Legislature(2017 - 2018)BARNES 124
02/26/2018 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB340 | |
| HB342 | |
| HB343 | |
| HB147 | |
| HB261 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 340 | TELECONFERENCED | |
| += | HB 342 | TELECONFERENCED | |
| += | HB 343 | TELECONFERENCED | |
| *+ | HB 147 | TELECONFERENCED | |
| *+ | HB 261 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 261-EXTEND BOND AUTH FOR INTERIOR ENERGY PROJ
4:00:52 PM
CHAIR KITO announced that the next order of business would be
HOUSE BILL NO. 261, "An Act relating to the financing and
issuance of bonds for a liquefied natural gas production system
and natural gas distribution system; and providing for an
effective date."
4:01:25 PM
REPRESENTATIVE STEVE THOMPSON, Alaska State Legislature,
introduced HB 261 as prime sponsor. He said HB 261 would extend
the allowable time for the Alaska Industrial Development and
Energy Authority (AIDEA) to issue bonds for the Interior Energy
Project (IEP) to June 30, 2023. He added the Interior suffers
the most volatile energy costs out of any town on the rail belt.
He said when the price of heating oil is high, many residents
augment their fuel with wood, but due to the climate and
geography of the area, woodburning at low temperatures
contributes to problematic air quality issues for the Interior.
He went on to say that Fairbanks, Alaska, and North Pole,
Alaska, are part of the PM125 non-attainment area which leads to
restrictions on wood sellers and non-compliant wood stoves. He
spoke to Senate Bill 23 in 2013, creating the IEP to bring
affordable gas to people in the Interior. He stated the goal
of the IEP is to bring natural gas to the Interior at the lowest
cost and as quickly as possible. He said the initiative
includes the liquefaction, regasification, storage and
distribution of natural gas. He explained due to limited
liquification and storage infrastructure, the distribution
network never exceeded 70 miles of pipeline. He added that many
of the customers are commercial in nature. This structure made
it challenging to create an expanded network for residents. He
underlined that for a community that supports two major military
installations and many large commercial entities, the volatility
of energy prices has presented a significant economic
impediment.
REPRESENTATIVE THOMPSON said the original funding package for
the IEP included $57.5 million in a capital grant which has been
spent or obligated; $125 million in SETS loans of which $52.8
million has been expended and $45.5 million has been obligated;
$150 million in AIDEA bonding authority - the subject of the
proposed bill - none of which has been used to date. He
underlined the authorization is set to expire on June 30 [2018].
He emphasized that the bonding authority can only be used for
the IEP due to amendments to the financing package created in
the passage of House Bill 105. It can be used to finance
investment-grade utility infrastructure due to covenants
included in the agreements between AIDEA and IGU.
REPRESENTATIVE THOMPSON stated the project has not been without
bumps in the road as is to be expected with any project of this
scale. He listed the accomplishments of the project. In 2014-
2015 the project created build-out covering nearly all of
Fairbanks; adopted a qualified plan of development; and a gas
supply agreement with Hilcorp and an agreement to consolidate
FNG and IGU into a single gas utility through the sale of
Pentex's assets to IGU. He said in the current month
construction was under way to build the 5.2-million-gallon
storage facility that will support customer growth in the new
consolidated system. He said the first transmission is expected
in the late fall or winter 2019. He stated that extending the
sunset for AIDEA bonding will help the community realize the
vision of clean and affordable natural gas in the Fairbanks,
Alaska, area.
4:08:55 PM
REPRESENTATIVE JOSEPHSON asked Representative Thompson to repeat
the three parts that made up Senate Bill 23.
REPRESENTATIVE THOMPSON answered there were $57.5 million in
capital grants; $125 million in sustainable energy transmission
supply (SETS) loans, of which $52.8 million has been expended
and $45.5 million has been obligated.
REPRESENTATIVE JOSEPHSON asked whether there was work done but
still no gas.
REPRESENTATIVE THOMPSON answered in the affirmative. He said
Fairbanks, Alaska only has a small amount of storage and that a
lot of the customers are commercial.
REPRESENTATIVE JOSEPHSON asked about the status of the
transportation of the gas.
REPRESENTATIVE THOMPSON answered that originally there was a
plan to bring gas from the North Slope and now the aim was to
truck gas from Port Mackenzie. He added the rail system has not
been solidified as an alternative.
4:11:24 PM
REPRESENTATIVE STUTES asked about the "bumps in the road."
REPRESENTATIVE THOMPSON answered there had been a purchase of
land on the North Slope as well as the examination of the
possibility of using the railroad.
CHAIR KITO asked about the impact of the price of natural gas on
the project.
REPRESENTATIVE THOMPSON answered that when the project began,
the cost of heating fuel was over $30 per BTU. He said he
thought the breakeven point at the time was about $2 per gallon
to match the cost of fuel oil.
CHAIR KITO said it seemed the changes in oil prices are more
impactful than the price of gas.
4:13:32 PM
GENE THERRIAULT, Alaska Industrial Development and Export
Authority (AIDEA), Juneau, Alaska, testified in the hearing on
HB 261. He explained that when the IEP was first envisioned,
the target was to deliver gas to residential customers at the
fuel oil equivalent cost of $2. He added the components are the
source of the gas, liquefaction, transportation, storage as a
cryogenic fluid, and distribution to customers. He said the
choke point is the lack of liquified natural gas (LNG) storage
in the community.
MR. THERRIAULT said in midsummer when demand falls off, there is
nowhere to store the LNG. He said once the large storage tank
is in place, more customers can be served. He said the rail
transportation has been examined and larger storage containers
have been acquired. He remarked access to the bonding will be
critical when storage is brought online, and more customers will
be served out of the storage.
4:18:05 PM
REPRESENTATIVE JOSEPHSON asked about the current capacity in
Southcentral Alaska to liquify natural gas.
MR. THERRIAULT answered that there is a plant in the Mat-Su area
with approximately one BSF per year and has been in operation
for almost 20 years.
REPRESENTATIVE JOSEPHSON surmised SETS money was not needed for
the plant.
MR. THERRIAULT answered it was previously a private sector
partner and subsequently AIDEA purchased the Pentax assets in
2015.
REPRESENTATIVE JOSEPHSON asked whether there were major changes
in SB 125 compared to HB 261.
MR. THERRIAULT answered that the two bills are identical.
4:19:37 PM
REPRESENTATIVE BIRCH asked what the price would be per British
Thermal Unit (BTU).
MR. THERRIAULT answered the price was $21.81 equivalent to $2.77
fuel oil. He added that currently natural gas is below fuel
oil.
REPRESENTATIVE BIRCH asked if the price is per million BTUs.
MR. THERRIAULT answered it is per thousand cubic feet (MCF).
REPRESENTATIVE BIRCH asked about the break out of the price.
MR. THERRIAULT spoke to House Bill 105, passed in 2015, in which
restrictions were removed when the economics of sourcing gas on
the North Slope didn't work. He said the source of gas from
Hilcorp was higher than expected at $7.72. He stated that
starting in 2020 or 2019 when storage will be available, it
appears that trucking price is $2.53. He said the calculation
had not counted on the railroad. He added that once they are
able to hook up more customers and spread the fixed costs, the
price is expected to come down in the third year when
residential customers come onboard at $15.48 or $15.11 and
therefore close to the $2 fuel oil equivalent.
4:24:15 PM
REPRESENTATIVE KNOPP asked about using the railroad.
MR. THERRIAULT answered the Alaska Railroad trial runs were the
first shipments via rail of LNG in North America. He said the
containers were shipped over from Japan. He explained the
logistics of rail were complex since the site is not near the
railroad and the crews did not have time in the day to complete
the operation. The suggestion was to send railcars to
Anchorage, Alaska, and ship the following day.
4:26:23 PM
REPRESENTATIVE JOSEPHSON asked about the plan to ship LNG to the
North Star Borough.
MR. THERRIAULT described the service territory. He said AIDEA
took the step to purchase the territory in order to expand the
utility. He said the utility could be consolidated to push the
gas out over a wide service area. He said that in 2015 some
SETS money was used to add pipe to North Pole. He explained the
plan was to use the existing tanks to push distribution to a
larger area.
4:28:49 PM
REPRESENTATIVE WOOL asked how much of the bond authority has
been used.
MR. THERRIAULT answered that none of it has been bonded but the
expectation is that storage and plant size will use up the SETS
funds.
REPRESENTATIVE WOOL asked whether the money would be used to
purchase Pentex from AIDEA in the future.
MR. THERRIAULT answered that "it is part of the deal." He
explained the Pentex purchase by AIDEA was done with the
revolving load fun.
4:30:23 PM
CHAIR KITO asked whether the state would be repaid for the
grants.
MR. THERRIAULT answered the state will not be paid back on the
grant dollars. He said the SETS funds have a low interest rate
and the bonds will be issued and the new municipal utility will
be the enterprise that pays the bonds back. He said the state
will not incur any of the debt.
CHAIR KITO asked whether the companies need to come back to the
state for more funding.
MR. THERRIAULT said there was no plan to ask for more funds.
CHAIR KITO remarked that AIDEA has anticipated in its business
plan a certain level of gas prices. He shared his concern that
if flat or lower gas prices are anticipated, high oil prices
will drive people towards gas, but historically high oil prices
means high gas prices. He asked how that factors into the
calculation on the economic viability of the project.
MR. THERRIAULT responded that as the price of oil went down, the
project was challenged. Over a series of years, about 75
percent of people that have access to the pipe would become
customers. As the price of oil came down, that was lowered to
50 percent of people converting over time. The IGU ran numbers
based on 35 percent. It was thought that even at that very low
price, the project would be able to pay its bills. He said the
price of oil and fuel has come back up to above the price of
gas. He added the AIDEA board announced a 3 percent increase
in customers.
CHAIR KITO remarked that historically gas prices increase with
oil prices. He suggested that gas price prediction is risky.
MR. THERRIAULT said the price from Hilcorp is locked in flat for
3 years. He said beyond that it is escalated by 2 percent per
year.
4:37:51 PM
REPRESENTATIVE JOSEPHSON asked whether people can be compelled
to make the transfer by federal ruling.
MR. THERRIAULT answered the local government has air quality
rules. Fairbanks North Star Borough is working with the
Department of Environmental Conservation (DEC). He added there
is pressure from the Environment Protection Agency (EPA) and
eventually the local government may have to implement those
tools. He said they had not chosen to do so, but ultimately the
Clean Air Act will add pressure.
4:39:29 PM
REPRESENTATIVE WOOL asked whether currently gas is being
delivered to Fairbanks through FNG at approximately $20.
MR. THERRIAULT confirmed that current price is $20.81.
REPRESENTATIVE WOOL asked about the Pentex plant capacity.
MR. THERRIAULT answered capacity is about a billion cubic feet
(BCF) per year.
REPRESENTATIVE WOOL suggested it is basically producing a
million MCF per year and that would have to increase.
MR. THERRIAULT said that once the storage was in place, the next
issue would be increasing capacity.
4:41:25 PM
JOMO STEWART, Managing Director, Interior Gas Utility, testified
in the hearing on HB 261. He made a correction on whether the
project will come back for more funding. He stated IGU would be
coming back for funds for storage facilities that would be in
place by 2019.
CHAIR KITO asked whether there is an estimate of how much
additional capital IGU will be asking for from the legislature.
MR. STEWART answered the amount was written in statute as a
reimbursement of maximum $15 million. He said the large
facility would qualify for the full reimbursement. He added a
small satellite LNG facility in North Pole would cost in the $5
million to $7 million-dollar range.
CHAIR KITO asked for confirmation that the amount is identified
in statute but not appropriated and would be a capital request.
MR. STEWART answered in the affirmative.
4:44:54 PM
REPRESENTATIVE WOOL asked for confirmation that the current
storage facility that FNG is using will stay in operation in
conjunction with the new facility on South Cushman.
MR. STEWART answered that a large storage tank will go in and
the two larger ones will be moved out to North Pole.
4:46:17 PM
CHAIR KITO opened public testimony on HB 261.
4:46:25 PM
ELIZABETH WARLICK, Greater Fairbanks Chamber of Commerce,
testified in support of HB 261. She said the Chamber supports
the new storage facility and the expansion in North Pole.
4:48:15 PM
JIM DODSON, Fairbanks Economic Development Corporation,
testified in support of HB 261. He stated the need to bring
affordable clean energy to the Interior.
4:49:15 PM
DAVID PRUHS testified in support of HB 261. He stated the city
of Fairbanks, Alaska has approximately 9,000 structures that
rely on oil. He said the structural life of a buried fuel tank
is 40 to 50 years. He estimated 50-60 percent of Fairbanks,
Alaska, properties have fuel tanks passed their structural life.
He added that real estate operators are ordering the structural
integrity tests. He said Fairbanks, Alaska, also has a water
table that is 12 feet below grade. He stated a new system is
being put in to place to ensure new systems are convertible to
natural gas. He said the city already has the system in place
economically and needs to get there structurally.
4:52:18 PM
REPRESENTATIVE WOOL asked for clarification about the fuel bill
to which Mr. Pruhs referred.
MR. PRUHS answered he was referring to his diesel bill which is
$2.94. He stated he had a gas line close to his house with no
gas in it. He reiterated the need for the proposed legislation.
4:53:09 PM
CHAIR KITO announced he would leave public testimony open on HB
261.
[HB 261 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| SSHB 147 Summary of Changes ver A to ver J 2.13.18.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 147 |
| SSHB 147 Sponsor Statement ver J 2.5.18.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 147 |
| SSHB 147 version J.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 147 |
| HB 147 version A.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 147 |
| HB 147 Letters of Support 2.13.18.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 147 |
| HB147 Fiscal Note DCCED-CBPL 2.22.18.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 147 |
| SSHB 147 Sectional Analysis ver J 2.13.18.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 147 |
| HB261 Supporting Documents - FNSB Resolution 2.12.18.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 261 |
| HB261 ver A 1.24.18.PDF |
HL&C 2/26/2018 3:15:00 PM |
HB 261 |
| HB261 Sponsor Statement 1.24.18.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 261 |
| HB261 Fiscal Note DCCED-AIDEA 2.23.18.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 261 |
| HB261 Letters of Support 2.24.18.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 261 |
| HB261 Supporting Document - LNG Storage Construction 2.26.18.pdf |
HL&C 2/26/2018 3:15:00 PM |
HB 261 |