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April 2014

Vol. 19, No. 15 Week of April 13, 2014

House Resources moves amended enabling legislation after 3 weeks

House Resources moved a committee substitute for Senate Bill 138 April 9, capping three steady weeks of committee work on the bill, the governor’s enabling legislation for state equity participation in an Alaska LNG project. Resources spent five days working through what co-Chair Eric Feige, R-Chickaloon, noted was a record number of amendments. A referral to House Labor and Commerce was waived and the bill now goes to House Finance. Once it passes the House it will need Senate concurrence to House changes. The Legislature is nearing the April 20 end of its regularly scheduled 90-day session.

AGDC board, legal counsel

The committee approved two amendments affecting the board of the Alaska Gasline Development Corp. One was the same subject matter as House Bill 383, allowing for a non-resident to serve on the board. The other prohibits the commissioners of the departments of Natural Resources and Revenue from sitting on the board, extending a prohibition that previously extended only as long as there was a license in effect under the Alaska Gasline Inducement Act, AGIA.

Feige said one of the concerns he heard was that AGDC is subject to regulation by DNR and Revenue in various ways and that keeping those commissioners off the board helps keep a bright line between regulators and regulated. Rep. Mike Hawker, R-Anchorage, prime co-sponsor of AGDC’s enabling legislation, said the amendment accomplished an objective of the AGDC legislation to separate regulators and regulated.

Deputy Commissioner of Revenue Mike Pawlowski told the committee there were good policy reasons for having diversity on the board, which includes five public members appointed by the governor and Commissioner Susan Bell of the Department of Commerce, Community and Economic Development and Commissioner Dianne Blumer of the Department of Labor and Workforce Development.

The committee also amended the bill to provide that the attorney general will be AGDC’s legal counsel for legal services to develop contracts and agreements related to an Alaska liquefied natural gas project. For other purposes AGDC has its own counsel.

Pawlowski said this amendment would provide a unified legal voice for AGDC, DNR and Revenue for Alaska LNG project contracts and agreements.

The bill also amended AGDC’s statutes to allow the board to appoint a separate program director for an in-state natural gas pipeline; the bill already authorized the board to appoint a program director for the Alaska LNG project.

Public window, confidentiality, board

The bill was also amended to provide a specific public review period for proposed contracts.

DNR Commissioner Joe Balash said this would provide a 90-day window for the public to see contracts the Legislature will be asked to approve. The same amendment provides for DNR consultation with AGDC on development of contracts for the project. Balash said AGDC might be able to provide services DNR needs for the project.

The bill had provided for confidential briefing of legislators; it was amended to allow inclusion of staff and contractors at the request of legislators — such briefings would require those receiving them to sign confidentiality agreements. Hawker noted that the Legislature may want Legislative Budget & Audit or the Legislative Council to provide training so that legislators and staff understand the obligation they place themselves under when signing a confidentiality agreement.

The committee also amended the bill to include the language of the governor’s administrative order No. 269, establishing the Municipal Advisory Gas Project Review Board.

Briefings, reports, competitiveness

A proposal requiring briefings at least quarterly to the Legislature by the parties involved in the project, and written reports by DNR on the money the state would be obligated to pay TransCanada if the project were terminated prior to sale of gas, was changed to require briefings at least three times a year.

The bill was also amended to require the Revenue commissioner to report on financing options for state ownership and participation in the project, including “a description of the risk associated with each option and the effect of each option on the bonding capacity and bond rating of the state,” with an interim report due the first day of next year’s legislative session and a final report when the DNR commissioner submits the first agreement or contract to the Legislature for approval. The same amendment also added to items the Revenue commissioner needs to include in a plan allowing participation of municipalities, regional corporations or residents to invest in the North Slope gas pipeline. Among those items are how cash calls for the project and expansion would be handled; income tax consequences to the holder of an ownership interest; risk that receipt of benefits from the project by others than the state would make income from the project subject to federal taxation; and constitutional issues from restricting ownership interests in the plan to state residents and municipalities.

Hawker said some of the additions were “buyer beware” considerations, making sure that risks and obligations involved in ownership are fully disclosed.

An Oil and Gas Competitiveness Review Board was established under Senate Bill 21 last year and duties of that board were amended under the bill to include a report to the Legislature by Jan. 15, 2017, on tax structure and rates on oil and gas produces south of the North Slope, taking “into account the unique economic circumstances for each oil and gas producing area” considered and “other incentives for oil and gas production” and “other incentives for oil and gas production” south of the North Slope.

Funds, data

An amendment to add a “Railbelt electrical generation and transmission upgrade fund” to the bill as a special account in the general fund did not win committee support, but the 10 percent of revenue from the state’s royalty gas transported in an Alaska LNG project after payment to the Alaska Permanent Fund approved by the Senate for the Alaska affordable energy fund was increased to 20 percent.

An amendment to ensure state access to data from the project was approved as amended. It requires that, should the DNR commission determine “that the North Slope natural gas project is not making adequate progress toward a final investment decision, the state shall have access to data developed under the agreement or contract in which the state has directly participated.”

The administration did not support this amendment.

Pawlowski called the principle of access to data a key interest for the state and one it jealously guards in any agreement. He said there are termination provisions in the agreement with TransCanada and said concern with the amendment is that the DNR commissioner could exercise a different termination than agreed to in the term sheet and MOU.

On the issue of “adequate progress” Balash told the committee he could tell them what he thinks adequate progress is, but couldn’t say what his replacement would say. The parties to the project are approaching it through a stage-gated mechanism, Balash said, with agreement to get through pre-FEED (front-end engineering and development) to be followed by an agreement which would go through FEED. Whether the project goes to final investment decision would be a decision made by the parties at the end of FEED.

On the issue of data, Balash said conversations have occurred with sensitivities around use of data. The state using data to build a small line is not a problem he said; selling it to someone else is where it’s an issue.

The parties are prepared to pony up costs and treat each other the same, Balash said, but if the state said unilaterally it could yank data and use it however it liked, he thought the other parties would have a problem with that.

—Kristen Nelson






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