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AGIA issues: Who decides and how? House, Senate work committee substitutes; legislative approval raises timeframe issues; tax, tariff issues raised in House Resources Kristen Nelson Petroleum News
Who makes the final decision on the license under the Alaska Gasline Inducement Act and how that will impact the timeline of getting a licensee selected and into the field was one issue the governor’s AGIA team addressed in early April as committee substitutes for the bill were heard for the first time in the Senate Judiciary and House Resources committees.
The administration introduced AGIA at the beginning of March; Senate Resources and House Oil and Gas passed out committee substitutes in early April.
On the Senate side, three of the five Judiciary members — Charlie Huggins, R-Wasilla, Lesil McGuire, R-Anchorage and Bill Wielechowski, D-Anchorage — also sit on the Resources committee, which Huggins chairs. The committee’s other members are Chair Hollis French, D-Anchorage, and Gene Therriault, R-North Pole.
After an April 4 introduction to the bill by Don Bullock, an attorney with Legislative Legal Services, and Commissioner of Revenue Pat Galvin, the committee has jumped into legal issues.
French said April 3, at a Senate Bipartisan Working Group press briefing, that there are a number of legal issues imbedded in AGIA that Judiciary will tackle, including the tax freeze; triple damages; expedited review of the license and the application; confidentiality of the material that’s submitted in support of the application; why the license is transferable and legal implications; the legislative role in either approving or disapproving the contract; and the point at which a legal challenge may be brought.
Judiciary has hearings scheduled through April 14.
New issues arising in House Resources House Resources has hearings scheduled on the bill through April 20.
Only two of its nine members, Rep. Vic Kohring, R-Wasilla, and Rep. Scott Kawasaki, D-Fairbanks, serve on House Oil and Gas, which Kohring chairs.
Bullock told the committee April 10 that the change from legislative disapproval of a license — in the administration’s bill — to the committee substitute’s requirement that the Legislature pass a bill approving the choice presents some separation of powers issues.
In response to a question from Rep. Paul Seaton, R-Homer, Bullock said the bill as introduced by the administration was a little more consistent with legislative and executive separation of powers because the Legislature could look at the license and had the right to reject it: Its role was advisory.
But, he said, if the intent of the Legislature is that its advice be binding, then a bill is the way to go.
Bullock told Resources Chair Carl Gatto, R-Palmer, that under the committee substitute if the Legislature does nothing the license dies.
Bullock said there is also a separation-of-powers’ issue around legislative approval of the AIGA coordinator.
The constitution limits positions subject to legislative approval to heads of departments and members of quasi-judicial bodies, he said, and the coordinator isn’t the head of any agency. If the governor agrees you have a voice on the nomination that’s fine, he said, but if the governor feels a nominee is unfairly rejected that would raise the separation-of-powers issue.
Administration’s view Galvin said what the administration envisioned in the original draft of the bill “was that the legislative process would be basically a safety valve to provide the Legislature with the assurance that if the commissioners made a decision that the Legislature clearly did not agree with, that there would be the opportunity to put the brakes on it.” He said the administration felt the denial procedure met concerns that a project be moved through the process as quickly as possible so that a licensee could get out in the field and begin work.
Under the administration’s proposal, the Legislature could stop the project, or “let it go if there was no opposition and we wouldn’t have to go through the exercise of convening the body and going through the formal steps if everybody was in agreement that the decision was proper,” he said. There was a 30-day window for the Legislature to act.
If there is general agreement, Galvin said, the 30 days wouldn’t be a concern because people would just start taking the necessary steps to get out and get the work started once the 30 days was over.
Under the committee substitute, with a 60-day deadline for the Legislature to approve a license, “that really doesn’t mean that it’s going to happen within 60 days,” he said. “All it means is that if it doesn’t happen within 60 days the commissioners can start the whole process all over again if they chose to do so,” Galvin said.
If the Legislature is trying to get to a decision, he said the 60 days will pass “and we’re going to keep working to try to get to a decision; we’re not going to start the whole process over again if we’re basically just trying to work to a resolution.”
If the Legislature is comfortable with the decision-making structure in the bill — the state’s must haves, the inducements and the criteria for evaluating proposals — “do you feel the need to go through all the process to say, ‘yes, we agree.’ … Or do you feel it’s acceptable to have the opportunity to say ‘no’ if you disagree?” Galvin asked.
He said the administration is looking at this “primarily from the standpoint of how it’s going to affect the timeline.”
Evaluation criteria: NPV and likelihood of success The committee substitute defines the evaluation criteria as net present value to the state and the likelihood of success.
Projects will be ranked based on the net present value to the state, weighted by their likelihood of success, Galvin said.
“You’re not going to get a score,” he told the committee. “You’re not going to get … that one project has a 73 percent likelihood of success” and a certain net present value “and another project has a 41 percent possibility of success vs. a higher net present value.”
“We’re going to have a clear picture of where they stack up against each other as far as value and then under likelihood of success we’re going to have to make a determination of whether that changes their order,” Galvin said.
The restructuring of the bill in the committee substitute provides substantially more clarity on how the analysis is going to be done, he said. “But in the end it is ultimately going to be down to a judgment call on a number of factors” which is why there will be a substantial written finding by the commissioners explaining how the decision was made.
What will the tax and tariff be? Gatto said he has been asked what the tariff and tax will be, and how do we know that for first gas 10 years out.
Galvin said the administration’s plan isn’t designed to provide an answer.
AGIA is designed, he said, “to create an opportunity for the different commercial players who want to participate in this to provide an answer to those questions.”
Companies might estimate a tariff rate now based on past cost estimates, he said, but what the administration expects to get in applications is “a reflection on different companies’ views on … the difference between the Canadian line and an LNG project” in terms of tariffs and the netback. “And that will be fairly revealing in terms of the relative value of the two different types of projects.
“But in the end what we recognize is we need to have an opportunity to get those numbers out on the table so all of us have an opportunity to see what is the range between the different choices and ultimately what are the factors that go into the various estimates and how much confidence can we have in any of those estimates.”
Through AGIA, Galvin said, the state will be able to select a project that will “be the best one that we can find out there — best in terms of what somebody’s willing to commit at this point in time.”
We know what the tax is now On the tax side, Galvin noted that we currently have a tax for gas.
“We’ve got a tax rate on the books for gas that’s associated with what was passed last year during the PPT discussion.”
Is it the appropriate tax rate? “Right now we don’t have an answer to that because we’re still gathering that information,” Galvin said.
AGIA provides that the tax at the time of the open season will be the tax for the first 10 years of gas production — for those volumes of gas committed at the initial open season.
Galvin said he doesn’t think either the state or the producers want to lock in the current gas tax, because “there’s still work to be done on figuring out if that’s the appropriate one.” The bill doesn’t lock in the current rate; it locks in the rate at the time of open season.
The producers will know the tax rate before they have to make a decision on committing their gas in an open season, he said.
Galvin said he can’t say now what the tariff will be and what the tax will be.
“We don’t know, but AGIA will move us to the point where we will get answers” to those questions.
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