on the
North Slope project for the public/private partnership. The
holders of the private capital will have no certainty as to if
or when AIDEA will have access to the Senate Bill 23 funding
tools that were provided and allow AIDEA to partner with private
developers. Third, it undermines the statutory authority of the
AIDEA board to make investment decisions based on AIDEA's well-
established due diligent process investment criteria. There has
not been a write-off of an AIDEA loan in a 12-year period.
Fourth, it forces the Interior to get a second legislative
authorization to expend the financing tools that were already
authorized by the legislature in 2013. Fifth, it limits and
potentially eliminates any potential North Slope project that
AIDEA could currently finance by forcing AIDEA to seek
legislative approval of any Interior Energy Project, not any
Cook Inlet project. Six, it dramatically changes AIDEA's
Interior Energy Project role in the middle of developing the
project. Horses are being changed in the middle of the stream
here. Make no mistake about it, he said, the commitment that
everyone shares to the Interior project is substantially delayed
by this amendment. The legislature assigned AIDEA this project
and this amendment moves to handcuff AIDEA from completing the
assignment that AIDEA was given.
3:45:24 PM
REPRESENTATIVE SEATON maintained his objection to Amendment 6.
A roll call vote was taken. Representatives Olson, Herron,
Hawker, Johnson, Nageak, Talerico, and Seaton voted in favor of
Amendment 6, as amended. Representatives Josephson and Tarr
voted against it. Therefore, Amendment 6, as amended, was
adopted by a vote of 7-2.
3:46:41 PM
REPRESENTATIVE HAWKER moved to adopt Amendment 7, labeled 29-
GH1019\H.10, Shutts, 4/7/15, which read:
Page 4, following line 15:
Insert new bill sections to read:
"* Sec. 4. AS 44.88.170(a) is amended to read:
(a) Except as provided in (c) of this section,
nothing [NOTHING] in this chapter prevents the
inclusion in a lease or other agreement relating to a
project of a provision granting the right to purchase
the project, or to renew or extend the lease or
agreement, upon the terms and conditions that [WHICH]
may be provided for in the lease or agreement.
* Sec. 5. AS 44.88.170 is amended by adding a new
subsection to read:
(c) The authority may not negotiate or enter into
a gas supply contract with a natural gas producer
unless
(1) the contract is between a natural gas
producer and natural gas distribution utility that is
owned by the authority or a subsidiary corporation of
the authority and the contract is for the natural gas
producer to provide the utility, and only the utility,
with a natural gas supply for distribution to
customers of the utility; or
(2) the authority obtains legislative approval."
Renumber the following bill sections accordingly.
REPRESENTATIVE TARR objected.
3:46:47 PM
REPRESENTATIVE HAWKER said Amendment 7 is about his concern in
regard to keeping the state from a role of picking winners and
losers in the marketplace. He said the amendment specifically
prohibits AIDEA from negotiating and entering into a gas supply
agreement unless that agreement or agreements are between an
AIDEA-owned utility and a producer. For example, if AIDEA is
successful in purchasing FNG and becomes a local distribution
company in Fairbanks, AIDEA will need to be able to procure gas
from a producer or a supplier in some way to ensure AIDEA has
gas to distribute in the utility that the state is buying.
However, Amendment 7 makes the statement that the legislature
does not want to have AIDEA interfering in a gas market on
behalf of the specific utilities that would be benefitting from
the Interior Energy Project to the disadvantage of all the other
public utilities that are competing in that marketplace for that
same gas in the Cook Inlet and having to negotiate the same
contracts with the same suppliers. The Cook Inlet gas market is
not the robust and endless market it was 40 years, it is a very
fragile market dependent on continued investment by smaller
companies, not companies with deep pockets. It is a market that
is very susceptible and sensitive to changes of policy that the
legislature might make in its tax structures or circumstances.
The legislature does not want the heavy hand of government
advocating on behalf of one group of consumers to the
disadvantage of other consumers. One branch of government does
carry with it the weight of all the ability of other branches of
government to bring its decision-making ability to coerce
actions from producers and players. "It's not that AIDEA is
going to go out there and intimidate sellers," he said, "but ...
sellers are, in fact, intimidated because there are other state
agencies that might well take a look at a decision they make and
say 'well, we're going to get even with you guys for making that
decision.'" That is something the legislature must keep from
occurring. Amendment 7 says to let the utilities negotiate on
behalf of themselves for their gas, keep government out of those
negotiations so there is no appearance of conflict or coercive
activity between the state's agencies. Nothing in Amendment 7
precludes the utilities from the Interior Energy Project banding
together and being a collective marketing force into the Cook
Inlet. He urged committee members to support Amendment 7.
3:50:35 PM
REPRESENTATIVE SEATON noted Amendment 6 includes a process that
before the project plan goes forward a source of natural gas
must be identified. Yet, he continued, AIDEA is precluded from
negotiating any source of natural gas. He surmised the idea is
that somebody else has to negotiate that and then come to AIDEA
and then AIDEA can try to put together a project plan to bring
to the legislature for approval. He requested clarification.
REPRESENTATIVE HAWKER replied it is unknown whether this project
is going to be totally owned by AIDEA or a project in which
AIDEA's role is to benefit the utilities. When it started out
it was just supposed to be benefitting the utilities, but this
legislative session it was suddenly announced that AIDEA was
going to start buying assets without any explanation of what had
changed. Nothing in Amendment 7 prevents a project from going
forward with AIDEA facilitating and helping all of those
utilities with the financing for transactions put together by
the utilities. It should not be the State of Alaska stepping in
and deciding to become the local distribution company procuring
an asset literally from the producer all the way to the burner
tip. He said this is not something he wants to give blanket
approval to AIDEA to do. However, if that is the project plan
and it comes back to the legislature in the project plan with
the constraints of Amendment 6, then the legislature gets to
make that decision, and if it is the right decision, so be it.
He reiterated he is going under the premise that AIDEA is
facilitating and aiding Alaska's industry to achieve success
rather than stepping in and competing in the private sector.
The legislature doesn't want AIDEA displacing private sector
entities. He said he knows of at least three commercial
entities that have offered gas out of the Cook Inlet to the
utilities in Fairbanks. The utilities should have a chance to
look at those commercial private sector entities to see if it
would work and then the utilities would go to AIDEA and ask for
help in financing and other help for making it be a viable
project. That is the role of AIDEA, in his opinion, not
stepping in and owning projects. While it is a good thing that
AIDEA hasn't written off a loan in 12 years, there is also a
horrible long history of when AIDEA steps in and starts owning
physical assets that there have been problems.
3:54:05 PM
REPRESENTATIVE TARR noted [Sections 4 and 5 of Amendment 5] set
out parameters in AS 44.88.170 and AS 44.88.170(a) that AIDEA
may not purchase or acquire gas reserves or a gas lease or
become a working interest owner of a natural gas lease unless it
receives legislative approval. She observed that Amendment 7
makes changes to these previously adopted sections. She asked
whether [paragraphs (1) and (2) of subsection (c), lines 10-16,
of Amendment 7] are supposed to both be the requirements now.
REPRESENTATIVE HAWKER responded correct.
3:55:01 PM
MR. PARADY said Amendment 7 continues in the same vein as
Amendment 6 in requiring legislative approval, which introduces
great elements of delay. The maker of the amendment stated in
his opening remarks that he didn't want the picking of losers
and winners in the marketplace. The marketplace has picked
those losers and they are the citizens of Fairbanks. Displayed
on the wall of the Fairbanks Economic Development Corporation is
a front page of the Fairbanks Daily News Miner from 1954 that
says gas is coming to Fairbanks. While that gas was propane,
not LNG, the gas is still waiting 61 years later. This project
is as close as it has ever been to getting to achieve the goal;
AIDEA has worked diligently to bring the project forward. This
is a familiar restriction or micromanagement; AIDEA is trying to
do what the legislature asked it to do and will continue to do
so as it works together with the legislature.
REPRESENTATIVE JOSEPHSON stated if he was one of the 90,000
residents of the North Slope Borough he would be very concerned
about what the committee is doing today and would express no
confidence that the state as an entity is continuing to maintain
the same objectives and the same goals. The committee has
essentially neutered the agency, he said, and he is concerned.
CO-CHAIR TALERICO commented that this committee is not the end-
all for this bill. Many more people will see the bill and be
working on it, he added, which is a good thing and what the
legislative process is all about.
REPRESENTATIVE SEATON expressed his concern that the committee
has gotten so into the restrictions on the ability for this
project to go forward that he doesn't think it will go forward.
He said he doesn't think the utilities will really be able to
negotiate because they don't know where their partner is and
everything must come back for legislative approval before any
funds can be set up or anything else for equalizing those
utility rates over time. There are the gas contracts and who is
going to be able to do it. A project comes forward but the
project is not really an AIDEA project, it is a project from the
utilities, but AIDEA must bring the project to the legislature
for approval before it can go forward. Thus he is unsure where
it is going any more, the complications are extreme.
3:58:35 PM
REPRESENTATIVE HAWKER said Amendment 7 is being mischaracterized
because it is the big parameters of the box that are being
talked about. It is not micromanaging inside the box, it is
defining the box. The box is that government should not be
messing in the marketplace. Nothing in Amendment 7 impedes the
utilities in Fairbanks from procuring gas for themselves. All
the amendment says is that the legislature doesn't want the
state negotiating those contracts on behalf of those utilities
and unfairly advantaging them against other folks competing in
the open market for that same gas. Nothing in Amendment 7
impedes the kind of project that this is supposed to be, which
is that AIDEA's role is providing assistance to the community of
Fairbanks to get Fairbanks a local distribution structure around
gas that is able to be delivered at $15 per MCF at the burner
tip. He said he doesn't think any [legislators] are quite
buying into wanting the state to be carrying the entire burden
of ownership of the project; local control is wanted, not making
Fairbanks a permanent protectorate of the state and AIDEA in
order to meet these objectives.
4:00:34 PM
REPRESENTATIVE TARR maintained her objection to Amendment 7.
A roll call vote was taken. Representatives Johnson, Olson,
Herron, Hawker, Nageak, and Talerico voted in favor of Amendment
7. Representatives Seaton, Josephson, and Tarr voted against
it. Therefore, Amendment 7 was adopted by a vote of 6-3.
4:01:23 PM
CO-CHAIR TALERICO stated he thinks the legislative process is
appropriate and HB 105 will move on to its other committees of
referral. He said he would like to entertain a motion to move
the bill from committee.
REPRESENTATIVE TARR said she will not object to the bill moving
out of committee because it is so important. However, she
continued, what has been done today caused a lot of damage. She
expressed her discomfort with the limitations that have been put
on, especially following previous legislation that authorized
AIDEA for $275 million to move forward on this project and now
there is back tracking on that initiative. This is sending the
wrong message to the people of Fairbanks and the Interior who
have been disproportionately burdened by high energy costs. She
offered her hope that the bill will be improved as it is moved
along.
REPRESENTATIVE HAWKER took issue with Representative Tarr's
statements, saying he has family in Fairbanks and wants to see
the right thing done for Interior Alaska, not the wrong thing
happening in [the legislature's] best efforts to do the right
thing and that is what it is about today.
4:04:04 PM
REPRESENTATIVE HAWKER moved to report HB 105, as amended, out of
committee with individual recommendations and the accompanying
zero fiscal note. There being no objection, HB 105(RES) was
reported from the House Resources Standing Committee.
The committee took an at-ease from 4:04 p.m. to 4:07 p.m.
4:07:01 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 4:07 p.m.
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