Legislature(2015 - 2016)BARNES 124

03/18/2015 03:15 PM House LABOR & COMMERCE

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03:18:09 PM Start
03:18:27 PM HB132
03:49:33 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 132(L&C) Out of Committee
          HB 132-AGDC SUPPORT OF NATURAL GAS PROJECTS                                                                       
3:18:27 PM                                                                                                                    
CHAIR OLSON announced  that the only order of  business would be,                                                               
HOUSE  BILL NO.  132,  "An Act  relating to  the  support of  the                                                               
Alaska  liquefied  natural  gas  project by  the  Alaska  Gasline                                                               
Development   Corporation."  [Before   the  committee   was  CSHB
3:19:00 PM                                                                                                                    
RENA DELBRIDGE,  Staff, Representative Mike Hawker,  Alaska State                                                               
Legislature,  stated  that  HB  132  would  prohibit  the  Alaska                                                               
Gasline Development  Corporation (AGDC) from working  on anything                                                               
other than  the Alaska LNG  project and the ASAP  backup in-state                                                               
gasline project  as previously  described, until  the legislature                                                               
and the  state obtain certainty as  to the outcome of  the Alaska                                                               
LNG project.  Therefore, AGDC  would be prohibited from embarking                                                               
on  a competing  type  of  project until  the  earliest of  three                                                               
dates:   the date at which  point the state and  other parties to                                                               
Alaska LNG  enter the next  development phase called  FEED [Front                                                               
End Engineering & Design]; or when  the state or another party to                                                               
Alaska LNG withdraws from Alaska LNG;  or July 1, 2017.  The bill                                                               
would  also prohibit  Alaska Gas  Development Corporation  (AGDC)                                                               
from  marketing gas  that it  does  not have  written consent  or                                                               
title to market.  Further, it  would prohibit use of the In-State                                                               
Natural Gas  Pipeline Fund (AS  31.25.100) for work on  a project                                                               
that  would  carry more  than  a  majority  of gas  intended  for                                                               
3:20:33 PM                                                                                                                    
ALAN LEMASTER, President; Owner,  Gakona Junction Village, stated                                                               
that he  has resided at his  current location for over  30 years,                                                               
offering king  salmon fishing,  providing housing  for travelers,                                                               
and  storing  gas.   He  spoke  in  opposition  to  HB 132.    He                                                               
suggested that the  primary purpose seemed to deny  any work that                                                               
will allow  the state  to consider an  alternative to  the Alaska                                                               
LNG project.   If the  committee agrees  that Alaska LNG  was the                                                               
only  definitive line  to provide  Alaskans the  best and  lowest                                                               
cost for natural gas, there is  little to be concerned about, but                                                               
if  something happens  in the  ongoing  negotiations and  studies                                                               
over  the next  two  years  that would  preclude  the Alaska  LNG                                                               
project from progressing,  it seemed wise to  have an alternative                                                               
plan and avoid losing time or  money in gearing up again from the                                                               
beginning.  He offered his belief  that the ASAP is a poor choice                                                               
to obtain  natural gas given that  there is ample natural  gas to                                                               
power the Anchorage  bowl and its neighbors for  decades from the                                                               
Cook Inlet  natural gas reserves.   Further, with a  $3.5 billion                                                               
shortfall  of   funds  available  to   run  the  state   for  the                                                               
foreseeable  future, he  suggested backup  plans must  provide as                                                               
many reasonable alternatives as  possible to ensure that Alaskans                                                               
can have access to natural gas  over diesel fuel and wood to heat                                                               
and  power  their homes  and  businesses  should the  Alaska  LNG                                                               
project fail to  meet the levels of economics  needed to proceed.                                                               
Given these issues,  and the fact that the  Governor has publicly                                                               
stated he will veto this  bill, doesn't the legislature have more                                                               
important issues to  turn its attention to that  will benefit the                                                               
state far greater than playing  with these seemingly politically-                                                               
motivated delaying tactics.  He  thanked members for allowing him                                                               
an opportunity to testify.                                                                                                      
CHAIR OLSON  responded that  the bill does  have sideboards.   He                                                               
welcomed Mr. Lemaster to call the  bill sponsor or his office for                                                               
further clarification.                                                                                                          
3:24:03 PM                                                                                                                    
SCOTT  DAVIS, Owner,  Davis Block  and  Concrete Company,  stated                                                               
that he has been a business owner  for over 36 years in the Kenai                                                               
Peninsula  area.    He  recalled   struggles  just  to  keep  his                                                               
company's  doors  open over  the  years  and  said he  was  fully                                                               
committed to getting  the Alaska Gasline completed.   He said the                                                               
Alaska LNG  project plans  to come directly  to Nikiski,  where a                                                               
tremendous  amount  of  future economic  activity  that  will  be                                                               
generated from  this location.   He said  he has invested  in the                                                               
oil  and  gas  industry,  working   directly  or  indirectly  for                                                               
companies that produce oil and  gas or the companies that service                                                               
them.   The Point Thomson  project in particular has  allowed his                                                               
companies to  invest in  new employees,  new facilities,  and new                                                               
equipment.  He said he has  been worried that the state will miss                                                               
the opportunity  to get a gasline  in the state.   It seemed that                                                               
the  governor  wanted  to  pursue a  second  gasline,  which  has                                                               
created  substantial confusion  about the  state's priorities  in                                                               
getting a  gasline developed.   The state was not  competing with                                                               
producers  to  create a  gasline,  but  is competing  with  other                                                               
projects  globally.   With  so many  questions  not answered,  he                                                               
sympathized  with  the  legislature's desire  to  create  clarity                                                               
around  the governor's  plan.   He  offered his  support for  any                                                               
efforts  to  inject  clarity  into the  future  of  the  proposed                                                               
gasline  as Kenai  businesses have  a lot  to gain  or lose.   He                                                               
suggested many reasons exist for  Alaskans to be optimistic about                                                               
the state's  future prospect for  an LNG project,  especially for                                                               
small businesses.   The state was closer today than  at any other                                                               
point in history to see  a gasline project developed, despite the                                                               
impact of low oil prices and  big fiscal deficits, the Alaska LNG                                                               
project  appears to  be moving  forward.   Alaskans need  to know                                                               
whether the  state is  on board  with the  Alaska LNG  project or                                                               
not.  He concluded that as  a business owner, he deserves clarity                                                               
and would like clarity provided.                                                                                                
3:26:32 PM                                                                                                                    
CHAIR OLSON thanked him for participating in the Iron Dog race.                                                                 
3:26:48 PM                                                                                                                    
PAMELA THROOP, Real Estate  Broker, Alaska Commercial Properties,                                                               
stated that she has been in  business for herself for 35 years as                                                               
a commercial real estate broker.   She asked members to defeat HB
132 since the  state has often limited itself to  one project and                                                               
ended up without any project.   She said that Fairbanks continues                                                               
to be in terrible  shape in terms of high fuel  costs.  She urged                                                               
member not to  tie the governor's hands.   She expressed interest                                                               
in  the most  economic  [gasline] project  possible  so it  makes                                                               
sense that  the state  needs to have  alternatives.   She offered                                                               
her  belief  that  markets  are  available  and  the  controlling                                                               
producers  are selling  natural gas  all over  the world.   Thus,                                                               
Alaska's  gas needs  to  be in  the marketplace,  too.   She  has                                                               
traveled to  Texas for  medical purposes and  she has  family who                                                               
live in Houston.   Her brother-in-law works  for Cheniere Energy,                                                               
Inc. and that company has been  selling LNG to countries all over                                                               
the world.   In 2010,  his company had  come to Alaska  but could                                                               
find no  interest.  At that  time Cheniere did not  have a plant,                                                               
now they  have four trains in  Sabine Pass and are  also building                                                               
in Corpus Christi.  She said  Cheniere Energy Inc. is selling gas                                                               
to Korea,  Japan, India,  and China.   She  expressed frustration                                                               
that  Alaska's hands  have  been tied,  artificially,  and as  an                                                               
Alaskan she  wants to have  the benefit  of gas revenues  for her                                                               
children  and  grandchildren.   She  concluded  her testimony  by                                                               
saying she wants  the governor to have an opportunity  to do what                                                               
is best for the state.                                                                                                          
3:29:40 PM                                                                                                                    
RANDY ELEDGE,  Marsh Creek LLC,  said he had opportunity  to talk                                                               
with one  of the  producers on the  North Slope  today concerning                                                               
what his  company wants  to do  to foster  this opportunity.   He                                                               
said  there  are  investment  dollars  today  going  to  the  LNG                                                               
opportunity  by major  oil companies.   He  predicted independent                                                               
oil  companies will  also follow  suit.   He stated  that turbine                                                               
manufacturers have  been exploring more opportunities  in the LNG                                                               
market,  which  he  viewed  as   the  bright  star  in  terms  of                                                               
profitability for oil  companies today.  He said he  was proud to                                                               
have worked for 33 years with  oil producers, but he did not wish                                                               
to  limit  their investment  in  Alaska.   He  acknowledged  that                                                               
global competition  exists today and companies  make decisions on                                                               
the  best investment  dollars.   However,  Alaskans have  changed                                                               
their  oil and  gas method  of taxation  five times  in the  last                                                               
several years so Alaska doesn't  really offer a solid climate for                                                               
the  producers since  the  tax climate  constantly  changes.   He                                                               
sympathized  with the  Alaska legislature's  desire for  clarity.                                                               
He said  he was concerned  about the  governor since he  has been                                                               
"on  and off."   For  example, Governor  Walker has  been looking                                                               
into the  recent changes  of the oil  tax structure;  however, he                                                               
previously  said he  would  not  do so.    In addition,  Governor                                                               
Walker has  now threatened  to veto this  bill, which  Mr. Eledge                                                               
said is of concern to him.                                                                                                      
3:33:05 PM                                                                                                                    
MR.  ELEDGE  acknowledged that  currently  the  price of  oil  is                                                               
extremely low  and the  price of natural  gas is  also depressed,                                                               
but through  LNG the state can  enjoy some of the  investment and                                                               
support from  oil companies that  can provide an  opportunity for                                                               
the  state's economic  engines.   These investments  could create                                                               
opportunities for  Alaska's employees  working within  the state.                                                               
Further, jobs represent  the key to Alaska's  wellbeing, he said.                                                               
He concluded by stating that  Alaska's businesses deserve clarity                                                               
from the governor. Further, legislators  are expected to do their                                                               
part so he appreciated the committee  doing its part.  He thanked                                                               
members for the opportunity to speak today.                                                                                     
3:34:14 PM                                                                                                                    
CHAIR  OLSON,  after first  determining  no  one else  wished  to                                                               
testify, closed public testimony on HB 132.                                                                                     
3:34:36 PM                                                                                                                    
The committee took an at-ease from 3:34 p.m. to 3:37 p.m.                                                                       
[The  committee  treated  it  as   though  public  testimony  was                                                               
3:37:36 PM                                                                                                                    
MERRICK  PEIRCE,  Chief  Financial  Officer  and  Member,  Alaska                                                               
Gasline Port  Authority (AGPA), stated  that HB 132  was designed                                                               
to  tie the  hands  of  the governor,  who  was recently  elected                                                               
governor.  He characterized the  aforementioned as appalling.  He                                                               
opined   that  for   about  two   decades  Governor   Walker  has                                                               
articulated  the right  way  to  move forward  on  a project  and                                                               
always advocated  for large diameter  gasline with an  economy of                                                               
scale  to bring  Alaska new  revenue.   The aforementioned  would                                                               
also  benefit  parts of  the  state  that badly  need  affordable                                                               
energy.  He  related conceptually that two  natural gas pipelines                                                               
were  possible.   First, the  bullet line  - which  he viewed  as                                                               
uneconomic since  it would be  an $8 million  capital expenditure                                                               
that would take  gas to the Cook Inlet, which  has a 200-year gas                                                               
supply.  Therefore,  he opined that the bullet  line doesn't make                                                               
sense  to him.    Secondly,  a large  diameter  pipeline with  an                                                               
economy of scale was another option.                                                                                            
MR. PEIRCE  said the stark  reality was that Alaska  must compete                                                               
with 25  other LNG projects  worldwide.  Furthermore, it  isn't a                                                               
secret  that the  producers have  an economic  interest in  these                                                               
competing   projects.     In  his   view,  from   the  producer's                                                               
perspective,  the  producers  prefer  to  have  Alaska  gas  stay                                                               
warehoused  to avoid  competing  with projects  in Australia  and                                                               
Papua  New Guinea.   He  asked members  to reacquaint  themselves                                                               
with the Heads  of Agreement, which is  the fundamental agreement                                                               
to the Alaska LNG project.                                                                                                      
MR. PEIRCE  referred members to the"Heads of  Agreement" between                                                               
the SOA,  AGDC, TransCanada and  ExxonMobil, Conoco  Phillips, BP                                                               
Exploration.  Jan  14,  2014.  [to   Article  13.4.1,  and  read,                                                               
"Nothing in this  HOA requires any party to reach  or execute any                                                               
legally binding  or enforceable agreement(s)  or to  refrain from                                                               
engaging in any business whatsoever,  nor does any party have any                                                               
liability in  connection with  the subject  matter of  this HOA."                                                               
This means that the ExxonMobil  Corporation and similar producers                                                               
can  go forward  to work  on  projects that  compete with  Alaska                                                               
without any obligation  in the HOA that requires Exxon  to do any                                                               
project of  any kind in  Alaska.  Thus, the  fiduciary obligation                                                               
of Exxon is to its shareholders,  he said, not to Alaskans, which                                                               
is why  it will  move forward  with projects  that make  the most                                                               
economic sense for the corporation, and not necessarily Alaska.                                                                 
3:40:00 PM                                                                                                                    
MR. PEIRCE provided  a couple of examples of  bringing markets to                                                               
Alaska in which  the producers have simply refused  to commit gas                                                               
to a project.   In 2012, under the Alaska  Gasline Inducement Act                                                               
(AGIA)  there was  a solicitation  of  interest in  which a  half                                                               
dozen companies  came in  with the aggregated  volume of  gas was                                                               
2.8 billion  cubic feet  (Bcf) of  gas per  day.   Another entity                                                               
from Japan represented a consortium  also looking for 2.5 Bcf gas                                                               
per  day, which  was  more than  enough to  do  a large  diameter                                                               
gasline,  he said,  noting  the consortium  wanted  first gas  by                                                               
2019.   Exxon refused to engage,  he reported.  In  fact, some of                                                               
the  companies that  wanted to  engage were  told that  Exxon had                                                               
projects in Canada and Australia and  would be happy to sell them                                                               
gas  from  those areas.    The  former governor  and  legislature                                                               
started over with  a new study to supply first  gas in 2025 using                                                               
a new route.   In addition, very large companies  have offered to                                                               
buy  gas  at the  wellhead  only  to  be  rejected.   Those  same                                                               
companies  were also  told  by Exxon  that  other projects  could                                                               
provide them with LNG.  He  characterized this bill, HB 132, as a                                                               
pretty "sad  piece of  legislation."   He emphasized  that Alaska                                                               
needs to  move forward with  the understanding that the  only way                                                               
to  get  Alaska's gas  to  the  world  markets  is by  first  and                                                               
foremost  putting  "Alaska's  interest first"  and  not  allowing                                                               
companies  that compete  with  Alaska to  determine  when and  if                                                               
Alaska  ever  gets  a  gasline.    He  thanked  members  for  the                                                               
opportunity to testify.                                                                                                         
3:41:51 PM                                                                                                                    
CHAIR  OLSON,  after first  determining  no  one else  wished  to                                                               
testify, closed public testimony on HB 132.                                                                                     
3:41:59 PM                                                                                                                    
REPRESENTATIVE  HUGHES moved  to adopt  Amendment 1,  labeled 29-                                                               
LS0623\I.3, Nauman, 3/17/15, which read                                                                                         
     Page 3, line 5, following "party":                                                                                         
          Insert "that holds natural gas leases in the                                                                          
     Page 3, line 16, following "party":                                                                                        
          Insert "that holds natural gas leases in the                                                                          
     Page 4, line 13, following "party":                                                                                    
          Insert "that holds natural gas leases in the                                                                      
CHAIR OLSON objected for the purpose of discussion.                                                                             
3:42:37 PM                                                                                                                    
MS.  DELBRIDGE appreciated  the committee  entertaining Amendment                                                               
1.   She  explained  that the  need for  the  amendment arose  in                                                               
response  to  a question  Representative  Josephson  asked at  an                                                               
earlier meeting.   One of  the three dates  in time in  which the                                                               
temporary  restriction  on  Alaska  Gas  Development  Corporation                                                               
(AGDC) would  be lifted,  which was  the date  that the  state or                                                               
another party  withdrew from Alaska  LNG.  She  acknowledged that                                                               
Representative Josephson raised  a good point, which  was what if                                                               
one of the  parties was TransCanada.  She  noted that TransCanada                                                               
and  AGDC  are  both  parties  to  the  Alaska  LNG,  along  with                                                               
separately, the  state, BP Exploration (Alaska)  Inc., ExxonMobil                                                               
Corporation, &  ConocoPhillips Alaska, Inc.    However,  AGDC and                                                               
TransCanada do not  have gas or hold leases so  they are somewhat                                                               
different than the  other four parties - the  three producers and                                                               
the  state -  who do  in  fact hold  an  interest in  gas in  the                                                               
project.    So  if  one  of the  three  producers  or  the  state                                                               
withdraws from project, there would  be a much greater likelihood                                                               
that everyone would reevaluate the  project in terms of it moving                                                               
forward.   However,  if TransCanada  or AGDC  withdraws from  the                                                               
project,  the circumstances  would  be important,  but would  not                                                               
rise to the same level of significance.                                                                                         
MS. DLEBRIDGE  explained that Amendment  1 would make  clear that                                                               
AGDC's temporary  restriction goes  away at  one of  three dates,                                                               
including  the date  that the  state or  another party  who holds                                                               
natural  gas  leases in  the  state  withdraws from  Alaska  LNG.                                                               
Therefore,  if TransCanada  or AGDC  withdraws from  the project,                                                               
the restriction  will stay in place,  but if the state  or one of                                                               
the three  producers withdraws, the  restriction on AGDC  will be                                                               
lifted  and the  corporation would  be  able to  pursue a  larger                                                               
export geared project.                                                                                                          
3:44:41 PM                                                                                                                    
CHAIR OLSON removed his objection.                                                                                              
There being no further objection, Amendment 1 was adopted.                                                                      
3:45:13 PM                                                                                                                    
CHAIR OLSON stated  that he had also received  a second amendment                                                               
but  it was  four hours  after the  committee's cut  off time  to                                                               
receive  amendments  for consideration  by  the  committee.   The                                                               
committee  strongly  supports  members having  adequate  time  to                                                               
consider amendments  prior to  the meeting.   He  anticipated the                                                               
proposed amendment would be presented on the floor.                                                                             
3:45:57 PM                                                                                                                    
REPRESENTATIVE  HUGHES moved  to  report  the proposed  committee                                                               
substitute (CS)  for HB 132  (RES), as amended, out  of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
3:47:06 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON objected.                                                                                              
3:47:15 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON explained  that  the testifiers  before                                                               
the  House  Resources  Standing Committee,  Mr.  Fauske  and  Mr.                                                               
Richards,  Alaska   Gas  Development  Corporation   (AGDC),  said                                                               
nothing  precluded what  they were  doing, which  was limited  in                                                               
scope to  moving from a  600 level of pipe  to a 900  level, that                                                               
would move from  1.4 billion cubic feet (Bcf)  to potentially 2.4                                                               
billion Bcf.   He recalled  they were ordered  to do that  by the                                                               
board   and   will   merely    "run   some   numbers";   however,                                                               
fundamentality there was  nothing in House Bill  4 that precluded                                                               
this, notwithstanding  that Senate  Bill 138  was supposed  to be                                                               
directional and  was to "be  the game."   However, once  that was                                                               
lifted, House Bill 4 was freed  up and could become other things,                                                               
and the  legislature needs  to wait  and see  what that  will be.                                                               
Therefore, he will be voting no.                                                                                                
3:48:26 PM                                                                                                                    
A  roll call  vote was  taken.   Representatives Hughes,  LeDoux,                                                               
Colver, Tilton,  and Olson voted  in favor of reporting  the CSHB
132(RES) from  committee, as amended.   Representatives  Kito and                                                               
Josephson  voted  against  it.    Therefore,  CSHB  132(L&C)  was                                                               
reported out of the House Labor and Commerce Standing Committee                                                                 
by a vote of 5-2.                                                                                                               
3:49:05 PM                                                                                                                    
REPRESENTATIVE COLVER  asked to  comment for  the record  that he                                                               
supported  moving   the  bill  from   committee  to   provide  an                                                               
opportunity for  the entire house  to vote; however, he  has some                                                               
trepidation on this bill.                                                                                                       

Document Name Date/Time Subjects
HB132 Draft Proposed Amendment I.3.PDF HL&C 3/18/2015 3:15:00 PM
HB 132