Legislature(2015 - 2016)SENATE FINANCE 532
01/30/2015 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Agdc Projects Update | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
January 30, 2015
9:05 a.m.
9:05:23 AM
CALL TO ORDER
Co-Chair Kelly called the Senate Finance Committee meeting
to order at 9:05 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Donny Olson
MEMBERS ABSENT
Senator Peter Micciche, Vice-Chair
Senator Lyman Hoffman
ALSO PRESENT
Frank Richards, Vice President of Engineering and Program
Management, Alaska Gasline Development Corporation,
Department of Commerce, Community and Economic Development;
Joe Dubler, Vice President, Commercial Operations, Alaska
Gasline Development Corporation, Department of Commerce,
Community and Economic Development; Fritz Krusen, Vice
President, Alaska Liquid Natural Gas, Alaska Gasline
Development Corporation, Department of Commerce, Community
and Economic Development.
SUMMARY
^PRESENTATION: AGDC PROJECTS UPDATE
9:06:12 AM
FRANK RICHARDS, VICE PRESIDENT OF ENGINEERING AND PROGRAM
MANAGEMENT, ALASKA GASLINE DEVELOPMENT CORPORATION, (AGDC)
introduced his team and noted that they were there to
provide an update on the activities and work products that
AGDC had undertaken during the preceding year. He made note
of the passage of SB 138 [legislation relating to
commercial production of North Slope natural gas that
passed the legislature in 2014] and AGDC's involvement in
the Alaska Liquid Natural Gas (AKLNG) project. He
summarized that he would speak to the assets that AGDC
retained for the State of Alaska and characterized AGDC as
the state's "pipeline company." He furthered that the work
activities and work products developed by AGDC were assets
owned by the state. He stated that he wanted to identify
AGDC's corporate focus for the following year as well as
provide an update on the Alaska Stand Alone project (ASAP)
and speak to project funding status.
9:07:54 AM
Mr. Richards referred to slide 3, "AGDC Introduction," and
related that AGDC was a legislatively-created public
corporation that had a legal existence separate and
independent from the state (AS 31.25.010). He explained
that Alaska statute provided AGDC with the ability to
represent the state in developing pipeline and
transportation projects to provide energy for Alaskans. He
recounted that the passage of HB 4 [2014 legislation
relating to AGDC] gave the direction for AGDC to focus on
an in-state natural gas pipeline to provide an energy
transportation mechanism to meet the needs of Fairbanks and
Southcentral Alaska. He spoke to the declining reserves in
the Cook Inlet area and explained that the focus was
originally to provide resources of the North Slope to
Interior and Southcentral Alaska along the pipeline
corridor; furthering that with the passage of SB 138, the
focus of AGDC had expanded to include the representation of
Alaska in the AKLNG project. He reiterated that the goals
of the AGDC were to provide energy and maximization of
natural resources and commercialization of the huge amounts
of natural gas on the North Slope to help the state by
providing an income stream into the future. He added that
AGDC currently held the equity position for the
liquefaction plant in the Alaska LNG project; it accounted
for a 25 percent representation of the plant in one segment
of the AKLNG project. He concluded that AGDC's focus was to
provide a pipeline capable of delivering those mechanisms
to Southcentral and other communities at the lowest
possible cost.
Mr. Richards presented slide 4, "AGDC Objectives":
· Commercialize Alaska's North Slope gas resource
· Secure a stable, affordable, long-term energy supply
for Alaskans
· Generate revenue, jobs and economic growth
· Facilitate further oil and gas development
· Maximize overall benefit to Alaskans
Mr. Richards re-stated that part of the objectives given to
AGDC by the legislature was to provide for a long-term
affordable energy supply for Alaskans. He referred to the
historically high cost of home heating fuel and diesel for
residents of Fairbanks, Anchorage, and rural communities;
and characterized AGDC objectives as providing energy
relief to those communities.
9:10:58 AM
Mr. Richards gave an overview of slide 5, "Corporate
Initiatives," and highlighted the two projects under AGDC's
responsibility: the ASAP project, and the AKLNG project. He
explained that the ASAP project, with the passage of HB 4,
was to provide energy for Alaskans. He noted that the
design concept was changed early in 2013 to include a
pipeline that would deliver utility-grade gas that could go
from the pipeline into existing distribution systems and
then to the homeowner. Additionally, he explained, the gas
could be utilized in power production with the existing
turbine sets.
Mr. Richards furthered that the ASAP pipeline was a 727-
mile, 36-inch diameter pipeline that was capped at 500
million standard cubic feet per day. He noted that this
capping limitation was originally placed by the Alaska
Gasline Inducement Act (AGIA) statute and by the agreement
signed with TransCanada. With a more recent termination
agreement, signed in July of 2014, AGDC was relieved of the
cap; however, at that point the work had advanced to a
degree that the change to the design cap would not have
been beneficial. He mentioned the goal of finishing the
work in order to get to a Class 3 estimate and identify the
economics of that particular line. He specified that the
estimate showed the cost to be approximately $10 billion.
He reiterated that this cost covered for a gas treatment
plant on the North Slope with a 727-mile pipeline, and a
lateral line leading in to Fairbanks that would hopefully
feed into a distribution system built out by others.
Mr. Richards referred to a 3.5-year construction window,
and noted that with the passage of SB 138, AGDC had
deferred the schedule due to policy, which determined that
AKLNG would be the primary project for the State of Alaska.
He further opined that it had not made sense to finish the
ASAP project on the original schedule, due to doubts about
the success of the project at that time. He discussed
reasoning such as the need to seek commercial interests
(producers) to ship on the ASAP pipeline while they were
simultaneously designing and planning their own line. He
specified the AGDC had deferred work activities and
scheduling until 2024 for completion of the ASAP project.
Mr. Richards discussed the AKLNG project, stating that the
focus was on commercialization of Alaska North Slope
resources. He explained that the project was in the "Pre-
FEED" stage, [pre front-end engineering and design effort];
as opposed to the ASAP project, which had just completed
the FEED stage, and was able to come up with a Class 3
estimate. He highlighted the differences between the two
projects, explaining that AKLNG would export LNG to the
world market. He elaborated that the gas composition on the
AKLNG line would be slightly different because the gas
would be conditioned to an LNG-quality specification, by
removing carbon dioxide (CO2) down to 50 parts per million
as opposed to ASAP, where industry or utility-grade
standards were met at approximately 3 percent CO2. He
furthered that the design capacity of the two projects were
slightly different.
9:14:38 AM
Senator Dunleavy asked if the difference in gas composition
would affect the sale price.
JOE DUBLER, VICE PRESIDENT, COMMERCIAL OPERATIONS, ALASKA
GASLINE DEVELOPMENT CORPORATION, answered that it would
depend upon the customer. For example, ENSTAR, did not sell
on a BTU (British thermal unit) basis, but rather on a
volume metric basis. Conversely, a large customer utility
would most like pay on a BTU basis, and would therefore pay
a differential for gas with a higher-BTU content. Senator
Dunleavy followed up to ask if the gas for export could be
at a higher price. Mr. Dubler responded in the affirmative.
9:15:29 AM
Co-Chair MacKinnon asked Mr. Richards to restate the
difference between the two projects and the quality of gas.
Mr. Richards clarified that each project had a gas
treatment facility on the North Slope with a pipeline
leading to Southcentral Alaska. The ASAP project would
terminate in the ENSTAR Beluga pipeline system, whereas the
AKLNG pipeline would terminate at Nikiski with the new LNG
plant. He explained that the gas composition was different
due to the customers: the ASAP would provide utility-grade
gas to serve utilities for homeowners using natural gas as
a heating source, whereas AKLNG would provide LNG-quality
gas. He went on to point out that one of the major
differences in the two projects was the volume through-put:
AKLNG started out at 3.3 billion cubic feet per day at the
gas treatment plant, whereas the ASAP project would be 500
million. He added that AKLNG also has a large LNG facility
in Nikiski.
FRITZ KRUSEN, VICE PRESIDENT, ALASKA LIQUID NATURAL GAS,
ALASKA GASLINE DEVELOPMENT CORPORATION (AGDC) discussed the
differences with utility grade gas and liquid natural gas.
He echoed Mr. Richards's comments with regard to LNG having
CO2 removed to a higher criteria in order to be utilized
for home heating rather than industrial application. He
articulated that perhaps such treatment makes the gas
richer and more marketable to the Far East LNG markets that
expect a richer grade of gas.
9:19:00 AM
Senator Bishop asked if LNG was a more valuable export
product. Mr. Kruzen answered in the affirmative and noted
that people in the Far East, Japan, and South Korea did not
have natural gas and therefore paid for it based upon
parity with oil.
Mr. Richards continued his presentation and discussed the
scheduling of the two projects. He conveyed that the next
major milestone for the ASAP project had aligned with the
pre-FEED/FEED decision for AKLNG in the first quarter of
2016. He furthered that the ASAP project, considering the
delay in filing with the Regulatory Commission of Alaska,
would shift toward being on the same timeline with the
AKLNG project for 2024-2025 completion and first gas
production.
9:20:12 AM
AT EASE
9:20:41 AM
RECONVENED
Mr. Richards continued to say that the ASAP project
schedule had been altered to align the next major milestone
date with the AKLNG Pre-FEED/FEED decision in the first
quarter of 2016. Until that time, he explained, there would
be uncertainty as to whether the ASAP project was
advancing; AGDC would utilize the ASAP project as a back-up
project if AKLNG did not advance as planned.
Mr. Richards moved to slide 6, "Accumulated Corporate
Assets," and expressed that AGDC wanted to identify the
assets they had accumulated since the group's inception. He
revealed that with the original passage of the bill, the
legislature directed the Department of Natural Resources to
grant AGDC a state right-of-way. He furthered that it was
an unconditional and transferrable right-of-way, and was
available for AGDC to use on the aforementioned projects.
Mr. Richards stated that AGDC had completed an
environmental assessment statement on the original design
concept, which was a smaller diameter, higher pressure
pipeline containing more natural gas liquids. With a focus
on cost efficiency, the design premise was changed to a
lower pressure utility-grade gas and a larger diameter
project. He pointed out that this change in the design
necessitated re-initiation of a Supplemental Environmental
Impact Statement (SEIS). He elaborated that the statement
was required through the National Environmental Policy Act
(NEPA), which was necessary to advance the project due to
the impact on wetlands. He relayed that AGDC had revised
the Plan of Development and completed the Environmental
Evaluation Document which would as a draft for use by the
Army Corps of Engineers to write the SEIS. He characterized
the SEIS as a key asset for the state, as it identified all
the mechanisms for design, construction, and environmental
impacts associated with the project. He added that AGDC had
done public scoping in 16 communities around the state and
had received a very good outcome with vocal community
support for the line going forward.
9:24:05 AM
Co-Chair MacKinnon asked Mr. Richards if there would be a
change in volume under the SEIS after changing the diameter
of the pipe. She followed up to ask if the EIS needed to be
modified if the volume changed and AKLNG was not
successful. Mr. Richards responded that the SEIS was
initiated with a design through-put of 500 million standard
cubic feet per day. He clarified that currently AGDC was
not aware of the volumes that commercial interests may have
for the ASAP project, and they would not be known until
meaningful discussions with the commercial interests had
taken place. He continued that AGDC was continuing the SEIS
with the 500 million cubic feet per day quantity. He added
that a decision in the first quarter of 2016 would be
important; if AKLNG was not to proceed, AGDC would look to
the market to see what volumes they would like from a
pipeline. At that point, he surmised, AGDC would look and
see how to accomplish that; through additional compression,
or perhaps redesign of the gas treatment plant on the North
Slope to accommodate the larger volumes. He reiterated the
importance of knowing what the end market would be and
where the terminus of the pipeline would be.
9:25:58 AM
Co-Chair MacKinnon asked whether AGDC would need to modify
if the volume changed. She referred to the mention of a new
treatment facility under construction and wondered if there
was an expected timeline. Mr. Richards responded that it
was dependent upon the volume through-put. For example, a
through-put of 800 million standard cubic feet per day
would require a plant re-design to optimize the
conditioning of the gas and would most likely mean changing
the train-set from 250 to 400. Additionally, to accommodate
the 800 million they would need to add compressor stations
along the line. He discussed contingency factors such as
impact on wetlands and whether they would require an
environmental assessment or if it would require an SEIS.
Mr. Richards added that AGDC had indeed accommodated in the
schedule for the eventuality of these adjustments to the
ASAP project timeline. He clarified that they had built
discussions with commercial interests, potential re-design,
and environmental process into the forward schedule.
9:27:44 AM
Mr. Richards articulated that in slide 7, "Accumulated
Corporate Assets," the list reflected assets that belonged
to the State of Alaska, and could be used by either project
going forward.
· 400-plus geotechnical bore holes drilled
· 128 material source sites identified
· Air quality monitoring data and permit for Gas
Conditioning Facility
· Purchased Strain Based Design (SBD) pipe for:
o Small and medium scale material testing
o Automatic weld procedure validation
· Line-pipe specifications
· Safety& operational stipulations with PHMSA
· Final biologic assessment report
· Final essential fish habitat report
· Project Execution Plan(PEP) including:
o Construction execution plan
o Project logistics plan
Mr. Richards relayed that AGDC was currently using the
assets for the AKLNG project as well as the collaboration
between the two projects, so as to advance them both. He
discussed geotechnical boreholes and explained that AGDC
had drilled them south of Livengood, Alaska. He recounted
that AGDC had received a strong message from the
legislature to avoid duplicate efforts while working on
simultaneous projects, and detailed that they had worked
with the AKLNG parties because they had significant
geotechnical and geologic information north of Livengood.
He specified that they had collaborated by sharing data
from both projects in this area, and it had benefitted both
projects.
Mr. Richards remarked that one of the primary issues that
would be faced on any project was the identification of
material sources; and opening access and availability of
the material source to provide for general backfill, the
workpad, and for the padding and bedding for the pipeline.
He relayed that there had been a major effort underway that
would benefit either project but would also benefit the
State of Alaska through its needs with the Department of
Transportation and Public Facilities for future highway and
road construction. He noted that they had done air-quality
monitoring on the North Slope and would be applying for an
air-quality permit for the site of the gas conditioning
facility. He revealed that the site was co-located with the
gas treatment plant for the AKLNG project, so the air
quality data had value for both projects and would allow
the permitting process for either project to proceed
expeditiously.
Mr. Richards discussed geologic factors that would affect
the ASAP project by inducing strain to the pipe itself. He
elaborated that the Strain Based Design pipe was a subset
of the pipeline that crossed discontinuous permafrost. He
discussed the impacts of frost heave and thaw settlement,
and the need to demonstrate federal regulators that the
materials could handle the strains. To assure the federal
regulators of the safety and operational stipulations
required through the Pipeline and Hazardous Materials
Safety Administration (PHMSA), AGDC developed and acquired
pipeline materials to weld and test for validation. He
noted that they were in the testing phase to verify that
the design was sufficient for the gas volume.
9:30:50 AM
Co-Chair Kelly asked Mr. Richards to clarify the word he
used before "permafrost." Mr. Richards explained that he
was using the word "discontinuous," referring to areas of
land where permafrost was not contiguous, but rather mixed
with areas of non-permafrost. He elaborated that such
ground composition created a freeze and thaw scenario that
could be compared to frost heaves occurring on highways in
Alaska.
Senator Bishop commented that when the Trans-Alaska
Pipeline System (TAPS) was built almost 40 years prior, all
of the work was done by hand and was commonly known in the
industry as "poor-boyin." He recounted that the engineering
that was done at the time was truly tested during a 7.6
magnitude earthquake at the Denali fault, which caused 400
feet of the pipe to jump out of the rack and onto the
ground without structural failure. He offered kudos to the
engineers of TAPS. Co-Chair Kelly expressed amazement at
the speed at which workers could lay pipeline during that
time.
Mr. Richards continued and noted that both projects crossed
the Denali fault in the area south of Denali National Park.
He referred to AGDC's paleo-seismologist who had also
worked on TAPS; recounting that he predicted a rupture and
large magnitude quake with 40 feet of pipeline
displacement, as well as a prediction of similar type of
event during the lifetime of the AGDC project. He added
that AGDC would utilize the same type of design used by
TAPS, putting the pipeline on embedded I-beams knows as
"sleepers," that allow the pipe to move during ground
motion. He restated that AGDC was using proven technology.
Mr. Richards continued to discuss corporate assets, and
stated that there were tremendous additional assets
accompanying the work on ASAP, with the alignment sheets
and march charts that were completed. He added that AGDC
had an extremely robust geographic information system as
well as having completed a Class 3 estimate.
Senator Bishop commented that he believed these projects to
contain valuable saleable assets, and stated he would like
to be provided with information about the value of the
assets. Mr. Richards replied that they were indeed saleable
assets owned by the State of Alaska, and furthered to
reveal the keen interest and fiduciary responsibility with
which AGDC held the assets.
9:35:02 AM
Mr. Richards moved to slide 8, "Approximate Pipeline Land
Ownership," and again referred to the right-of-way granted
by the state. He specified that the outcome of the SEIS and
the record decision for the Army Corps of Engineers would
allow the Bureau of Land Management (BLA), through its own
record decision, to grant the federal right-of-way. He
detailed that the decision would provide the ASAP line
approximately 85 percent of the right-of-way available to
build a project. He noted that when the point of decision
was reached on the viability of the ASAP project, it would
be an important time for negotiations with the land owners
as listed on the slide. He clarified that AGDC had not yet
entered into negotiations because it was too premature. He
revealed that perhaps 5 percent of the line for the ASAP
project would be held by AGDC.
Mr. Dubler presented slide 9, "Alaska LNG Project
Participation," specifying that the important distinction
between the ASAP project and the LNG project was that the
state owned 100 percent of ASAP through its pipeline
company AGDC; whereas the AKLNG project was a combination
of owners based on resource ownership on the North Slope.
He referenced the diagram on slide 9, depicting the
Resource Owners and Project Interest parties, detailing
that the state owned gas through its royalty share and to
the extent that the state made the determination to go with
a taxes gas, it would own approximately 25 percent of the
resource on the North Slope. He revealed that the 25
percent state interest was held by TransCanada, in the
North Slope facilities and pipeline; and by AGDC in the LNG
facility. He summarized that the state was represented by
two corporations in its interest in the project.
9:37:20 AM
Mr. Kruzen presented slide 10, "Alaska LNG Recent
Activity," and summarized the technical highlights from
both a project perspective and the AGDC perspective. He
recounted that the AGDC board recently approved a $39.8
million budget for calendar year 2015. He elaborated that
the AGDC budget was based on project teams' work plan and
budget (WPNB) which was aggregated to include consideration
of deliverables from various sub-projects including the gas
treatment plant, the pipeline, the marine terminal, the LNG
plant, and permitting considerations. He recounted that
AGDC was trying to spend money wisely by coordinating and
using historical data to avoid duplications. He emphasized
that AGDC tried to be effective in moving forward to avoid
duplication of efforts for both projects. He mentioned
communicating with land owners, agencies, or the public
only one time and gathering information for both projects
for maximum effectiveness.
Mr. Kruzen commented that although AKLNG was far away from
sanction, or final investment decision (FID); as of the
summer 2014 field season the project had over 250 people in
the field in a variety of activities including geotechnical
borehole drilling, marine surveying, and looking at
pipeline corridor stream crossings. He detailed that of
those 250 people, 80 percent were Alaskans. He contended
that the AKLNG project and AGDC would continue to champion
Alaska hire and utilization of Alaskan capabilities. He
referred to a provision of the AKLNG website for interested
parties to inquire after employment.
Mr. Kruzen discussed the magnitude of the engineering
project, and reiterated that AGDC was in the Pre-FEED
stage. He explained that prior to Pre-FEED was a stage
known as "concept selection," which was done in-house and
included ideas such as a gas treatment plant on the North
Slope with three trains, a big pipeline, and an LNG plant
with three trains. He continued that the current Pre-FEED
stage included engineering to specify and optimize what
would be built. He elaborated that to accomplish the
engineering, AGDC hired world-scale contractors through the
competitive bidding process. He detailed the engineering
contracts as listed on slide 10:
· Gas Treatment Plant: URS w/CBI and ASRC Energy
Services (AES)
· Pipeline: Worley Parsons
· LNG Plant: CBI w/Chiyoda and ASRC Energy Services
(AES)
· Marine Facilities: CH2M Hill
Mr. Kruzen continued on slide 10, remarking on the
magnitude of the permitting scope of the AKLNG project. He
summarized the "Regulatory" bullet on slide 10:
· Depart of Energy authorized LNG exports to Free Trade
Agreement countries
· Federal Energy Regulatory Commission (FERC) approved
Pre-Filing request on Sep 8
o 60 public meetings already conducted to engage
Alaskans
o Resource reports provide baseline environmental
and socio-economic data
o First draft of resource reports targeted for 1Q15
o FERC pre-scoping meetings and project open houses
to take place 1st half 2015
Mr. Kruzen added that the US Department of Energy
authorized our LNG exports to the amount of 20 million tons
per year to Free Trade Agreement (FTA) countries, including
South Korea and the Pacific Rim. He added that yet to come
are the non-FTA approvals.
9:42:17 AM
Senator Dunleavy asked if the state's prospective customers
were all within the FTA designation. Mr. Kruzen responded
in the negative, and said to his knowledge South Korea was
the only one, and deliberation was ongoing for the non-FTA
approvals. Senator Dunleavy asked Mr. Kruzen to opine on
the outcome of the deliberations. Mr. Kruzen stated that he
did not know, but in general he had the impression that
FERC was supportive of AGDC's efforts.
Mr. Kruzen referred back to slide 10, explaining that at
some point AGDC would file an EIS through FERC, and was
currently in what was called the "pre-filing" phase. He
outlined that AGDC had agreed upon a strategy with FERC,
whereby various resource reports describing aspects of the
AKLNG project would be submitted. He specified that AGDC
would be referencing the concept select information as well
as the early Pre-FEED information and filing the first 12
resource reports with FERC. He estimated the target for
delivery of the reports to be mid-February. He analyzed
that this deliberate strategy would enable agencies to put
their employees on the AKLNG project rather than other
projects, and begin to cultivate public and agency input in
time to direct summer and winter 2015 field programs. He
concluded that the resultant field information, in
combination with Pre-FEED engineering information, would be
combined for re-submission of the second draft of the
resource reports in approximately a year's time.
9:45:02 AM
Mr. Richards moved to slide 11, "Alaska LNG/ASAP
Coordination," and re-articulated that AGDC had a role and
responsibility within both projects that necessitated
coordination and collaboration to advance the state's
interest for both projects. He referenced the significant
amount of historic baseline data and engineering from
previous pipeline projects north of Livengood. He voiced
the intention to utilize the wealth of information and
announced that a cooperation agreement was in place under
which historic data on the two projects had been exchanged,
resulting in cost savings of tens of millions of dollars.
He elaborated that savings occurred in areas of
geotechnical information, civil works, and hydrology works.
Additionally, the information sharing aided in meeting
AKLNG's "very aggressive schedule" with regard to the first
quarter FEED decision as well as transmitting information
for resource reports. He stated that due to the JVA [Joint
Venture Agreement] signed in July, and the necessity of
finding contractors, the process was slowed somewhat. He
furthered that the work efforts that AGDC had undertaken
could help advance the AKLNG schedule in a beneficial way.
9:47:17 AM
Mr. Richards moved to slide 12, "ASAP Class 3 Cost
Estimate," noting that it was the culmination of three
years of work to advance the ASAP project to a 30 percent
design-level estimate. He explained that Class 3 was an
estimate level as defined by the American Association of
Cost Estimators. He reviewed the rising estimated project
cost, specifying that the cost went from approximately $7.7
billion in 2012 (adjusted for inflation to $8 billion); to
a current estimate of $10 billion, updated to include
detailed design of the gas treatment facility and pipeline.
He added that the $10 billion included $900 million worth
of contingency, and referred to a confidence-level analysis
of P75 on the estimate. He detailed that in doing so, they
had received bid-level work packages from contractors to
aid in the estimate. He elaborated that the contractors,
such as Peter Kiewit, Doyon Limited, Brice, and Alaska
Interstate Construction; were all familiar with Arctic
conditions. He continued to note that they received vendor
quotes from process manufacturers as well as fabrication
yards, and concluded that AGDC was confident that the
estimate was a true representation of the cost of
developing and producing the ASAP project.
Mr. Richards pointed out that the cost of the pipeline
versus the gas conditioning facility on the North Slope was
two-thirds to one-thirds ratio. He added that he would
quickly discuss the tariffs in order to see what the
outcomes would be to consumers in Alaska.
Mr. Dubler presented slide 13, "ASAP Estimated Tariffs,"
and pointed out the tariff rate for Fairbanks was estimated
to be $5.50 to $6.75. He explained that tariff rates based
on new cost estimates were shown in a range due to a degree
of uncertainty in projections after using hundreds of
estimates to calculate. He pointed out the Anchorage tariff
rate of $8.00 to $9.75, with an accompanying "Burner Tip
Cost" of $11.50 to $14.50. He mentioned the current cost at
just under $10, and suggested that the advantage of the
ASAP project was the vast amount of gas on the North Slope,
with no risk of depleting in the near future even with a
per day usage of 500 million cubic feet.
Mr. Dubler discussed the tariff model, highlighting the
"Major Assumptions":
· 70/30 Debt to Equity
· 12 percent Return on Equity
· 5.7 percent construction financing cost
· 25 year depreciation
Mr. Dubler explained that the assumptions were all fairly
conservative and that returns were somewhere between 11 and
14 percent (recently on the lower end of the spectrum). He
specified that the financing cost was fairly high and a 25-
year depreciation was fairly conservative as well.
9:51:06 AM
Senator Bishop asked if it was safe to say that it was
imperative for the state to keep its AAA bond rating as it
went forward with the projects, to ensure that the state
was sending the right signals to the financial markets with
regard to budgeting. He further inquired if the delta would
move on the 5.7 percent construction cost financing if the
state did not retain its AAA bond rating.
Mr. Dubler responded that a rating analysis on a project
such as ASAP could take the state's rating into account,
however the project would most likely be rated on the end-
customers, which in the case of the in-state line would be
whatever entity took over and sold gas in Fairbanks. He
furthered that the state's rating could play an important
role in the financing of the project.
Co-Chair MacKinnon considered the 70 to 30 debt to equity
ratio and asked if the cash portion of the component could
be carried inside of the rate tariff and transferred as a
rate of return back to Alaskans. Mr. Dubler responded that
it could be structured either way, but to be conservative
AGDC assumed that the state's $400 million contribution
achieved a 12 percent return on equity. He furthered that
the 30 percent equity was made on the assumption that the
state would not be building and owning the project. Rather,
he clarified that the state had issued a request for
proposal and had used a competitive process to select a
pipeline company to build, own, and operate the project;
the negotiation with the company would determine the debt
to equity ratio and the return on equity the company was
reimbursed for through the tariff.
Co-Chair MacKinnon asked what would happen if the demand
for in-state gas settled at the 250 MMscf/d (million
standard cubic feet per day) capacity that she had seen on
some projections. She wondered if the state would try and
sell the other portion. Mr. Dubler responded that the
assumption they had made is 500 MMscf/d, and to the extent
that in-state users would not fully utilize up to 500, AGDC
would look to sell to others through the open season
process.
9:54:12 AM
Mr. Richards commented that slide 14, "ASAP Design
Capacity" was merely a history of the $500 million
limitation for the ASAP project, and more importantly
wanted to address slide 15, "ASAP Revised Spend Plan." He
directed the committee's attention to the orange line on
the graph denoting the original spending plan that the
legislature sanctioned. He referred to the passage of SB
138 and ASAP project benchmarks of Recourse Tariff Filing
and Project Sanction, noting that the subsequent revised
spending plan reduced the ASAP project total by
approximately $90 million. He remarked that the figure
represented a 60 percent reduction in spending; and AGDC
would then complete the NEPA and EIS processes as well as
fieldwork and material testing. He referred back to the 60
percent spending reduction and claimed it would keep the
ASAP project viable while allowing AGDC to continue to do
achievable and transferrable work between the AKLNG and
ASAP projects.
Co-Chair MacKinnon referred to slide 10, and inquired about
the resource reports listed as providing environmental and
socio-economic data. She asked for clarification that the
reports were available for scrutiny and public comment by
individuals. Mr. Richards answered in the affirmative; the
report would be an open public document with FERC once it
was filed. After which, he clarified, there would be a
"vigorous public scoping or meeting schedule" established
for individuals as well as municipalities to review and
comment.
ADJOURNMENT
9:57:06 AM
The meeting was adjourned at 9:57 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 013015 AGDC Senate Finance Committee.pdf |
SFIN 1/30/2015 9:00:00 AM |
Alaska Gasline Development Corporation |