Legislature(2015 - 2016)HOUSE FINANCE 519
04/13/2015 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB190 | |
| HB123 | |
| HB154 | |
| HB105 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 190 | TELECONFERENCED | |
| + | HB 105 | TELECONFERENCED | |
| + | HB 154 | TELECONFERENCED | |
| += | HB 123 | TELECONFERENCED | |
| + | SB 26 | TELECONFERENCED | |
| + | TELECONFERENCED |
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."
3:02:03 PM
Representative Wilson MOVED to ADOPT the proposed committee
substitute for HB 105, Work Draft 29-GH1019\N (Shutts,
4/12/15). There being NO OBJECTION, it was so ordered.
JANE PIERSON, STAFF, REPRESENTATIVE STEVE THOMPSON,
explained the changes in the Committee Substitute (CS). She
read from an explanation of changes:
Sec 1: No change
Sec 2: Inserts new language into allowing an Interior
Alaska utility that is owned and operated by a
political subdivision of the state and receives
financing from the sustainable energy transmission and
supply development fund to exempt the utility from
rate regulation, under AS 44.88.660, by resolution.
Sec 3: No change
Sec 4: No change
Sec 5: No change
Sec 6: No change
Sec 7: Removes subsection (1) regarding the AIDEA
acquisition of gas reserves (discussion moved to
section 8). Language in subsection (2) is incorporated
into (c) and modified. The words "negotiate or" are
removed. Language "to provide natural gas to the
Interior Alaska as a primary market" are added on page
6, lines 29-30. The words "uses to serve customers in
Interior Alaska" are added on page 7, lines 2-3.
Sec 8: Inserts new Section 8, amending AS
44.88.690(a), regarding the AIDEA sustainable energy
transmission and supply development fund, to require
AIDEA to obtain legislative approval before using the
fund to purchase or acquire gas reserves or a gas
lease or become a working interest owner of a natural
gas lease.
Sec 9: Version E Section 8 renumbered as Section 9 in
Version N.
Sec 10: New Section 10 inserted, providing AIDEA
bonding authorization up to $50,000,000 to finance the
acquisition, design, and construction of a port
facility and equipment related to the development and
operation of a bulk commodity loading and shipping
terminal, to be located at Point MacKenzie.
Sec 11: Version E Section 9 renumbered as Section 11
in Version N and "prepares a project plan and receives
legislative approval of the plan" is replaced with
"approves a project plan" on page 7, line 16.
Sec 12: Version E Section 10 renumbered as Section 12
in Version N.
Sec 13: Version E Section 11 renumbered as Section 13
in Version N is modified to remove the repeal of
"Section 2, ch. 27, SLA 1993, as amended by sec. 19,
ch. 111" pertaining to the Point MacKenzie bonding
authorization.
Sec 14: Inserts a new Section 14 providing legislative
authority for AIDEA to issue up to $120,000,000 of
bonds to finance the infrastructure and construction
costs of Sweetheart Lake hydroelectric project.
Sec 15: Inserts a new Section 15 providing legislative
authority for the Alaska Energy Authority to loan an
amount up to $3,000,000 from the power project fund to
the City of King Cove for the Waterfall Creek
hydroelectric project.
Sec 16: Version E Section 12 renumbered as Section 16
in Version N.
Sec 17: Inserts new Section 17 repealing Sections 14
and 15 of this act June 30, 2019.
Sec 18: Version E Section 13 renumbered as Section 18
in Version N.
FRED PARADY, DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCE,
COMMUNITY, AND ECONOMIC DEVELOPMENT, provided a PowerPoint
presentation titled "Interior Energy Project" dated April
13, 2015 (copy on file). He addressed slide 2:
IEP: GOALS UNDER SB23
Supply natural gas to Interior Alaska:
-At the lowest cost possible
-As many Alaska customers as possible
-As soon as possible
IEP investments compliment eventual sources of gas
supply from a natural gas pipe line
Lower PM2.5 in nonattainment areas of Interior
Mr. Parady emphasized that the Interior Energy Project
(IEP) lowered the PM2.5 in nonattainment areas of the
Interior, which was among the highest level of pollution in
the United States. He reviewed slides 3:
IEP: OVERVIEW
Meet the goals set by the legislature to supply
affordable energy to Interior Alaska
Project is complex, which is why the legislature took
action
Now evaluating infrastructure to deliver natural gas
from any source, including Cook Inlet
AIDEA financing the buildout of natural gas
distribution in Fairbanks and North Pole
Mr. Parady moved to slide 4:
IEP: HB 105
HB 105 gives AIDEA flexibility to use SB 23 financing
tools with a non-North Slope liquefaction location
-Current version of HB 105 also authorizes financing
propane and small diameter pipeline (under 12"
diameter) projects to meet the goals of the IEP
Mr. Parady highlighted slide 5, "North Slope Project Map"
and slide 6, "Cook Inlet Project Map." He explained that
the only project authorized under SB 23 (AIDEA: LNG
PROJECT; DIVIDENDS; FINANCING) [Adopted May 30, 2013] was
the North Slope Natural Gas Supply and Liquefied Natural
Gas (LNG) Production plant. The legislation allowed the
project to "flip" from north to south and consider a
natural gas supply from Cook Inlet instead of the North
Slope. He turned to the chart on slide 7, "Cook Inlet,
North Slope, And Other Alternatives" that outlined the
options for the project. He reviewed that the supply of
natural gas from Cook Inlet was currently uncertain but
indications for increased supply were 'positive." On the
North Slope, where some existing contracts were in place,
natural gas was "abundant" and at low cost. Other
alternatives that were considered for the project were
propane from Canada or a small pipeline from Cook Inlet,
which might be preferred over a rail or truck option. He
relayed that in consideration of LNG plant costs, a Cook
Inlet plant was cheaper to construct and operate as opposed
to designing and constructing an LNG plant on the North
Slope, which was expensive due to conditions. He added that
construction and operation of an LNG plant was not
necessary for Canadian Propane or a small pipeline from
Cook Inlet.
Mr. Parady examined the LNG "transportation logistics of
trucking and rail and concluded that Cook Inlet had lower
trucking costs, large trailer potential, and rail options
as opposed to the North Slope where trucking was feasible,
but more expensive. He pointed to the recent closure of the
Dalton Highway due to an ice jam as a drawback. He reported
that a combination of "marine, rail, and trucking" were
possible for propane. He indicated that storage and
distribution was inherent to either Cook Inlet, North
Slope, or alternative options.
NICK SZYMONIAK, FINANCE OFFICER, ENERGY DEVELOPMENT, ALASKA
INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY, addressed
slide 8, "North Slope LNG Project" and slide 9,"Cook Inlet
LNG Alternative" and explained that the graphics on each
slide compared the "value chain" for each option and the
evaluative approach employed by the IEP team. He discussed
slide 8 and delineated that the North Slope project (SB 23)
began with two existing gas supply agreements with North
Slope producers and interior utilities. The LNG production
plant third party developer had not been selected
(subsequently a Concession Agreement with MWH Global was
chosen) and a plan was in place to contract with a private
trucking company for transportation needs. The LNG storage
and regasification distribution systems were being
negotiated with the Interior Gas Utility (IGU) and
Fairbanks Natural Gas (FNG) entities with talks still
continuing. He remarked that the LNG costs for a North
Slope project under the concession agreement was deemed too
high and subsequently terminated. The current legislation
authorized the flexibility for consideration of alternative
options.
Mr. Syzmoniak discussed slide 9 relating to the Cook Inlet
alternative. He relayed that the difference in gas supply
between both projects was an absence of existing agreements
between Interior utility companies and Cook Inlet producers
other than an existing .95/bcf agreement between FNG and
Hilcorp. An LNG developer had not been chosen. The
transportation plan remained the same but the project was
also exploring Alaska Railroad options. The current version
of HB 105 also allowed for a small diameter pipeline, which
eliminated the need for an LNG plant or other
transportation needs. A propane option was also under
examination.
He moved to slide 10:
Project Execution Plan
Natural Gas supply: Facilitate commercial discussions
between producers and utilities
Liquefaction: Competitive solicitation to select
private partner to develop LNG capacity
Transportation: Private trucking, Alaska railroad,
small diameter pipeline, propane
Storage, Regasification, and Distribution: Buildout of
system continues Summer 2015PROJECT
Mr. Syzmoniak indicated that the Department of Commerce,
Community and Economic Development DCCED) was taking the
lead on discussions between producers and utilities. He
added that Alaska Industrial Development and Export
Authority (AIDEA) would not sign any contracts, buy
reserves or retain any interests in a natural gas field in
Cook Inlet nor enter into a contractual relationship in the
LNG plant. He conveyed that the team was "open to and
encouraging" alternatives to Cook Inlet.
3:16:20 PM
GENE THERRIAULT, DEPUTY DIRECTOR, STATEWIDE ENERGY POLICY
DEVELOPMENT, ALASKA ENERGY AUTHORITY, DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, spoke to
slide 11:
IEP SUMMARY
The goals remain as established by SB23
HB 105 authorizes the tool kit to best achieve
goals of IEP
Market driven process
-Accomplishing IEP goals requires adaptation
to current market and operating realities
Representative Gara related that he supported the original
plan established in SB 23. He wondered whether the
legislation allowed the IEP to revert to a North Slope
natural gas supply if the supply became cheaper or more
abundant than a Cook Inlet option.
Mr. Therriault answered that the language in the bill did
not preclude a North Slope producer from submitting a
completive bid and might even entice a bid from a North
Slope entity.
Vice-Chair Saddler asked whether AIDEA would become a gas
utility under the IEP.
Mr. Therriault replied that currently AIDEA was considering
a purchase of Pentex [FNG parent company] assets that
included a FNG distribution system. He elaborated that
AIDEA intended to contractually operate the distribution
system. Ownership by AIDEA facilitated the integration of
FNG and the developing IGU distribution systems with the
future possibility of morphing into one system. The goal
was to ultimately sell the asset to the IGU or a private
utility.
Vice-Chair Saddler referred to the use of the term "market
driven solution" related to the project. He deduced that
the AIDEA involvement made the project a less market driven
and more government driven solution.
Representative Munoz wondered what the fiscal note had been
for the original gas trucking proposal [SB 23] and what the
remaining balance of the fund was.
Mr. Parady answered that the original funding contained
approximately $150 million in bonds, $125 million in the
Sustainable Energy Transmission and Supply Fund (SETS)
loans and $57.5 million in grants. He shared that
approximately $55 million from the loan program was
committed to the distribution systems.
Mr. Therriault interjected that the $150 million bonding
authorization and $125 million in SETS funding was
designated for loans expected to be "ultimately" repaid.
Representative Munoz requested further clarification.
Mr. Parady reported that out of the $57.5 million in grants
$12.4 million was expended for the North Slope plant
construction, design, engineering, and storage study. He
added that $52.78 million of the SETS funds were committed
to two loans for the distribution system; a $15 million
loan to FNG and a $37.78 million loan to IGU. He noted that
$72.2 million remained in the SETS fund.
Representative Pruitt asked what the project's expected
daily volume of gas was.
Mr. Parady answered that at peak build out the Interior
Alaska demand was expected to be 9.5/bcf per year and on a
daily average was 26 million cubic feet (mcf) per day.
Representative Pruitt asked what impact the amount would
have on the overall reserves in Cook Inlet.
Mr. Parady answered that demand was approximately less than
10 percent of Cook Inlet reserves. He shared that ten years
of Interior demand amounted to 80/bcf and Cook Inlet
reserves were estimated in trillion board feet.
Representative Pruitt observed that there was a complex web
of ownership throughout Cook Inlet and wondered whether the
amount of Cook Inlet reserves were "realistically
recoverable."
Mr. Szymoniak replied in the affirmative. He assured the
committee that the figure represented developed reserves.
Representative Pruitt asked for verification that the
agency felt comfortable going forward with a Cook Inlet gas
supply. He maintained that the Cook Inlet gas supply until
recently, was thought to be dwindling. He alluded to other
demands on the Cook Inlet supply. He did not want the
Southcentral energy crisis to turn into a Fairbanks crisis
if Cook Inlet gas supply was not sustainable over the long-
term.
Mr. Parady believed the question was germane and the amount
of available Cook Inlet gas reserves were being assessed
further by the Department of Natural Resources (DNR) and
the IEP gas supply team. He expounded that the indications
were favorable and pointed to "ample reserves." However,
more analysis was needed. He engaged in a conversation with
Enstar, who reported that its gas supply was firm through
the first quarter of 2018. Enstar serviced 134,000
customers in Southcentral, Alaska. He disclosed that
current data from DNR reported .4tcf [trillion cubic feet]
increase in gas supply in Cook Inlet since 2009.
3:28:06 PM
Representative Pruitt queried whether HB 105 maintained the
legislature's approval authority over AIDEA's decision on
which gas supply to move the project forward with.
Mr. Therriault cited the CS, on page 7, lines 18 through
20:
(1) identify the source of the natural gas or propane;
2 (2) include the estimated cost of the project; and
3 (3) include the estimated price of natural gas
supplied to natural gas utilities…
Mr. Therriault communicated that the bill required the
AIDEA board to approve a plan that included the required
information. He voiced that the AIDEA board had the
authority to make the determination like any other project
AIDEA undertook.
Representative Pruitt asked for verification that approval
authority was "out of the legislature's hands."
Mr. Therriault replied in the affirmative.
Representative Pruitt worried that the legislature would
lose control over a "policy decision."
Vice-Chair Saddler asked what the Cook Inlet estimated
reserve figure was based on.
Mr. Parady answered that the figure was based on a DNR
evaluation and was "proven plus probable."
Vice-Chair Saddler asked how recent the figure was. He
requested a copy of the report.
Mr. Parady responded that the data was from February 2015.
Mr. Therriault noted that the CS contained other
hydroelectric projects. He delineated that a hydro project
through AIDEA was subjected to the same "due diligence"
process as the process the supply of natural gas will be
based on. When AIDEA was "empowered" to make the decision
it was based on whether the project had a sales agreement
that "supported or "underpinned the financing.
PATRICE LEE, SELF, FAIRBANKS (via teleconference), spoke in
favor of the legislation. She thanked AIDEA for recognizing
the severity of the air pollution problem in Fairbanks. She
shared two concerns on the CS version of the legislation.
She believed that Section 8 restricted the options for a
"free market" source of gas. She worried that the price of
gas seemed high. She hoped the project would be expedited
to serve the 100,000 citizens of the Interior. She felt
that the project could be an asset to the Anchorage area if
the Cook Inlet option was chosen by increasing the market
share and bargaining power.
MERRICK PEIRCE, SELF, FAIRBANKS (via teleconference),
supported the legislation. He stated concerns over the
health risks of the high particulate matter leading to poor
air quality of Fairbanks. He referenced a study from the
British Medical Journal that concluded exposure to high
particulate matter was linked to mortality from strokes. He
appreciated the various options being considered and
thought a "phased approach" might be a part of the
solution. He stated that propane had many advantages over
LNG and stored well. He wanted affordable energy for the
Interior for residential purposes and to attract new
industry and job creation. He was troubled by Section 8
that prohibited AIDEA from directly entering into contracts
with Cook Inlet suppliers.
PAMELA THROOP, SELF, FAIRBANKS (via teleconference),
supported the legislation. She related that she worked as a
commercial real estate broker and her biggest concern was
the cost of living and doing business in Fairbanks directly
related to high utility costs. She discerned that in the
event the IEP initially utilized a Cook Inlet Source of gas
via pipeline to Fairbanks and subsequently consumed natural
gas via pipeline from the North Slope the two pipelines
could be connected and natural gas could flow to Anchorage.
She urged AIDEA and IEP to consider any kind of energy
source for Fairbanks.
JIM DODSON, FAIRBANKS ECONOMIC DEVELOPMENT CORPORATION,
FAIRBANKS (via teleconference), spoke in support of the
legislation. He stressed that clean air was vital to the
health of the community's children. He spoke to the need to
build a "road map" starting in Fairbanks, to providing
affordable energy to the entire state. He urged the
legislature to support the legislation.
JOMO STEWART, FAIRBANKS ECONOMIC DEVELOPMENT CORPORATION,
FAIRBANKS (via teleconference), echoed the testimony from
Mr. Dodson. He urged the legislature to act "expeditiously"
with passage of the bill to move the project forward.
3:42:01 PM
LISA HERBERT, EXECUTIVE DIRECTOR, GREATER FAIRBANKS CHAMBER
OF COMMERCE, FAIRBANKS (via teleconference), spoke in favor
of the legislation. She represented approximately 700
businesses as executive director and maintained that
reducing the high cost of energy was the chambers highest
priority. She specifically supported the CS. She supported
the goals of the IEP to serve the greatest number of people
as possible, as affordable as possible, and as quickly as
possible. She encouraged the legislature to remain
committed to the goals.
DEREK MILLER, FAIRBANKS CHAMBER OF COMMERCE, FAIRBANKS (via
teleconference), spoke in support of the legislation. He
noted his previous work as a legislative aide and for the
University of Alaska, Fairbanks. He stated his support for
the original bill, SB 23 and the three major goals
previously stated. He was opposed to various restrictive
provisions in the House Resources Committee version. He
appreciated the concerns raised about the Cook Inlet supply
and expressed confidence that the CS accomplished the goals
of the IEP.
LUKE HOPKINS, MAYOR, FAIRBANKS NORTHSTAR BOROUGH (via
teleconference), favored the legislation. He believed the
amendments in the CS addressed the three area mayors
concerns and advanced the project without restricting
AIDEA's decision making authority. He felt that the
greatest issues were providing low cost energy for the
community and businesses as quickly as possible.
Co-Chair Thompson CLOSED public testimony.
Representative Wilson reminded the committee that the gas
industry in Cook Inlet received generous credits and
subsidies from the state and that the gas belonged to
everyone.
HB 105 was HEARD and HELD in committee for further
consideration.
Co-Chair Thompson addressed the agenda for the following
day.