Legislature(2001 - 2002)
02/26/2002 11:05 AM House RLS
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RULES STANDING COMMITTEE
February 26, 2002
11:05 a.m.
MEMBERS PRESENT
Representative Pete Kott, Chair
Representative Brian Porter
Representative Vic Kohring
Representative Carl Morgan
Representative Lesil McGuire
Representative Ethan Berkowitz
Representative Reggie Joule
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 206
"An Act relating to a vessel-based commercial fisheries limited
entry system, to management of offshore fisheries, and to the
definition of 'person' for purposes of the commercial fisheries
entry program; and providing for an effective date."
- MOVED CSHB 206(RLS) OUT OF COMMITTEE
OVERVIEW: UPDATE ON HCR 17 & NETRICITY'S ROLE IN ALASKA
PREVIOUS ACTION
BILL: HB 206
SHORT TITLE:LIMITED ENTRY FOR COMM. FISHERIES
SPONSOR(S): RESOURCES
Jrn-Date Jrn-Page Action
03/22/01 0691 (H) READ THE FIRST TIME -
REFERRALS
03/22/01 0691 (H) FSH, RES
04/02/01 (H) FSH AT 5:00 PM CAPITOL 124
04/02/01 (H) Moved Out of Committee
04/02/01 (H) MINUTE(FSH)
04/03/01 0826 (H) FSH RPT 2DP 4NR
04/03/01 0827 (H) DP: SCALZI, WILSON; NR:
DYSON,
04/03/01 0827 (H) COGHILL, KERTTULA, STEVENS
04/03/01 0827 (H) FN1: ZERO(DFG)
04/04/01 (H) RES AT 1:00 PM CAPITOL 124
04/04/01 (H) Heard & Held
04/04/01 (H) MINUTE(RES)
04/09/01 (H) RES AT 1:00 PM CAPITOL 124
04/09/01 (H) Scheduled But Not Heard
04/10/01 (H) MINUTE(RES)
04/10/01 (H) RES AT 5:30 PM CAPITOL 124
04/10/01 (H) Moved CSHB 206(RES) Out of
Committee
MINUTE(RES)
04/11/01 0952 (H) RES RPT CS(RES) NT 7DP 1NR
04/11/01 0953 (H) DP: FATE, MCGUIRE, GREEN,
CHENAULT,
04/11/01 0953 (H) KERTTULA, STEVENS, SCALZI;
NR: MASEK
04/11/01 0953 (H) FN1: ZERO(DFG)
01/23/02 2053 (H) RETURNED TO RES COMMITTEE
02/08/02 (H) RES AT 1:00 PM CAPITOL 124
02/08/02 (H) Moved CSHB 206(2d RES) Out of
Committee
02/08/02 (H) MINUTE(RES)
02/13/02 2221 (H) RES RPT CS(2D RES) NT 4DP 1NR
02/13/02 2222 (H) DP: CHENAULT, STEVENS, FATE,
SCALZI;
02/13/02 2222 (H) NR: MASEK
02/13/02 2222 (H) FN2: ZERO(DFG)
02/26/02 (H) RLS AT 11:00 AM BUTROVICH 205
WITNESS REGISTER
KRIS KNAUSS, Staff
to Representative Kott
House Rules Standing Committee
Alaska State Legislature
Capitol Building, Room 204
Juneau, Alaska 99801
POSITION STATEMENT: Reviewed the changes encompassed in Version
W of HB 206.
REPRESENTATIVE DREW SCALZI
Alaska State Legislature
Capitol Building, Room 13
Juneau, Alaska 99801
POSITION STATEMENT: Testified on behalf of the House Resources
Standing Committee, the sponsor of HB 206.
JIM DODSON
Netricity, L.L.C.
(No address provided)
POSITION STATEMENT: Provided an update of Netricity's project.
MIKE CASKEY
Netricity, L.L.C.
(No address provided)
POSITION STATEMENT: Provided an update of Netricity's project.
ACTION NARRATIVE
TAPE 02-3, SIDE A
Number 0001
CHAIR PETE KOTT called the House Rules Standing Committee
meeting to order at 11:05 a.m. Representatives Kott, Porter,
McGuire, and Berkowitz were present at the call to order.
Representatives Kohring, Morgan, and Joule arrived as the
meeting was in progress.
HB 206-VESSEL LIMITED ENTRY FOR COMM. FISHERIES
CHAIR KOTT announced that the first order of business would be
HOUSE BILL NO. 206, "An Act relating to a vessel-based
commercial fisheries limited entry system, to management of
offshore fisheries, and to the definition of 'person' for
purposes of the commercial fisheries entry program; and
providing for an effective date."
KRIS KNAUSS, Staff to Representative Kott, House Rules Standing
Committee, Alaska State Legislature, informed the committee of
the changes encompassed in the proposed committee substitute
(CS) [Version 22-LS0426\W, Utermohle, 2/21/02]. On page 3, line
28, after "recent" the language "and past" was inserted. The
same was done on page 4, line 5. On page 4, line 9, the
language "or recently was" was inserted. On page 4, line 10,
"may" was changed to "shall".
Number 0138
REPRESENTATIVE McGUIRE moved to adopt CSHB 206 [Version 22-
LS0426\W, Utermohle, 2/21/02], as the working document. There
being no objection, Version W was before the committee.
Number 0156
REPRESENTATIVE DREW SCALZI, Alaska State Legislature, informed
the committee that he is carrying HB 206 at the request of the
Commercial Fisheries Entry Commission (CFEC) who requested this
of the legislature. A few years ago, the legislature discovered
that a moratorium situation was coming in hair crab and scallop
fisheries. Under the current limited entry system, [CFEC] was
tasked with developing a program that would provide the
aforementioned two fisheries with a limited entry. Under the
current limited entry plan, a limited entry system must be
devised such that the owner of the limited entry permit must be
a person. Although this makes sense with the salmon and herring
fisheries because of the small operations, under Bering Sea
fisheries there are very large vessels that have multiple
skippers. Therefore, if the CFEC considers a limited entry
program, it must consider who is given the permit in relation to
who operates the vessel. This legislation provides CFEC with a
new tool, adoption of a limited entry system. By doing so, the
limited entry, the initial recipient, would be attached to the
vessel rather than to the person. In the next generation, the
[limited entry permit] would revert back to a person. In other
words, if the vessel permit was sold later, the permit would go
to a person.
REPRESENTATIVE SCALZI posed an example in which CFEC used the
current statutes to provide for a limited entry system. If
there were seven vessels in the hair crab fishery and the desire
was to provide a limited entry system, then "you" may have to
increase to 20 permits. Therefore, the entire purpose of the
moratorium would be circumvented because the number of
participants would have been expanded.
Number 0407
REPRESENTATIVE SCALZI acknowledged that there has been some
opposition to this bill because those people may not be initial
recipients under [limited entry]. He emphasized that this
merely provides a tool because the Limited Entry Commission
still has to have public hearings and devise a limited entry
plan. This legislation merely allows the permit of an initial
recipient to go to a vessel. He recalled Representative
McGuire's concern in regard to the possibility that [this
limited entry] would short circuit [new] folks from entering
into these fisheries. He pointed out that [the Bering Sea
fishery] isn't an entry-level fishery.
REPRESENTATIVE SCALZI explained that originally HB 206 was going
to be a generic tool applicable to all fisheries. However,
there was opposition from various areas of the state and thus
CFEC limited the legislation to the two species [hair crab and
scallops]. In doing so, the next generation issue arose. Under
the current limited entry system, the owner of the permit must
be on the vessel fishing. However, these are large vessels and
the owners are rarely on board. This legislation would allow
the owner in the next generation of the permit to hire a skipper
to run the boat, as is the current situation. Therefore, the
current business practices wouldn't be changed.
Number 0633
MAX HULSE, Eagle River Seafoods, testified via teleconference.
He reviewed the changes that he would recommend. He clarified
that the changes on page 3, line 28, and page 4, lines 9-10,
involve the qualifications for future permits issued in the
scallop fisheries. On page 3, line 28, after "recent", he
suggested inserting the language "and past". On page 4, line 9,
he suggested changing "is" to "was" and insert "recent" between
"a" and "moratorium". He also suggested changing "may" to
"shall" on page 4, line 10. Mr. Hulse explained that if a
vessel permit system is established in the future, those
fishermen who benefit should be those who have historically been
involved in the fishery. Therefore, [these changes would] tie
the eligibility criteria to the receipt of a future permit.
Number 0840
JOE KYLE (ph) noted that he was representing the Korean Hair
Crab fishers. He announced support of Mr. Hulse's suggested
changes that are reflected in [Version W].
REPRESENTATIVE McGUIRE mentioned the debate regarding keeping
these permits in the hands of Alaskans and Alaskan boats and
workers. She inquired as to Mr. Kyle's opinion of that.
MR. KYLE answered that he believes the bill is in harmony with
all the other things in place at the federal and state level in
regard to keeping permits local. However, he noted that there
are no guarantees.
CHAIR KOTT closed the public testimony.
Number 0908
REPRESENTATIVE McGUIRE moved to report CSHB 206 [Version 22-
LS0426\W, Utermohle, 2/21/02], out of committee with individual
recommendations and the accompanying zero fiscal notes. There
being no objection, CSHB 206(RLS) was reported from the House
Rules Standing Committee.
OVERVIEW: UPDATE ON HCR 17 & NETRICITY'S ROLE IN ALASKA
CHAIR KOTT announced that the next order of business would be an
update from Netricity.
Number 0981
JIM DODSON, Netricity, L.L.C., informed the committee that
Netricity began the project by trying to secure a gas supply for
the project by approaching the Department of Natural Resources
(DNR). He explained that he was informed that if the state was
to sell Netricity gas, it would be subject to approval by the
legislature. Therefore, Netricity was directed to the
legislature in order to bring members up to speed on what
Netricity is trying to do. In talking with the legislature, the
project gained quite a bit of support. For instance, last year
the House passed HCR 17, which called upon DNR to enter into
some agreement to sell Netricity gas or respond to the
legislature in regard to why such a contract couldn't be entered
into. From that, a discussion within DNR ensued in regard to
the rights of the state to sell gas from the Prudhoe Bay unit,
for example, in the absence of severance of that gas from the
mineral estate. The department's response was that the state's
right to take gas in the absence of production by the producers
is an open question. If the state could take gas, it would be
going out of balance; that is [the state would] take its gas
first out of the reserves. Furthermore, there is no gas
balancing agreement or provisions under which the state could go
out of balance. Therefore, the state isn't in a good position
to attempt to sell Netricity gas. Hence, Netricity began
working with the producers in order to purchase gas. Those
negotiations are continuing; however, at this point the
commercial terms of those negotiations are being kept
confidential. Progress has been made, particularly in the last
couple of months. However, there is no gas supply contract at
this point.
CHAIR KOTT inquired as to why Netricity has identified the North
Slope as the location for this operation.
Number 1138
MIKE CASKEY, Netricity, L.L.C., explained that the business
Netricity wants to place on the North Slope takes all those
things that prohibit business and uses them to the benefit of
Netricity. Key to the location of Netricity on the North Slope
is a readily available supply of natural gas, which Netricity
hopes will be at a lesser [price] than that in the Lower 48.
Additionally, the ambient temperature on the North Slope
dramatically increases the heating and cooling efficiency. In a
server farm context, the largest expense is in cooling the
operation. In recent months, the security issue associated with
catastrophe recovery of data has been highlighted. Therefore,
the isolation of the North Slope has a tremendous of level of
security that isn't available in the Lower 48.
MR. DODSON interjected that the lack of a gas market on the
North Slope and the ability to create a gas market has really
motivated Netricity. Mr. Dodson informed the committee that
over the last five years approximately 90 percent of Netricity's
incremental ability to generate electrical power has been based
on natural gas; that trend is expected to continue. "Natural
gas is the incremental power generating fuel," he stated. In
reviewing the economics of building a 500 megawatt power plant
in the Lower 48, it amounts to a $350-$400 million investment.
A $4 price averaged over 20 years would mean that the plant
would burn between $2.5-$3 billion worth of fuel. Netricity is
focusing on the cost of fuel over time and the security of fuel
over time, which directly relates to the cost and liability of
electricity over time. Mr. Dodson said, "To say you've got
reliability in electricity supply right now in the Lower 48, I
truly think means you're saying you have reliability in your
natural gas supply." Furthermore, 50 percent of the natural gas
in the Lower 48 is coming from wells that are three years old or
younger. He said, "We are getting to adjust in time natural gas
inventory situation." There is not a lot of surplus or overhang
of natural gas supply. Moreover, the recent collapse of natural
gas prices, which he believes is primarily due to a lot of gas
being in storage, [correlates to] the collapse of the drilling
rate. Therefore, it seems that the stage is set for a shortage
of natural gas in the Lower 48, similar to what occurred in
2000-2001. Mr. Dodson also pointed out that "our" rate of
decline and base rate of reduction continues to increase. He
explained that if one enters the year with a certain amount of
deliverability, at the end of the year there will be a certain
percentage of that left. In 1990 the decline rate was between
18-19 percent and in 2001 it was between 25-27 percent. He
suggested that perhaps it would be as high as 29 percent this
year. In order to arrive at a higher degree of reliability and
lower cost of electricity with respect to natural gas, Mr.
Dodson saw Alaska, the North Slope specifically, as the solution
if one wants to remain in a country with political stability.
Number 1387
REPRESENTATIVE PORTER recognized the producers' concerns with
regard to filling Netricity's gas. He asked if Mr. Dodson and
Mr. Caskey gathered the impression from discussions with the
producers that [the decision regarding the gas supply for]
Netricity would come after the decision on the pipeline.
MR. CASKEY related his belief that in the effort to secure a
fuel supply for this generation capacity, Netricity has said on
the record that this gas will only be utilized on the North
Slope; it won't be available for pipeline shipment. Therefore,
this quantity of natural gas that will be utilized on the North
Slope is being taken out of context relative to a pipeline
mentality. This quantity of gas won't impact the current
producers' ability to ship gas or realize the eventual value of
that gas. In fact, Mr. Caskey remarked that he believes
Netricity will be additive to the gas because the reserves
Netricity is suggesting to produce and utilize will take place
in the immediate future.
MR. DODSON informed the committee that Netricity is looking at a
maximum of 125 million [gallons] a day in demand for natural gas
in the North Slope Borough. Netricity's natural gas use would
be relative to a 4.5 billion cubic feet (bcf) proposed pipeline.
Mr. Dodson echoed Mr. Caskey's comments that Netricity is
immaterial to a pipeline; Netricity isn't a volume that matters.
Furthermore, Netricity doesn't need its gas processed for
shipment; that is Netricity can use gas that has carbon dioxide
in it. Therefore, the cost involved with processing gas in
building a pipeline doesn't apply to Netricity. Mr. Dodson said
that Netricity is something that is additive to a pipeline
market. For example, if a 4.5 bcf a day pipeline came on line
eight years from today, it would probably take at least 25-30
years to drain the known reserves. He specified that the
discussion is in regard to taking year 33 or year 55 gas and
using it in the nearer term and turning it into cash.
Number 1540
CHAIR KOTT asked whether there would be an impact on the price
structure of selling gas on a future pipeline if the producers
sold Netricity gas.
MR. CASKEY replied no. He reiterated that the volumes for
Netricity are outside the volumes that would be put down a
pipeline. From a gas marketing mentality, Mr. Caskey said
Netricity wouldn't have any impact on a gas pipeline. However,
the impact would be in relation to the value of bringing a
state-of-the-art technology/business to an area with very
limited alternatives. Netricity would utilize Alaska's
resources to create an exportable product that doesn't weigh
anything, is environmentally sound, and for which the
infrastructure for the usage of that commodity is already
available.
Number 1620
REPRESENTATIVE BERKOWITZ remarked that he is reviewing things in
terms of a long-range fiscal plan, which has included discussion
of $100 million in additional revenue from the oil and gas
industry. It seems that one opportunity to explore in this
context would be to offer the producer an exemption from
whatever additional charges that might result from a new revenue
package.
MR. DODSON agreed that such would seem to be an incentive. Mr.
Dodson pointed out that the benefits of this project to the
state are different than those to the producers. The volumes
Netricity is looking to utilize aren't massive, and aren't
material relative to pipeline export volumes. However, the job
creation would be beneficial to the state.
REPRESENTATIVE BERKOWITZ related his belief that his
aforementioned incentive would benefit the producers in that it
would generate cash flow that wouldn't otherwise be present.
Furthermore, it's consistent with the Alaska Constitution, which
says: "It's the policy of the state to encourage the
development of its resources by making them available for
maximum use consistent with the public interest."
Representative Berkowitz noted that this legislature has been on
record that what Netricity is attempting is consistent with the
public interest.
Number 1726
REPRESENTATIVE McGUIRE recalled that a key issue is in regard to
the state's right to overlift gas, which resulted in DNR's
belief in the need to consult the producers. Therefore, the
discussion seems to be at a point in which Netricity is dealing
with the producers.
MR. DODSON replied yes.
REPRESENTATIVE McGUIRE inquired as to whether there is something
that this legislature can do to help Netricity move forward.
MR. DODSON answered that there needs to be a change in the
perception that Netricity is related to or tied to the pipeline
or the netback price from the pipeline, although he wasn't sure
if the legislature could help with that. Furthermore, he
expressed the need to move away from the belief that there is a
precedent-setting value. Mr. Dodson specified that the
precedent is set only to the extent that the user says that the
gas will only be used on the North Slope Borough and won't be
exported, which is what Netricity is saying. To the extent that
the legislature could forward that message, the legislature
could be very helpful.
MR. DODSON turned to the notion that by the producers selling to
Netricity, there is some precedential value to Netricity's
price. In regard to whether the price the producers set with
Netricity establishes the price for all sales from the North
Slope, Mr. Dodson didn't believe so. To the extent the
legislature could provide the producers with some assurance on
the royalty valuation, it would be helpful. Mr. Dodson noted
that the only public number in relation to producer expectations
for pricing is the effort by Phillips for a $1.25 minimum
netback price, which would be in the form of tax credits that
would bring the netback price up to $1.25 if the netback is
lower than that. Mr. Dodson expressed concern with being tied
to the netback price in that it ties Netricity to a theoretical
netback of a theoretical pipeline that may be built at some
theoretical time in the future while asking for the netback now.
Therefore, Netricity's pricing and supply needs to be divorced
from the pipeline.
REPRESENTATIVE McGUIRE inquired as to the length of a contract
with a fixed price in the gas.
MR. DODSON answered that Netricity is looking to have options,
with the duration of those options being five years. Following
those five year options, Netricity would want at least a 20 year
supply.
Number 1890
CHAIR KOTT requested that either witness refresh the committee's
memory in regard to the economic impact of this project to the
state.
MR. CASKEY answered that this project would increase taxes, job
creation, and the vendor chains associated with support on the
North Slope. This is potentially a billion dollar project. Mr.
Caskey said, "It could feasibly be the single largest high
visibility, high priority, data ... storage facility on earth."
He reiterated that Netricity is a custom fit for the North
Slope.
CHAIR KOTT pointed out that a year later, this project isn't any
closer to fruition. Therefore, he inquired as to how much
longer Netricity will continue to work on being in the North
Slope before looking elsewhere.
MR. CASKEY remarked that the positives of doing this in Alaska
have to be weighed against the risk of getting it done. Mr.
Caskey acknowledged that there are other countries, although
without the support of the U.S. Constitution, that have
potential for a Netricity-type facility. Mr. Caskey stated, "It
would be my last choice to move it out of the United States or
move it out of Alaska because I think it truly is custom fit,
but at some point in time we either have to say we will take our
investment elsewhere ...."
Number 2021
REPRESENTATIVE BERKOWITZ returned to the concern regarding
creating bad precedent. He asked if the producers have
indicated to Netricity the sideboards that would be necessary.
MR. DODSON said that he hasn't heard any specific requirements
from the producers. Mr. Dodson said that he understands fully
the concern of the producers because Netricity is maybe 2-3
percent of the daily throughput of a major export gas pipeline.
In regard to the guarantees the producers may want or need, Mr.
Dodson guessed that the royalties would be high on the list.
Additionally, he felt that there is an issue of precedent to the
extent that selling to Netricity for use on the North Slope
would establish a price for others. He pointed out that gas is
already sold to the utility on the North Slope, and that sale,
like the one to Netricity, isn't precedent setting. In both
cases, the gas would only be used within the franchise area.
Number 2126
REPRESENTATIVE MORGAN remarked that Netricity sounds like a
wonderful concept. He related his belief that there should be
value added before the oil is shipped. He recalled that the
facility would utilize 500 megawatts.
MR. DODSON said that at full build-out he could see the market
being 500 megawatts. Mr. Dodson explained that looking only at
servers, the hope was that last year's server sales worldwide
would come in at or above 4 million. Last year's server sales
came in at 4.4 million. He posed a situation in which 1.4
million servers were replacement use and 3 million were new use.
If one were to assume a 200 watt power demand to each of those
servers, somewhere 600 megawatts of incremental power demand
came on line in the world for those servers. The issue is that
those servers tend to be installed in clumps and no one sees the
aggregate electrical supply issue that is created. Mr. Dodson
remarked that he believes there were significant disruptions in
power in California because of the growth of the hi-tech
industry in that area. All of those aggregate demands showed up
in the entire power grid. Mr. Dodson related his opinion that
there is a growing market for servers and backup data services
for managed web hosting services. He further saw Alaska as
being in a position to access North American and Asian markets.
Mr. Dodson pointed out that from 1994-1999 web growth occurred
largely with unlimited capital. In such an environment, there
are few worries of cost. However, now those businesses have to
operate like real businesses and thus must worry about cost.
Mr. Dodson said that is where Netricity comes in. He pointed
out that California just entered into a long-term power contract
for $.7-$.10 per kilowatt hour wholesale, and therefore at the
entry point to the data center it amounts to about $.10-$.12 per
kilowatt hour. Additionally, a typical data center uses over
half of its power for cooling, which is another energy budget.
Therefore, by using the ambient cooling ability of the North
Slope, Netricity can attack the total energy budget.
REPRESENTATIVE MORGAN remarked that the power plant alone would
employ many people. He reiterated his belief that Netricity is
a wonderful idea.
REPRESENTATIVE BERKOWITZ inquired as to whom the legislature
needs to send another letter.
TAPE 02-3, SIDE B
Number 2292
REPRESENTATIVE McGUIRE recalled that the only concern of
Netricity was in regard to shielding the facility from
permafrost. She asked if that issue had been addressed.
MR. DODSON answered that Parsons Engineering, Texas, is working
on the feasibility study of the actual physical plant. He
explained that this particular firm was chosen because it has a
tremendous amount of experience on the North Slope. This firm
is also a contractor to AT&T for building data centers.
Therefore, within one organization the physical plant for the
power as well as the physical plant for the data can be
engineered. Furthermore, this firm has gone to a modular
concept for data centers for AT&T. If a data center is built on
site versus in a factory, the ability to have ISO9001
certification as well as a lot of quality control is lost. A
factory building modules can test all those modules before those
modules leave the factory, which is significantly cheaper than
trying to retrofit space not designed as data center space. In
response to Representative McGuire, Mr. Dodson confirmed that
this firm is reviewing the permafrost concern.
CHAIR KOTT thanked the presenters and expressed his hope that
the next update will be in regard to the construction of the
physical plant. Upon determining that Bonnie Robson, Deputy
Director, Division of Oil & Gas, Department of Natural
Resources, was not on teleconference, Chair Kott said that he
was going to ask where the report is that the legislature
requested by the first day of this session. That report was to
focus on the state's role in the sale of gas on the North Slope.
In closing, Chair Kott remarked that he and other members will
try to develop something that will encourage the sale of gas in
order to get this project moving.
ADJOURNMENT
There being no further business before the committee, the House
Rules Standing Committee meeting was adjourned at 11:55 p.m.
| Document Name | Date/Time | Subjects |
|---|