Legislature(2015 - 2016)BUTROVICH 205
10/25/2015 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB3001 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
THIRD SPECIAL SESSION
October 25, 2015
9:01 a.m.
9:01:13 AM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Pat Pitney, Director, Office of Management and Budget,
Office of the Governor; Senator Cathy Giessel; Senator
Berta Gardner; Senator Kevin Meyer; Representative Liz
Vasquez; Representative Lora Reinbold.
PRESENT VIA TELECONFERENCE
Joe Dubler, Vice President and Chief Financial Officer,
Alaska Gasline Development Corporation.
SUMMARY
SB 3001 APPROP: LNG PROJECT and FUND/AGDC/SUPP.
SB 3001 was HEARD and HELD in committee for
further consideration.
SENATE BILL NO. 3001
"An Act making supplemental appropriations; making
appropriations to capitalize funds; making
appropriations to the general fund from the budget
reserve fund (art. IX, sec. 17, Constitution of the
State of Alaska) in accordance with sec. 12(c), ch. 1,
SSSLA 2015; and providing for an effective date."
9:02:18 AM
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced the bill. She stated
that Section 1 was the capitalization for the Alaska
Liquefied Natural Gas (AKLNG) project. It allowed Alaska
Gasline Development Corporation (AGDC) to pay TransCanada
for their work completed to date; and to transition and
provide all cash calls assigned to AGDC. She stated that
Section 1(b) was a $13.6 million request for the agencies
in support of moving through the Pre-FEED stage through the
end of FY 16. She stated that there was also a request from
the Department of Natural Resources (DNR) for $2 million; a
request from Department of Law for $10 million; and DOR for
$1.3 million. She recalled a request from DNR in the FY 16
budget request for the North Slope gas section for $13
million. The final FY 16 budget appropriated only $9
million. She stressed that the total funds were still below
the original DNR request. She addressed Section 2, which
provided AGDC to be reimbursed by the AKLNG project for
fuel work to be deposited in the Liquefied Natural Gas
fund. She explained that Section 3 did not allow for a
lapse in the capitalization fund. She announced that
Section 4 was a reminder that the FY 16 budget held a
provision that allowed for supplemental budget requests up
to $500 million to fit within the Constitutional Budget
Reserve (CBR) vote.
Co-Chair MacKinnon wondered whether the administration
believed that the budget reserve fund was for supplemental
appropriations or for the price per barrel continually
lowering than anticipated. Ms. Pitney stated that it was
the administration's interpretation that that the budget
reserve was intended for the FY 16 budget plus $500 million
supplemental funding. She explained that the language
outlined the intention to use the CBR to address any
shortfall. She remarked that the price change in oil and
the addition of the supplemental budget required more of
the CBR than previously projected. She furthered that there
may be more than $500 million required, because the price
change showed a possible $400 million difference.
9:07:30 AM
Senator Dunleavy articulated if the state was already
anticipating being over-budget. He referred to prior
discussions that had asserted that the project would be $45
billion but then increased to $65 billion. Ms. Pitney
responded in the negative. A significant number of the
scope changes were moving work expected to be done in the
FEED stage into the pre-FEED stage of the project. She
announced that the construction was slated to be between
$12 billion and $16 billion. She detailed the scope
changes, which were based on a work plan and budget plan
for calendar year 2016.
Senator Dunleavy followed up to ask about a perceived
increase in the budget by $30 million. Ms. Pitney clarified
that there was a $30 million to bring the 48 inch pipe plan
to the same level of the 42 inch pipe. She stated that the
48 inch pipe was always in the state's interest. She
remarked that there was a possible return on investment in
the 48 inch pipe, the due diligence would have a return on
investment.
Co-Chair MacKinnon commented that there would be
forthcoming presentations. She asked committee members to
consider questions they might have for the later
presenters.
Co-Chair MacKinnon asked if Ms. Pitney could share why the
governor was asking for the buyout. Ms. Pitney addressed
what would be covered in a later presentation.
9:12:25 AM
Ms. Pitney addressed slide 3, "SOA AKLNG Appropriations to
Date":
Funding to Date $90.5 M
SB138 General Fund to LNG Fund (FY14-FY15) $69,835.0
•Capitalized the LNG Fund
•AGDC, AKLNG downstream cash calls, contractual
service with agencies
General Fund Appropriations (FY15) $11,762.0
•AEA in-state affordable energy study
•DNR North Slope Gas Commercialization
•DOR Tax Division
Appropriations (FY16) $8,987.0
•DNR North Slope Gas Commercialization (in-state
gas line fund)
Authorization from LNG Fund (FY16)
•Within original $69,835.0 capitalization
•AGDC, DNR, DOTPF $3,023.0
Ms. Pitney addressed slide 4, "State Gas Team--FY2016
Supplemental Summary":
Supplemental Request $157.6 million plus $5 million
AGDC Statutorily Designated Program Receipts (SDPR):
Agency Operating Budgets $13,607.0
DNR: $2,126.0
DOR: $1,381.0
DOL: $10,100.0
AGDC: Capital Budget $144,045.0
Reimburse TransCanada: $68,445.0
Fund State's remaining Pre-FEED share: $75,600.0
AGDC: Receipt Authority $5,000.0
AKLNG reimbursement for work performed
Vice-Chair Micciche wondered if the reimbursement to
TransCanada included the 7.1 percent interest. Ms. Pitney
replied in the affirmative.
9:15:40 AM
Senator Dunleavy asked about the Department of Labor and
Workforce Development (DLWD) funds and wondered how the
funds would be allocated. Ms. Pitney stated that it was
primarily for outside council and could provide more
details later in her presentation.
Co-Chair MacKinnon referred to slide 4, and wondered
whether the state's remaining pre-FEED share was based on
the new project budget numbers were agreed to by the
partners, or a first quarter update with the numbers
continuing to change. Ms. Pitney responded that the money
completed the total pre-FEED amount. The timing was based
on the work plan and budget review. The plan was in the
process of extending to December 4, which outlined the cash
call schedule through the finish of pre-FEED.
Co-Chair MacKinnon announced that the bill outlined a stage
gated process, which allowed for a period of time to
continue to participate with the project. Ms. Pitney
agreed.
Co-Chair MacKinnon shared that the partners had agreed to
the budget, in order to reach the phase of construction.
Ms. Pitney stated that that the money was for the pre-FEED,
and FEED costs would bring the project into the
construction phase.
Co-Chair MacKinnon asked if the partners were waiting on
the legislature appropriation. Ms. Pitney replied in the
affirmative.
Ms. Pitney presented slide 5, "Alaska Gasline Development
Corporation State Gas Team":
Anticipated changes to the scope of pre-FEED:
•Pre-FEED scope and schedule increase the budget
$182 million to $694 million
•State share of new total is $173 million -- $66
million liquefaction plant, $107 million mid-
stream (GTP and pipe)
•Moving work ahead into pre-FEED is important to
have the best information available to complete
internal review and make FEED decision
•A project of this magnitude matures through the
stage-gate development process. Work activities
are often shifted between stages in order to
facilitate better design and decision making
•Scope changes are designed to improve project
economics, permitting outcomes and the quality of
information available for FEED evaluation:
Component level optimization to lower costs
and increase efficiency ($57 million)
Accelerate regulatory and pre-bid work on
FEED contracting ($66 million)
Increase scope of geotechnical and geohazard
work at GTP and LNG sites; complete weather
delayed off-shore field work ($29 million)
Bring 48" pipe deliverables up to 42" level
of development ($30 million)
9:20:26 AM
Co-Chair Kelly queried the $182 million reference. Ms.
Pitney clarified that the $182 million included the change
for all parties from the $511 million to the $694 million.
Co-Chair MacKinnon referred to a letter the legislature had
received on October 23, which announced that the number was
$693 million. She wondered if the increase to $694 million
was on because of the rounding up. Ms. Pitney indicated
yes.
Senator Bishop referred back to Senator Dunleavy's earlier
question regarding the increase in pipe size from 42" to
48". He wondered if the aforementioned increase was due to
a $30 million component number. He wondered the intention
of the $30 million. Ms. Pitney detailed that there were
four components to the proposed change: Component level
optimization to lower costs and increase efficiency ($57
million); Accelerate regulatory and pre-bid work on FEED
contracting ($66 million); Increase scope of geotechnical
and geo hazard work at GTP and LNG sites; complete weather
delayed off-shore field work ($29 million); and Bring 48"
pipe deliverables up to 42" level of development ($30
million).
Vice-Chair Micciche assumed that all the costs were a 25
percent value, except for the $30 million that the state
would absorb. Ms. Pitney replied that all of the cost
increases would be split into a 25 percent share.
Vice-Chair Micciche wondered if the $30 million was added
to the total cost of the project. Ms. Pitney replied in the
affirmative.
Senator Dunleavy asked for clarification that the
additional cost to the state would be split between the
partners, and wondered if the other partners were also
contributing to the cost of the pipe size study. Ms. Pitney
detailed that the four component changes totaled $173
million, which would be split between the partners.
Senator Dunleavy referred to the bottom of slide 5,
wondering if the $30 million was paid for by the state, or
would it be divided between the partners. Ms. Pitney
replied that the additional cost to the state would be $30
million divided by four.
9:25:36 AM
Co-Chair MacKinnon wondered if the testimony was about four
different voting parties, or equal distribution of funds.
She explained that ExxonMobil owned 31 percent of the pipe,
the state owned 25 percent with TransCanada's incurred
interest, BP owned 22 percent, and ConocoPhilips owned 21
percent of the project. Ms. Pitney believed it was the
proportional share of the project. The state's proportional
share, currently including TransCanada was 25 percent.
Co-Chair MacKinnon stressed that AKLNG was an integrated
project, where the percentage of ownership was equal to the
percentage of any cost increases or project expenses. Ms.
Pitney agreed. She remarked that the three producers had
slightly different percentage shares.
Co-Chair MacKinnon announced that the vote to move forward
was taken inside the project teams, equally between four
members, to move incur the cost and benefit of increasing
the size of the pipe. Ms. Pitney agreed.
Senator Dunleavy referred to an earlier question about the
intended size of the pipe, and wondered if it was the
belief that the pipe size would increase from 42 inches to
48 inches. He stressed that the committee may not have
always assumed the increase in pipe size. Ms. Pitney
deferred to Ms. Rutherford. She explained that the state's
initial interest was a 48 inch pipe. She stressed that the
state had not changed its perspective, but rather was
catching up to the original interest.
Senator Hoffman referred to the additional $30 million and
wondered if it was assumed that the 48 inch pipe would be
constructed, if there was a greater rate of return. Ms.
Pitney deferred to AGDC.
Co-Chair Kelly queried further information about the
assumption that the 48 inch pipe was originally intended
from the inception of the project. Ms. Pitney stated that
Ms. Rutherford was probably following the meeting online.
Co-Chair MacKinnon asked if the partners were exploring the
costs and the benefit of the expansion from 42 inch to 48
inch. She wondered if that would be a vote in the
partnership. Ms. Pitney replied in the affirmative.
Co-Chair MacKinnon wondered if there was discussion inside
the partnership regarding pipe size expansion, and that the
state would carry the entire cost if there was not benefit
for all the partners. Ms. Pitney deferred to Ms. Rutherford
and AGDC on the specifics of that decision point.
Co-Chair MacKinnon asked if there was speculation inside
the partnership regarding who would be responsible for
additional costs. Ms. Pitney replied that she could not
speculate on that issue. She remarked that the project was
a partnership, so the partnerships decision resulted in
full shared cost.
9:31:02 AM
JOE DUBLER, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
ALASKA GASLINE DEVELOPMENT CORPORATION (via
teleconference), addressed Co-Chair MacKinnon's question,
stating that each partner had separate issues. The state
wanted to open the North Slope to exploration, so wanted
the pipe to be as large as possible. The producers
preferred a lowest possible cost of service on the project,
which may or may not result from a 48 inch pipe. He stated
that one the analysis was complete, the partners would
examine the results to make the best determination for
their particular entity. He stressed that the state may
have the option to fund the work for the 48 inch pipe,
should the other partners vote "no."
Co-Chair Kelly requested a source for the 48 inch pipe
materials. He understood that there was only one 48 inch
pipe manufacturer in the world.
Senator Dunleavy discussed alignment within the state and
the partners. He referred to a joint meeting where the pipe
size was discussed, and asserted that the information
currently being presented was different than what was
discussed. He thought that the 48 inch pipeline idea was
initiated by the state and was concerned that there was a
great deal of deviation from the initial plan.
9:35:16 AM
Vice-Chair Micciche remarked that the pipe diameter had
been evaluated prior to this legislation, so he wanted to
understand the quantified project delay associated with the
pipe size evaluation. He also queried the legislative
approvals required for the expansion.
Co-Chair MacKinnon thought Vice-Chair Micciche was
referring to former legislation, SB 138 and the reference
to the 42 inch pipe in statute. Vice-Chair Micciche agreed.
Ms. Pitney presented slide 6, "Pre-FEED Scope and Budget
Changes", which addressed that 2016 work plan and budget as
compared to the new Pre-FEED scope and budget change. She
explained that the $108 million for the TransCanada was
recently refined to $106.8 million. The components of the
budget included the TransCanada buyout; and the remaining
cash calls that TransCanada would have contributed,
including the allowance for contingency totaling $38
million. The scope change included the same buyout price
and the remaining cash calls. The allowance for the scope
changes included the administrative process, which was $31
million worth of work by TransCanada for the state's
behalf. The scope change also included $15 million for AGDC
in the downstream. She stated that the total for the scope
and budget changes was $144 million in Section 1(a).
Co-Chair MacKinnon announced that Ms. Pitney did not serve
on the negotiation team. Ms. Pitney agreed.
Co-Chair MacKinnon wondered if there was a new marketing
component in the proposed $144 million. Ms. Pitney replied
that the request was in the $13.6 million request.
Ms. Pitney presented slide 7, "Department of Natural
Resources State Gas Team":
DNR North Slope Gas Commercialization Office FY16 work
scope, per SB138 and other legislation, includes these
components:
•Fiscal stability commercial agreement
negotiations with Producers
•Royalty In Kind (RIK)/Royalty In Value (RIV)
analysis and decision
•In-state gas coordination and marketing of in-
state gas, assuming RIK and Trans Alaska Gas
(TAG)
•Marketing of LNG for export, assuming RIK and
TAG
•Negotiate upstream agreements - gas supply and
balancing
•Negotiate governance structure
•Negotiate midstream terms including system use;
expansion capacity and use
•Lease modifications
Personal Services ($646.0): Increase funding for
existing Marketing Lead position to attract global LNG
marketing expertise; assist the State in building
successful gas marketing organization to remain
competitive. Add a new Marketing Analyst to assist
with negotiations and pre-marketing work (December-
June).
Contractual ($1,480.0): RSA to DNR ($580.0) for
Department resource support, primarily from the
Division of Oil and Gas for upstream expertise and
other commercial/lease support. Meet contractual needs
($900.0) anticipated for FERC resource report reviews
and drafting, facilities review for commercial
aspects, commercial analysis and support, and TC
Developmental Cost audit.
9:41:36 AM
Vice-Chair Micciche assumed that the state supported a
joint marketing organization. He shared that the
partnership was successful, because the state would be able
to reap the benefit of the top LNG marketers. He wondered
why the state would make a substantial investment in its
own marketers, if the partners were able to market the gas
on a prestigious level. Ms. Pitney deferred to Ms.
Rutherford or Mr. Dubler. She shared that the state's
investment in marketing ensured the state's interest in the
partnership.
Co-Chair MacKinnon wondered if the employees for the
project would be salaried or under contract. She remarked
on the state's current unfunded liability, and felt that
the salaried employees may draw a substantial amount of
financial benefit to the state. She felt hiring a
contracted individual would be more financially beneficial
to the state. Ms. Pitney agreed that the position would
require a high wage. She shared that the state's retirement
system was currently a defined contribution, with no long-
term liability, unless the employee remained in the system
for ten years. She explained that the employer would pay 22
percent to offset the past service liability. She stressed
that
Co-Chair MacKinnon stressed that she was hoping to see a
long-term marketing position, if the state was marketing
itself.
9:45:40 AM
Co-Chair MacKinnon remarked that the University was
initially given one funding line that it could distribute
to the campuses. Later, individual campuses began to desire
further funds. Ms. Pitney related that there was a period
of time that a single appropriation went to seven lines of
appropriation, which allowed for more flexibility within
the agency.
Co-Chair MacKinnon referred to AGDC as "the mothership" and
wondered why the agencies were not getting direct
appropriations. Ms. Pitney stated that the way the bill was
structured dictated there was not a pass-through from AGDC.
Co-Chair MacKinnon wondered why DNR, DOL, and Department of
Commerce, Community and Economic Development (DCCED) did
not receive direct appropriations, versus filtering through
AGDC. Ms. Pitney responded that the bill was structured
with $13 million capitalized in the liquefied natural gas
fund, and was then directly appropriated to DNR, DOL, and
DOR. There was no pass through AGDC. The funds were passed
through the liquefied natural gas fund in order to track
all the funds for the project.
9:49:16 AM
AT EASE
9:59:48 AM
RECONVENED
Senator Dunleavy expressed a desire for the administration
to do an overview of SB 138, in aid of clarifying the exact
intent of the project.
Co-Chair MacKinnon asked if it was possible to put together
a blueprint or presentation of the administration's outline
of a successful project. She thought that if SB 138 was the
process that had already been placed within state statute,
then how the administration sees differently advancing the
project. She wondered if additional legislation was
required.
Senator Dunleavy felt that SB 138 was fairly prescriptive,
and thought it would be helpful to outline SB 138.
Co-Chair MacKinnon asked Darwin Peterson [in the gallery]
if he could outline the proposed plan.
10:04:06 AM
Ms. Pitney presented slide 8, "Department of Revenue State
Gas Team":
DOR FY16 work scope, per SB138 and other legislation,
includes these components:
•Identify and report range of state financing
alternatives for Project
•Evaluate municipality, Native Corporation,
resident investment options
•Identify impact and benefits of project on
Alaskan communities
•Recommend changes to property tax statutes for
Project infrastructure
•Negotiate property tax (Impact payments and Flow
Related Property Tax)
•Coordinate Municipal Advisory Gas Project Review
(MAGPR) Board and prepare reports to legislature
•Consult on fiscal stability negotiations
•Consult on commercial structure and governance
•Consult on upstream agreement negotiations
•State lead on Project Integrated Finance team
and Project Tax team
•Co-State lead on Project Sponsor team and
Venture Alignment Memorandum of Understanding
(VAMOU) team
•Coordinate and implement FEED financing plan
Ms. Pitney addressed slide 9, "Department of Revenue State
Gas Team":
Personal Services ($794.0): Funding for work scope on
fiscals, financing options, governance, production
tax, federal tax implications; property tax, and
revenue aspects of marketing; coordinate MAGPR Board
activities; TC Development Cost audit services.
Travel and Supplies ($87.0): Other related expenses
and audit travel expenses performing work services for
AKLNG.
Contractual Budget ($500.0): Fund State of Alaska
share of "bankability" review of Project financing
options and commercial structure.
Senator Dunleavy wondered who would convey whether the
state was meeting its timelines in the project process. Ms.
Pitney responded that Black and Veatch and AGDC would
address that question.
Co-Chair MacKinnon referred back to slide 8, and referred
to an amendment to SB 138 involving opportunities for
Alaskan's to participate in various aspects of the project.
She wondered if the administration could address how the
state could provide the opportunity for investing in the
project. Ms. Pitney made a note of the request, and agreed
to provide further information.
Vice-Chair Micciche wondered if there were any other
expenditures that were authorized by the administration in
advance of an appropriation, such as the $30 million
pipeline diameter request. He stressed that it was
important to work with the administration by having the
appropriation discussion in advance of budget requests. Ms.
Pitney responded in the negative, and stated that it was
within the administration's purview to outline the required
funding to meet the scope change.
Co-Chair MacKinnon surmised that the state took on a set of
expenses which were presented to the partners for
incorporation into an increased budget. Ms. Pitney deferred
to Ms. Rutherford.
10:10:32 AM
Vice-Chair Micciche stated that the committee was in
support of the AKLNG project, and reiterated the importance
of alignment between the legislature and the
administration.
Ms. Pitney outlined slide 10, "Department of Law State Gas
Team":
DOL FY16 work scope:
•Represent the State's interest moving the
process to a project
•Provide legal support to agencies and AGDC for
all commercial agreements and other decisions
Contractual ($10,100.0):
•Contract services with law firms for drafting,
negotiating and reviewing AKLNG contracts with
the Producers
•Contract services to provide regulatory and
legal support for state participation in AKLNG
project
Law firms under contract to DOL are:
•Greenberg Traurig
•Milbank, Tweed, Hadley and McCloy
Co-Chair MacKinnon shared that she was the former Chair of
the Legislative Budget and Audit Committee (LB&A), where
she observed that there were limited opportunities to
contract. She wondered if there was a conflict of interest
within the firms that we had not yet addressed. Ms. Pitney
asserted that the firms were representing the state's
interest and the state was working to ensure that there was
no conflict of interest.
10:15:40 AM
Senator Dunleavy wondered if more funding was needed for
contract services and legal support. Ms. Pitney replied
that the state was taking a more aggressive role in
contract negotiations and getting the project aligned with
a more central approach.
Vice-Chair Micciche suggested that slide 10 was vague, and
asked for additional detail with regard to the contractual
services. Ms. Pitney agreed to provide the numbers later in
the day. She furthered that the current allocation for FY
16 was in the supplemental request document.
Co-Chair MacKinnon wondered if the committee could have a
copy of the supplemental request.
10:18:02 AM
AT EASE
10:25:14 AM
RECONVENED
Co-Chair MacKinnon referred to the document titled "FY 2016
Supplemental Request for State Agencies: $13.6 million"
(copy on file).
Vice-Chair Micciche expressed that the document answered
his questions, which outlined the location of the cash
payments.
Co-Chair MacKinnon expected to hear from DOL and DOR to
support the document.
10:27:41 AM
Ms. Pitney addressed slide 11, "Alaska Gasline Development
Corporation State Gas Team":
AGDC FY16 work scope, per SB138 and other legislation,
includes these components:
•Manage State's equity participation in Alaska
LNG project including LNG and Marine facilities
in Nikiski, and if TC exits, the pipeline and Gas
Treatment Plant
•Develop means for delivering North Slope natural
gas in-state
AGDC Capital Budget ($144,045.0):
•$68,445.0 - Funds to reimburse TransCanada and
"buy-out" their mid-stream interest
•$75,600.0 - State's full 25 percent share of
remaining pre-FEED
AGDC Receipt Authority ($5,000.0): Statutory
Designated Program Receipts (SDPR) will allow AGDC to
be reimbursed for Alaska LNG related field work
conducted on behalf of the project
Ms. Pitney referred back to slide 6, showing the 29, 31,
and 15 percent cash calls associated with the project.
Ms. Pitney continued to discuss slide 11, detailing the
remainder of funding for the pre-FEED. She discussed the
final component of the bill, the ability for AGDC to be
reimbursed for the field work done on the project.
10:30:17 AM
Senator Dunleavy queried TransCanada's involvement in the
project, and the reason the buyout was considered. Ms.
Pitney explained that TransCanada came to the project with
two strengths: they came to the project with funding to
satisfy cash calls.
Senator Dunleavy interjected that TransCanada would
"bankroll" Alaska's portion of the project. Ms. Pitney
responded that TransCanada would bankroll the portion, but
provide the money upfront. She furthered that TransCanada
had significant pipeline experience. She explained that
there was a "clear contractual off-ramp", which would be
fairly civil if exercised immediately.
Senator Dunleavy summarized that TransCanada brought
expertise and financing to the project. He asserted that
TransCanada would have paid a higher interest rate in the
market, and would have taken the risk in the financing.
Ms. Pitney clarified that TransCanada was taking no risk in
the financing; rather, the state was taking on the risk.
She stressed that the state must pay the incurred cost to
TransCanada.
Senator Dunleavy suggested that TransCanada would have
incurred no risk, should they be the financing instrument
for the state. Ms. Pitney agree.
Co-Chair Kelly stressed that TransCanada was engaging in
risk with possible cost-overruns and increased finance
costs. He remarked that increased rates would have resulted
in increased costs to TransCanada. Ms. Pitney clarified
that in the Pre-FEED and FEED stages there was no risk to
TransCanada.
10:34:14 AM
Co-Chair MacKinnon stated that there was a difference of
opinion with regard to the concept of "risk." She furthered
that there could be downside or upside opportunity, but
there was a guarantee for a rate return on investment.
Co-Chair MacKinnon asked if the administration would be
discussing the TransCanada buyout as it related to the
property taxes that TransCanada would have been required to
pay. She stressed that PILT would be affected by $800
million without TransCanada. She wondered if that concern
had been evaluated by the administration. She specifically
wondered how the municipalities felt about losing $800
million, or the entire capital construction cost of $16.5
billion. She specifically queried whether the Black and
Veatch presentations would include those evaluations. Ms.
Pitney responded that she would relay that question to the
proper person, and that person would respond to the query.
Co-Chair MacKinnon asked about the AGDC Receipt Authority
detailed on slide 11. She remarked that the
administration's letter calling for the special session
suggested new program receipt authority. She queried the
source of the program receipts. She queried the details of
the project billing related to the project in the state's
interested. Ms. Pitney replied that the cash calls funded
the scope of work for the AKLNG project. She explained that
AGDC had individuals assigned to perform a particular set
of field work within the cash call. She specified the cash
call must be accepted, then the reimbursement would occur
for field work conducted on behalf of AKLNG.
Co-Chair MacKinnon surmised that the state would bill the
partnership entity as a whole for project-specific
information supplied by the state. Ms. Pitney explained
that the reimbursement would be for field work.
Co-Chair MacKinnon wondered whether there were acceptable
parameters around the limits of the project expenses. She
explained that the state had accepted costs as a partner
under TransCanada. She queried a list of criteria for
expenses that could be charged to the project. Ms. Pitney
deferred to Mr. Dubler.
Co-Chair MacKinnon asked if the state had charged any
statutory designated program receipts, and whether the
administration had that authority. Ms. Pitney stated that
the work could be conducted, but the money receipts would
be deposited into the general fund without statutory
program receipt authority. The authority allowed the
receipt of the funding to return to AGDC to offset the
costs.
Co-Chair MacKinnon wondered if the state already had
statutory authority for the receipt portion. Ms. Pitney
responded in the negative, and clarified that the
legislation included the request.
10:40:36 AM
Ms. Pitney addressed slide 12, "Remaining State Investment
in AKLNG":
•GF Appropriation of $157.6 M to acquire TransCanada's
interest and complete pre-FEED
•Under success scenario, FEED would be initiated in
FY2017 - SOA costs estimated at $875M
•SOA's 25 percent share of project construction
estimated at $12-16 billion. These costs can largely
be financed and secured with project revenue.
12
Senator Hoffman referred to slide 12, and asked if the
funding components listed on the graph would appear as
separate appropriation bills. Ms. Pitney related that the
decision had not yet been made. She shared that the
appropriation would take effect in FY 17, if the plan
maintains the desired schedule. She relayed that the
project may enter into the FEED phase as early as the end
of FY 17, so a budget request would be required in a
similar amount.
Senator Hoffman asserted that the current legislature would
not make that decision. Ms. Pitney responded that it was
possible that the current legislature would make that
decision.
10:45:41 AM
Vice-Chair Micciche remarked that the schedule showed
expenditures beginning in FY 17, which would require
legislative action. Ms. Pitney replied that the AGDC
budgets for FY 17 required legislative action. She shared
that the legislative action was also essential for the
completion on Pre-FEED and the FEED decision dates. She
stressed that the current legislature may not be required
to take swift action.
Vice-Chair Micciche surmised that the slide was a "rough
illustration" of the potential scheduling. Ms. Pitney
agreed.
Co-Chair MacKinnon asked if the partners believed that
Alaska wanted the project. Ms. Pitney responded in the
affirmative.
Co-Chair MacKinnon wondered if the administration's request
for funds would set the state in a positive light. Ms.
Pitney replied that it would be one possible advantage of
putting in a placeholder earlier.
Co-Chair Kelly queried the state's share of the $165
million, with the continued involvement of TransCanada. Ms.
Pitney was unable to calculate the amount. She stated that
the midstream and downstream divide would be the same
proportional split between TransCanada and AGDC.
Co-Chair Kelly thought he remembered that the state's share
would have been $250 million to $255 million.
Senator Dunleavy wondered if the partners thought the state
desired the current project, or did the state wanted any
project. Ms. Pitney thought it was clear that the state
wanted the AKLNG project.
Senator Bishop remarked that the governor had expressed his
desire for the AKLNG project.
10:50:04 AM
Ms. Pitney presented slide 13, "In Conclusion - Moving From
Process to Project":
The FY2016 Supplemental Budget Request reflects our
collective focus on getting Alaska's gas to Alaskans
and LNG to global markets to generate revenue and
diversifying Alaska's economy
Vice-Chair Micciche stressed that he initially supported
TransCanada's participation in the project. He thought one
of the benefits of the buyout was gaining control of the
project. He shared a concern that final decisions on the
project would be in the hands of future administrations who
could be "less credible." Ms. Pitney thought the
legislation was intended to create institutionalization of
the process. She furthered that there would be more
concrete the deliverables the further along the FEED
process was.
Vice-Chair Micciche felt there was a lack of
institutionalization in the bill. He warned against moving
forward on the bill, because of the lack of
institutionalization.
Co-Chair MacKinnon echoed prior comments and referred to SB
138 as the current "law of the land." She stressed that the
legislature's involvement was imperative in addressing any
suggested changes from the administration.
Co-Chair MacKinnon queried the lead on the project for the
state. Ms. Pitney responded that Governor Walker was the
lead on the project for the state.
Co-Chair Kelly asked who the lead was "one down from
Governor Walker."
Co-Chair MacKinnon related that Co-Chair Kelly's question
was to be taken seriously. She remarked that there was
considerable consternation attempting to identify who would
lead the project on the bargaining agreement.
SB 3001 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
10:56:30 AM
The meeting was adjourned at 10:56 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 102515 Pitney - FY16 Supplemental Budget Presentation.pdf |
SFIN 10/25/2015 9:00:00 AM |
AKLNG |
| 102515 enalytica TransCanada Report October 2015.pdf |
SFIN 10/25/2015 9:00:00 AM |
AKLNG |
| 102515 SB 3001 FY2016 Supplemental Request for State Agencies.pdf |
SFIN 10/25/2015 9:00:00 AM |
SB3001 |