Legislature(2015 - 2016)SENATE FINANCE 532
02/18/2016 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Aklng Appropriation and Expenditures; Alaska Gasline Development Corporation (agdc); Department of Revenue (dor); Department of Natural Resources (dnr); Department of Law (dol) | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
February 18, 2016
9:06 a.m.
9:06:34 AM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 9:06 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Donny Olson
MEMBERS ABSENT
Senator Mike Dunleavy
Senator Lyman Hoffman
ALSO PRESENT
Miles Baker, Vice-President, Government Relations and
External Affairs, Alaska Gasline Development Corporation;
Bruce Tangeman, Vice-President, Finance and Administration,
Alaska Gasline Development Corporation; Marty Rutherford,
Deputy Commissioner, Department of Natural Resources; Jerry
Burnett, Deputy Commissioner, Treasury Division, Department
of Revenue.
PRESENT VIA TELECONFERENCE
Fritz Krusen, Vice-President, AKLNG, AGDC; Frank Richards,
Vice-President, Engineering and Program Management, AGDC.
SUMMARY
^AKLNG APPROPRIATION AND EXPENDITURES; ALASKA GASLINE
DEVELOPMENT CORPORATION (AGDC); DEPARTMENT OF REVENUE
(DOR); DEPARTMENT OF NATURAL RESOURCES (DNR); DEPARTMENT OF
LAW (DOL)
9:07:26 AM
AT EASE
9:07:45 AM
RECONVENED
9:08:03 AM
MILES BAKER, VICE-PRESIDENT, GOVERNMENT RELATIONS AND
EXTERNAL AFFAIRS, ALASKA GASLINE DEVELOPMENT CORPORATION,
introduced himself. He shared that the presentation would
explain the history of the funding that was used to start
the pipeline initiatives managed the Alaska Gasline
Development Corporation (AGDC); show how the money was
spent; and the projections through the end of FY 17.
Mr. Baker presented the PowerPoint, "Natural Gas Project
Funding and Expenditures." He remarked that the
presentation would be an overview for some new legislators.
He stated that the project began in 2009, when the
legislature began to take steps to examine the feasibility
for the state to develop a pipeline from the North Slope to
commercialize the gas, primarily for an instate market.
Mr. Baker looked at slide 2, "Natural Gas Pipeline
Development":
2009: Legislature begins taking deliberate steps to
develop an in-state pipeline, independent of other
producer led North Slope commercialization efforts.
2011: Alaska Stand Alone Pipeline (ASAP) plan
developed and delivered to the Legislature. Plan
further optimized during 2012.
2013: Alaska Gasline Development Corporation (AGDC)
established as an independent, public corporation -
$355+ million investment towards ASAP (HB 4).
2014: State participation in Alaska LNG project
authorized (SB 138), Joint Venture Agreement executed
and Pre-Front End Engineering and Design (Pre-FEED)
begins
2015-2016: AGDC progressing two North Slope natural
gas pipeline project options: Alaska LNG primary and
ASAP backup
Mr. Baker discussed slide 3, "In-State Pipeline Fund: Cash
Flows."
2014
$330,000: Original Capitalization of Fund (FY14)
$25,000: Additional Capitalization for HB4 Fiscal
Note Agency Work (FY14)
($65,925): FY14 ASAP Project Expenditures
($6,874): FY14 AGDC Corporate Operating
Costs$2,304Interest, Investment & Retirement
Income
2015
($157,000): Appropriation to Public Education
Fund
($9,000): Appropriation to fund DNR FY16 Gas
Commercialization Group
($65,909):FY15 ASAP Project Expenditures
($9,503): FY15 AGDC Corporate Operating Costs
$1,437: Interest, Investment & Retirement Income
2016
$1,300: Approp 2015 Gasline Special Session
SB3001 In-State Receipt Authority
($19,231): FY16 ASAP Project /In-State Gas Work
(Projected to Year End)
($10,448): FY16 AGDC Corporate Operating Costs
(Projected to Year End)
$84: Interest, Investment Income as of
1/31/20162017
($5,000): FY17 In-State Gas Work (Forecasted)
($4,310): FY17 ASAP Project, SEIS Completion
(Forecasted)
($10,150): FY17 AGDC Corporate Operating Costs
(GovFY17 Budget)
Projected Balance June 30, 2017: $14,019
9:16:59 AM
Co-Chair MacKinnon queried specific details on the $5
million spending. Mr. Baker replied that it was an
estimate, and deferred to Mr. Krusen or Mr. Richards for
more details. He furthered that a subsidiary was recently
established, and there had been work on delivering gas to
the state at reasonably affordable rates. He stated that
there was language that outlined the communities that had
direct access to the pipeline. He stressed that there was a
focus on commercial analysis and pre-engineering to provide
the project with the information necessary to complete the
design and FEED.
9:19:30 AM
FRITZ KRUSEN, VICE-PRESIDENT, AKLNG, AGDC (via
teleconference), deferred to Mr. Richards.
9:19:58 AM
FRANK RICHARDS, VICE-PRESIDENT, ENGINEERING AND PROGRAM
MANAGEMENT, AGDC (via teleconference), stated that there
had been preliminary work on the offtake kit. He shared
that there was work with the producers to examine the
interconnection points along the pipeline route. He shared
that there was not much technical work downstream of the
offtake kit, which would include lines to communities for
distribution lines within the individual communities. He
felt that there needed to be technical analysis downstream
of the offtake kit. He remarked that there should be an
examination of the commercial realm, with communications
with the utilities for aggregation opportunities to develop
an outline of the actual demands of the communities. He
shared that there had been some instate examinations of
potential demand, but wanted to expand that work to meet
the actual demands. He stressed that it was a combination
of technical analysis; engineering studies; commercial work
with the utilities; and working with the sister agencies
such as the Alaska Energy Authority (AEA) to determine the
direct access to the gas.
Co-Chair MacKinnon queried the FY 16 spend on the ASAP
line, and the $4.3 million FY 17. Mr. Richards replied that
the FY 16 spending for ASAP was because of a request from
the board. He shared that SB 138 determined that the AKLNG
project be the priority for the state.
9:22:56 AM
AT EASE
9:26:35 AM
RECONVENED
9:26:52 AM
Mr. Richards discussed the cost of the ASAP project.
Co-Chair MacKinnon wondered if the proposal for the right-
of-way had been changed from the original plan,
specifically whether it would run through Denali. Mr.
Richards replied that there had been a slight modification
to the right-of-way, but neither pipeline would run through
Denali.
Co-Chair Kelly wondered if the route in Denali was worth
it. Mr. Richards replied that the current routing for both
projects were not in Denali Park. The pipe only went
slightly through the park, in the alternative alignment.
Co-Chair Kelly expressed caution about going through the
park. Mr. Baker agreed with Mr. Richards. He stressed that
the challenge for the project. He stated that the Denali
Borough, and Friends of the Park would prefer for the pipe
to go through the park. He stated that the alternative
alignment was shorter, and was the preferred path. The
community in Denali felt that there would be an increased
potential to get gas from the project, if it ran through
the park.
9:36:27 AM
Co-Chair Kelly stressed that the federal government had not
supportive.
Vice-Chair Micciche wondered if the subsidiary referred to
the aggregator. Mr. Baker replied in the affirmative. He
stated that the board had authorized the formation of two
subsidiaries. One would manage the TransCanada assets, and
one would be the instate aggregator.
Vice-Chair Micciche queried the purpose of the subsidiary.
Mr. Baker replied that, at the time, there was a hope to
take over the TransCanada assets. The relationship was
between the Department of Natural Resources (DNR) and
TransCanada, so AGDC was not privy to the legal structure.
The board wanted the maximum flexibility, so AGDC could
hold the assets in a separate LLC. The transfer occurred
successfully, and the most recent board meeting dissolved
the subsidiary.
Vice-Chair Micciche queried the flexibility of the
organization, should there be a delay on the AKLNG
schedule.
BRUCE TANGEMAN, VICE-PRESIDENT, FINANCE AND ADMINISTRATION,
ALASKA GASLINE DEVELOPMENT CORPORATION, replied that AGDC's
purpose was to finish what they had been tasked. He
stressed that the FY 17 intention was to complete Pre-FEED,
and prepare the organization for the FEED.
Senator Bishop queried the length of the possible permits.
Mr. Richards replied that the life of the permits were
approximately three to five years, and at that time the
federal government would reexamine the environmental
impacts of the projects.
9:43:08 AM
Mr. Baker displayed slide 4, "Alaska LNG Fund: Cash Flows":
2014
$69,835: SB 138 Passed; Original Capitalization
of Fund (FY14 Supplemental)
($1,052): FY14 AGDC Corporate Operating
Costs$39Interest, Investment & Retirement Income
2015
($16,312): FY15 Alaska LNG Project Cash Calls
($6,805): FY15 AGDC Corporate Operating &
Contractual$253Interest, Investment & Retirement
Income
2016
$64,590: Approp 2015 Gasline Special Session
SB3001 TC Acquisition
$75,600: Approp 2015 Gasline Special Session
SB3001 Pre-FEED
$2,900: Approp 2015 Gasline Special Session
SB3001 AKLNG Receipt Authority
($64,590): FY16 AGDC Expenditure (TC Mid-Stream
Acquisition)
($59,102): FY16 Alaska LNG Project Cash Calls
($6,672): FY16 AGDC Corporate Operating &
Contractual (Projected to Year End)
$30: Interest, Investment & Retirement Income
(thru Jan 31, 2016)
2017
($48,850): FY17 Alaska LNG Project Cash Calls
($2,800): FY17 AGDC Corporate Operating Costs
(GovFY17 Budget)
($4,730): FY17 AGDC Contractual Expenditures
(Forecast)
$2,334: Projected Balance June 30, 2017
Senator Bishop wondered if "SME" referred to "Subject
Matter Experts." Mr. Baker replied in the affirmative.
Co-Chair MacKinnon queried the breakdown of the applied
corporate expense. Mr. Tangeman responded that that AGDC
had a cost allocation method. He stated that AGDC
originally had one fund source. He stated that external
auditors worked with AGDC to establish the cost allocation
method. The cash calls were significant, because they were
not included in the cost allocation method.
Co-Chair MacKinnon surmised that the cost allocation was
specifically for the corporate overhead. Mr. Tangeman
agreed.
9:48:01 AM
Co-Chair MacKinnon shared that she did not watch the
governor's recent press conference on AKLNG. She wondered
if there were any comments from the administrative team to
understand the governor's comments. Mr. Krusen responded
that the current budget was for completing pre-FEED; and
ramping up ASAP. He stated that there were no details as
described at the press conference. He stressed that it was
too soon to make any adjustments, because it was unknown
what would occur after the completion of Pre-FEED.
Mr. Baker highlighted slide 5, "AGDC Annual Expenditures
Breakout." He stated that the slide was a recap of what had
been discussed. He stressed that the corporate operating
costs were highlighted in blue. Those costs would be in the
AGDC operating budget. He stressed that those costs were
the overhead for the corporation. He stated that the fund
request was identical to the prior year.
9:51:45 AM
AT EASE
9:52:06 AM
RECONVENED
9:52:15 AM
MARTY RUTHERFORD, DEPUTY COMMISSIONER, DEPARTMENT OF
NATURAL RESOURCES, discussed the PowerPoint, "FY2016 and
FY2017 AKLNG Project Budget" (copy on file). She was
speaking on behalf of DOL, DOR, and DNR. She shared that
she would discuss the make-up of the agency structures
within AGDC and the budget requests for FY 16 and FY 17.
Ms. Rutherford looked at slide 2, "State Gas Team." She
stated that there had been some confusion over the year, so
DNR had done work to coordinate among the agencies and AGDC
to ensure a fully integrated team. She explained that the
slide indicated that the commissioners of the agencies and
AGDC were used for major policy guidance.
Ms. Rutherford highlighted slide 3, "Agency Roles in
AKLNG":
Department of Natural Resources (DNR) -North Slope Gas
Commercialization Office (NSG)
•Upstream [AS 38.05.180(hh), (ii)], in consult
with DOR [AS 38.05.020(b)(10),(11),(12)]
•Royalty In-Kind/Royalty In-Value decision (AS
38.05.182)
•Marketing, in consult with DOR [AS
38.05.020(b)(10),(11),(12)]
•In-state Gas coordination, in consult with AGDC
(SB 138, Section 73)
•Midstream Agreements, in consult with AGDC [AS
38.05.020(b)(13)]
Department of Revenue (DOR)
•Identify and recommend financing options (SB
138, Section 76)
•Recommend statutory changes to property taxes
under AS 43.56 and AS 29.45.080 (SB 138, Section
74)
•Develop Impact Fees and Flow Rated Property Tax
Proposals (SB 138, Section 74, AO 269 MAGPR
Board)
•Allows producers to pay tax as gas (TAG) (AS
43.55.014)
•Consult with DNR on contracts negotiation [AS
43.05.010(16)]
Department of Law (DOL)
•Legal support to agencies and AGDC
Alaska Gasline Development Corporation (AGDC)
•State's ownership of project infrastructure (AS
31.25.080)
•Assist DNR/DOR in maximizing the value of the
State's gas [AS 31.25.005(3)]
•Provide project services to the State at cost
(i.e. without profit) [AS 31.25.005(5)]
•Deliver domestic gas to in-state customers at
commercially reasonable rates [31.25.005(6)]
9:57:12 AM
Vice-Chair Micciche looked at DNR, and remarked that the
governor had wanted to explore other options. He stated
that there had been rumors of a delay of the constitutional
amendment and other agreements. He queried the flexibility
of DNR to delay some of the marketing spending. Ms.
Rutherford responded that the commercial agreements had not
progressed as quickly as anticipated, but they would not be
available in time for a special session. She stressed that
there had been progress, regardless of the delay in the
commercial agreements. She shared that the financial
environment had put the legislature in a difficult position
to fund FEED. She stressed that the producers had begun
conversations about the options to ensure the progression
of FEED. She stressed that no one had backed out of the
project, but were concerned about the FEED decision on
2017. She stressed that the budget was a document that
reflected the project moving forward. She remarked that
there could be changes, but she hoped that the commercial
agreements would be in place to make timely decisions. She
recognized the difficult financial situation and the delay
in the commercial agreements, therefore there were some
reductions in the governor's original request.
10:02:33 AM
Vice-Chair Micciche wondered whether pushing for commercial
agreements in the current situation, may hinder the state.
Ms. Rutherford agreed, but stated that the pace of the
agreements probably would not be complete in the following
six months.
Senator Olson noted that there were cash calls for the
state, and wondered whether the other partners had timely
cash calls. Ms. Rutherford replied that DNR did not have
similar cash calls to AGDC.
Senator Olson queried the money that would be available to
backfill related to the delay. Ms. Rutherford stated that
she would address that issue in the presentation.
Senator Bishop shared that he often did not have time for
discussions, because of busy schedules. He stressed that
the DNR budget was already in the process of reductions,
before the governor's press conference. Ms. Rutherford
agreed.
10:07:32 AM
Ms. Rutherford addressed slide 4, "State of Alaska AKLNG
Appropriations to Date":
Funding FY14-FY16 -$90.5 M plus FY16 Supplemental
$157,040
Date Funding FY14-FY16 -$90.5 M
SB138 General Fund to LNG Fund (FY14-FY15)
$69,835.0
•Capitalized the LNG Fund
•AGDC, AKLNG downstream cash calls,
contractual service with agencies
General Fund Appropriations (FY15) $11,762.0
•AEA in-state affordable energy study
•DNR North Slope Gas Commercialization
•DOR Tax Division
Appropriations (FY16) $8,987.0
•DNR North Slope Gas Commercialization (in-
state gas line fund)
Authorization from LNG Fund (FY16)
•Within original $69,835.0 capitalization
•AGDC, DNR, DOTPF: $3,023.0
Ms. Rutherford discussed slide 5, "FY2016 Supplemental
Summary":
Supplemental Request $157.0 million plus $5 million
AGDC Statutorily Designated Program Receipts (SDPR):
Agency Operating Budgets $12,995.0
DNR: $1,849.5
DOR: $1,045.5
DOL: $10,100.0
AGDC: Capital Budget $144,045.0
Reimburse TransCanada: $68,445.0
Fund State's remaining Pre-FEED share:
$75,600.0
AGDC: Receipt Authority $5,000.0
AKLNG reimbursement for work performed
10:10:49 AM
AT EASE
10:20:23 AM
RECONVENED
10:20:34 AM
Co-Chair MacKinnon felt that the presentation did not match
the AGDC presentation. She remarked that there had been
three different references to the buyout. She remarked that
it may be confusing within the references. She requested
the most recent information in all presentations. She
specifically queried the spending proposal for the FY 17
budget. She wanted more information for the DNR spending
proposal. She stressed that there was some discrepancies
between Legislative Finance, governor's proposal, and the
actual numbers.
Ms. Rutherford displayed slide 4 (a), "FY 2016 Agency AKLNG
Budget." The slide showed the FY 16 money appropriated to
the three agencies: DNR, DOR, and LAW. She stated that it
did not reflect any interagency funding.
Ms. Rutherford addressed slide 5 (b), "FY 2017 Agency AKLNG
Budget." She explained that the slide broke down the
agencies for a total of $31 million. She shared that there
would be distinctions between the governor's request and
the decrement reflections as a result of the change in the
state budget situation.
Ms. Rutherford discussed slide 6, "DNR North Slope Gas
(NSG) AKLNG Team." She remarked that she and the
commissioner were at the top of the structure. She
furthered that there was a combination of contractors and
subject matter experts who were addressing AKLNG on a day-
to-day basis.
Ms. Rutherford highlighted slide 7, "DNR NSG FY 2016
Budget." The slide showed the FY 16 DNR budget divided
between the regular session appropriation and the special
session. She announced that the total projected available
was a $377,000 balance. She stated that the department
would spend almost exactly anticipated money. She remarked
that, should the project halt, the department would cease
spending causing a greater balance closer to $1.5 million
to $2 million.
Ms. Rutherford discussed slide 8, "DNR NSG FY 2016 Personal
Services." The slide broke down the FY 16 employees.
10:25:13 AM
Ms. Rutherford addressed slide 9, "DNR NSG FY 2016
Services":
RSA to Department of Law for legal support in
negotiation and drafting of commercial agreements:
$3,000.0
RSA to Department of Revenue for services provided by
commercial analyst in support of upstream activities:
$187.5
Black and Veatch for support, advice, analysis, and
expertise in commercial negotiations, strategy,
modeling, FERC and resource report drafting and
review, and marketing, estimated spend rate of
$150.0/month: $1,775.0
CarbExConsulting, Steve Swaffield for commercial
negotiations support and expertise, estimated spend
rate of $20.0/month: $225.0
GreengateLLC, for advice, expertise, analysis and
support on financing options and sources of financing,
financing structures, finance considerations of
commercial negotiations, and property tax support;
financing and financial modeling support and analysis,
estimated spend rate of $75.0/month: $750.0
Nan Thompson for support in drafting RIK/RIV decision,
estimated spend rate of $20.0/month: $200.0
Pingo International, Pat Anderson for expertise in
arctic pipeline engineering and design to support
midstream activities, estimated spend rate of
$57.0/month: $680.8
Steve Wright for expertise in project management and
support in upstream activities, estimated spend rate
of $35.0/month: $420.0
TOTAL: $7,238.3
Ms. Rutherford discussed slide 10, "DNR NSG FY 2016
Services - Special Session Funding":
RSA to Department of Natural Resources, Division of
Oil and Gas for support from commercial analysts for
upstream activities: $304.0
Ernstand Young for audit services for TransCanada
compliance review: $50.0
Lisiecki Consultancy, Simon Lisiecki for expertise in
marine facilities and transportation engineering to
support midstream activities, estimated spend rate of
$8.0/month: $100.0
Rick Harper for support in midstream activities,
estimated spend rate of $60.0/month: $300.0
Consulting services anticipated for resource report
review and drafting: $350.0
Additional commercial negotiation support services
anticipated to advance commercial negotiations and
activities: $300.0
Marketing contractor to support marketing negotiations
to advance project until a permanent employee can be
recruited and retained: $350.0
TOTAL: $1,754.0
Vice-Chair Micciche looked at slide 8, and noted that the
state was considering reductions in various other agencies.
He wondered if DNR was hiring for the open, valuable
positions. Ms. Rutherford replied that the marketing
positions were not expected to be filled until FY 17. She
stated that the commercial agreements would drive the
hiring of employees. She remarked that expertise was
required in the drafting of commercial agreements. She
stated that the marketing aspect had two phases. She stated
that there could be a combination of venture market
structures. There was an initial proposal that the funding
include the possibility to set up three joint market
ventures. She stressed that the project would compete in
the world market, so the experts must be the best.
10:29:58 AM
Vice-Chair Micciche felt that there were adequate
individuals that would analyze different positions in
various scenarios. He hoped that DNR and AGDC would
consider what the organization may look like in the event
of a project delay. He hoped that the dollars may shift to
a critical state service. Ms. Rutherford agreed. She hoped
that there would not be a delay.
Ms. Rutherford highlighted slide 11, "NSG FY 2017 Budget
Request." She explained that column one was the one-time
increment appropriated in FY 16; column two was the
additional increment request for FY 17; column three was
the governor's initial total request for FY 17; column four
was the proposed reductions that DNR would submit; and
column five was the new totals in the governor's amended
budget for FY 17. She noted that DNR reduced approximately
$7 million, so the slide was a reflection of what a
marketing organization would only stand one. She stated
that, assuming that the state would move into FEED in FY
17, the co-ventures would begin to reach out to the market
and begin to develop the Heads of Agreement. The Heads of
Agreement would evolve into contracts, which would be the
foundation for the financing of the project and the long-
term contracts with buyers. She stressed that a first-class
state marketing association was critical to moving forward
with the project.
Ms. Rutherford discussed slide 12, "NSG FY 2017 Personal
Services." The slide was an indication of the new request,
and were the most senior positions to develop the marketing
of the gas. She stated that the projections were drawn from
other similar entities.
10:34:57 AM
Ms. Rutherford displayed slide 13, "NSG FY 2017 Services":
RSA to Law for continued legal support for commercial
agreements negotiation and drafting -estimated spend
rate of $1,000.0/month: $12,000.0
RSA to Law for legal support for marketing negotiation
and drafting of joint venture marketing agreements
with Producers -estimated spend rate of $400.0/month:
$5,000.0
TOTAL: $17,000.0
Continued commercial expertise and support: $600.0
Continued analysis and modeling support: $2,100.0
Engineering expertise for marine, facilities, etc:
$480.0
Other professional services for expertise and support
as required: $2,470.0
Other services required for operational efficiency,
phones, space, etc: $350.0
TOTAL: $6,000.0
Co-Chair MacKinnon wondered if Mr. Burnett was prepared to
discuss DOR's portion of the project.
JERRY BURNETT, DEPUTY COMMISSIONER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, replied in the affirmative.
10:36:41 AM
AT EASE
10:38:58 AM
RECONVENED
10:39:13 AM
Co-Chair MacKinnon stated that the presentation would be
suspended.
10:39:35 AM
ADJOURNMENT
| Document Name | Date/Time | Subjects |
|---|---|---|
| 021816 DNR DOL DOR Fin Committee AKLNG Budget .pdf |
SFIN 2/18/2016 9:00:00 AM |
Presentation: AKLNG/DOR/DNR/LAW |
| 021816 AGDC Historical Spending Finance Committees.pdf |
SFIN 2/18/2016 9:00:00 AM |
Presentation: AKLNG/DOR/DNR/LAW |