HOUSE BILL NO. 369 "An Act relating to an in-state natural gas pipeline, the office of in-state gasline project manager, the Joint In-State Gasline Development Team, and the In- State Gasline Steering Committee; and providing for an effective date." 1:42:04 PM Co-Chair Hawker provided history of the measure in committee. He referred to a CS that had been adopted and a new combined fiscal note that would replace all previous fiscal notes. BOB SWENSON, DIRECTOR, DIVISION, GEOPHYSICAL AND GEOLOGICAL SURVEY, DEPARTMENT OF NATURAL RESOURCES and ALASKA IN-STATE NATURAL GAS PIPELINE MANAGER, confirmed that the format of the fiscal note had been changed to combine all previous fiscal notes. He pointed out that the money would go through the governor's office and be distributed through reimbursable service agreements (RSAs) to various agencies. Co-Chair Hawker queried the fiscal plan for the coming year. Mr. Swenson responded that the request for FY 11 comes first in the fiscal note narrative; each of the agency's requests for the FY 11 budget is broken out. In addition, the RSA requests (which are indeterminate at this time) are listed. Co-Chair Hawker requested fiscal analysis for the bill beginning with the coming year. Mr. Swenson continued that the fiscal request from the governor's office would specifically fund positions (through personal services) for the team of seven members (reduced later to six): · Project manager: Mr. Swenson · Engineering manager: would manage engineering work on- going and work on the project plan outlined in the bill · Commercial manager: management of both upstream and downstream activities · Legislative liaison and public outreach · Finance and budget analyst · Schedule coordinator · Technical writer: one-year position to develop of the plan outlined in the bill Mr. Swenson informed the committee that the FY 11 request also included the original $6.5 million put forth in the FY 11 appropriations request addressed in a previous meeting. He detailed that the amount was for: · Completion of environmental permitting by the U.S. Army Corps of Engineers; · State and federal right-of-way approvals; · Project management development and coordination of permitting; · Working with stakeholders such as local communities and Native Corporations, the Bureau of Land Management (BLM), and others; · Beginning studies on wetlands, stream crossings, culture impacts, lake studies, wildlife and bird surveys, air and noise surveys associated with the U.S. Army Corps of Engineers' Section 404/Section 10 permit; · Project management on the engineering data acquisition and further refinement of the engineering design; · Refinement costs of service estimates and tariff modeling associated with using the data provided by the cost of transport (underway in the current fiscal year); and · Preparing and completing documentation for in-state pipeline assets for consideration for private developer or entity. 1:47:34 PM Mr. Swenson pointed to an additional request for $2.599 million for contractual work and RSA needs, making the total request $10.653 million. He noted that the RSA request would be distributed as outlined in the fiscal note narrative to various agencies affected by the bill, as well as the work towards developing the pipeline. Co-Chair Hawker acknowledged the detailed narrative provided with the fiscal note. Representative Gara stated that he did not want to spend $100 million on a project that might not go ahead, but he was comfortable with the request to do preliminary planning. He noted that the FY 11 amount was $10 million and queried costs after that. Mr. Swenson directed attention to page 2 of 10 of the fiscal note narrative that specifically relates to the indeterminate contractual request; he remarked that the fiscal responsibility to the state will be determined by the outcome of the project plan. He declared that a very significant factor would be the ability to get a private entity to partner with the state or take the entire project on; the costs to the state from FY 12 on could vary between zero (if the entity takes over the entire project) up to the full cost of construction. The cost-of-production [projections] are not currently done; on-going engineering work is currently underway. Co-Chair Hawker agreed with the analysis. He added that fiscal notes are adopted as though they were budget appropriations, so the 2011 Conference Committee would adopt the $10 million fiscal note; considering the contractual level for FY 12, FY 13, and FY 14, "indeterminate" means that nothing will be anticipated in the draft budget for those years unless a determination is made to fund something. The personnel services will continue as full-time positions are hired with the presumption of continuing on. However, that does not mean the project cannot be terminated at the end of the preliminary development stage if so desired. 1:50:53 PM Representative Gara wanted assurance that the sponsors would have to come to the legislature first in FY 12 or after if there is a new contract obligating the state to spend a large amount of money. Mr. Swenson responded in the affirmative. He stated that the plan would be presented to the legislature, and the legislature and the governor would make the decision based on the cost estimates and plans. Representative Doogan recalled that 28 positions had been included in the previous set of fiscal notes; he asked if the number was still the same. Mr. Swenson answered that the original fiscal note was from the original CS, which had a construction date of July 1, 2011; it would have been very challenging to meet that deadline. The change from a construction date to a gas pipeline plan has reduced the number of required employees. He did not know the exact number off-hand, although the fiscal note listed the required positions. Co-Chair Hawker added that in the detailed narrative there are partial positions representing time that would be required from existing agency personnel; there is a difference between increasing personnel and using personnel already in place. He detailed that the FY 11 fiscal note provides for seven new full-time employees. 1:54:13 PM Representative Austerman referred to a project coordinator at the Department of Environmental Conservation listed on page 2 of the narrative. He asked whether the position was separate from the seven already mentioned. Mr. Swenson answered that in the FY 11 budget they had tried to break out the exact personnel required; the positions may or may not already exist in the agency. He wanted the department to answer. Representative Austerman did not want to delve into each component for each of the six departments involved. He pointed to the fact more than seven employees would be required. Representative Gara wanted to know the cheapest way to get natural gas to Alaskans. He asked whether the plan would be presented with information about cost-effectiveness. He referred to potential gas reserves in Cook Inlet and asked whether the plan would consider the cost of in-state gas from Cook Inlet as compared to building a larger pipe south. Mr. Swenson responded that the bill was aimed at bringing North Slope natural gas to Southcentral Alaska (including Valdez); the relative cost of possible Cook Inlet gas would not be determined through the project. Representative Gara was concerned about choosing the most expensive option. He asked whether comparative information would be available to the legislature before going ahead with North Slope gas plans. Mr. Swenson replied that there were on-going studies. He referenced a presentation at the recent Anchorage Resource Development Council by ENSTAR Natural Gas Company using a Department of Natural Resources (DNR) study of costs associated with accessing gas reserves. He thought the comparison information should be brought into discussions with the legislature when decisions are made. He pointed out that HB 369 did not say that, but he maintained that all options related to [in- state use of] North Slope would be considered and that there would be comparative cost analysis. Representative Gara believed the public did not have all the information and stated for the record that a big gasline would result in cheaper gas than a smaller bullet line; the question was whether the state could wait for the big line. He maintained that there is no analysis showing that a small bullet line would produce cheaper gas than a big gasline. Mr. Swenson replied that current analysis did not show the costs associated with a spur line from a large diameter line, whether the larger line went to Alberta or Valdez. 1:59:38 PM Co-Chair Hawker interjected that HB 369 (page 4, lines 10 and 11) stipulates that the first requirements of the development team are analysis of routes and selection of routes; Item 1 states that it must be economically feasible and Item 2 requires that natural gas be available to residents [of the state] at the lowest possible cost. Representative Gara asserted that he had been told in the past that a big gasline would result in lower cost than smaller line. Mr. Swenson replied that the volume transmitted down a larger line would be larger. Without proper economic analysis, he opined that costs [of a smaller line] would be less than a stand-alone line to the North Slope. Representative Gara did not want the public to think that the state could build a smaller line with more expensive gas and then switch over to cheaper gas when the bigger line is built. He asked whether the public would be obligated to keep paying for the gas from the smaller line for a certain number of years. Mr. Swenson noted that there was a letter regarding the issue that the committee had not yet received. He opined that the answer would depend on the configuration of the pipeline with different commitments. A contract carrier or a common carrier with financing through normal means would mean a 20-year commitment. The length of commitment would be less if the state chose to buy down the debt. Commitments would not be related to financing if the state fully financed the line. Co-Chair Hawker echoed that there are many complex variables at work and stressed that the choice is not narrowed to between only two alternatives. He did not believe there was a dilemma. He wanted to keep the state's options open to make sure gas was available to Alaskans. 2:03:56 PM Representative Joule asked whether the difference between importing gas and using in-state gas would be clear when the legislature gets the plan in 2011. Mr. Swenson answered that liquid natural gas (LNG) imports were not contemplated in HB 369; the bill considered using the current LNG export market and vying for that. Representative Joule pointed out that the state would not know whether it would be cheaper to import gas than using in-state gas. He thought the information should be available to the legislature before making final decisions. Mr. Swenson agreed that there were significant issues related to imported LNG that should be looked at, including the Federal Energy Regulatory Commission (FERC) license associated with the import as well as the volumes that could come through in a re-gasification plant and associated issues. Co-Chair Hawker acknowledged that the question deserved an acceptable response, but pointed out that HB 369 does not address the issue. He asked whether feasible information would be available to the legislature regarding comparative costs for LNG (presuming HB 369 goes forward and a project plan is considered after July 1, 2011). Mr. Swenson believed that was correct. Representative Joule understood that expecting short-term gas might be challenging when considering a big line. Co-Chair Hawker referred to a report released in March 2010 compiled by Resource Alaska at the request of the three major Southcentral public utilities. He noted that the report had a "stark" premise and conclusion: unless there is significant new development in Cook Inlet in the immediate future, the state will have to import LNG as a short-term solution. The report also indicated that the long-term solution involved in-state gas. He did not believe the HB 369 proposal was incompatible with the possible need for a short-term solution as well. 2:09:00 PM Representative Gara stated that his major concern with the legislation was that it only provides a cost analysis comparing other in-state gasline projects from the North Slope. He wanted cost analysis of all other options as other options might be less expensive. Representative Kelly believed all the pieces were in place, such as temporary gas storage and the utility study. Co-Chair Hawker commented that his personal vision included the evolution of the hydrocarbon potential of the Cook Inlet region. He believed the region could become a global trading hub for natural gas because of its position relative to Asian trade routes and the North Slope as well as its gas storage capacity. He asserted that the state could become a major trading center, the "Henry Hub or the Alberta of the North." 2:13:20 PM Representative Austerman directed attention to page 4, starting at line 7, regarding what the development team's work product would include, especially making natural gas available to residents at the lowest possible cost. He stated that he supported the bill because he believed the least expensive route was the state paying for the line. He noted that the state had the assets to back up the project, including the Permanent Fund. He suggested building the line and recovering the costs through the tariff. Co-Chair Hawker observed that the CS had been crafted to provide for a broad array of options for the state. Vice-Chair Thomas pointed to page 4, line 20 related to the transfer of assets. He asked who would decide to sell and when. TOM WRIGHT, STAFF, REPRESENTATIVE MIKE CHENAULT, SPONSOR, responded that the legislature would ultimately decide after the project plan was developed and presented. Vice-Chair Thomas turned to page 4, line 27 regarding rights-of-way. He queried the authority to purchase rights- of-way before the money is appropriated. Mr. Wright responded that some of the rights-of-way can be purchased with funds available through the fiscal note; any further funds needed would require an appropriation from the legislature. 2:17:23 PM Vice-Chair Thomas directed attention to page 4, line 29 regarding purchase contracts. He asked who the contracts would be purchased from. Mr. Wright believed that shippers would be the primary purchasers. Representative Fairclough stated concerns related to page 5, line 12 regarding the transfer of eminent domain to a private entity. She requested language that would ensure that the state would maintain possession of any additional rights-of-way taken from a private property owner upon construction or failure of a project. She wanted the property to be used later if it did not need to be maintained for right-of-way purposes. FRANK RICHARDS, DEPUTY COMMISSIONER, HIGHWAYS & PUBLIC FACILITIES, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, replied that he had posed the question to the legal team but had not yet received the answer. He had discussed the issue of state assets and permanent rights- of-way for the pipeline with the state pipeline coordinator's office. He reported that only the rights-of- way would be provided, not the underlying interest of the land. He noted that at the next level, land purchased by the state through any means, either through purchase agreement or eminent domain, would become an asset of the state. He envisioned that the project would purchase just the rights-of-way for pipeline use and that the state would retain the fee simple interest to the land. The state would not divest itself of the asset. Representative Fairclough thought the intent was noble but did not think the language was adequate to protect the public's interest. She noted that the attorney general had stated that the language had to be explicit. She questioned whether the sponsor was amenable to an amendment on the floor regarding the issue. REPRESENTATIVE MIKE CHENAULT, SPONSOR, responded that he wanted the information and would be open to an amendment. 2:21:38 PM Representative Kelly asked whether anything in the bill would prevent the state from having anywhere from zero to 100 percent ownership in the line. Representative Chenault responded that the only thing that would prevent that was the legislature and the governor not coming to that agreement. Representative Kelly asked whether the bill itself would prevent state ownership. Representative Chenault responded in the affirmative. Representative Doogan spoke in support of the legislation but stated that he did not think Alaska should go in the direction. He believed sincere efforts were being made to figure out how much the project would cost, but noted that there have been many "can't miss" projects in Alaska. He did not think the fastest route was necessarily the smartest. He stated that he had not made his mind up on the issue. Representative Gara emphasized that he did not want to do anything that would harm the chances of a large gasline that would bring revenue to the state. He noted that in- state gas would not produce revenue; gas going outside the state would. He intended to honor a requirement in past legislation that that the state not jeopardize a big pipeline through more than .5 bcf/day of gas into an alternative project. He stated that he did not want it reported outside the state that there was any intent to not honor the obligation. 2:26:12 PM Co-Chair Stoltze spoke in support of the legislation. He did not have as much confidence in the TransCanada line. He emphasized the need for in-state gas, especially in Southcentral. He did not know whether the legislation was the right route but wanted something moving forward with a promise of in-state gas. Representative Austerman did not think HB 369 would break or intended to break the Alaska Gasline Inducement Act (AGIA) contract in any way. Co-Chair Stoltze MOVED to report CSHB 369(FIN) out of Committee with individual recommendations and the accompanying fiscal note with the ten-page fiscal analysis. There being NO OBJECTION, it was so ordered. CSHB 369(FIN) was REPORTED out of Committee with a "do pass" recommendation and with accompanying new fiscal impact note by the Office of the Governor. 2:30:46 PM AT EASE 2:44:53 PM RECONVENED