Legislature(2015 - 2016)BUTROVICH 205
10/30/2015 03:00 PM 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 30, 2015
3:09 p.m.
3:09:07 PM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 3:09 p.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
Craig Richards, Attorney General, Department of Law; Marty
Rutherford, Deputy Commissioner, Department of Natural
Resources; Martin Shultz, Assistant General, Department of
Law; Senator Charlie Huggins; Representative Geran Tarr;
Senator Kevin Meyer; Representative Matt Claman.
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."
3:10:36 PM
Co-Chair MacKinnon introduced the legislators in the room.
CRAIG RICHARDS, ATTORNEY GENERAL, DEPARTMENT OF LAW,
introduced himself.
MARTY RUTHERFORD, DEPUTY COMMISSIONER, DEPARTMENT OF
NATURAL RESOURCES, introduced herself.
MARTIN SHULTZ, ASSISTANT GENERAL, DEPARTMENT OF LAW,
discussed the presentation, "Senate Bill 138 and AKLNG
Project Overview, October 2015" (copy on file).He looked at
slide 2, "Senate Bill 138":
• Passed April 2014
• Provides Authority for the AKLNG Project
• AGDC: Infrastructure
• DNR and DOR: Gas
• Legislature: Contract Approval
• Provides New Provisions for Tax as Gas (TAG)
• Amends Oil and Gas Production Tax Statutes
• Created Municipal Advisory Gas Project Review Board
• Requires Reports to Legislature
3:16:01 PM
Mr. Shultz highlighted slide 3, "Provides Authority for
AKLNG Project, AGDC":
SECTIONS 7
• Amended AGDC's Statutory Purpose, Powers and Duties,
Funds to allow AGDC to hold an ownership interest in
an Alaska liquefied natural gas project
• AS 31.25.005 - AGDC may develop and have
primary responsibility for developing an Alaska
liquefied natural gas project
• AS 31.25.080(a) - AGDC may acquire ownership
interest in pipeline, gas treatment, liquefaction
• AS 31.25.110 - Alaska liquefied natural gas
project fund
Mr. Shultz discussed slide 4, "Provides Authority for AKLNG
Project, DNR":
SECTIONS 24
• Give DNR commissioner authority to negotiate
commercial agreements, market RIK/TAG, and modify
leases
• AS 38.05.020(b)(11) - In consultation with DOR,
participate in negotiation of agreements that
include balancing, marketing, disposition of
natural gas, and offtake
• AS 38.05.020(b)(14)- In consultation with DOR,
take custody of tax delivered to the state as gas
(TAG) and manage project services and disposition
and sale of TAG
• AS 38.05.180(hh)
make certain modifications to AKLNG Project
leases for initial project term
Mr. Shultz commented that the slide gave a high level look
at DNR's authority in the project. He noted that it was in
compliance with every provision of SB 138. He pointed out a
key provision of SB 138 was to authorize the commissioner.
Further, SB 138 authorized DNR to take custody of the "tax
as gas" (TAG).
3:20:16 PM
Senator Dunleavy asked for more information about targets
in the sectional analysis. Mr. Schultz clarified that the
state agencies that were given roles under SB 138 were in
compliance with the responsibilities that were assigned
under those roles. He stated that negotiations with
counterparties left some things out of the state's control.
Senator Dunleavy wondered if there would be a discussion of
benchmarks or anything that the administration may request
modification. Mr. Schultz replied that there would be
benchmark discussion by Ms. Rutherford later in the
presentation.
Senator Dunleavy remarked that he would like to know the
issues regarding the reasoning behind the administration's
efforts. He requested the administration's concerns with
the bill. Mr. Schultz replied that there were no current
statutory amendments to former legislation SB 138. He felt
that SB 138 provided the authority that the different
agencies and AGDC needed to pursue the project.
Co-Chair MacKinnon wondered if General Richards had any
related comments. General Richards affirmed the comments of
Mr. Schultz.
Co-Chair MacKinnon looked at slide 3, and wondered if it
was an accurate statement that "AGDC may develop and have
primary responsibility for developing an Alaska liquefied
natural gas project", or did the statute say "AGDC shall",
etc.
3:24:11 PM
AT EASE
3:25:11 PM
RECONVENED
3:25:18 PM
Co-Chair MacKinnon wondered if the slide accurately
reflected state statute. Mr. Schultz replied that the bill
said "shall."
Co-Chair MacKinnon wondered if the word "shall" related to
the LNG component to the project. Mr. Schultz replied that
AGDC was authorized to have an equity interest in all
components of the project. He stated that AGDC was the
state's infrastructure owner, and Department of Natural
Resources (DNR) owned the gas.
Senator Dunleavy wondered if the wording in the slide
should be changed to "may." Mr. Schultz replied that it
says "shall" in the statute.
Senator Dunleavy felt that the "may" should be "shall." Mr.
Schultz agreed.
Mr. Schultz clarified that in AS 31.25.080 the word was
"may", and AS 31.25.005 used the word "shall."
Co-Chair MacKinnon announced that her question related to
AS 31.25.005. She wanted to be sure that AGDC "shall" have
primary responsibilities for developing a liquefied natural
gas project on behalf of the state.
Mr. Schultz addressed slide 5, "Provides Authority for
AKLNG Project, DOR":
SECTIONS 24
• Expand the authority of commissioner of DOR
• AS 38.05.020(b)(11) - In consultation with DOR,
participate in negotiation of agreements that
include balancing, marketing, disposition of
natural gas, and offtake
• AS 38.05.020(b)(14)- In consultation with DOR,
take custody of tax delivered to the state as gas
(TAG) and manage project services and disposition
and sale of TAG
• AS 43.05.010(17) - DOR commissioner directs the
disposition of revenues received from TAG
3:30:27 PM
Co-Chair MacKinnon looked at slide 4, and wondered who was
working on commercial agreements. Mr. Schultz replied that
the state had a team to work together. There were separate
primary responsibilities, but there was a coordinated team
to negotiate the issues. He explained that the
infrastructure agreements were the primary responsibility
of AGDC, but in regard to some other agreements that were
primarily DNR's responsibilities.
Co-Chair MacKinnon wanted to tie the $10 million request
with the comments in the Senate Resources Committee
regarding the primary function and spending on ASAP. She
remarked that a significant portion of AGDC's budget was
spent on the ASAP line. She wondered if ASAP a separate
entity was. Mr. Schultz stated that the under SB 138, the
attorney general became counsel for AGDC with regard to the
AKLNG project in developing agreements for the project. The
attorney general's office did not represent AGDC with
regard to the ASAP project. He shared that under former
legislation, HB 4, AGDC had authority to hire its own
lawyers for the ASAP line.
Co-Chair MacKinnon wondered if there was any authority for
AGDC to purchase gas. Mr. Schultz replied that AGDC could
develop a marketing entity to purchase gas.
Co-Chair MacKinnon asked if AGDC could purchase gas. Mr.
Schultz replied that the legislature's authority to create
a marketing subsidiary necessarily implicates the ability
of that marketing entity to acquire gas.
Co-Chair MacKinnon wondered if the referenced subsidiary
was the aggregator. Mr. Schultz replied that the aggregator
was a concept that related to the AKLNG project, but AGDC
could take gas acquired from a gas seller, aggregate it,
and sell it to entities that did not have the critical mass
to acquire their own gas.
Co-Chair MacKinnon understood that HB 4 allowed a related
function. She shared that she would conduct further
research and submit an inquiry. Mr. Schultz replied that it
may relate to domestic gas.
3:35:39 PM
Mr. Schultz continued to discuss slide 5:
SECTIONS 24
• Expand the authority of commissioner of DOR
• AS 38.05.020(b)(11) - In consultation with DOR,
participate in negotiation of agreements that include
balancing, marketing, disposition of natural gas, and
offtake
• AS 38.05.020(b)(14)- In consultation with DOR, take
custody of tax delivered to the state as gas (TAG) and
manage project services and disposition and sale of
TAG
• AS 43.05.010(17) - DOR commissioner directs the
disposition of revenues received from TAG
Co-Chair MacKinnon wondered if Alaska owns some gas.
General Richards replied that technically the state of
Alaska owned the gas in the ground until titled change.
Co-Chair MacKinnon surmised that there was an inclusion of
the royalty in kind provision. She asked for a simpler
explanation. General Richards replied that Alaska owned the
gas until it was produced.
Co-Chair MacKinnon surmised that the lease holder would own
the gas at that time. General Richards replied in the
affirmative.
Mr. Schultz slide 6, "Provides Authority for AKLNG Project,
Legislature":
SECTION 24
• Gives Legislature final approval of contracts over 2
years
• AS 38.05.020(b)(11)- Any agreement or contract
negotiated under this paragraph to which the
State is a party is not effective unless the
legislature authorizes the governor to execute it
SECTION 77
• Legislature also receives quarterly AKLNG
Project briefings
3:40:19 PM
Co-Chair Kelly queried some contracts. Mr. Schultz stated
that there were some slides that would include some
participants. He stated that the producers desired some
fiscal and governance agreements.
Co-Chair Kelly wondered if the agreements were located on
slide 16. Mr. Schultz replied in the affirmative.
Co-Chair Kelly wondered if the agreements needed to be
executed by December. Mr. Schultz replied that there would
be a discussion of timing.
Co-Chair MacKinnon wondered if AGDC was required to present
the contracts to the legislature. Mr. Schultz stated that
the provision on slide 6 did not relate to AGDC, but only
applied DOR.
Co-Chair MacKinnon wondered if AGDC was required to present
to the legislature on contracts for over two years. Mr.
Schultz agreed to provide that information, but stated that
there was not a two-year provision for an AGDC contract.
3:45:22 PM
Co-Chair MacKinnon understood that the attorney general was
the counsel for AGDC, and the ASAP had their own counsel.
Mr. Schultz stated that he must have misspoke. He explained
that there was a separate attorney general, other than
himself, that represented AGDC within the Department of
Law.
Co-Chair MacKinnon wondered if AGDC was required to present
to the legislature when they entered into contracts longer
than two years. She noticed that there were some people in
the audience who were shaking their heads "no." General
Richards assumed that AGDC was not required to present to
the legislature, but agreed to provide further information.
3:46:50 PM
Co-Chair MacKinnon remarked that the committee was
surprised by the information regarding the formation of two
new subsidiaries. She wondered if there were any other
subsidiaries in the various state agencies specifically
related to gas sales agreements. General Richards replied
that he was not aware of any additional subsidiaries.
Co-Chair MacKinnon wondered where the gas negotiations
would occur. Mr. Schultz replied that SB 138 specifically
called out marketing agreements. He stated that marketing
could involve joint venture markets.
Co-Chair MacKinnon wondered if the gas sales agreements
would need to be presented to the legislature. General
Richards replied that he believed that any gas sales and
marketing agreement over two years must be presented to the
legislature.
Co-Chair MacKinnon explained that the committee had engaged
in conversations regarding the legislature's understanding
of gas sales agreements.
3:50:24 PM
Senator Bishop looked at the asset holding company, and
wondered why there should be a holding company for TC's
assets. Mr. Schultz agreed to provide that information.
Senator Bishop restated his question. He wondered why AGDC
created a holding company to hold TC's assets. Co-Chair
MacKinnon further requested something already authorized by
AGDC.
Mr. Schultz discussed slide 7, "Tax Provisions, TAG and
Taxes":
SECTIONS 42
• Relate to tax as gas (TAG) in the production tax,
and conforming amendments in corporate income tax and
oil and gas and pipeline property tax
• None of these sections address AKLNG Project
authority in the midstream or liquefaction
• Administration is either in compliance with, or
no action is required for, each of these sections
Mr. Schultz highlighted slide 8, "Municipal Advisory Gas
Project Review Board, MAGPR Board":
SECTION 74
• Requests that governor establish an advisory
planning group to advise governor on municipal
involvement in a North Slope natural gas project
• MAGPR Board assembled by AO 269 on March 25,
2014
• Chaired by Commissioner of Revenue
• Prepare MAGPR Annual Report
• Meets regularly using transparent collaborative
public process to
• Discuss AKLNG Project property tax issues
• Recommend possible options to address and
mitigate impacts of new infrastructure
associated with AKLNG Project
• Currently discussing property tax structure,
amounts and allocation
• Tentative proposal $880M Impact Fee,
$15.7B Flow Rate Property Tax
• Next MAGPR Board meeting will take place after
special session
3:55:55 PM
Co-Chair MacKinnon noted that the tentative fee proposal
for the municipalities along the route was a fixed fee. She
wondered if there may be less value to the municipalities
after the buyout. Mr. Schultz agreed to provide that
information.
Mr. Schultz addressed slide 9, "Requires Reports to
Legislature, Required Reports":
SECTIONS 73, 76
• In
• Section 73 - DNR in consultation with AGDC to
provide report and recommendations on in
costs, benefits, and risks associated with a pipeline
larger than 42 inches, due on or before date FTSA
submitted to legislature for approval
• STATUS: drafting; final on or before date FTSA
submitted
• Section 76 - DOR to provide report on financing
options, including options for municipalities,
residents, or regional corporations to invest in the
Project, due when first contract submitted to the
legislature.
• STATUS: interim report provided; final with
first contract
Senator Dunleavy wondered if the state was looking at a
corporation-type vehicle where the people could buy into
the project. Mr. Schultz deferred to DOR.
Co-Chair MacKinnon remarked that she had recently received
an email from a constituent wondering if they could
contribute or invest part of their permanent fund to the
project.
4:00:50 PM
Co-Chair MacKinnon looked at slide 9, and noted that the
state was required to provide the report about the size of
the pipe. Mr. Schultz replied that there was a draft report
that included the cost benefit and risks of the pipe
comparison.
Co-Chair MacKinnon queried the department that would
deliver the report. Mr. Schultz replied that AGDC and DNR
would work together to develop the report.
Mr. Schultz discussed slide 10, "Heads of Agreement":
• PARTIES: State, AGDC, Producers, TC
• KEY PROVISIONS:
• ARTICLE 4: Pre
between 18 and 24 months, with FEED decision
expected within 36 months
• ARTICLE 5: State equity participation and a
State Gas Share
• ARTICLE 6 and Appendix A: Pro
principles
• ARTICLE 6.5: At least five in
points for domestic gas needs
• ARTICLE 8: subject to the State being satisfied
with project enabling contracts, including
satisfactory arrangements for disposition of the
State Gas Share, the State/DNR will elect RIK
Co-Chair MacKinnon wondered if December 31, 2015 would be
the expiration date for the current Heads of Agreement
(HOA), and whether a new HOA would ask for new terms. Mr.
Schultz replied that the HOA would expire on that date. He
did not see any reason to extend the HOA.
4:05:36 PM
Co-Chair MacKinnon wondered if there should be an amendment
to state statutes to eliminate any mention of TC. Mr.
Schultz replied in the negative.
Ms. Rutherford looked at slide 11, "AKLNG Project Status,
Provided to Legislature in 2014." She noted that it was
very near the time of conclusion for Pre-FEED. She remarked
that the slide addressed fee and construction schedule.
Ms. Rutherford discussed slide 12, "AKLNG Project Status":
• Revised: Technical work delivery dates have changed,
"Legislative Action" on commercial agreements not yet
needed, but "SOA Without TC" numbers consistent with
2014 numbers
Ms. Rutherford stated that slide 13 showed that the FEED
would start in 2017. She remarked that the end dates for
the projects were different. She stated that the original
schematic showed a 2023 completion. She stressed that the
virtual project estimates were nearly identical. She
remarked that there had been some delays on the commercial
agreements.
Co-Chair MacKinnon wondered if Pre-FEED would only go
through May 2016. Ms. Rutherford replied in the
affirmative. She explained that the original schematic
showed that Pre-FEED would end.
4:11:19 PM
Co-Chair MacKinnon queried who identified the gaps. Ms.
Rutherford replied that the AKLNG Project identified the
gaps. She did not know who identified the regulatory gaps.
Co-Chair MacKinnon shared that the state of Alaska asked
the project team to examine the difference in the pipe
size, so that contributed to a delay. Ms. Rutherford
replied that Pre-FEED would not be delayed, rather it would
go the full time of the initial schedule for Pre-FEED>
Co-Chair MacKinnon wondered if the difference in numbers
between slides 11 and 12 was because of the 25 percent
ownership to the state of Alaska, or a refined number for
the overall project. Ms. Rutherford replied that the cost
was virtually identical, but there was a transfer of cash
call responsibilities from TC to the state.
Ms. Rutherford highlighted slide 13, "AKLNG Commercial
Status." She shared that she would be discussing the status
of the commercial negotiations and how the state sees the
timeliness of a FEED decision.
Co-Chair Kelly wondered if the state was the least inclined
party. He wanted to be convinced that the state was not the
"least inclined party." Ms. Rutherford replied that there
was confidentiality involved in that response.
Co-Chair Kelly stressed that he did not understand why the
state did not have a confidentiality agreement with the
partners.
4:16:03 PM
Co-Chair MacKinnon wondered if Ms. Rutherford had signed a
confidentiality agreement for the project. Ms. Rutherford
replied that she had signed a confidentiality agreement.
She stated that there were commercial negotiations where
companies were most concerned, so they did not want to be
held in terms of a particular agreement. She stressed that
there was no structural problem. She stressed that Alaska
wanted expansion and third party access, so it could
possibility affect commercial agreements.
Co-Chair Kelly wondered if the refusal to sign
confidentiality agreements slowed down the process of
commercial agreements. Ms. Rutherford replied that she was
not aware of that situation in AKLNG.
Co-Chair Kelly expressed concern about the confidentiality
agreements.
4:20:14 PM
Senator Bishop wondered if there may need to be a point
where more people sign a confidentiality agreement. Ms.
Rutherford replied that she answered to the commissioner of
DNR. She stated that her AKLNG authority was an executive.
Co-Chair Kelly wondered if the commissioner of DNR chose
not to sign the agreement, or if someone told him not to
sign it. Ms. Rutherford stated that the administration
chose not to have the commissioners sign the
confidentiality agreements, because they felt that
executives did not need to sign agreements.
Co-Chair Kelly stressed that the state was in a position
where they could not fully avail themselves of information
to move the process forward. Ms. Rutherford restated that
the administration had decided to not sign confidentiality
agreements. She stated that the producer companies had been
open with information without those concerns.
Co-Chair MacKinnon wondered if regulations were currently
out for review. Ms. Rutherford replied that AGDC had some
evaluations out for review, but she only had a rough idea
of their actions.
Co-Chair MacKinnon wondered if AGDC had any regulations out
for review, and whether they had closed. General Richards
replied in the affirmative, but did not know whether they
were closed.
Co-Chair MacKinnon announced that the regulation review
closed on October 21 or 23. She wondered if General
Richards wrote those regulations. General Richards
responded that he could not answer that question as a
matter of attorney client privilege.
4:24:51 PM
AT EASE
4:25:50 PM
RECONVENED
4:25:56 PM
Co-Chair MacKinnon wondered if an attorney for the state
wrote the regulations for the review for the project.
General Richards replied that attorneys at DOL worked on
the project. He could not confirm who wrote the
regulations.
Co-Chair MacKinnon shared that the three partners commented
on the regulations. General Richards replied that he was
not aware of those comments.
Co-Chair MacKinnon requested a review of the public comment
on those regulations. She stated that there was an issue of
public record, and the partners had expressed interest in
who was signing confidentiality agreements. She thanked Ms.
Rutherford for providing an organizational chart, which
outlined the available expertise. She remarked that there
were five decision makers on the project for the state. She
surmised that those individuals had not signed
confidentiality agreements, and wondered how the state was
able to participate in negotiations without participating
in the projects. General Richards explained that there was
an arrangement with the partners to access needed
information.
4:30:04 PM
Co-Chair MacKinnon wondered if the client was AGDC. General
Richards replied in the affirmative.
Co-Chair MacKinnon queried the attorney for the ASAP
project. General Richards replied that there were several
attorneys in various capacities, but he had not interacted
with those attorneys.
Co-Chair MacKinnon wondered if AGDC would allow information
about who wrote the regulations. General Richards responded
that Mr. Fauske may not have the power to waive that right.
He felt that question might require a legal.
Co-Chair Kelly queried the person who would provide the
legal opinion. General Richards replied that the privilege
did not belong to the individual, rather it belonged to the
corporation. He suspected it required a board action.
Co-Chair MacKinnon looked at slide 13:
Active negotiations among the AKLNG Parties are
currently underway on the following commercial
agreements. As these negotiations includes proprietary
and confidential terms and conditions, additional
details on these contracts and agreements will be
provided as negotiations are completed.
Gas supply-balancing Agreement
Governance Agreement
Expansion and Access Agreement
Fiscal Agreement
Withdrawal Agreement
Gas Sales by Withdrawing Parties Agreement
Co-Chair MacKinnon noted that there were some agreements
that were not in SB 138. Ms. Rutherford agreed that there
were specific issues that were not in SB 138. She explained
that there were elements in the upstream that required
closure before there could be a royalty in kind decision,
for example the byproduct disposal. She stressed that there
would be some issues imbedded in some other agreements. She
remarked that the governance agreements would be led by
AGDC, but DNR had input in the negotiations to protect the
state's sovereign interests.
Mr. Schultz stated that the withdrawal agreement would
probably be applied to the governance agreement.
4:35:51 PM
Co-Chair MacKinnon recalled that the governor had stated in
a press conference that SB 138 was "fundamentally flawed."
She queried the reasoning behind that statement. General
Richards responded that he did not know the reason for that
statement.
Co-Chair MacKinnon wondered why there should be further
investment, if the governor believed the AKLNG project was
fundamentally flawed. General Richards replied that the
administration was attempting to make the process
functioning, to the extent that the governor had
reservations.
Co-Chair MacKinnon wondered why the governor believed that
SB 138 was fundamentally flawed.
Co-Chair Kelly looked at slide 13, and wondered which
agreement was contingent on December 4, 2015. General
Richards replied that it was the parties' intentions to
have the gas balancing, withdrawal, and gas sales
agreements completed by December 4.
Co-Chair Kelly surmised that the balancing, withdrawal, and
sales agreement were fairly close to completion. General
Richards agreed.
Co-Chair Kelly remarked that he was worried about the
deadline, because of the magnitude of the contracts. He
queried the capability of the completion of the agreements.
He stated that some felt that the December 4 deadline was
an "artificial deadline." General Richards asked for a
question restatement.
4:40:15 PM
Co-Chair Kelly restated his question. He specifically
wondered how "hard a deadline" was the December 4 deadline.
General Richards responded that in order to make the
timeline deadlines necessary to have the constitutional
amendment on the ballot, the December 4 deadline was
realistic.
Co-Chair Kelly surmised that the withdrawal agreement
included the ability of the state to commit to potentially
hundreds of billions of cubic feet of gas. General Richards
stated that the agreement was not yet negotiated, so it was
unclear what the agreement would contain.
Co-Chair Kelly stressed that he was attempting to
understand the magnitude of the agreements.
Senator Hoffman wondered if some or all of the agreement
deadlines were considered "hard deadlines" or "targets."
General Richards explained that the hard deadline was the
date by which the constitutional amendment be approved by
the legislature to get on the November 2016 ballot.
Senator Hoffman asked if the deadline was December 4.
General Richards replied in the negative. He stated that
the deadline would be June 2016. He stated that the
December 4 deadline was a statement from the parties as to
when they expected and hoped complete the negotiations for
the agreements.
Senator Hoffman wondered if the parties considered
deadlines "hard deadlines" or "targets." General Richards
replied that he was treating the deadline like a "hard
deadline", but noted that some deadlines slip in the
process.
Co-Chair MacKinnon shared that she had reviewed a 121
document, and felt that there was no way the parties could
agree unless there was great compromise. General Richards
replied that the process was confidential.
4:44:56 PM
Co-Chair MacKinnon announced that General Richards
statement was "unacceptable." She wondered if there could
be an executive session to determine the negotiated terms
on behalf of the state for well head value. She wondered
how the committee would know that there was a "good deal."
General Richards stressed that the process was
confidential.
Co-Chair MacKinnon asked if SB 138 was flawed. General
Richards replied that it was inappropriate to provide his
opinion on fundamental policy matters. He stressed that he
would continue to advocate for his client's positions,
including working toward the best deal for the state and
providing the contracts on time.
Co-Chair Kelly wondered if the contracts would be presented
to the legislature for review before December 4. General
Richards replied that the target date was December 4, but
there were target dates for other contracts that back up
from the deadline that were confidential. He stated that,
if all the deadlines were met, there would be a package of
contracts presented to the legislature in the regular
session or special session. At that time, the legislature
would have the opportunity to approve all the agreements.
There would then be a vote to put a constitutional
amendment on the ballot.
Senator Dunleavy asked if the project budget vote was
scheduled for December 4, 2015. General Richards deferred
to Ms. Rutherford. Ms. Rutherford explained that the
December 4 vote was for the work plan budget for the
completion of pre-FEED.
Senator Dunleavy surmised that the December 4 was not a
hard deadline. He asserted that a "no" vote would halt the
project regardless of the date of the meeting. Ms.
Rutherford replied in the affirmative.
Senator Dunleavy wondered if there would be slides in the
presentation related to issues with the bill. Ms.
Rutherford responded in the affirmative.
Ms. Rutherford stated that the administration did not feel
there needed to be current structural changes required to
SB 138. She stated that there were some negotiation that
were difficult, but the bill structure could accommodate
the necessary actions.
Senator Dunleavy wondered if the governor thought that SB
138 was "fundamentally flawed." Ms. Rutherford replied that
she could not speak for the governor. She stressed that
necessary commitments must be in order to allow for the
project to move forward.
4:50:52 PM
AT EASE
4:52:07 PM
RECONVENED
4:52:10 PM
Senator Dunleavy queried the definition of
"administration." Ms. Rutherford replied that the governor
was the CEO, so the administration did not believe there
were any necessary changes to SB 138. She deferred further
explanation to the governor.
Senator Dunleavy surmised that he governor and
administration did not believe there were any flaws with SB
138.
General Richards explained that SB 138 outlined the legal
framework, which created the process for negotiations and
the potential for building of a project for the
commercialization of gas. He explained that the vast
majority of the terms were contractual agreements between
the partners. He stressed that those contractual agreements
were currently signed and binding. The process for SB 138
outlined a framework, but many of the process agreements
were contained within the contractual arrangements. He
stressed that he was not aware of any probable proposals,
but most of the current behavior was currently outlined by
the most recent contracts.
Senator Dunleavy stressed that he was hoping that the
legislature and the administration were aligned on SB 138.
General Richards replied that he was not aware of any
issues with SB 138. He remarked that any possible issue
with SB 138 would not be related directly with the
legislative framework, rather the issues would be related
to the contractual relationship between the parties.
Senator Dunleavy asked that the administration inform the
legislature of any issues with SB 138, before any possible
deviation. General Richards replied that he would follow
his clients' guidance. He felt that the administration
would approach the legislature, before any possible
deviation from SB 138.
Senator Dunleavy felt that the legislature and the
administration should be aligned in their perspective of SB
138. General Richards agreed, and hoped to avoid that
issue.
4:56:24 PM
Co-Chair MacKinnon stated that there would be a
conversation the following day about gas sale agreements in
order to better understand them. She expressed concern
after communicating with individuals who had experience in
gas sales. She felt that General Richards had provided very
little information regarding the governor's desire to
secure gas contracts out of sync with any other mega
project in the world. She wondered if the state was smarter
than other locations in the world. General Richards did not
have a response, and stated that the Governor would be
pleased to discuss his strategy.
Co-Chair MacKinnon expressed regret that General Richards
had not been present during past presentations of mega-
projects in which, and how the value is leaked depending on
who is "pushing" the projects. She wondered what would
occur, should AGDC query flaws in SB 138. General Richards
responded that he was not sure he understood the question.
He encouraged questions for AGDC be directed to AGDC.
Co-Chair MacKinnon remarked that she did not know the right
question to offer. She asked Ms. Rutherford to communicate
to the administration that there was concern about entering
into commercial agreements that the legislature did not
have knowledge related to the value or leakage of value to
the people of Alaska.
Ms. Rutherford responded in the affirmative, and continued
to address slide 13. She spoke about a key agreement
between the producers, which addressed how the various
units would supply gas into the project.
Co-Chair MacKinnon stated that the committee understood the
necessity of the agreements, and the many components.
5:01:01 PM
Ms. Rutherford discussed slide 14, "State AKLNG Timeline,
Key Steps to FEED":
1. Withdrawal Agreement, Gas Balancing, Gas Sales
Agreement by December
2. Lease Modifications
3. RIK
4. RIK/RIV Decision
5. Finalize Other Agreements
6. Executable Agreements to Legislature for Approval
7. Constitutional Amendment to Legislature for
Inclusion on Ballot
8. Governor Executes Approved Agreements
9. November 8, 2016 Public Vote on Amendment
10. FEED
Co-Chair MacKinnon remarked that there was some incoming
information from the governor, so the committee could
familiarize themselves with the documents.
5:04:02 PM
AT EASE
5:09:38 PM
RECONVENED
5:09:48 PM
Co-Chair MacKinnon remarked that there was a letter from
Governor Walker that suggested that there may be future
changes within the confines of SB 138, should the
legislature approve the buyout of TransCanada. She stressed
that the letter did not detail the anticipated changes. She
shared that the governor had asserted the AGDC had the
authority to acquire and hold TransCanada interests in the
AKLNG project. She shared that the governor supported DOR
and DNR authority and obligations to negotiate the
associated commercial agreements and dispose of gas from an
AKLNG export project as identified in state statute. She
stated that the governor had announced that he was in
charge of the executive branch responsibilities associated
with the AKLNG project. She wondered who would cast the
vote on December 4 on behalf of the state, should the state
acquire TransCanada's interest. General Richards deferred
to Mr. Schultz.
Co-Chair MacKinnon wondered who would cast the vote on
December 4, 2015 on behalf of the state. Mr. Schultz
replied that AGDC would acquire TransCanada, so AGDC would
be in a position to cast a vote.
Co-Chair MacKinnon requested information about the
formation of the subsidiary, the board of directors for the
subsidiary, and the voting delegate of the subsidiary. Mr.
Schultz agreed to provide that information.
Co-Chair MacKinnon remarked that DNR may elect to have
TransCanada or its assets conveyed to DNR or its designee
affiliates. She stressed that AGDC was an affiliate of DNR
for the purposes of the precedent agreement. She stated
that DOL had drafted the legal instrument that would convey
the TransCanada partnership interest to AGDC, should the
legislature approve the appropriation contemplated in SB
3001.
5:14:47 PM
Senator Dunleavy wondered if it was the intent of the state
to vote "no" if the withdrawal agreements were not met by
December 4, 2015, and if so, he queried the repercussions
of a "no" vote. Ms. Rutherford replied that the state would
choose to vote "yes." should the appropriation be approved
and the termination of the TransCanada precedent agreement.
She felt that, without an appropriation, it would be
impossible to vote "yes." She stated that appropriation was
the most important element of the question.
Co-Chair MacKinnon stressed that the legislature wanted to
know the name of the person that would cast that vote. She
understood that it was a complex issue. Ms. Rutherford
replied that she did have any operational insight for the
AGDC subsidiary. She stated that AGDC's representative to
the management team was Joe Dubler. She expected that Joe
Dubler would be the person to cast that vote.
Co-Chair MacKinnon announced that she would like Mr. Dan
Fauske to travel to Juneau to meet with the Senate Finance
Committee.
Senator Bishop asked if General Richards was familiar with
the bylaws of the board of directors for AGDC. General
Richards replied that he was not familiar with the bylaws
of the board of directors for AGDC. He stated that Jerry
Juday was the AGDC DOL representative.
Senator Bishop wondered whether the board had authorized
AGDC to move forward with the transaction. General Richards
suspected that the board had not yet had the chance to vote
on the transaction.
Co-Chair MacKinnon wondered if the chairman of the AGDC
board was John Burns. Ms. Rutherford replied in the
affirmative.
Senator Bishop was seeking to understand whether the board
had reached a determination of a decision.
5:20:51 PM
Ms. Rutherford highlighted slide 15, "State AKLNG
Timeline":
December 2015: Withdrawal, gas balancing, gas sales
agreements
First Quarter 2016: Lease modifications, RIK-related
contracts completed, RIK-RIV decision process begins
Second Quarter 2016: RIK-RIV finding, contracts and
amendment to legislature, legislature approves
Third and Fourth Quarters 2016: Pre-FEED deliverables
reviewed; November 8, 2016 vote.
5:24:34 PM
Co-Chair Kelly looked at the first window, and wondered if
it should read December 4, 2015. He stressed that the gas
balancing and gas sales agreements must be complete before
December. Ms. Rutherford replied in the affirmative, but
explained that the last date to approve work plan and
budget was December 4. She stressed that the goal was
December 4.
Co-Chair Kelly remarked that the balancing agreement was
out of the scope DNR control, he wondered if the balancing
agreement must be complete by December 4. Ms. Rutherford
replied that the balancing agreement was critical piece, so
an incomplete agreement could cause delays.
Co-Chair Kelly though that without a yes vote on December
4, the project was halted. He wondered the word, "delay"
really meant, "stop." Ms. Rutherford felt that the
appropriation for the work plan and budget would result in
a "yes" vote December 4 by AGDC. She felt that a better
word than "delay" may be "slippage", as related to the
possible incompletion of the agreements.
5:28:30 PM
AT EASE
5:30:22 PM
RECONVENED
5:30:43 PM
Co-Chair MacKinnon announced that DOL had a request of
$10.1 million, and queried the reason for the current
request versus waiting until the upcoming regular session
to request the funds.
General Richards explained that the state had hired an
additional law firm, Milbank, Tweed, Hadley, and McCloy to
handle some of the commercial agreements. He remarked that
there were approximately leading six global LNG law firms,
including Milbank. He stated that DOL realized that the
commercial agreements were not moving as quickly as
desired, so Milbank was hired to draft the documents. He
stressed that Milbank was expensive, so the $7.7 million
appropriation reflected the Milbank expense. He furthered
that an additional $2.4 million was for Greenberg Taurig,
which wat the state's long-time counsel for gasline issues.
Senator Dunleavy wondered if the bill specified those
terms. Co-Chair MacKinnon replied in the negative, and
stated that there was a structural error in the bill.
Co-Chair MacKinnon queried the process to secure the
contract for Milbank. General Richards deferred to Mr.
Shultz.
Mr. Shultz explained that, under SB 138, contracts related
to obtaining services for AKLNG were exempt from the state
procurement code. He explained that there were
approximately six law firms with the desired LNG expertise.
He stated that half of the law firms had conflicts of
interest, so therefore could not be the counsel in the
contract negotiations. He shared that there were three law
firms who submitted responses to the inquiries. The three
firms were evaluated, and DOL chose Milbank. He stressed
that Milbank had an exceptional level of expertise in LNG
matters.
5:35:18 PM
Co-Chair MacKinnon asked why there was a supplemental
request in October, when there was a regular session
occurring the following January. Mr. Schultz responded that
DOL had spent approximately $3 million for outside legal
counsel during the current fiscal year. He explained that
DOL had $4.6 million in total available funds, including
funds from DNR for $3.7 million. He furthered that there
was an expected $1 million from AGDC. He stressed that
there was approximately $1.6 million remaining for the
current fiscal year. He explained that greater funding was
required to keep pace with the current contract agreements.
He felt that, without an additional appropriation, the
remaining funds would be completely depleted by December
2016.
5:37:33 PM
Senator Dunleavy wondered why the legislature could not
meet during the regular session to discuss additional
funding for DOL. He noted that there was an increased
request from $2.3 million to $10 million from DOL. Mr.
Schultz responded that DOL would return to the legislature
for additional funding, should the legislature approve
funding for less than $10 million.
Senator Dunleavy asked whether that would be an issue. Mr.
Schultz replied that the committee's actions would dictate
the next step for DOL.
Senator Dunleavy remarked that the rate of burn was less
than $10 million by session. Mr. Schultz replied that,
typically, supplemental requests were often considered
later in the regular session.
Co-Chair MacKinnon wondered if the request was for gas
sales agreements. Mr. Schultz replied that the request was
for all AKLNG agreements.
Co-Chair MacKinnon queried the person who normally
negotiates the agreements. She understood that the majority
of the negotiations were conducted under the project
management itself. General Richards replied that the "heavy
lifting" by the lawyers was required during pre-FEED.
5:42:09 PM
AT EASE
5:43:34 PM
RECONVENED
5:43:54 PM
Ms. Rutherford discussed slide 16, "State AKLNG Timeline,
October to December 2015":
Ongoing key commercial agreement negotiations include
in part:
Gas Supply and Balancing
Governance
Expansion and Access
Marketing Agreements
Fiscal
TransCanada termination executed (if appropriation
received)
Withdrawal Agreement, Gas Sales Under Withdrawal
Agreement, and Gas Balancing Agreement agreed by
Producers
5:45:25 PM
Co-Chair Kelly wondered if the partners had agreed to the
timeline. Ms. Rutherford replied that the partners had not
agreed to the timeline. She stated that the timeline was
the sense of what is necessary to have a constitutional
amendment ready for the ballot. She stressed that the
project dates would adjust, should the agreements not be
made by the following June.
Co-Chair MacKinnon wondered if there was stability in
pressing timelines during negotiations. Ms. Rutherford
replied that the state's interests must be protected at all
costs. She shared that there were many missed timelines to
the project. She felt that it was important to attempt to
meet the set deadlines, but only if it served the state's
best interest.
Co-Chair MacKinnon shared that there was a troubling news
article that quoted Rigdon Boykin saying, "I do outrageous
things to see what happens." She wondered who was advising
the governor to push the deadlines on the decisions. She
remarked that there was an alignment issue with those that
were not interested in the project. She wondered why the
particular deadline was important in creating trust with
the partners. Ms. Rutherford replied that she did not see
the statement from Rigdon Boykin, but understood that there
were various negotiating tactics. She felt that all
negotiators were working on agreements that were mutual
enhancements to all parties. She remarked that the overall
intent was toward success.
Co-Chair MacKinnon understood that people are often
misquoted.
Ms. Rutherford addressed slide 17, "State AKLNG Timeline,
January to March 2016":
Ongoing key commercial agreement negotiations
RIK
finalized and submitted to DNR
DNR's RIK/RIV decision process initiated (target 60
days)
All AKLNG agreements needed for FEED in executable
form
Co-Chair MacKinnon discussed the following day's agenda.
5:53:49 PM
AT EASE
5:56:31 PM
RECONVENED
5:56:38 PM
Co-Chair MacKinnon stated that there was an email from
Miles Baker addressing a question from Senator Bishop.
Senator Bishop read the response from Miles Baker (copy on
file) regarding the reason for AGDC recently establishing a
subsidiary.
Co-Chair MacKinnon appreciated Mr. Baker's response to the
question. She looked at the third paragraph, "It may be
advantageous for the corporation to hold those assets in a
separate LLC. The board is seeking maximum optionality to
structure corporate assets in the most advantageous legal
matter." She stressed that the committee wanted to
understand all aspects of the project. She felt that there
was an attempt to protect any risk in the transfer of
assets to the corporation.
6:00:30 PM
Ms. Rutherford discussed slide 18, "State AKLNG Timeline,
April to June 2016":
Finalize DNR RIK/RIV determination and finding
(subject to submission of RIK
DNR 60 days earlier)
Agreements submitted to Legislature
Legislature approves agreements
Legislature approves constitutional amendment
Ms. Rutherford highlighted slide 19, "State AKLNG Timeline,
July to December 2016":
All Pre
recommendation with appropriate documents is prepared
November 8, 2016: General election including
constitutional amendment
Ms. Rutherford looked at slide 20, "Conclusion":
Administration is complying with Senate Bill 138
State hopes to provide Legislature with agreements and
constitutional amendment in 2016
Senator Hoffman surmised that the constitutional amendment
must be a part of the general election. Ms. Rutherford
agreed.
6:03:18 PM
Co-Chair MacKinnon queried the specifics that Ms.
Rutherford wanted Alaskans and legislators to consider. Ms.
Rutherford replied that the response was the same for each:
that each party must agree. She remarked that the
administration would not propose something that was not in
the state's interest.
Senator Bishop announced that the schedule was not going to
drive the project.
Senator Dunleavy thanked the presenter. He stated that the
legislature was the "state." He felt that there were
legitimate concerns about who was in charge of the project.
He remarked that the project was all of Alaska's project.
He stressed that there needed to be alignment within the
state to move the project forward.
Co-Chair MacKinnon reiterated the thanks for the committee
presenters. She expressed concern regarding the December 4
deadline in meeting the gas sales agreements. She felt that
there needed to be a compromise.
Ms. Rutherford believed that the project was a partnership
between the executives, party owners, and people of Alaska.
Co-Chair MacKinnon stated that there would be a committee
substitute the following day. She restated the following
day's agenda.
SB 3001 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
6:08:57 PM
The meeting was adjourned at 6:08 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 3001 103015 SB138 work to date sectional FINAL - HANDOUT for 10-30-2015.pdf |
SFIN 10/30/2015 3:00:00 PM |
SB 138 SB3001 |
| SB 3001 103015 Governor Walker on AKLNG Authority.pdf |
SFIN 10/30/2015 3:00:00 PM |
SB3001 |
| SB 3001 103015 Memorandum on AGDC Authority 10 26 15.pdf |
SFIN 10/30/2015 3:00:00 PM |
SB3001 |
| SB 3001 103015 AGDC Transfer Letter.pdf |
SFIN 10/30/2015 3:00:00 PM |
SB3001 |
| SB 3001 103015 SFC Follow up from Miles Baker.pdf |
SFIN 10/30/2015 3:00:00 PM |
SB3001 |
| SB 3001 103015 REVISED - SB 138 Overview PPT.pdf |
SFIN 10/30/2015 3:00:00 PM |
SB 138 SB3001 |
| SB 3001 10.30.15 Senate Finance Question - Answer.pdf |
SFIN 10/30/2015 3:00:00 PM |
SB3001 |