Legislature(2013 - 2014)BARNES 124
03/13/2013 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB76 | |
| HB74 | |
| HB112 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 76 | TELECONFERENCED | |
| += | HB 74 | TELECONFERENCED | |
| *+ | HB 112 | TELECONFERENCED | |
HB 74-AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
3:46:59 PM
CHAIR OLSON announced that the next order of business would be
HOUSE BILL NO. 74, "An Act relating to development project
financing by the Alaska Industrial Development and Export
Authority; relating to the dividends from the Alaska Industrial
and Export Authority; authorizing the Alaska Industrial
Development and Export Authority to provide financing and issue
bonds for a liquefied natural gas production system and natural
gas distribution system; and providing for an effective date."
3:47:05 PM
REPRESENTATIVE JOSEPHSON referred to a letter from a Dalton
Highway trucker who expressed concern about traffic and safety
issues. He asked whether AIDEA has a response to this concern.
SARA FISHER-GOAD, Executive Director, Alaska Energy Authority
(AEA), Department of Commerce, Community & Economic Development
(DCCED), stated that AEA has consulted with the Department of
Transportation & Public Facilities (DOT&PF) with respect to the
Dalton Highway and has every indication that the anticipated
traffic is manageable with respect to the project.
3:48:07 PM
CHAIR OLSON asked whether the AEA could provide estimates on the
amount of traffic for the first roll out and again once
Fairbanks reaches 18,000 LNG customers.
MS. FISHER-GOAD replied that the initial traffic is anticipated
to be 25 trucks each way on the Dalton Highway. She offered to
provide an estimate on the further build out by the next
hearing.
3:48:45 PM
REPRESENTATIVE SADDLER asked how AIDEA calculated the $50
million in general fund funding necessary for the project to
reduce the cost of providing LNG to Fairbanks.
3:49:02 PM
MARK DAVIS, Deputy Director, Alaska Industrial Development and
Export Authority (AIDEA), Department of Commerce, Community &
Economic Development (DCCED), answered that AIDEA performed
modeling to determine impacts and determined $50 million would
be sufficient to reach the target of $10.33 Mcf in Fairbanks.
He explained that AIDEA estimated the cost of the potential LNG
plant at $200 million. He stated that AIDEA determined the $50
million plus the $125 million in the Sustainable Energy
Transmission and Supply Development Fund (SETS) loan with some
private capital could achieve that rate. He clarified the
figure represented the minimum amount of general funds to
accomplish the target rate.
3:50:18 PM
REPRESENTATIVE SADDLER asked for confirmation that the
capitalization for the SETS fund is $125 million.
MR. DAVIS replied that AIDEA is requesting to transfer to AIDEA
$125 million in addition to the existing $125 million
appropriated to the SETS fund last year.
REPRESENTATIVE SADDLER assumed last year's appropriation was for
the potential LNG project. He asked for the purpose of the
additional $125 million in SETS funding.
MR. DAVIS responded that the additional transfer of funds to
AIDEA from the Alaska Housing Finance Corporation (AHFC) with
passage of this bill would be used for a loan, as stated in
Section 10 of HB 74, at approximately three percent for this
project. In other words, the $125 million the legislature
appropriated last year in Senate Bill 25 would remain in the
fund. He clarified that AIDEA has divided the $125 million into
two segments: $100 million has been invested in long-term
instruments available for loan and bond guarantees that are
essentially credit back stops and $25 million has been invested
in shorter term instruments, which is available for loans that
could be made under the current SETS program.
3:51:49 PM
REPRESENTATIVE CHENAULT, referring to the fiscal note, related
that the bonds will be secured by a capital reserve fund. He
asked whether this refers to the SETS fund, such that the bonds
will be secured through the SETS fund.
MR. DAVIS responded that the $150 million in bonds AIDEA would
be authorized to issue under the bill will have a backup of $30
million based on the $100 million already in the SETS fund
available for credit back stops. These funds would only be used
in the event of a defalcation of the bonds, he said. In further
response to Representative Chenault, Mr. Davis explained the $30
million is currently in the SETS fund and the $125 million
transferred from AHFC would be used in total for the loan.
3:52:57 PM
REPRESENTATIVE CHENAULT asked for further clarification that
AIDEA does not intend to use more than $125 million of the SETS
fund to bring this project forward.
MR. DAVIS answered that the $125 million under HB 74 would only
be used if the proposed LNG project moves forward. The current
SETS fund would remain; however, the SETS fund might be used as
a credit backstop for the issuance of bonds, if bond were
issued. In further response to Representative Chenault, he
agreed [that such a credit backstop] would be the previously
mentioned $30 million.
REPRESENTATIVE CHENAULT referred to the fiscal note from AIDEA
for $125 million. He asked whether this would be needed since
$125 million is in the proposed operating budget for the SETS
program.
MR. DAVIS replied that he has been informed that the House
Finance Committee has approved a transfer; however, he opined
that those funds should probably be reflected in the fiscal
note.
3:54:44 PM
REPRESENTATIVE REINBOLD asked for the conversion costs for each
residence.
MR. DAVIS answered that two issues arise with the distribution
system. First, customers must hook up to the whole system,
which is estimated to cost $50 to $500 per customer. He
predicted that it would likely cost closer to $300 per customer.
Second, customers must convert from oil to gas for heating, but
these costs would depend on the age of the oil boiler.
Customers with relatively new boilers would need to change their
burning system, which would be a modest cost. However, if the
residence has an older system, the customer may need to replace
the entire boiler and system, which would basically be the cost
of a furnace.
3:56:10 PM
REPRESENTATIVE REINBOLD recalled that a friend paid $10,000 to
replace her boiler. She asked for an estimate of boiler
replacement costs, the party who will be responsible to pay for
the conversion costs, and whether AIDEA has assessed a
willingness from all of its customers to convert to gas.
MR. DAVIS, drawing from estimates from contractors in Fairbanks,
estimated that the [average] boiler replacement cost would
probably be close to $8,000. He said part of the bonds issuance
will be to ensure demand from customers.
REPRESENTATIVE CHENAULT again referred to AIDEA's fiscal note of
$125 million, which he said is in the governor's proposed FY 14
budget as a transfer from the Alaska housing capital corporation
fund. However, he recalled that in the operating budget the
funding source for the $125 million is the general fund.
3:57:47 PM
PAUL GROSSI, Lobbyist, Alaska State Pipe Trades UA Local 375,
stated that the plumbers and pipefitters believe this is a good
bill. He related that about half of the plumber and
pipefitter's membership lives in the Fairbanks area. He asked
members for their support and said this will be a great bill.
3:59:08 PM
JACK HEBERT, Member, Board of Directors, Alaska State Home
Building Association (ASHBA) - Interior; President, Cold Climate
Housing Research Center, stated that HB 74 is a fine bill for
the community. He said just a little light at the end of the
tunnel will change the atmosphere in Fairbanks. He added that
the Cold Climate Housing Research Center will look closely at
options on conversions and ways to affordably do so.
4:00:28 PM
TERRY DIZINSKI echoed Mr. Hebert's comments that this is
something that will really help Fairbanks stay alive. Fairbanks
needs a break in fuel costs. He predicted that conversion costs
from oil to gas will very quickly pay for itself since it will
be at such a reasonable cost. He urged members to pass HB 74
out of committee.
4:01:29 PM
REPRESENTATIVE STEVE THOMPSON, Alaska State Legislature, stated
that this project has taken a number of years, but the project
will cut heating costs by approximately 50 percent or more. He
predicted the bill would also help Bush and rural Alaska,
including lots of industrial projects that will start up with
reduction in energy costs. He said the community is excited
about this, as it has been a long time in coming and he would
appreciate the committee's support for HB 74.
4:02:18 PM
REPRESENTATIVE JOSEPHSON, in the event that HB 4 passes and a
pipeline project occurs with a spur to the Fairbanks North Star
Borough, asked whether the retrofitting and conversion would
still need to happen. He understood Fairbanks would move to
natural gas.
REPRESENTATIVE THOMPSON answered that trucking natural gas will
give Fairbanksans more immediate relief. He anticipated a
pipeline being built by 2020, which would bring less expensive
gas than trucking to the region; however, the community needs
immediate relief. He predicted that a five-year wait would
adversely impact the community since most of the people will
move from Fairbanks. He concluded that it is all natural gas,
the distribution system will be built out once the trucking
happens, and it will also enhance the pipeline project since the
distribution system will be built out and the community will be
ready to receive gas.
4:03:36 PM
RICHARD GREEN, Member, Board of Directors, Alaska State Home
Building Association (ASHBA) - Interior, stated he works for
Spenard Builders Supply in Fairbanks. He said he hadn't planned
on speaking but understood [the committee needed to hear from
Fairbanks]. He said Fairbanks is excited to get gas. He also
said that Fairbanks is not excited about having to truck the
gas; however, it is a band aid that will help the community and
give it a reprieve. He likened it to taking the best way a
person could take home if he/she was stranded. He reiterated
that the folks in Fairbanks want this [bill.]
CHAIR OLSON said he was pleased with an article that ran [not
specified] in the community.
REPRESENTATIVE HERRON offered his belief that the article [not
specified] energized people.
4:05:56 PM
AARON WELTERLEN, President, Alaska State Home Building
Association (ASHBA) - Interior, offered his total support of a
short-term solution to bring natural gas to Fairbanks since the
community needs it to alleviate high energy costs. He
understood [trucking gas from the North Slope] is a short-term
solution, but the long-term solution will be a natural gas
pipeline. He said he is completely in favor of HB 74.
4:06:41 PM
REPRESENTATIVE PETE HIGGINS, Alaska State Legislature, spoke in
support of the LNG project. He urged members to pass HB 74 out
of committee.
4:07:14 PM
BRICE WARD, Mayor, City of North Pole, asked to point out
several things. First, he referred to HB 74 as providing a step
project. The [LNG Plant and proposed trucking of gas to
Fairbanks] is not the end goal, but is a step in the right
direction. Second, this bill will allow the Fairbanks and North
Pole areas to build out their distribution network to allow a
larger diameter pipeline sufficient volume to not only make the
project viable, but also provide natural gas to residents.
Third, HB 74 would aid development of natural resources in the
state by providing North Slope stranded natural gas anywhere in
the state with truck access. Additionally, the LNG plant would
allow propane to travel throughout the state's river system to
rural villages, which is important since rural Alaska has much
higher energy costs. This approach [HB 74] contains a broader
approach than to just address Fairbank's needs since it can
address rural Alaska's needs, too. He emphasized that this
clean burning gas will be available statewide. While LNG would
be transported to Fairbanks, this gas could also be transported
to Tok, Cantwell, Delta Junction and other communities outside
Interior Alaska. Finally, he hoped this will be the catalyst to
build the distribution system. He stated that the North Pole
City Council recently passed a resolution in support of HB 74.
He encouraged the committee to pass the bill.
4:10:01 PM
JERRY CLEWORTH, Mayor, City of Fairbanks, said for the first
time since he could remember the community of Fairbanks feels
that the problems Fairbanks has been facing will be addressed
and he appreciated the effort taken on energy projects. He
explained that the package [in HB 74] is a series of loans that
will be repaid. He acknowledged lots of capital and equity will
be necessary for the build out of the distribution system to
serve residences [and businesses]. He predicted a huge
participation would be undertaken by Interior Alaska's
residents. He thanked the governor for requesting HB 74 and its
companion bill. He offered his appreciation for the work the
governor and AIDEA have taken on these measures.
4:11:24 PM
LUKE HOPKINS, Mayor, Fairbanks North Star Borough (FNSB), stated
that this bill is very critical to Fairbanks's economy. He
pointed out that the Interior is being hammered by high space
heating costs. Additionally, he reported that energy costs are
even higher in rural Alaska. He said these loans will be repaid
by ratepayers, as indicated by AIDEA. He noted earlier
questions arose about conversion of residential and commercial
structures to gas. He acknowledged this is important due to
market penetration, but more importantly, the U.S. Environmental
Protection Agency (EPA)'s fine particle, PM2.5 designation for
air quality is still present. The air quality can be addressed
by the natural gas distribution, which will alleviate and remedy
the air quality problem in Fairbanks. He suggested the market
penetration anticipated at 90 percent will resolve the problems
with air quality without having the EPA take steps to enforce
air quality. Further, this bill would also encourage
development. He related that he often hears businesses state
they would be willing to operate in the community if cheaper
energy is available, but their business models are based on much
cheaper energy costs. In conclusion, he asked members to
consider the importance of HB 74 to the community and for
Alaska.
4:14:33 PM
JOE BEEDLE, President and CEO, Northrim Bank; Member, Alaska
Bankers Association (ABA), spoke in favor of HB 74 to allow
AIDEA to provide financing for a LNG production and distribution
system. He said from an atmospheric perspective, the Alaska
Bankers Association also supports the in-state gasline
development. He offered his belief that these projects are
complementary as is the enabling legislation. During the past
year, the banks have collectively and individually supported
AIDEA's Sustainable Energy Transmission and Supply Development
(SETS) funds. Additionally, he reported that the banks have
been working closely with AIDEA on the SETS program, which also
includes commercial buildings energy efficiency financing.
MR. BEEDLE said specifically, with respect to HB 74, the bankers
believe inherent manageable risks are associated with the LNG
project; however, many financial tools are needed to bring this
to fruition and attract investors and lenders. With respect to
the fiscal notes, as Representative Chenault discussed, the
bankers also want to ensure that Alaska retains the SETS
program, which was funded last year. He pointed out that the
SETS program addresses a different and more holistic need than a
single project. Thus, Alaska's bankers do not wish to see HB 74
detract from the SETS program. Alaska's bankers believe it is
possible for AIDEA to set aside the $100 to $125 million, which
can be leveraged four to five times. He detailed that the funds
are set aside in the form of a trust to get called upon in case
of a default for credit enhancement or guaranteed issues to
banks; however, it's not dollar for dollar. In fact, that
amount can accommodate $400 to $500 million in loans for SETS
and it could similarly help with other project development such
as the LNG project. He expressed caution on fiscal notes,
noting the banks are ready to work with the SETS program, this
program, and other programs such as the Brooks Range Petroleum
Corporation (BRPC) Mustang Oil Field Development Program. He
said Alaska's bankers are comfortable with AIDEA's roles and
promulgated regulations. In conclusion, he offered support for
HB 74 and asked the committee to ensure the fiscal notes can
accommodate both the SETS and project financing.
4:18:44 PM
BILL BAILEY, Director, Public Relations, Fairbanks North Star
Borough School District (FNSBSD), stated this bill is paramount
to the economic health of Interior Alaska and rural communities.
The FNSB School District provides heat and power to 34
buildings, of which 23 buildings use fuel oil. During the 2011-
2012 school year, the district burned 478,517 gallons of fuel
oil and spent approximately $4 million on electricity, he
reported. The school district supports the legislature's effort
to secure and supply affordable natural gas to the greatest
number of Interior residences and businesses in the shortest
amount of time possible. This bill would help expedite that
process. He recalled questions on the cost for conversion. He
reported that one elementary school in the district used 22,000
gallons of fuel oil last year. He estimated cost of that fuel
to be $39,000, based on the fuel equivalent of $2.67 per gallon.
The district estimates that the conversion from fuel oil to gas
would pay for itself in two years or less.
4:20:37 PM
HANK BARTOS, Member, Lowell Group, stated the Lowell Group has
worked for five years to try to develop a low cost energy
program for Fairbanks. He said that HB 74 is the way to go. He
asked members to consider this as a project that would bridge to
a pipeline. Currently, the cost of heating oil and gasoline is
over $4 per gallon. The cost of transportation diesel is $4.30
per gallon and a kWh is over 20 cents. Fairbanks energy costs
are some of the highest in the nation and have driven homeowners
to heat their homes with wood burning appliances. If fact, the
community has had record sales in wood burning appliances since
wood is the cheapest energy source for heating. However, the
use of wood for heating fuel has caused air quality issues.
During November through March, North Pole and Fairbanks had
significant numbers of unhealthy air days, with highs reaching
19-25 days for some months. He emphasized the only way to solve
the air quality issue is to switch to natural gas and such a
transition could reduce emissions by 90 percent. He cautioned
that the EPA can cut federal highway funding in Alaska due to
non-compliance with air quality. He urged members to solve the
problem by passing HB 74.
4:23:03 PM
DENNIS GILLITZER stated he and his wife are senior citizens and
have been affected by air quality issues, which has limited
their activities. Further, their daughter lives in North Pole
with small children in an area that is referred to as the
"rectangle of death." He said he can't imagine kids going
outside at recess in the elementary school across the street.
He offered his belief that natural gas will go a long way to
bring clean air to the area. He acknowledged he could leave the
state, but he wants to stay in the area.
4:24:19 PM
GARY ATWOOD said he is a 60-year resident who spent 20 years
driving a truck, and that he has also served as the business
manager for the Teamsters Local 959 during the pipeline days.
He urged members not to take any action that would slow down the
pipeline from the North Slope to Fairbanks. He highlighted that
this bill could set up the infrastructure and delivery system
[for use with a pipeline.] He predicted the pipeline could be
built in a couple years with local hire. He expressed concern
about delaying the pipeline and related that he has used all
types of energy from wood to electric, but the cost of oil
delivery is like picking up a second mortgage since it costs
about $1,200 every other month to heat his home.
4:26:50 PM
DAVID GARDNER, Vice President of Marketing and Member Services,
Golden Valley Electric Association (GVEA), stated that as a
major consumer of oil, GVEA strongly supports bringing lower
cost fuel such as LNG to the Interior. He said that GVEA
provides an essential service to more than 100,000 Interior
residents from Cantwell to Delta Junction. Due to the price
GVEA pays for fuel for its generators, this essential service -
electricity - comes with the highest cost of any utility in the
Railbelt. He predicted that burning natural gas in the North
Pole expansion power plant could potentially save customers
millions of dollars annually. In addition to cost savings, an
LNG trucking could reduce space heating costs, lower air
pollution levels, provide less expensive propane to villages
along the Yukon River, and provide LNG to Anchorage during
natural gas shortages. He concluded that GVEA is committed to
this project to mitigate costs to the Interior residents, looks
forward to working with AIDEA, and sharing its expertise and
work products to help facilitate completion of this project as
soon as possible. He urged the committee to support HB 74.
4:28:27 PM
ROGER BURGGRAF offered his support for HB 74. He stated that
the LNG plant and trucking proposal is a short or mid-term
proposal designed to bring reasonably priced gas to Fairbanks
and Interior Alaska. He said he has been waiting since 1958 for
Fairbanks to receive natural gas. When fuel oil costs were
lower Interior residents survived; however, times have changed
and electricity bills are very high with fuel costs typically
even higher. As previously mentioned Fairbanksans have turned
to wood to heat their homes, which has created air quality
problems. He related that diesel and fuel oil costs are over $4
per gallon, which is killing the community's ability to survive.
The cold climate in Fairbanks makes it even more difficult. He
said, "EPA is breathing down our necks because of air quality
problems and that can only be cured by getting natural gas." He
reiterated that he has been waiting 53 years for gas to arrive
in Fairbanks. He has not seen progress toward pipeline
construction and even if a pipeline is approved it would still
have an 8-10 year lag time. He concluded by stating, "We need
gas and we need it now." He hoped the committee will look
favorably on the proposal since Fairbanks's future is dependent
upon this support. He pointed out that Fairbanks has supported
other activities throughout the state and is now asking for
support [for HB 74] today.
4:31:02 PM
WILLIAM MCAMIS agreed with Mr. Burggraf that Fairbanks has been
waiting a very long time [for natural gas]. He stated that he
will be a 50-year resident this fall and has observed project
proposals over time, ranging from various gas pipelines and
dams, but nothing has happened. In fact, one project on Chena
Hot Springs Road was abandoned and has trees growing up at the
site. Since 1998, the cost of oil went from $1 to $4, which
means it has quadrupled in 15 years and the cost of electricity
has similarly increased, with propane and wood costs also
rising. Even though the LNG trucking project may not be
perfect, it can be done in the near term and will solve air
quality problems, decrease electricity, and space heating. He
surmised that due to sequestration, significant reductions may
happen at Eielson Air Force Base and Fort Wainwright. He
predicted that energy costs will factor into those decisions.
He thanked the committee.
4:32:50 PM
BYRAN IMUS, Member, Laborers Local 942, said his points have
already been made. He said, "Fairbanks is slowly dying on the
vine and this would just be a good start to get the momentum
rolling ... and improve the long-term outlook for Fairbanks.
People are not positive about the long-term viability of
Fairbanks. This would be a great step in that direction. Thank
you."
4:33:37 PM
[HB 74 was held over.]
4:33:59 PM
The committee took an at-ease from 4:33 p.m. to 4:35 p.m.