Legislature(2015 - 2016)BARNES 124
02/17/2015 10:15 AM House ENERGY
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| Audio | Topic |
|---|---|
| Start | |
| HJR8 | |
| HB105 | |
| Overview: Rural Alaska Fuel Service | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HJR 8 | TELECONFERENCED | |
| *+ | HB 105 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 105-AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT
10:35:53 AM
CO-CHAIR COLVER announced that the next order of business would
be HOUSE BILL NO. 105, "An Act relating to the programs and
bonds of the Alaska Industrial Development and Export Authority;
related to the financing authorization through the Alaska
Industrial Development and Export Authority of a liquefied
natural gas production plant and natural gas energy projects and
distribution systems in the state; amending and repealing bond
authorizations granted to the Alaska Industrial Development and
Export Authority; and providing for an effective date."
10:37:32 AM
FRED PARADY, Acting Commissioner, Department of Commerce,
Community & Economic Development (DCCED), informed the committee
that Governor Bill Walker signed Administrative Order 272 (AO
272) on 1/16/15, which directed the highest levels of his
administration to work on consumer energy in Alaska and on the
Interior Energy Project (IEP) [passed in the 28th Alaska State
Legislature]. The order directs the commissioner of DCCED to
facilitate agencies involved with consumer energy and to focus
on Interior energy development to lower energy costs and improve
air quality. Further, the Department of Natural Resources (DNR)
was directed, along with the Alaska Industrial Development and
Export Authority (AIDEA), DCCED, to assess potential natural gas
supplies for the Interior. Mr. Parady said IEP work has
revealed the need to assess a variety of natural gas supplies,
including that of Cook Inlet, the North Slope, and other
locations, to achieve the delivery of affordable energy to
Fairbanks. The AIDEA board of directors approved a resolution
to examine all sources of supply for IEP, and the passage of HB
105 would provide AIDEA the ability to consider alternative
supplies of natural gas - beyond that of the North Slope - for
IEP. Furthermore, if AIDEA determines the best source is from
Cook Inlet, or elsewhere, the bill provides AIDEA authorization
to proceed.
10:40:20 AM
TED LEONARD, Executive Director, AIDEA, DCCED, speaking on
behalf of the administration, presented a sectional analysis for
HB 105. He informed the committee that the mission of AIDEA is
to promote, develop, and advance economic development and growth
in Alaska by providing various means of investment and
financing, such as access to low-cost capital. This bill
addresses limitations on AIDEA's ability to utilize bonds for
development and energy projects, and provides flexibility to
advance IEP. Mr. Leonard explained HB 105, section 1, changes
AS 44.88.095(c), by raising the limitation from $6 million to
$10 million regarding the point at which AIDEA must receive
consent from an affected community, although other requirements
remain in place. Section 2 changes AS 44.88.095(g), by raising
the limitation from $10 million to $25 million regarding the
point at which AIDEA must request from the legislature approval
to issue a bond on a project - not to approve the project - but
only to utilize a bond to finance a project. Neither of these
sections have been changed since 1990, thus the amounts are
being adjusted for inflation. Currently, AIDEA bond rates are
3-4 percent which is very low-cost capital; however, AIDEA has
not been able to utilize bonding to provide access to capital
for small and mid-size projects ranging from $10 million to $25
million.
10:44:48 AM
CO-CHAIR COLVER asked whether the proposed increases would spur
economic development in the private sector and help grow the
economy.
MR. LEONARD said yes. Using bonds makes access to lower cost
capital timely.
CO-CHAIR COLVER referred to energy projects, and asked whether
HB 105 would help projects progress faster.
MR. LEONARD said yes. The time needed to complete the
legislative approval process hampers the development of smaller
projects. Larger projects, such as transmission lines, would
still require the legislative process. Section 3 of the bill
changes AS 44.88.155(d)(1) from $20 million to $25 million, to
adjust for inflation the limit regarding AIDEA's purchase of a
loan, again to help finance commercial and energy projects. Mr.
Leonard pointed out that this program has a very good record
with a default rate at less than 0.5 percent.
10:48:23 AM
GENE THERRIAULT, Deputy Director, Energy Policy and Outreach,
Alaska Energy Authority (AEA), DCCED, explained that section 4
is a change to the uncodified law [11(a), ch.26, SA, 2013] that
relates to IEP. He said at the time the legislation was passed
in 2013, the gas supply out of Cook Inlet was uncertain;
however, since then the gas supply has "firmed up" and AEA,
AIDEA and DNR are now studying whether Cook Inlet could become a
long-term source of natural gas for the Interior. Thus, in
section 4, on page 4, line 23, the restrictive language "on the
North Slope" was replaced with "in the state" so that any supply
of gas in the state could be developed to supply the Interior.
In addition, other changes have been suggested by legislators to
ensure the bill maintains a focus on Interior Alaska. Finally,
he pointed out that on page 4, line 24 was changed to reflect
that there are now two separate utility distribution systems in
the Interior.
10:52:55 AM
CO-CHAIR COLVER asked how this business model would help
communities that are dependent upon fuel oil and diesel
generation.
MR. THERRIAULT explained that the original concept of IEP was
that the demand from the Fairbanks North Star Borough and
Interior Alaska was necessary support a liquefied natural gas
(LNG) project. Once the infrastructure was in place to supply
the core demand, the infrastructure could possibly support
delivery to Tok, Glennallen, Nenana, or other communities on the
road system, and perhaps via the river system. He said demand
from the Interior remains necessary to anchor the infrastructure
that has the potential of serving a "much larger geographic
territory."
CO-CHAIR COLVER inquired as to how section 4 of the bill relates
to the purchase of the Pentax Natural Gas Co., and whether AIDEA
is acquiring the small LNG plant at Point MacKenzie.
MR. THERRIAULT said the proposal in the letter of intent (LOI)
to purchase is to buy the assets owned by Pentax, which is the
parent company that owns the Titan Alaska LNG facility in the
Matanuska-Susitna Valley, the Fairbanks Natural Gas (FNG)
distribution system, and some equipment. Along with the
purchase, there is an agreement for Pentax to sell the LNG plant
to Hilcorp Energy Company (Hilcorp), thus AIDEA would be
purchasing the asset and the obligation to sell to Hilcorp.
Ultimately, the state may own the distribution system in the
Interior; there would be an obligation to source LNG from the
plant and the state may choose to partner with Hilcorp for
expansion of the plant.
10:56:56 AM
REPRESENTATIVE WOOL asked for the price on which Pentax and
Hilcorp have contracted for the liquefaction plant.
MR. LEONARD said there is a price that cannot be divulged at
this time; in fact, AIDEA has not verified the price or
completed its due diligence.
REPRESENTATIVE WOOL surmised AIDEA would have another purchase
agreement and its terms would determine the feasibility of the
purchase.
MR. LEONARD said yes.
CO-CHAIR COLVER asked what the distribution system would be like
in one to two years, assuming AIDEA acquires the assets of the
two existing utilities.
MR. THERRIAULT advised that AIDEA has approved a loan to
Interior Gas Utility (IGU), for the design and initial build-out
in its territory out of North Pole. A loan was also made to
FGN, which added 30 miles of distribution pipe last summer, but
did not add new customers. The vision is that the two systems
would share LNG storage, with the greatest degree of economy of
scale. The plan for the IGU system is to replace 70 miles of
distribution pipe this construction season.
CO-CHAIR COLVER surmised AIDEA would seek to sell the utility to
a private sector operator.
MR. LEONARD said correct. With this investment, AIDEA is
looking to integrate the system and provide a platform to lower
the cost of distribution, but is not in the business of running
assets; the integrated system would either be purchased through
the private sector or through IGU. As a matter of fact, AIDEA
would leave in place the company that is operating the utility
and act as a holding company after the purchase. In this way,
there would be a 15 percent reduction in rates, based on the
cost of capital that AIDEA can provide.
11:03:32 AM
CO-CHAIR COLVER recalled the cost of natural gas in Anchorage is
approximately $10. He said the legislature seeks affordable
energy for all Alaskans, and asked when the delivery of gas to
Fairbanks can be expected, and what would be the source of
supply.
MR. THERRIAULT advised AEA and DNR are working on factors
affecting a supply of natural gas to areas of Cook Inlet and
Fairbanks. For consumers in the Interior, he said the governor
indicated that some savings would be provided for the winter of
2015-2016. If AIDEA's purchase of FNG proceeds, there would be
savings to its customers, even if the gas comes from the
existing plant. More pipe will be put into the distribution
system this summer by both utilities to prepare for a larger
supply of LNG when it is available.
CO-CHAIR COLVER assumed that by acquiring FNG, customers should
see a price of $20 versus $23 for natural gas.
MR. LEONARD said, "Based on a preliminary review."
CO-CHAIR COLVER asked for the final estimated price to the
consumer in the greater Fairbanks area.
11:08:21 AM
BOB SHEFCHIK, Project Leader, IEP, AIDEA, DCCED, informed the
committee the target and likely outcome are in the $15 per
thousand cubic feet (MCF) price range using a Southcentral
supply chain. Although IGU has a six-year schedule for the
distribution system build-out, the distribution system could
begin in North Pole and University West, which would be faster.
REPRESENTATIVE WOOL asked for the source of gas for the 10,000
new customers in the Interior and Fairbanks, considering that
the current liquefaction plant is operating at near capacity to
serve current customers.
MR. SHEFCHIK responded that the key to an Interior gas project
is increased liquefaction capacity, either by an expansion to
the existing plant at Point MacKenzie, or by new liquefaction
capacity in the Southcentral area. Timing and cost will be
evaluated to determine the most likely location. He advised
that the two factors needed are a gas supply contract for gas
out of the Cook Inlet current system to feed a liquefaction
plant, and increased capacity from a liquefaction plant, which
would likely occur in the third or fourth quarter of 2016 -
depending on the availability of equipment - or in 2017.
CO-CHAIR COLVER asked about the analysis on the cost of
developing a small diameter methane pipeline from Cook Inlet to
Fairbanks.
MR. SHEFCHIK affirmed that his project expects to analyze
parallel options for gas supply, such as "the North Slope work,"
and whether a Southcentral supply line would work, based on the
demands and the cost of a plant. He said the preferred method
for a supply chain is a pipeline, "... it's more a question of
economics and time than logistics."
CO-CHAIR COLVER observed there are consumers along the route of
a possible pipeline that could be served, and he urged for a
focus on the consumers along the way.
11:15:25 AM
MR. LEONARD returned attention to the sectional analysis for HB
105. Sections 5 and 6 repeal legislative bond authorizations
from 1994-2004 that were made under AS 44.88.095(g), and which
total approximately $330 million. Bond authorizations now have
a five-year sunset clause; however, the aforementioned bond
authorizations are ten years old and affect AIDEA's bond rating.
He assured the committee the proposed legislation does not
relate to potential projects now under consideration, but to
projects that would have to be resubmitted to the legislature in
any case.
CO-CHAIR COLVER suggested that he and Representative Tilton meet
with AIDEA to rework authorizations for the $50 million bonding
authority for the Cook Inlet commodities cargo port, and two
possible projects at Port MacKenzie.
MR. LEONARD agreed.
CO-CHAIR COLVER observed that exploration by Doyon, Limited, in
the Nenana basin was not discussed, and asked about the
opportunities for gas supply from there.
MR. LEONARD said he spoke with Doyon representatives recently
regarding the project.
REPRESENTATIVE WOOL pointed out that AIDEA seeks to combine IGU
and FNG's distribution system infrastructure in Fairbanks. He
asked if the Hilcorp/Pentax portion of the purchase becomes
unclear, whether AIDEA would proceed to integrate the
distribution system where possible.
MR. THERRIAULT agreed that the state seeks integration between
the two utilities wherever possible; however, there is
discussion about whether the systems touch, and how often, and
the cost. The benefits to the community are uncertain.
[Public testimony was treated as open on HB 105.]
11:21:42 AM
The committee took an at ease from 11:21 a.m. to 11:29 a.m.
11:29:47 AM
LUKE HOPKINS, Mayor, Fairbanks North Star Borough (FNSB), said
the topic is very important and all parties must not lose sight
of the focus on lowering energy costs in the Interior, which
would be followed by economic development. The Interior Energy
Project is a bridge project, but is not the only solution which
seeks to bring LNG to Fairbanks. He recalled that AIDEA
performed due diligence on the North Slope proposal and found
that the proposal did not provide what is needed. He noted that
FNSB has given authorization for AIDEA to provide financing
related to HB 105, and expressed his support for the bill.
Returning attention to section 4, he said when FNSB set up a
municipal utility, it developed a cost-of-service model, and a
municipal utility has a lot of advantages, in the same way that
AIDEA would if it acquired Pentax. He reminded the committee
that the governor said there would be relief this winter for
customers affected by HB 105. Also, this legislation is
important in order to improve air quality because residents
continue to lower the cost of living in Fairbanks, and in the
Interior, by burning wood. Mr. Hopkins urged for the committee
to pass the bill quickly, and questioned the need for several
referrals. He understood that AIDEA needs to look at
Southcentral for a source of gas since the North Slope is no
longer in the model. He pointed out that customers would pay
"almost all of this back." He urged the committee to remember
what has already transpired: pipe has been laid and eleven
schools are on natural gas. Mayor Hopkins acknowledged previous
discussions about offtakes from proposed pipelines; however, at
this time, a bridge project is needed. He closed, saying that
gas from Cook Inlet can be trucked and shipped to parts of
Alaska, and urged that the original language in section 4,
"Interior Alaska" is retained in the bill.
11:37:29 AM
REPRESENTATIVE WOOL expressed his support for keeping the
original language: to provide natural gas to Interior Alaska.
MAYOR HOPKINS restated his point that the bill has seven
referrals. He noted that the private sector is willing to sell
to AIDEA.
11:39:05 AM
JOHN EBERHART, Mayor, City of Fairbanks, stated that the
residents of Fairbanks have been hurt for years by the high cost
of energy. As a natural gas customer, he noted his January bill
was over $700. High energy costs have also hurt economic
development and jobs: there has been a loss in population;
retail stores will not come without gas; air pollution is
serious and is hurting the quality of life; and wood is burned
to save money. He expressed concern that air pollution will
also hurt the expansion at Eielson Air Force Base which is
expected to bring $1 billion into the economy of the Fairbanks
area. If natural gas becomes available at a price of $15 per
MCF, people will convert to gas and help the quality of life and
reduce the air pollution problem. Mayor Eberhart urged for
quick passage of the bill.
11:41:52 AM
REPRESENTATIVE TALERICO relayed there are questions from
legislators about the transportation of natural gas from
Southcentral to Fairbanks by rail, truck, or a future pipeline.
Although there has not been opposition to the bill, he suggested
that supporters of the bill contact legislators to answer
questions. The Southcentral utilities will shortly address the
issue of whether there are sufficient volumes of gas, which will
be reassuring.
MAYOR HOPKINS advised that AIDEA can look at other sources of
gas, but the focus must remain on a gas line that will "serve
Alaska and also deal with the revenue issue."
11:45:22 AM
RICK SOLIE, Chair, Energy Committee, Greater Fairbanks Chamber
of Commerce, disclosed that he works for Tower Hill Mines and
was speaking for the chamber of commerce. He thanked the
legislature for its past efforts and encouraged the committee to
focus on the top priority of the Greater Fairbanks Chamber of
Commerce to reduce the cost of energy in the Interior. Mr.
Solie stressed that HB 105 is important for residential,
industrial, and large projects. Although there is presently a
reprieve from energy prices, a solution is needed.
11:47:21 AM
CO-CHAIR COLVER said public testimony on HB 105 remained open.
HB 105 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 105 - Transmittal Letter.PDF |
HENE 2/17/2015 10:15:00 AM |
HB 105 |
| HB 105 Fiscal Note - L0019-DCCED-AIDEA-02-10-15.PDF |
HENE 2/17/2015 10:15:00 AM |
HB 105 |
| HB 105 ver A.PDF |
HENE 2/17/2015 10:15:00 AM |
HB 105 |
| HJR 8 - Draft Proposed Blank CS ver H.pdf |
HENE 2/17/2015 10:15:00 AM |
HJR 8 |
| HJR 8 - Supporting Document - Observations on 111(d) in Alaska.pdf |
HENE 2/17/2015 10:15:00 AM |
HJR 8 |
| HJR 8 - Supporting Document - Rokeberg Letter 111(d).pdf |
HENE 2/17/2015 10:15:00 AM |
HJR 8 |
| 2015-02-17 - HENE - Agenda.pdf |
HENE 2/17/2015 10:15:00 AM |
|
| HJR 8 - Summary of Changes Ver. H.pdf |
HENE 2/17/2015 10:15:00 AM |
HJR 8 HJR 8\ |
| HB 105 Fact Sheet-AIDEA-02-17-15.pdf |
HENE 2/17/2015 10:15:00 AM |
HB 105 |
| HB 105 Sectional Analysis AIDEA 2-17-15.pdf |
HENE 2/17/2015 10:15:00 AM |
HB 105 |
| HJR 8 Fiscal Note - HJR 8 HENE FN 1.pdf |
HENE 2/17/2015 10:15:00 AM |
HJR 8 |