HB 230-AIDEA BONDS FOR PROCESSING FACILITIES  3:29:04 PM CHAIR OLSON announced that the first order of business would be HOUSE BILL NO. 230, "An Act allowing the Alaska Industrial Development and Export Authority to issue bonds for an oil or gas processing facility; and creating the oil and gas infrastructure fund to finance construction or improvement of an oil or gas processing facility." 3:30:03 PM LOUIS FLORA, Staff, Representative Paul Seaton, Alaska State Legislature, stated that HB 230 would allow the Alaska Industrial Development & Export Authority (AIDEA) to issue bonds for an oil and gas processing facility on the North Slope. It would also create an oil and gas processing facility infrastructure fund to allow the legislature to allocate funding to the facility. He highlighted a number of specific findings that demonstrated the difficulty of some of the smaller operations on the North Slope to access processing facilities on the North Slope. The intent is to increase oil throughput in the Trans-Alaska Pipeline System (TAPS) pipeline, he said. 3:31:20 PM REPRESENTATIVE REINBOLD moved to adopt the proposed committee substitute (CS) for HB 230, labeled 28-LS1053\N, Nauman, 3/17/14, as the working document [Version N]. CHAIR OLSON objected for the purpose of discussion. 3:31:38 PM REPRESENTATIVE SADDLER referred to page 2, line 4, and suggested inverting "for" and "allow" such that it would read, "would allow for new production ...." MR. FLORA acknowledged the suggested change. 3:32:01 PM REPRESENTATIVE JOSEPHSON asked him to identify the perceived target or beneficiary of the bill. MR. FLORA answered that the bill is not intended for anyone specifically, but it will generally allow anyone who approaches AIDEA to hold discussions on project financing. He specifically referred to page 2, line 8, paragraph (6), the "findings" language that discusses access issues. More specifically, this language would remove the limit on bonding authority for processing facilities and other infrastructure to allow small companies without capital to finance oil and gas processing facilities to move more oil from new fields and essentially reach out and expand oil and gas throughput. 3:33:19 PM REPRESENTATIVE JOSEPHSON asked whether he has discussed maximum credits and foregone revenue with the Department of Revenue. MR. FLORA deferred to the Department of Revenue to answer. 3:33:46 PM REPRESENTATIVE REINBOLD wondered why bonding is necessary, since a good project would be able to obtain private funding. MR. FLORA answered that the bill is being offered as a concept, which was previously adopted in SB 21 as part of a broader package to increase throughput in the TAPS and provide a range of incentives. 3:34:41 PM REPRESENTATIVE REINBOLD offered her belief the only way to obtain additional throughput is by drilling for more oil. REPRESENTATIVE CHENAULT commented that throughput can be increased for TAPS without drilling any new wells. He suggested that the current problem of constriction in the process facility is that the pipeline was designed to transport more crude oil than water. However, today's oil wells are putting out more water and gas than crude oil. Thus, the production facility is limited by throughput for each category. Again, the wells today produce more water and gas, which limits the amount of oil production. For example, a well might put out 1,000 barrels of water, oil, and gas per day, he said. It makes more sense to run that capacity through the pipeline rather than to have five other wells that might produce 300 barrels of oil, with the remaining production being gas and water. He noted that this can be remedied and configured; however, that process is very expensive. He addded that throughput can be increased by expanding the production facility or by providing more opportunities, which is what HB 230 proposes by building another production facility to allow others to input oil. 3:36:48 PM REPRESENTATIVE JOSEPHSON understood the bill would allow an additional $200 million increase in the AIDEA allowance for maximum bond capacity. He asked whether the Department of Revenue has an idea of the maximum dollar credit under the bill. 3:37:31 PM MATT FONDER, Director, Anchorage Office, Tax Division, Department of Revenue (DOR), answered that the division doesn't "have a good handle on that" since it is difficult to determine the number of taxpayers who might take advantage of this credit. It's also important to note that any taxpayer will need to invest a significant amount of money to utilize the credit. The credit amount under the bill is the "lesser of 10 percent" or $10 million. Therefore, the taxpayer would have 90 percent "skin in the game" so the bill will help, but it will not offer much of an incentive to move forward with the project. Thus, he did not believe it would be the "deal breaker," but it is hard to tell how many taxpayers will take advantage of the credit. 3:38:37 PM REPRESENTATIVE JOSEPHSON asked him to predict what new facilities would be built with the AIDEA bonding. MR. FONDER said he really didn't know; the legislature's "crystal ball" is probably just as good as his. REPRESENTATIVE CHENAULT asked whether any companies have asked for this type of enhancement for a project. 3:39:32 PM TED LEONARD, Executive Director, Alaska Industrial Development & Export Authority (AIDEA), Department of Commerce, Community, & Economic Development, answered yes; AIDEA has been working with Brooks Range Petroleum Corporation, who would like to finance a production facility to develop the Mustang Oil Field [of the southern Miluveach Unit]. 3:40:04 PM REPRESENTATIVE SADDLER asked for a general assessment of the impact of an additional $200 million in lending authority and if it will affect AIDEA's interest rates, AIDEA's ability to finance other projects, or Alaska's bond rating. He asked if this process would stand alone or if it would have any ripple effects. MR. LEONARD answered that AIDEA believes this financing will not affect its capacity to finance other projects or its rating. He explained that these bonds will be AIDEA bonds and could either be general obligation (GO) bonds or revenue bonds. It should not affect the state's rating since the project will be funded by revenue generated by the project or will be supported by AIDEA's assets, but none of the state's assets would be pledged for a project under this bond authorization. 3:41:27 PM REPRESENTATIVE SADDLER recalled discussions on the possible liquefied natural gas (LNG) transmission line with respect to the state's general debt-to-equity ratio such that 8 percent of the general fund principal would be allowed. He asked whether an informal policy exists in terms of what AIDEA cannot exceed in terms of GO bonding. MR. LEONARD answered yes; the rule of thumb under the capacity model is $500 million of bonding capacity. He reported that AIDEA has approximately $70 million in outstanding bonds so AIDEA has significant capacity available. In addition, it would also depend on the type of bond, for example, revenue bonds will not affect AIDEA's capacity. Overall, it would depend on the individual project whether AIDEA will want to use its general bonding capacity or if it will issue revenue bonds; however, AIDEA has the capacity to issue up to $200 million in bonds for these types of facilities. Again, just because AIDEA would have the bonding authority doesn't mean it will use all of its authority. He indicated that AIDEA will consider its capacity for each and every project under this bond authorization to ensure AIDEA has sufficient capacity and that it will not adversely affect AIDEA's ability to fund other projects. He assured members that AIDEA undergoes the same capacity analysis on every project it considers in terms of bond financing. 3:43:45 PM REPRESENTATIVE SADDLER asked how much Brooks Range Petroleum Corporation would need for its processing facility. MR. LEONARD was offline. CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 230. [HB 230 was held over.]