Legislature(2013 - 2014)SENATE FINANCE 532
03/28/2014 09:00 AM Senate FINANCE
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SENATE FINANCE COMMITTEE March 28, 2014 9:17 a.m. 9:17:20 AM CALL TO ORDER Co-Chair Kelly called the Senate Finance Committee meeting to order at 9:17 a.m. MEMBERS PRESENT Senator Pete Kelly, Co-Chair Senator Kevin Meyer, Co-Chair Senator Anna Fairclough, Vice-Chair Senator Click Bishop Senator Mike Dunleavy Senator Lyman Hoffman (via teleconference) Senator Donny Olson MEMBERS ABSENT None PRESENT VIA TELECONFERENCE Robert Hall, Self, Wasilla. ALSO PRESENT John Cheshire, Undergraduate Research Assistant, Petroleum Development Laboratory, University of Alaska Fairbanks; Thomas Polasek, Undergraduate Research Assistant, Petroleum Development Laboratory, University of Alaska Fairbanks; Shirish Patil, Director, Petroleum Development Laboratory, University of Alaska Fairbanks; James Armstrong, Staff, Senator Pete Kelly. SUMMARY SB 168 PETROLEUM ENGINEERING RESEARCH PROGRAM SB 168 was HEARD and HELD in committee for further consideration. CSHB 266(FIN) APPROP: OPERATING BUDGET/LOANS/FUNDS SCS CSHB 266(FIN) was REPORTED out of committee with a "do pass" recommendation. CSHB 267(FIN) APPROP: MENTAL HEALTH BUDGET SCS CSHB 267(FIN) was REPORTED out of committee with a "do pass" recommendation. CS FOR HOUSE BILL NO. 266(FIN) "An Act making appropriations for the operating and loan program expenses of state government and for certain programs, capitalizing funds, and making reappropriations; and providing for an effective date." CS FOR HOUSE BILL NO. 267(FIN) "An Act making appropriations for the operating and capital expenses of the state's integrated comprehensive mental health program; and providing for an effective date." 9:18:38 AM AT EASE 9:24:52 AM RECONVENED 9:25:17 AM Senator Olson MOVED to ADOPT AMENDMENT 2 (copy on file): DEPARTMENT: Fund Capitalization APPROPRIATION: Fund Capitalization (No approp out) ALLOCATION: Trauma Care Fund ADD: $1,000,000 UOF (1004) as a new language subsection under FUND CAPITALIZATION (xx) The sum of$1,000,000 is appropriated from the general fund to the Trauma Care Fund (AS 18.0S.0S5(a)). It is the intent of the legislature that the Department of Health and Social Services develop a trauma care fund grant application process that includes a list of pre- approved uses in the application for trauma care funding. Co-Chair Meyer OBJECTED for discussion. Senator Olson explained AMENDMENT 2. Co-Chair Kelly asked for a description of the fund. JAMES ARMSTRONG, STAFF, SENATOR PETE KELLY, stated that the fund was capitalized when needed. Co-Chair Meyer REMOVED his objection. There being NO OBJECTION, AMENDMENT 2 was adopted. Senator Dunleavy MOVED to ADOPT AMENDMENT 3 (copy on file). Co-Chair Kelly OBJECTED for discussion. Senator Dunleavy explained AMENDMENT 3. He stated that the amendment would reduce unrestricted general fund (UGF) spending by $3.381 million across all agencies including the governor's office, legislature, and courts. The amount of the unallocated reduction was equal to 12.5 percent of agencies (UGF) portion of travel. Departments would have the flexibility to reduce their budgets where most appropriate. Co-Chair Kelly asked why the documentation was necessary. Mr. Armstrong explained that the document outlined the most appropriate way to equally distribute a 12.5 percent reduction. He noted that the second column to the right showed some funds that were added since the subcommittee process. Co-Chair Kelly stressed that, without the document, the legislation would not provide an equal distribution of travel reduction. Co-Chair Kelly REMOVED his objection. There being NO further OBJECTION, AMENDMENT 3 was adopted. Co-Chair Meyer MOVED to ADOPT AMENDMENT 4. Amend the SALARY AND BENEFIT ADJUSTMENTS subsections (a) and (b) as follows: SALARY AND BENEFIT ADJUSTMENTS. (a) The operating budget appropriations made in sec. 1 of this Act include amounts for salary and benefit adjustments for public officials, officers, and employees of the executive branch, Alaska Court System employees, employees of the legislature, and legislators and to implement the terms for the fiscal year ending June 30, 2015, of the following ongoing collective bargaining agreements: (1) Public Employees Local 71, for the labor, trades and crafts unit; (2) Teachers' Education Association of Mt. Edgecumbe; (3) Alaska Correctional Officers Association, representing the correctional officers unit; (4) Confidential Employees Association, for the confidential unit; (5) Alaska Public Employees Association, for the supervisory unit; (6) Alaska State Employees Association, for the general government unit; (7) Public Safety Employees Association; (8) Alaska Vocational Technical Center Teacher's Unit. (b) The operating budget appropriations made to the University of Alaska in sec. 1 of this Act include amounts for salary and benefit adjustments for the fiscal year ending June 30, 2015, for university employees who are not members of a collective bargaining unit and to implement the terms for the fiscal year ending June 30, 2015, of the following collective bargaining agreements: (1) University of Alaska Federation of Teachers; (2) Fairbanks Firefighters Union, IAFF Local 1324; (3) United Academics -American Association of University Professors, American Federation of Teachers; (4) United Academic -Adjuncts -American Association of University Professors, American Federation of Teachers; (5) Alaska Higher Education Crafts and Trades Employees, Local 6070. EXPLANATION: F our collective bargaining union agreements have been reached that are not yet included in the Senate operating budget. Alaska Vocational Technical Center Teacher's Unit DEPARTMENT: Labor and Workforce Development APPROPRIATION: Alaska Vocational Technical Center ALLOCATION: Alaska Vocational Technical Center ADD: $26,100 General Fund (1004) $1,700 Interagency Receipts (1007) $2,800 Statutory Designated Program Receipts (1108) Public Safety Employees Association DEPARTMENT: Public Safety APPROPRIATION: Various ALLOCATION: Various ADD: $510,500 General Fund (1004) $3,500 General Fund Program Receipts (1005) $9,700 Capital Improvement Project Receipts (1061) 600 Interagency Receipts (1007) $3,400 Federal Receipts (1002) DEPARTMENT: Transportation and Public Facilities APPROPRIATION: Various ALLOCATION: Various ADD: $73,100 International Airport Revenue Fund (1027) $4,800 Federal Receipts (1002) University of Alaska and United Academic -Adjuncts - American Association of University Professors, American Federation of Teachers DEPARTMENT: University of Alaska APPROPRIATION: University of Alaska ALLOCATION: Budget Reductions/Additions -System wide ADD: $174,800 General Fund (1004) $174,800 University Receipts (1048) Alaska Higher Education Crafts and Trades Employees, Local 6070 DEPARTMENT: University of Alaska APPROPRIATION: University of Alaska ALLOCATION: Budget Reductions/ Additions -System wide ADD: $279,900 General Fund (1004) $279,900 University Receipts (1048) Further explanation of agreements: The following collective bargaining unions have reached agreements for FY2015 through FY2017: Alaska Vocational Technical Center Teacher's Unit: FY2015 -1 percent Cost of living Adjustment FY2016 -1 percent Cost of living Adjustment FY2017 -1 percent Cost of living Adjustment Health insurance will be provided for the economy plan which is $1,371/month for FY2015, a reduction of $18 per employee per month. These reductions off-sets the FY2015 cost of living adjustment costs. Public Safety Employees Association: FY2015 -1 percent Cost of living Adjustment FY2016 -1 percent Cost of living Adjustment FY2017 -2 percent Cost of living Adjustment Health insurance will be provided for the economy plan which is $1,371/month for FY2015, a reduction of$18 per employee per month. These reduction off-sets the FY2015 cost of living adjustment costs. University of Alaska and United Academic -Adjuncts - American Association of University Professors, American Federation of Teachers: A tentative agreement between was reached on February 18, 2014 and includes a rate increase based on the number of semesters taught at the University of Alaska: 0-5 years 1 percent 6-11 years 2 percent There being NO OBJECTION, it was so ordered. Mr. Armstrong explained the amendment. Vice-Chair Fairclough spoke to the contracts that were just adopted. She appreciated those that had entered into the bargaining agreements, and understood that the state could not sustain continued increases. 9:30:34 AM Senator Olson MOVED to ADOPT AMENDMENT 5. DEPARTMENT: Health and Social Services APPROPRIATION: Public Health ALLOCATION: Health Planning and Systems Development ADD: $370,000 UOF (1004) EXPLANATION: The Senate Subcommittee reduced $1.2 million of UGF for the SHARP Program in FY15. Since the closeout, updated information has been received indicating that this cut will result in a reduction of funding needed to pay for existing contracts. The CS version "E" restored $615,500, but the program is still short $584,500. This amendment when combined with the increase in the Finance CS version "E" restores $985,500 of the reduction and ensures that the state funds existing contracts. With the change in the CS and this amendment, the net reduction to the program in FY15 is $214,500. Co-Chair Kelly OBJECTED for discussion. Senator Olson explained the amendment. Co-Chair Kelly felt that the amendment was a positive response to public testimony. Senator Olson remarked that the program was extremely important. Co-Chair Kelly REMOVED his objection. There being NO further OBJECTION, AMENDMENT 5 was adopted. 9:32:33 AM Senator Olson MOVED to ADOPT AMENDMENT 6. DEPARTMENT: Health and Social Services APPROPRIATION: Behavioral Health ALLOCATION: Community Action Prevention & Intervention Grants ADD: $370,000 UGF (1004), One-time funding ADD INTENT: It is the intent of the legislature that the appropriation to the Municipality of Anchorage for the Alaska Domestic Violence Intervention Project is one-time funding which will provide the resources necessary to bridge program operations until January 1,2015 when funding is expected to become available to them through other funding sources. It is also the intent of the legislature that the Alaska Domestic Violence Intervention Project secure other funding for ongoing operations, with no additional funding to be provided by the legislature. EXPLANATION: This amendment adds one-time funding for a grant to the Municipality of Anchorage for the Alaska Domestic Violence Intervention Project. Co-Chair Kelly OBJECTED for discussion. Senator Olson explained the amendment. Co-Chair Kelly REMOVED his objection. There being NO further OBJECTION, AMENDMENT 6 was adopted. Senator Bishop MOVED to ADOPT AMENDMENT 7. AMEND THE FOLLOWING LANGUAGE SECTION: Sec. IS. DEPARTMENT OF NATURAL RESOURCES. (e) If any portion of the federal receipts appropriated to the Department of Natural Resources for division of forestry wild land firefighting crews is not received, that amount is appropriated from the general fund to the Department of Natural Resources, fire suppression preparedness [ACTIVITY], for the purpose of paying costs of the division of forestry wild land firefighting crews for the fiscal year ending June 30, 2015. EXPLANATION: This amendment corrects the allocation name in the above language section. Co-Chair Kelly OBJECTED for discussion. Senator Bishop explained the amendment. Co-Chair Kelly REMOVED his objection. There being NO further OBJECTION, AMENDMENT 8 was adopted. 9:34:20 AM AT EASE 9:44:31 AM RECONVENED 9:44:41 AM Co-Chair Kelly MOVED to ADOPT AMENDMENT 8. Page 61, line 3, following "DEVELOPMENT.": Insert "(a)" Page 61, line 4: Delete "$24,999,999" Insert "$100,000,000" Page 61, following line 7: Insert new subsections to read: "(b) The sum of $100,000,000 is appropriated from the general fund to the Department of Education and Early Development to be distributed as state aid to districts for the fiscal year ending June 30, 2016, according to the average daily membership for each district adjusted under AS 14.l7.41O(b)(l )(A)-(d) for the fiscal year ending June 30, 2016. (c) It is the intent of the legislature that the appropriations made in subsections (a) And (b) will allow the Alaska public school system to maintain operations at a level sufficient to educate children and will provide time for all stakeholders to work with the legislature to identify innovative approaches and possible consolidation of services that will, over time, lower costs while maintaining a quality education system. It is also the intent of the legislature that this increased funding will serve as a bridge to develop a plan and identify solutions to implement these changes in an effort to recalibrate individual district budget spending levels to the 2014 fiscal year spending levels. Co-Chair Meyer OBJECTED for discussion. Co-Chair Kelly explained the amendment. Co-Chair Meyer REMOVED his objection. There being NO further OBJECTION, AMENDMENT 8 was adopted. Co-Chair Kelly told Senator Hoffman that he was added as a sponsor of the amendment. Senator Hoffman expressed support of the amendment, and remarked that many Alaskans were concerned with education. Co-Chair Kelly thanked the individuals who had helped with the operating budget development process. Mr. Armstrong stated that the technical motions would be available on the Legislative Finance Division website. Co-Chair Kelly felt that the budget acknowledged that education was important to the state. 9:50:58 AM AT EASE 9:51:42 AM RECONVENED Co-Chair Kelly announced that the reduction in the budget related to day-to-day agency operations. Co-Chair Meyer thanked the committee for the work on the operating budget. Co-Chair Meyer MOVED to REPORT SCS CSHB 266(FIN) as amended out of committee with individual recommendations, and instructed legislative legal and legislative finance to make the necessary technical and conforming changes There being NO OBJECTION, it was so ordered. Co-Chair Meyer MOVED to REPORT SCS CSHB 267(FIN) as amended out of committee with individual recommendations, and instructed legislative legal and legislative finance to make the necessary technical and conforming changes. There being NO OBJECTION, it was so ordered. Co-Chair Kelly expressed gratitude for the work of the committee. SCS CSHB 266(FIN) was REPORTED out of committee with a "do pass" recommendation. SCS CSHB 267(FIN) was REPORTED out of committee with a "do pass" recommendation. 9:55:11 AM RECESS 2:41:14 PM RECONVENED SENATE BILL NO. 168 "An Act establishing the petroleum engineering research for hydrocarbon optimization grant program and fund in the University of Alaska." 2:42:25 PM JOHN CHESHIRE, UNDERGRADUATE RESEARCH ASSISTANT, PETROLEUM DEVOLOPMENT LABORATORY, UNIVERSITY OF ALASKA FAIRBANKS, (UAF) discussed the PowerPoint, "Alaska North Slope (ANS) Conventional and Unconventional Oil and Gas (Resource Characterization and Development" (copy on file). Mr. Cheshire highlighted slide 23, "Alaska's Heavy Oil Resources." What is heavy oil? •Flows like syrup •More dense than conventional oil Where is it found in Alaska? •On North Slope near conventional deposits •Shallower depth than conventional oil How much is there? •24 - 33 billion barrels What's the challenge? •High viscosity makes the oil difficult to produce economically Mr. Cheshire discussed slide 24, "Enhanced Recover of Heavy Oil." Methods: •Water Flood •Low cost •Implemented on the Alaska North Slope (ANS) •Poor recovery efficiency •Thermal •Injection of steam heats oil, helping it flow more easily •Arctic environment makes steam injection on ANS difficult •Solvents •Mix with oil causing it to flow more easily •Carbon dioxide and light hydrocarbons are typical solvents •Could be available on ANS with gas sales •Research ongoing Mr. Cheshire highlighted slide 25, "Carbon Dioxide Content of ANS Gas." He stated that the slide represented the structure of typical ANS gas. He stated that 12 percent of the gas was carbon dioxide, which must be removed from the gas before it could be sold. Mr. Cheshire looked at slide 26, "Research Background." Co-Chair Kelly asked for a description of the slide. Mr. Cheshire replied that the slide was related to the phased behavior. When carbon dioxide was injected into the gas it could form a second liquid phase. The oil reservoir mostly held oil, water, and gas. If carbon dioxide was injected the heavy crude oil would be pushed to the bottom. He stressed that the research was intended to showcase actual experiments rather than simulators to determine how the oil behaved underground. Mr. Cheshire highlighted slide 27, "Conclusions." He stressed that it was an ongoing research project, but the process was moving the state closer to putting a different kind of oil in the Trans Alaska Pipeline System (TAPS), and recovering other types of gas from ANS. Mr. Cheshire displayed slide 28, "Future Research." He shared that the continuation of the research would move the state closer to properly characterize and understand the oil in order to economically produce the oil 2:47:01 PM Co-Chair Kelly understood that there was 12 to 13 percent carbon dioxide in ANS gas. He shared that there would be a gas treatment plant to remove the carbon dioxide. He wondered if the use of the carbon dioxide produced value to the state. Mr. Cheshire responded that producers must be near a carbon dioxide source. He felt that there may be synergy among the products. Senator Bishop wondered if the carbon dioxide was considered a carbon. Mr. Cheshire replied that it was carbon dioxide. Senator Bishop wondered if Alaska would be available for carbon credits from the federal government. Mr. Cheshire replied that he did not know the details of that program. Senator Dunleavy wondered if carbon credits for taking carbon out of the atmosphere. Senator Bishop indicated in the affirmative. Co-Chair Kelly stated that he did not think the program would qualify for carbon credits, because there was no removal of carbon from the atmosphere. 2:50:25 PM THOMAS POLASEK, UNDERGRADUATE RESEARCH ASSISTANT, PETROLEUM DEVOLOPMENT LABORATORY, UNIVERSITY OF ALASKA FAIRBANKS, discussed slide 29, "Alaska Heavy Oil Resource." Heavy oil resource overlies existing fields Oil is present in multiple reservoir zones Total: 24 - 33 Bbbls oil in place Mr. Polasek highlighted slide 30, "Permafrost Thaw and Subsidence." As hot fluids or steam are put through the wells, it would increase the rate of thaw. Normal oil wells produce oil at approximately 150 degrees Fahrenheit. The heat that would be applied would be at 600 Fahrenheit. Mr. Polasek discussed slide 31, "Permafrost Thaw and Subsidence." Depending on the soil, the soil would be greatly disrupted by the thawing. The friction of the soil on the well could cause the wells to bend a small amount. The uneven settling could also destroy the infrastructure at the surface. Mr. Polasek looked at slide 32, "Ice Content and Upper Permafrost Soils." The picture on the left showed the dark areas as ice, so there would be great shifting. The right hand side showed ice pout, so there may not be shifting in that area. Mr. Polasek discussed slide 33, "Ice Content Upper Permafrost Soils." The pictures showed how the strength and integrity of the soil could degrade if melted. Mr. Polasek highlighted slide 34, "Experimental Equipment." The focus of his research was to determine how to keep the heat inside the wells. The slide outlined their work. Mr. Polasek discussed slide 35, "Project Objectives." •Collect data to analyze how best to protect current and future wells •Acquire empirical data for tuning permafrost thaw computer simulations •Gain lessons learned for future research using frost cell equipment 2:55:05 PM Mr. Polasek looked at slide 36, "Project's Current Progress." He stated that the slide showed the frost cell inside of a refrigerated room; the students collecting silt from the Army's Cold Regions Research Lab permafrost tunnel; and installing the miniature casings into the cell, which demonstrates the size of the block of soil for the research. Mr. Polasek highlighted slide 37, "Project's Current Progress." The slide shows photos of the process of loading the cell. The wires were the different heat sensors that were inserted in the soil with another layer of silt on top of the wires. The miniaturized tubing represented the rings in the oil wells. Each one of the tubes was now sitting inside the casing, so the fluids would be flooded between the two tubes. The wires were intended to accurately monitor the heat traveling through the wells. The two wells on the right were vacuum-insulated tubes, to mimic the vacuum-insulating tubing that could be put inside the wells. Mr. Polasek discussed slide 38, "Impacts on Future Alaska North Slope Oil Production." 1. Estimated 24 - 33 billion barrels of heavy oil, much of it is inaccessible without thermal EOR 2. One step closer to unlocking access to heavy oil on Alaska's North Slope Co-Chair Kelly wondered surmised that the 24 to 33 billion barrels of oil was under current infrastructure. Mr. Polasek agreed. Mr. Polasek looked at slide 39, "Future Work." 1. More complex/multilayered models. UAF is the first to do this type of physical modeling. 2. Further research into geomechanical forces on scaled down wells 3. Collaboration with Alaska's energy industry Co-Chair Kelly shared that there were hundreds of thousands of trillions of cubic feet of natural gas in the earth. He asked that Mr. Patil discuss the existing potential resource on ANS, and the resource that would be underneath existing infrastructure. SHIRISH PATIL, DIRECTOR, PETROLEUM DEVELOPMENT LABORATORY, UNIVERSITY OF ALASKA FAIRBANKS, looked at slide 3, "ANS Heavy Oil and Gas Hydrate Resources." He testified in support of SB 168. He stated that the slide showed a cross- section of the ANS measured oil fields. The two blue areas were the methane hydrate resource that sits under or near the existing infrastructure. The red color was the free conventional gas, which was where the potential pipeline would bring the gas to market. Co-Chair Kelly asked for information regarding timing of the project, because Alaska was currently only producing light oil. Mr. Patil replied that there was research regarding throughput for TAPS at roughly 550,000 barrels per day, and was rapidly declining. While other methods were considered for extracting more oil from ANS, the light oil production was declining. He felt that the heavy oil production would not go as quickly as desired. If the carbon dioxide from measure gas sales was not available, the gas must be sequestered. The development of heavy oil was critical to move the oil through TAPS. Heavy oil, light oil, and natural gas development was an optimization issue that one must see as timing crucial. 3:02:50 PM Co-Chair Kelly stated that this was the first time he had heard that gas production must occur to assist in the development of heavy oil. Mr. Patil stated that, though there will be gas sales, the gas must be used to inject into Prudhoe Bay to maintain the reservoir pressure to extract more oil. Senator Bishop wondered if the bottom right picture was from BP's heavy oil project. Mr. Patil replied in the affirmative. Senator Bishop asked if BP had stopped their heavy oil project. Mr. Patil responded that there was still some production from that project. He stressed that there were some limitations in how much production could be from the heavy oil. Mr. Patil looked at slide 18, "The Gas Hydrate Resource Pyramid." He noted the different, important layers that must be permeated in order to reach the resource including arctic sandstones, deep-water sandstones, non-sandstone marine reservoirs with permeability, massive surficial nodular hydrate, and marine reservoirs with limited permeability. Mr. Patil spoke to slide 19, "Gas Hydrate Production Modeling." He stated that the research used many tools that represented the different aspects of ANS. Mr. discusses slide 20, "Barrow Gas Hydrates (Opportunity?)" Research Objective - To simulate natural gas production from gas hydrate reservoir accounting for gas hydrate dissociation phenomena. - To forecast and optimize natural gas production with precise reservoir management Goals - Perform a study on production variance depending on different wellbore designs. - Predict production behavior in planned wells. 3:08:54 PM Mr. Patil highlighted slide 21, "GTL: The Gel Strength Problem." The slide showed a simulation that related to gas to liquids transportation, but also applied to the throughput in TAPS. He stressed that the flow would stop, if the outside temperature drops. Mr. Patil discussed slide 40, "Oil & Gas Related R&D at UAF Synergies, Partnerships (University, State Govt., Federal Govt., and Industry)." •Phase Behavior, Asphaltene Precipitation- Viscous/ Heavy Oil •Chemical Flooding and Conventional EOR •Wettability and Improved Oil Recovery •Chemical & Microbial Characterization- Viscous Oil •Methane Hydrates •CBM- Rural Energy Applications- Ft. Yukon •Novel Ceramicrete Technology for the Arctic •Carbon Sequestration •GTL Transportation Workforce Development New Reserves to Declining Production Economic Development Mr. Patil highlighted slide 44, "Partnership for Economic Development." He stressed that all of the graduates had 100 percent placement success. Mr. Patil looked at slide 55, "PDL-Established Research Partnerships." The chart showed the placement success in the various partners in the industry. Mr. Patil displayed slide 56, "Recent NETL-DOE Funded Oil & Gas Related R&D at UAF Synergies, Partnerships (University- Federal Govt., State Govt., Industry, Non Profits)." He stated that the federal funding for oil and gas research was recently zeroed out, so the state needed to invest in research in the universities. He restated his support for SB 168. 3:13:31 PM ROBERT HALL, SELF, WASILLA (via teleconference), testified in support of SB 168. He stated that creating a targeted department was beneficial to Alaska's economy. He felt that recent oil and gas legislation had created benefits to oil and gas development. He remarked that the challenges for oil and gas development on the North Slope were very unique, and unlike other oil and gas fields. 3:15:54 PM AT EASE 3:16:04 PM RECONVENED SB 168 was HEARD and HELD in committee for further consideration. ADJOURNMENT 3:16:53 PM The meeting was adjourned at 3:16 p.m.