Remarks: Governor Responses to HB 132 March 2, 2015 Governor: Good afternoon. Thank you for being here on relatively short notice. I’m calling this to comment on a piece of legislation that has been submitted. Looks like it’s House Bill 132. I find it its shocking that we are tying our hands and taking away our ability to what our constitution mandates that we do. That we develop our resources to the maximum benefits of Alaskans. This is why I ran for governor. This is why we don’t have a gasline today. Because we refuse to stand up for ourselves. We refuse to stand up and act like the state the constitution mandates that we are. The statehood compact. My goodness. We’re trying .. so we don’t compete with ourselves. Are you kidding me? It’s an option, so we have two options to go down. Nobody does this. Name one company we’re dealing with that has only one project. They don’t. And that’s good, good for them. They shouldn’t. We have not asked them to stop any of their projects up and down the West Coast, on the Gulf Coast, anywhere around the world; and we shouldn’t. My goodness. When we tie our hands and say we can’t sell gas – we can’t advance a project. I am absolutely shocked. This flies in the face of everything this state stands for. Alaskans should be absolutely outranged. I am outraged. This is the epitome of why we don’t have a gasline. Us not being able to have a local option. What kind of a negotiation position does that put us in? Horrible negotiating position. You know when there was an AGIA going down through Canada? What did the producers do? They did a parallel project right next to it. Why can’t we stand up for ourselves? Why can’t we stand up and represent ourselves? And bring in the market? Where is the market? There is not one single customer after 37 years, not one customer has been brought to this state by these companies. Not one. And they’re engaged with these customers all over the world. And I’m not faulting them. I’m faulting us. That we are tying our hands in this legislation so when it’s 2017, my goodness 700 miles down the water way in British Columbia they’re going to have a final investment decision in 2017 on one of the largest LNG projects in the world. And what are we doing about that? We’re tying our hands. So heaven forbid we would step up and try to do something and bring the market to us. The market came. The market came in 2012. Two hundred percent of the market showed up in the AGIA open season. What did we do? Nothing. Did we even call them back? Nothing. What did we do? We started over. We started a new process. And now we’ve tied our hands in such a way that we can’t even go to the market based on this legislation. I’m shocked that it got this many sponsors. I really question who these people work for. They certainly aren’t reading the same constitution that I’m reading. I think this is an outrage. That I am so. . . the only thing that gives me pleasure today is that I’m governor. And Alaskans should be pretty happy with that. Question: If this gets to your desk, is there a veto waiting? Governor: You know, historically, I’ve always said I’ll wait until it gets to my desk. Today I would say I would veto this in a minute. This is the most un-Alaskan thing I’ve ever seen put together. Absolutely I would veto this. Rhonda McBride, KTVA: Governor, going to back track a little bit, perhaps to the circumstances that lead to this legislation. Last week we heard from the Republican majority voiced concerns that you were giving the ASAP line a boost and putting it in competition with AK LNG. They were very dissatisfied. They said we did not get enough information; they had met with you. I mean, what’s going on there in your view? Governor: That’s a good question. What is going on there? I think what’s going on there is this right here. This is what’s going on there. You know over the weekend we met with Dan Fauske. Dan Fauske couldn’t say enough good things about what we’re doing about upsizing the line. Finally something that will be economic. Something rather than a small volume line that makes no sense. You know trying to create some momentum with something that makes no economic sense because it’s so small volume doesn’t work for Alaska – doesn’t work for the world markets. So Dan Fauske was, we spent part of the weekend here with him going over this. The team has put together, an analysis showing how much of the work was already been done can be transferred over to a large volume line. We talked to them this morning. They’re pretty excited about finally having something that makes economic sense. You know, it’s not a matter of competing with one another. Why all of a sudden everyone wants to compete — competition is a good thing unless we’re doing something that’s good for us, that’s good for Alaska. Then competition is bad. I don’t think that’s the case. You know, here’s the problem, these companies are fine companies and they have competing projects all over the world. They have told us not all of the projects are going to get built. There’s way more projects then there is market. We are betting 100% on one, one concept, one concept of which we are a minor position in. Shame on us. I think that they are taking us out of the game; they have taken Alaska out of the game. Nat Herz, ADN: When you say you really question who do those people work for, what do you mean by that? Nat Herz, ADN: Are you implying that they are more interested in something. . . Governor: I don’t know who they are interested in. But they are not interested in the same constitution that I’m interested in. That’s all I know. Katie Moritz, Juneau Empire: Do you plan to meet with the bill sponsors to talk about this face to face? Governor: I’m happy to meet with anybody. I have no problem meeting with anybody. I’d be happy to meet with the bill sponsors face to face. I sought after we learned from Becky that it existed. That it was out. So we didn’t have any advance knowledge of it. They didn’t have an obligation to do that, that’s their choice. After I read it, I realized why they didn’t come and give us an advanced copy. Katie Moritz, Juneau Empire: Will you pursue meeting with them? Or will you wait for them to come to you, if they do? Governor: You know, I think that it would be pretty clear how I feel about this. They probably knew before hand how I’d feel about this. Who calls who, who meets with who. I’m not really sure about it. My feelings are going to be pretty well known I think by the end of this press conference. Beck Bohrer, AP: The speakers today said one of his frustrations was having met with you, not knowing a lot of the details, how would you advance this plan, what exactly is in your proposal, who is your point person on this. Can you talk a little bit about that? Has that been flushed out? Governor: Sure. Dan Fauske. Dan Fauske is our point person. He is the executive director of the AGDC. He is the one we have been meeting with, who we’ve provided information to. He has assembled his team and they are working on the up sizing efforts of it. All we’re doing is increasing the size of the volume of a piece of pipe. Why is it ok to spend good money when we are in a $10 million a day deficit on something with no economic sense? That is acceptable to them. But as soon as we upsized this to something that would actually do us some good, then all of a sudden, it’s competition and we have to shut ourselves down. I can’t follow the logic if there is any. Alexandra Gutierrez, APRN: You brought up how having two separate visions for lines could increase competition. It seems that with the legislature, they are kind of in a different frame of mind when it comes to timeline of these projects. Where they feel like the time for negotiating is over because we have the heads of agreement, the MOU. I guess, what form of negotiating do you think still needs to be done? Governor: They talk about fiscal certainty, they talk about various concessions, they talk about – actually, the negotiations haven’t begun. The frame work has been put together, but the actual negotiations, there is no balancing agreement of which we don’t get involved in a gas balancing agreement. But there are a lot of negotiations going forward as far as what is the fiscal package going to look like. Is it going to require a change to the constitution? Are we going to, which in the past that was required that, which would have to go to a vote of the people. You’re not going to get around the constitution with this administration, so you’d have to change the constitution. So there are a lot of negotiations that are left to deal with. A lot of steps along the way that could cause companies to step away and say you know, we’re going to work on our other projects around the world. We’re gonna work on the one in the Gulf Coast, the Golden Pass one, the ones in Australia. Becky Bohrer, AP: Just as a practical matter, Commissioner Hoffbeck when he was in front of the House Finance recently said that this project, this alternate project will lag behind Alaska LNG despite virtue of Alaska LNG having gotten a head start. So when you look at this bill, and it doesn’t forbid ADGC always from participating, but at the earliest of a number of things, including entering feed, I guess why is that so objectionable? They are not saying that ADGC can’t be a partner ever, but it gives some breathing room. Governor: We can’t go out and talk to a market on signing up customers. It’s like building a commercial building. It needs a million square feet, it needs to have long term tenants, and we’re not allowed to go sign up tenants, yet we’re working on getting the building permit. It makes no sense at all. Nobody would put themselves in this disadvantage of not being able to sit down with the market place and talk about the opportunities in Alaska. So that’s the biggest concern that I’ve got. Rhonda McBride, KTVA: Governor, you met with Exxon last Thursday and one of the things that we’ve heard the Majority worry about is that with ASAP in competition with AK LNG that keeps the AGDC personnel staffers from being able to meet with the producers because now they are competitors. Did that come up for discussion? Governor: We did discuss that. You know it’s interesting, what Exxon told me, if he was governor he would be doing the same thing I’m doing. Rhonda McBride, KTVA: Who in Exxon? Governor: One of the participants in the meeting, had said “I get it. Governor, if I were Governor, I would be doing the same thing that you were doing, what you are doing now. Standing up for your state. Standing up for the future of your resource.” We did have a discussion about the, the Chinese wall, what can be said, what can’t be said between one agency and another. I did ask the question is there a similar wall between this project AK LNG and the one is Prince Rupert? No there is not. And that’s their choice. But we have a wall within our own two projects in the state. And that’s fine. We’ll do that. And we talked about how to do that. It was very cordial, friendly discussion. It was very much, we can work through this, we can . . . without one being problematic to the other one. Nat Herz, ADN: Sort of like, from a mechanics, or procedurally, how are you going to respond to this, are you going to change any of the state’s, the administration’s approach or are you going to keep doing pretty much what you guys are doing? Governor: It’s just a bill. It’s not a law. So no, the answer is no. We’re not going to change anything. We are going to follow law. But more importantly, we’re going to follow the constitution. And that’s what exactly what we’re doing in upsizing the ASAP project to be a competitive project from the stand point it’s economic for Alaska. Alexandra Gutierrez, APRN: It seems to be stating the obviously, but there clearly is a bit of friction between you the Governor and the house on this issue. How do you think this tension plays out as we try to build this line when it comes to the producers and when it comes to the consumers? Governor: You know, I don’t think it’s the House. I think it’s the House leadership. I certainly there seems to be something going on there. We invite them to come, I went down to his office the other day and met with him to tell him the announcements I was going to make to tell them the appointments I was going to make. They came up, listened to what we had to say. They claim that they didn’t understand what we were talking about. There is something there, I’m not sure what. I’m not sure how it plays out. I just want to do what I believe the constitution mandates I should do and what the voters have elected me as Governor to do. That’s what I’m going to follow. Alexandra Gutierrez, APRN: Do you think this lack of alignment between the second floor and the third floor could harm either project? Governor: I don’t think so. I don’t think so. I think the people will understand what this is about. I think the people recognize this for what it is. It’s a way of tying our hands in such a way that we can’t do what’s best for Alaska. Becky Bohrer, AP: Governor, I know you mentioned that this is just a bill, so in your conversation with Dan Fauske, I know it preceded the bill being introduced, but is your intent for ADGC to release plans or discuss it at its next meeting that the pipeline would be excised, and you know lay out a plan. How do you plan to proceed in the next few weeks? Governor: Absolutely. We will have that at the next meeting. And we’re going to continue to go down the path that I have set forward that is in the best interests of the state that does make it a project that is economic. It’s not a matter of being competitive, I mean if we do a small volume line, the 500 mcf, you couldn’t finance it, it makes no sense at all. It never made any sense at all. So now that we have made the decision to upsize that to be a like size to AK LNG. There is no reason to stand down. We will continue on until we’re stopped. Rhonda McBride, KTVA: Governor, one of the things we hear from both the senate and house majority that they basically just don’t feel like you support AK LNG. That really in your heart of hearts you don’t want to do it and you want to revert to ideas that you had when you were in the port authority. I just wonder, are they right in that assumption? Governor: No they are not. We have done everything we can in support of AK LNG. We have put somebody on in those positions. We have worked. There is nothing we haven’t done with AK LNG. We haven’t slowed anything down. So we’re fully supportive of AK LNG, we’re just not going to bet on one particular set of companies who have competing projects elsewhere, who have different options elsewhere. That’s what we’re saying. Nat Herz, ADN: The house leadership I think have been pretty clear in describing how you feel that the project you’re talking about could be in competition in a negative way and deter participation of oil producing companies in AK LNG. And you know when you released those plans a couple weeks ago, Exxon had a statement that described your idea as being in direct competition with the AK LNG project. Do you feel that those concerns, is your opinion that those concerns are not valid or that they don’t exist anymore after your meetings with Exxon? Governor: I have spoken with all the companies, all four companies. And none of them said that that they felt that it was in competition, that we should stand down in any way. We spent an hour and a half or so, maybe two hours with Exxon the other day and they didn’t say anything other than they’re full speed ahead. We’ll work out some of the issues on the exchange of information, we’ll work that out. But they didn’t say they were slowing down one . . . the only one seemed upset about it is the sponsors of this bill. The companies themselves seem to be. . . I’ve got no push back from the companies. And I specifically called them. They know my number. We talk back regularly and I’ve gotten no push back. Steve Quinn, Reuters: You don’t see yourselves as competing against yourself? Governor: No. We’re not competing against ourselves. I say we’re working for ourselves. You know when we’re 25% owner interest on one project of which TransCanada sits in our seat versus one where we can go out and bring in the market and put together a consortium of participants, that’s not competing against. So is Exxon competing against themselves, in Ras Laffan, Papua New Guinea, in Golden Pass, in British Columbia are they competing against themselves? They’re looking for the best project. Not every project is going to get built. They have many projects out there. They’re going to see which one makes the most sense. And if we’re not that, what do we do? What do we do when we miss the market when we don’t take our gas market? So they have lots of horses on the track. And the other companies so as well – I’m not picking on Exxon. And good for them. There’s nothing wrong with that. What’s wrong is we’re saying we have to follow this one set of circumstances and one group of companies and that’s all we can do. We can’t stand up and be Alaskans again. That’s not how we got our oil pipeline and that’s not how we’re going to get a gasline. Alexandra Gutierrez, APRN: Just out of curiosity, what notes do you have written on the bill? Governor: You don’t want to see them. Alexandra Gutierrez, APRN: I see “no customers” explanation points; something about taking away negotiating power. Governor: Well, it does. You know, it’s like, if you’re going to go buy a house, and someone says this is the only house you can buy. Well, let’s negotiate. It makes no sense at all. That we would limit ourselves to this one option. So how do you, what kind of negotiating power do you think you have, it’s either this or nothing. You have to have something else. There are only two cars on a car lot and only one car, you got to have the car, how do you negotiate? You know, I’m not even sure the car is for sale. Alexandra Gutierrez, APRN: So what else is on there? Governor: Since you mentioned it, you’ve got pretty good eyes. I’ll have to remember that. You know we have had a cabinet retreat over the weekend, well, part of the weekend – Friday and Saturday. And after we got done at noon on Saturday, I sort of did something I haven’t done for a while, I went on the internet and I and looked at LNG Daily. Boy, it’s frustrating; I used to get the LNG Daily daily. And it got me so frustrated on all the projects being advanced, being, but the main thing is customers being signed up, long term contracts being entered into. It’s glaringly obvious of what we’re not doing. We’re not reaching out to the market. We’re not participating in the market into these projects. So even when they showed up by 200% in 2012, we still aren’t allowing the market to participate in this project. Meantime, you know my biggest concerns is the market ultimately puts up the no vacancy sign and we’re still applying for building permits because we’re not doing what every other project around the world is doing. Rhonda McBride, KTVA: Governor, when you talked with Exxon did they talk to you about any markets that they’re seeking out for this project? Governor: No. I didn’t ask them anything about what they’re on marketing or markets on this particular project. You can look on the internet and see what they’re doing on other projects and that’s fine. But no, I didn’t, we didn’t get into that with them. Matt Buxton, Fairbanks Daily News Miner: Is there any more talk about this market driven approach? I mean, I know we’ve had the one company that came around inauguration time, (REI) have you had any more talks, as far as, you know, going to make this a market driven project, how much more discussion have you had with the market. Governor: I had some. Actually REI was in town last week again. And certainly continue to express their interest. But it’s the KOGAS, POSCO, SK Energy, KEPTCO, the Korean side. In Japan, we’ve got Mitsubishi, you’ve got Tokyo Gas, you have Tokyo Electric. You’ve got, you know major companies on both of that. That’s who we’re reaching out to on the marketing side. There are two things you have to have for a successful project. Two things are critical. One is the customer. And the other is natural gas. Well, the natural gas is pretty well known where that is. And so the next piece you need is the customer. No body spends all their time wrestling with the infrastructure of project. That’s happen. . . Typically after you have the . . . customers sign up on long term contracts. And again, we had an open season. We had a binding open season in 2010. We had expressions of interest in 2012. We’ve been to the market a number of times. Why are we not talking to them? Matt Buxton, Fairbanks Daily News Miner: Expression of interests though is quite a bit different than a binding opening season. Governor: You bet it is. Matt Buxton, Fairbanks Daily News Miner: How far away are we from actual customers? Governor: All projects start off with an expression of interest. If there is an expression of interest, then you go to the next step. Then you go to the next step. They all start off with the expression of interest. We certainly have that. And again, it was about 5.4 billion cubic feet and the volume target was 2.7. So it was literally 200%. Alexandra Gutierrez, APRN: Governor, it seems that you have a pretty fundamental economic disagreement between yourself and the legislature where, members of legislative leadership keep on pointing out that they would prefer to align themselves with producers who want a higher price and they say that by aligning ourselves with the customers we may get a lower price for our gas. I just wondered what your response is to that. Governor: The customers are the ones that will actually pay for this. They’re gonna pay for the project. They’re gonna pay for the pipeline, the liquefaction, the gas treatment facility. So it’s the customers. You know you can sit back and put whatever price you want on it but if there’s no one buying it and you haven’t signed anybody up, you don’t have a project. You have this exercise we’ve been going through for 37 years, but we don’t have a project. So that’s why you bring the market in. And you negotiate an index. There are different indexes. There is the Japanese ** cocktail, there’s the GCC, there’s the Henry Hub, or something in between. And there’s different ways of negotiating the long term commitment on the price. But if you’re still away from the. . . oh, let’s not talk to the customers. Try financing a high rise building in downtown Anchorage with First National Bank, and say you know what, we’re not going to the customers until after we get the financing and after we do all this and do the permits and build it, you wouldn’t get any financing. Alexandra Gutierrez, APRN: And what have the conversations with legislative leadership been like on that point? Have you discussed that point with legislative leadership in any depth? Governor: For quite a few years. It’s no secret that projects need customers. And I see customers being signed up for these projects all around the world, except for us. Rhonda McBride, KTVA: And Governor, just so that we understand, you know what, when we talk about the customer side of the equation, the Republican majority typically says well you have to have the gas first, and the only way you have the gas is if the producers produce it. So you, you know, I guess it sounds like this is a cart and a horse question, which comes first, customers or producers. Governor: We re-inject 8.6 billion cubic feet of gas a day. That’s more gas, it comes up with oil, separated and then put back in the ground. That’s more gas than is consumed in the states of California, Oregon and Washington combined. So the gas comes up and it goes back down again. Rhonda McBride, KTVA: So how do we get it without the producers – legally how do we access that gas, I think that’s the argument that the Republican majority throws up is that it does no good to deal with the customer’s side of the equation until you have the gas nailed down and the pipeline. Governor: You know there is a legal obligation, I don’t know if anybody here was actually here in Juneau when Spencer Hozey, I think was his name, Spencer Posey, came from San Francisco and went all through the duty to develop, duty to market, duty to sell. And that they must sell if there is a reasonable expectation of profit. And so if someone says we’re gonna build this pipeline, you’re gonna get this profit for it, and I honestly don’t believe they are going to sit back and tell their shareholders, we decided not to monetize this resource because we chose not to. That’s not going to happen. It will not happen in my administration. I assure you of that. Katie Moritz, Juneau Empire: It just seems like there is a little bit of contrariness happening. First with Medicaid expansion being shot down in House Finance last week, and now this. What is going to be your strategy to deal with the friction and you know, what are you guys talking about, the big talking points of your campaign that you want to keep working on. Governor: You know, we’ll go back to the same group we’ve always gone back to. That’s the people of Alaska. And we’ll ask people, we’ll ask what do you want? Do you want this? Is this what you want? Do you want to take us out of the game? Tie our hands so we can’t do what our constitution says, is that what you want? I will ask Alaskans that. I believe one of the reasons that myself and Byron Mallott were elected as Governor and Lieutenant Governor was because people in Alaska want to accept federally funded 100% Medicaid expanse, expand to Medicaid. So we’ll go back to, you know. We don’t have a party, but we do have state. I will go back to the people of the state, and residents of Alaska and say, do you agree with us? And if so, they might want to let their legislators know that. Alexandra Gutierrez, APRN: Are you still opposed to submitting the bill? Governor: I am at this point. Today’s not a very good day to ask me about submitting a bill.