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Finance hones in on enabling legislation AGDC subsidiary one focus of Senate Finance Committee’s work on SB 138; value of TransCanada as partner also under discussion Kristen Nelson Petroleum News
The Senate Finance Committee continues work on Senate Bill 138, the governor’s enabling legislation allowing for state equity participation in a liquefied natural gas project to take North Slope natural gas to Asia.
Senate Resources passed a committee substitute which included a number of changes, most notably the inclusion of a requirement that the commissioner of the Department of Revenue present a plan — when contracts come before the Legislature on the Alaska LNG Project — which would allow Alaskans an opportunity to purchase shares in the pipeline.
In presenting a fiscal note for that requirement to Senate Finance March 5, Deputy Revenue Commissioner Mike Pawlowski said the department would need $500,000 in upcoming fiscal year 2015 to prepare the plan, and an additional $150,000 in FY2016.
In the March 4 fiscal note on the resident option to invest plan, the department said that to develop the plan the department would “require substantial subject matter expertise” to determine how individuals would qualify as residents who can invest; how a resident may invest; the entity through which ownership should be acquired; notification process to residents acquiring ownership; ownership transferability; if ownership is via the state’s interest, how income or dividends would be shared; and if via a publicly traded corporation with an interest in the pipeline, how those publicly traded corporations would be identified.
In a Jan. 14 fiscal note, Revenue had identified a one-time appropriation of $750,000, $500,000 to amend the work being done on the department’s new Tax Revenue Management System to reflect tax law changes in SB 138 and $250,000 for assistance from the Department of Law in drafting regulations to implement the new law.
Substantial DNR request The Department of Natural Resources, in a Jan. 20 fiscal note, requested almost $9 million each in FY2015 and FY2016 for an in-house team to assist the administration with advice during initial negotiations and to manage experts as needed throughout the process.
DNR Commissioner Joe Balash told the committee the funds were in support of development of contracts and include some $3 million in each of the years to the Department of Law for reimbursable service agreements.
The expert team would include a lead expert analyst, four subject matter expert analysts and a project assistant. The lead and subject matter analysts would need to make trips to Asia at least quarterly.
Balash told the committee the team’s marketing expertise would be needed to investigate LNG sales opportunities in the marketplace with the three producers. He also said there was a question of where the experts would be housed: one option is to work with the Alaska Gasline Development Corp. which is unconstrained on salary matters.
In addition to the new team, the $9 million includes $4 million in contract services “for substantial subject matter expertise to support the DNR commissioner and team including deal origination, deal analysis, market monitoring, infrastructure analysis, commercial contracting, financial and credit analysis, risk control and analysis, and imbalance reconciliation” and $3 million in reimbursable service agreements to the Department of Law for “legal advice from outside counsel on commercial and financial agreements, transactional negotiations and agreements, federal jurisdictional, statutory and regulatory issues and in-house attorney services.”
AGDC There are two AGDC fiscal notes for SB 138, one of which is for fund capitalization for the work of an AGDC subsidiary established by the bill to work the Alaska LNG Project.
The fiscal note says $700,000 would be required in the current fiscal year, FY2014, and $3.802 million in each of the next two fiscal years for AGDC work on liquefaction facilities for the project.
The one position shown in the fiscal note is for “a senior executive level employee” with an oil and gas commercial background who will act as the AGDC subsidiary’s “chief negotiator for the commercial and legal agreements relating to the AKLNG Project.”
A separate fund would keep AKLNG monies the Legislature approves to AGDC separate from monies authorized for the ASAP project, the Alaska Stand Alone Pipeline, which received substantial funding last year under House Bill 4.
Dan Fauske, president of AGDC, told legislators that they didn’t plan to duplicate work between AKLNG and ASAP. He said the one professional AGDC would bring in would be to help manage the subsidiary and work more on the liquefaction side which isn’t something being done for the ASAP project.
Questions on subsidiary Sen. Anna Fairclough, R-Eagle River, asked Fauske if all the work needed could be done under AGDC, without a subsidiary.
Fauske said it could.
Finance co-Chair Kevin Meyer, R-Anchorage, asked if some of the money appropriated for ASAP last year could be re-appropriated for AGDC’s work on AKLNG.
Fauske said that could be done, but said it would affect the ability of AGDC to move forward on ASAP.
AGDC’s charge is to get natural gas to Alaskans at the lowest possible cost.
Fairclough asked Pawlowski in a Feb. 27 hearing why the AGDC subsidiary was necessary — why not just AGDC, citing a disadvantage in the proposed AGDC subsidiary requiring another board, another project manager. The perception, she said, is that we’re duplicating.
Pawlowski said the issue was the dedicated mission AGDC already has to the ASAP project.
Sen. Click Bishop, R-Fairbanks, was also concerned about the creation of a subsidiary, saying he wasn’t convinced it was needed and noting there were only so many qualified people in the state to take care of the people’s business.
In a Feb. 28 committee hearing co-Chair Pete Kelly, R-Fairbanks, said that in discussions with members of both the House and the Senate the AGDC subsidiary seemed a most controversial portion of the bill.
Pawlowski said the balance is between separation (of the ASAP and ASKLNG projects) and efficiency. He said the administration was working with the Department of Law on language on that issue.
Kelly has asked for amendments to the bill by March 7.
The TransCanada issue Kelly also said the discussion over whether to retain TransCanada as the state’s partner needed to be addressed and asked what it would mean to find a new partner at this point.
Balash said there were a couple of ways pulling a partner out could cause a delay.
If you pull a partner out, what do you do then, he asked.
Do the other three partners try to fill that position or does the state say it will be back later with another partner? There would be a delay there, he said, and part of that would be on the state.
As for finding a new partner, Balash said there is a question of what process the state would employ: Would the Legislature prescribe the process? That would take time for agreement between the two bodies and the experience during the Alaska Gasline Inducement Act was some 18 months between introduction of legislation, approval, requests for proposals, approvals and license award, he said.
If the companies proceeded while the state searched for a new partner, Balash said the state would be really “hobbling ourselves” if engaged in negotiations without an experienced partner. Black and Veatch said delay of a year in the project could cost the state $800 million in net present value, he said.
And the delay could potentially cost all the project sponsors momentum and opportunity in the marketplace, as other sources of LNG will be talking to the same potential purchasers, Balash said.
Kelly noted that in addition to identifying a new partner, it would take time to forge a new relationship and move forward, and said it wasn’t unreasonable to assume a two-year delay if the state switches partners.
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