ALASKA STATE LEGISLATURE  SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE  April 19, 2012 10:09 a.m. MEMBERS PRESENT Senator Donald Olson, Chair Senator Albert Kookesh Senator Johnny Ellis MEMBERS ABSENT  Senator Thomas Wagoner Senator Linda Menard OTHER LEGISLATORS PRESENT  Senator Gary Stevens Senator Cathy Giessel Senator Dennis Egan Senator John Coghill COMMITTEE CALENDAR  COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 9(FIN) AM "An Act relating to the Alaska Gasline Development Corporation, a subsidiary created project developed by the Alaska Gasline Development Corporation; relating to the by the Alaska Housing Finance Corporation; establishing and relating to the in-state regulation by the Regulatory Commission of Alaska of an in-state natural gas pipeline natural gas pipeline fund; making certain information provided to or by the Alaska that is expressly authorized to provide transportation as a contract carrier; relating to Gasline Development Corporation exempt from inspection as a public record; relating the Alaska Natural Gas Development Authority; relating to the procurement of certain to the Joint In-State Gasline Development Team; relating to the judicial review of a services by the Alaska Natural Gas Development Authority; exempting property of a right-of-way lease or an action or decision related to the development or construction of project developed by the Alaska Gasline Development Corporation from property taxes an oil or gas pipeline on state land; relating to the lease of a right-of-way by the Alaska before the commencement of commercial operations; and providing for an effective Gasline Development Corporation or a successor in interest for a gas pipeline date." - HEARD & HELD PREVIOUS COMMITTEE ACTION  BILL: HB 9 SHORT TITLE: IN-STATE GASLINE DEVELOPMENT CORP SPONSOR(s): REPRESENTATIVE(s) CHENAULT 01/18/11 (H) PREFILE RELEASED 1/7/11 01/18/11 (H) READ THE FIRST TIME - REFERRALS 01/18/11 (H) RES, FIN 02/06/12 (H) RES AT 1:00 PM BARNES 124 02/06/12 (H) Heard & Held 02/06/12 (H) MINUTE(RES) 02/08/12 (H) RES AT 1:00 PM BARNES 124 02/08/12 (H) Heard & Held 02/08/12 (H) MINUTE(RES) 02/10/12 (H) RES AT 1:00 PM BARNES 124 02/10/12 (H) Heard & Held 02/10/12 (H) MINUTE(RES) 02/13/12 (H) RES AT 1:00 PM BARNES 124 02/13/12 (H) 02/24/12 (H) RES AT 1:00 PM BARNES 124 02/24/12 (H) Heard & Held 02/24/12 (H) MINUTE(RES) 02/27/12 (H) RES AT 1:00 PM BARNES 124 02/27/12 (H) Moved CSHB 9(RES) Out of Committee 02/27/12 (H) MINUTE(RES) 02/29/12 (H) RES RPT CS(RES) NT 4DP 2DNP 1NR 2AM 02/29/12 (H) DP: MUNOZ, FOSTER, HERRON, SEATON 02/29/12 (H) DNP: KAWASAKI, GARDNER 02/29/12 (H) NR: FEIGE 02/29/12 (H) AM: DICK, P.WILSON 02/29/12 (H) LETTER OF INTENT WITH RES REPORT 03/13/12 (H) FIN AT 8:30 AM HOUSE FINANCE 519 03/13/12 (H) Heard & Held 03/13/12 (H) MINUTE(FIN) 03/16/12 (H) FIN AT 9:00 AM HOUSE FINANCE 519 03/16/12 (H) Heard & Held 03/16/12 (H) MINUTE(FIN) 03/20/12 (H) FIN AT 9:00 AM HOUSE FINANCE 519 03/20/12 (H) Heard & Held 03/20/12 (H) MINUTE(FIN) 03/21/12 (H) FIN AT 1:30 PM HOUSE FINANCE 519 03/21/12 (H) 03/21/12 (H) FIN AT 6:30 PM HOUSE FINANCE 519 03/21/12 (H) Heard & Held 03/21/12 (H) MINUTE(FIN) 03/22/12 (H) FIN AT 1:30 PM HOUSE FINANCE 519 03/22/12 (H) 03/22/12 (H) FIN AT 5:00 PM HOUSE FINANCE 519 03/22/12 (H) Heard & Held 03/22/12 (H) MINUTE(FIN) 03/23/12 (H) FIN RPT CS(FIN) NT 6DP 1DNP 3NR 1AM 03/23/12 (H) DP: FAIRCLOUGH, T.WILSON, NEUMAN, COSTELLO, EDGMON, THOMAS 03/23/12 (H) DNP: GARA 03/23/12 (H) NR: DOOGAN, JOULE, STOLTZE 03/23/12 (H) AM: GUTTENBERG 03/23/12 (H) RESOURCES LETTER OF INTENT WITH FIN REPORT 03/23/12 (H) FIN AT 9:00 AM HOUSE FINANCE 519 03/23/12 (H) Moved CSHB 9(FIN) Out of Committee 03/23/12 (H) MINUTE(FIN) 03/27/12 (H) TRANSMITTED TO (S) 03/27/12 (H) VERSION: CSHB 9(FIN) AM 03/28/12 (S) READ THE FIRST TIME - REFERRALS 03/28/12 (S) CRA, RES, FIN 04/03/12 (S) CRA AT 3:30 PM BELTZ 105 (TSBldg) 04/03/12 (S) 04/03/12 (S) MINUTE(CRA) 04/05/12 (S) CRA AT 3:30 PM BELTZ 105 (TSBldg) 04/05/12 (S) Heard & Held 04/05/12 (S) MINUTE(CRA) 04/13/12 (S) CRA AT 8:00 AM FAHRENKAMP 203 04/13/12 (S) Heard & Held 04/13/12 (S) MINUTE(CRA) 04/18/12 (H) THIRD SPECIAL SESSION BILL 04/18/12 (S) THIRD SPECIAL SESSION BILL 04/19/12 (S) CRA AT 10:00 AM FAHRENKAMP 203 WITNESS REGISTER REPRESENTATIVE MIKE CHENAULT Alaska State Legislature Juneau, Alaska, POSITION STATEMENT: Prime sponsor of HB 9, opposed version J Senate committee substitute. RENA DELBRIDGE, Staff Representative Mike Hawker Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Opposed version J Senate committee substitute for HB 9. REPRESENTATIVE MIKE HAWKER Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Sponsor of HB 9, opposed version J Senate committee substitute for HB 9. ACTION NARRATIVE 10:09:48 AM CHAIR DONALD OLSON called the Senate Community and Regional Affairs Standing Committee meeting to order at 10:09 a.m. Present at the call to order were Senators Ellis and Chair Olson. Senator Kookesh arrived during the course of the meeting. HB 9-IN-STATE GASLINE DEVELOPMENT CORP  10:10:02 AM CHAIR OLSON announced the consideration of HB 9 and noted that the Senate committee substitute version J was before the committee. 10:10:32 AM REPRESENTATIVE MIKE CHENAULT, Alaska State Legislature, prime sponsor of HB 9, said he was available to answer questions and would highlight concerns with the CS as the discussion ensued. CHAIR OLSON recognized that Senator John Coghill, Senator Dennis Egan, and Senator Cathy Giessel were in the audience. 10:11:34 AM RENA DELBRIDGE, Staff for Representative Mike Hawker, Alaska State Legislature, said HB 9 intended to create a quasi-state entity, the Alaska Gasline Development Corporation (AGDC), to connect Alaskans with Alaskan gas via pipelines. The first order of business for AGDC is to pursue an open season for an in-state bullet line to determine whether there is sufficient shipping interest to support financing a pipeline. If the open season is successful, AGDC would begin construction by 2015. If the open season indicates insufficient commercial backing, AGDC would not have a project. When HB 9 passed the House, it also empowered AGDC to represent Alaskans in a larger pipeline project to carry North Slope gas to export at tidewater. The intention is to provide a framework for AGDC to continue into the future to find additional ways to connect Alaskans with gas, whether these first two projects are successful or not. 10:13:03 AM Although version J addresses a structure for AGDC, it omits critical aspects. It establishes AGDC as a subsidiary corporation of the Alaska Housing Finance Corporation, including the ability to acquire property and leases necessary for a pipeline project. It gives AGDC direction to build gas pipelines to get gas to Fairbanks, Southcentral, and other communities at the lowest rates possible while trying to provide commercially reasonable rates for not only public utility and industrial customers but also for shippers. MS. DELBRIDGE said version J prohibits AGDC from constructing a pipeline without legislative sanctioning. A future legislature would have to pass this new law and both AGDC and the sponsors are uncomfortable with this provision. AGDC believes this could negatively affect its ability to attract sincere shippers, buyers, and sellers to an open season project. This CS establishes the in-state natural gas pipeline fund and directs AGDC to manage the fund prudently. It requires publication of some terms of precedent agreements resulting from an open season. However, version J eliminates the legislative direction to AGDC to pursue the pipeline that it proposed in the July 2011 progress report to the legislature, as required by HB 369 that passed in 2010. It also eliminates references to an in- state gas pipeline. This is a concern because it may encourage AGDC's participation in something that is not strictly an in- state gas pipeline. Version J restricts AGDC's ability to manage its assets, which could impinge on the goal of meeting Alaskans' needs for gas. Further, it does not allow AGDC to issue revenue bonds or determine the ownership structure of a pipeline. This creates uncertainty in an open season and potentially affects AGDC's means to follow through on a project. 10:16:52 AM The CS does not allow AGDC to offer contract transportation service, which potentially affects the ability to deliver gas to the immediate users to produce power, liquefied natural gas or something else from that material. CHAIR OLSON asked if there were three gas pipeline proposals. MS. DELBRIDGE said she wasn't sure, but one project was planned under the AGIA license. CHAIR OLSON named the All-Alaska gas line [Alaska Gasline Port Authority (AGPA) project], the AGIA project, and the in-state AGDC gas pipeline project. MS. DELBRIDGE said the sponsors do not believe that the AGIA framework is an actual pipeline and they don't believe the All- Alaska line is a project. CHAIR OLSON questioned why the sponsors oppose legislative sanction, particularly when revenue bonds are involved. MS. DELBRIDGE replied it creates uncertainty because it would require additional timeframes and components. The sponsors believe other in-state projects have not gone forward because politics have interfered. 10:19:48 AM CHAIR OLSON opined that the State of Alaska is taking the risk while the profit goes elsewhere. MS. DELBRIDGE responded that the people purchasing the revenue bonds would carry the risk. That is why long-term, firm, uninterruptable, guaranteed shipping contracts are so important in an open season. CHAIR OLSON asked if the State of Alaska would be guaranteeing the bonds. MS. DELBRIDGE responded that the previous version of HB 9 had specific language to prohibit AGDC from putting liability on the state. CHAIR OLSON commented that it was not possible or even desirable to take politics out of the equation entirely. He reviewed the Stranded Gas Act debate and asked if she would agree that the pieces of legislation changing ELF to PPT to ACES were good. MS. DELBRIDGE said she was not prepared to discuss PPT, but would agree that it isn't possible to remove all politics from a process. However, the sponsors believe it reduces that political risk if additional legislation to sanction a project is not required. The operation budget for AGDC's pipeline project is always subject to legislative appropriation. Nothing changes that. 10:23:09 AM SENATOR KOOKESH joined the committee. CHAIR OLSON said he believes the state has reaped the benefits of the provision in the Stranded Gas Development Act requiring legislative authorization. He questioned why HB 9 shouldn't have a similar provision. 10:24:14 AM REPRESENTATIVE MIKE HAWKER, speaking on behalf of himself and the prime sponsor, opined that the Stranded Gas Development Act (SGDA) was developed under a very different process than is proposed in HB 9. Alaska's gas was economically stranded when the SGDA passed and the general belief was that it would take state participation for North Slope gas to be competitive in the marketplace. The SGDA empowered the administration to enter into confidential negotiations with North Slope producers to determine what economic concessions would provide industry a sound project with which to go forward to the marketplace. He further opined that all legislators discovered that that approach didn't work for several reasons. First, the public was not comfortable with an economic agreement that was crafted behind closed doors. Another reason that the SGDA failed was that the market conditions had changed dramatically by the time that Governor Murkowski brought the contracts forward; gas prices were anomalously high. REPRESENTATIVE HAWKER said HB 9 takes a different approach; it empowers a public corporation to work openly in the marketplace. Three State of Alaska commissioners will sit on the board of directors that will manage the corporation, and AGDC will operate within the Alaska Housing Finance Corporation (AHFC), the state's investment bank. AGDC has a broad mission to serve all the state and that can serve to insulate proper best- business practices from the inevitable politics in the capitol building. 10:30:33 AM CHAIR OLSON noted that not all Alaskans agree with the AHFC model; some would like it to be non-profit. REPRESENTATIVE HAWKER responded that AGDC is being structured as a subsidiary of AHFC, but in no way does it encumber the assets of the Alaska Housing Finance Corporation. 10:32:19 AM MS. DELBRIDGE continued to review the CS. She recapped that version J does not allow AGDC to offer contract transportation service, which means the line will operate as a common carrier. Referencing an earlier question about common carrier contracts, she explained that the contract the state has with TransCanada under AGIA does allow the line to sign contracts for firm transportation service, but it also requires mandatory expansions and rolled in rates, which are common carrier issues. Those things have been cited as conditions that would have to be addressed if the producers were to sign on to that project. CHAIR OLSON asked if those issues were insurmountable. MS. DELBRIDGE responded that she couldn't speak to that specific project, but AGDC is absolute that it cannot have interruptible service when the gas being shipped goes to public utilities that need to be able to count on that supply every day of the contract. CHAIR OLSON asked if any gas pipelines are common carrier pipelines MS. DELBRIDGE said she couldn't give a definitive answer, but not being able to offer the opportunity to be a contract carrier is even now presenting challenges. To date, most of the gas pipelines in Alaska are public utility pipelines, which is a different group that might be called gas transportation lines. She relayed that potential open season participants and financiers have advised that it may be difficult to finance a pipeline without firm contracts. Without firm service, public utilities in Alaska could face the potential of curtailed gas supplies. The CS also eliminates a regulatory structure for an in-state gas pipeline that provides contract carriage and is not a public utility pipeline. That creates additional risk going into an open season. 10:35:26 AM The CS maintains a provision allowing the Alaska Natural Gas Development Authority (ANGDA) to contract for professional services that are exempt from the state procurement code. It transitions a provision from the Joint In-State Gasline Development Team (JIGDT) that grants access to information of all state agencies and maintains confidentiality. It also transitions from JIGDT to AGDC, a provision requiring state agency cooperation and directs AGDC to avoid duplication of efforts. However, the CS removes small things that direct state support in order to offset the tariffs. She cited the example of local governments charging usual and customary fees for water, sand, and gravel so the state could pay for them independently and keep them from being rolled into the tariffs that Alaskans would eventually pay. 10:37:29 AM CHAIR OLSON noted that the Alaska Municipal League (AML) voiced concern that HB 9 would give AGDC the authority to take municipal resources for this project even if the municipality didn't want to sell them all. He asked if AML voiced that concern to the sponsors. MS. DELBRIDGE answered no, but the Department of Natural Resources (DNR) wanted clarification that the provision affected only non-hydrocarbon resources. SENATOR OLSON asked how the sponsors propose to allay the concerns of municipalities that may want to allocate their resources for local projects. MS. DELBRIDGE offered her belief that AGDC would be happy to work with municipalities on that issue. CHAIR OLSON pointed out that AGDC would have municipalities over a barrel if this provision were to become law. MS. DELBRIDGE responded that the intent is to work cooperatively, not to put municipalities in an awkward position. 10:38:58 AM REPRESENTATIVE HAWKER confirmed that he had never heard those concerns before, and offered assurance that it was not the sponsors' intent to trump or damage communities. He offered to work with the Chair to insert language to clarify that the intent was that communities' resources needed to be made available to the project if they were reasonably readily available. The concept behind the provision was to prohibit a small entity to hold the entire state hostage by stopping the project. CHAIR OLSON asked if he was reading the bill correctly. REPRESENTATIVE HAWKER confirmed that the provision was written to say that the local community sources of sand and gravel resources were to be made available and that the compensation would be adequate and appropriate in accordance with customary concerns. He again offered to work towards balance. CHAIR OLSON asked for confirmation that the sponsor would not be heartbroken if that provision were struck from the bill. REPRESENTATIVE HAWKER declined to commit to that degree, and stated that the sponsors do not want to create a situation that compromises the ability to go forward with a project. 10:41:42 AM MS. DELBRIDGE said the CS also eliminates a provision to waive state and local property taxes during construction of a pipeline. CHAIR OLSON asked what municipalities' view is on that provision. MS. DELBRIDGE responded that local governments have not voiced concern about that provision to the sponsors. She continued to explain that another problem with the CS is that it makes public the entire work product that AGDC is building with state money. This information is a valuable asset but if it is required to be public, the state will not get an asset in return for the money it spends specific to this project. 10:43:18 AM CHAIR OLSON questioned why the people who are paying shouldn't have some access to the information and knowledge if the entity was sold, for example. MS. DELBRIDGE said some information would be public, but to release technical details to the public would allow any comer to make the information theirs. This could risk a larger pipeline project that would further reduce gas rates for all Alaskans. 10:44:42 AM CHAIR OLSON asked if that includes a pipeline coming down the Parks Highway to Big Lake as opposed to the AGIA project. MS. DELBRIDGE said her understanding is that there is the Lower 48 pipeline proposed under the AGIA framework, and another potential project by the three producer companies and TransCanada going from the North Slope to an LNG export facility at tidewater in Alaska. AGDC may have assets, such as rights-of- way and an EIS, to bring to the table on the latter project. CHAIR OLSON voiced concern that a specific route might be so restrictive that it's not economic. MS. DELBRIDGE said the intent is to avoid too many restrictions. She explained that the previous version of HB 9 directed AGDC to follow through (per House Bill 369) on the route that serves the most Alaskans, with modifications as necessary in an open season. Thus, there is flexibility to adjust the route. Potential future pipelines may or may not be attached to a large in-state pipeline. If gas is found in the Kotzebue area known as middle earth, that is another kind of pipeline that potentially can be pursued. She continued that version J addresses public information and confidentiality, but not strongly enough. It does not allow AGDC to enter into confidentiality agreements with anyone other than state agencies. It requires disclosure of contracts for joint ownership, sale, operations, and management, which is an expansion of the disclosure requirements in HB 9. She again highlighted that the CS does not protect the work product AGDC develops. 10:48:44 AM MS. DELBRIDGE questioned the intent in deleting the definition for in-state natural gas pipeline, because the sponsors believe it is important for AGDC to work on an intrastate gas pipeline, not an interstate gas pipeline. Finally, the CS removes the judicial review limitations that help create certainty and alleviate risk. The sponsors see those as one way the state can further support a project that will directly benefit the people of the state. CHAIR OLSON mentioned the three pipeline projects currently contemplated and the tax credits for the two Cook Inlet jack up rigs, and questioned the need for a gas pipeline from the North Slope that follows the route outlined in House Bill 369. MS. DELBRIDGE responded that two of the three pipeline projects are designed to export significant volumes of Alaska gas to markets outside the state, whereas an in-state line has generally been viewed as a way to get in-state gas to Alaskans. There may be opportunity in the future for a project to accomplish both, but the sponsors' would like AGDC to be empowered to work off that and connect as much of Alaska as possible to natural gas. The sponsors realize that the jack up rigs headed to Cook Inlet are covered by credits, but it will take time before any gas prospects in Cook Inlet result in production. CHAIR OLSON asked if production from the AGDC pipeline line is expected in 2020. MS. DELBRIDGE offered her belief that it would be operational in 2018 if AGDC holds an open season in 2013. She offered to provide a copy of the AGDC project plan. CHAIR OLSON asked Representative Hawker if he agreed. REPRESENTATIVE HAWKER answered yes, absolutely. 10:52:43 AM MS. DELBRIDGE said the sponsors have been instrumental in trying to encourage exploration and development in Cook Inlet, but the Cook Inlet utilities Enstar, Chugach, and ML&P have contracted with Petrotechnical Resources Alaska (PRA) to evaluate the resource. As it stands now, those utilities do not have contracts for a significant portion of the base load of gas needed in 2015. The larger problem is that Cook Inlet is not connected to other markets without an LNG export facility, and without a long-term gas supply, that facility may not be operating next year. Without an avenue to sell the gas, many of those small producers may not have a market for what they find. 10:54:30 AM SENATOR STEVENS joined the committee. MS. DELBRIDGE said the Cook Inlet producers generally support the idea that it will not hurt their operations to bring North Slope gas into Cook Inlet in the timeframe being discussed. There are indications that it could actually help if it serves as the foundation for continued exports, and helps with those seasonal fluctuations that the local markets can't accommodate. CHAIR OLSON asked about gas storage in Cook Inlet. MS. DELBRIDGE said the gas storage facility that is almost complete was designed to meet the seasonal fluctuation, but is not sufficient to take care of the future anticipated base load. CHAIR OLSON asked if she would agree that the Cook Inlet jack up rigs could supply gas more quickly than getting a pipeline from the North Slope. MS. DELBRIDGE answered that is theoretically correct, but the individual companies will need capital and time to define the resource and get it into production. 10:57:05 AM REPRESENTATIVE HAWKER added that the sponsors are prepared to amend HB 9 to direct AGDC to pursue a south to north line specifically if there is gas in Cook Inlet that can meet long- term commitments to Fairbanks. CHAIR OLSON held HB 9 in committee. 10:58:37 AM There being no further business to come before the committee, Chair Olson adjourned the Senate Community and Regional Affairs Standing Committee meeting at 10:59 a.m.