Legislature(2013 - 2014)HOUSE FINANCE 519
03/21/2013 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB4 | |
| SB23 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 4 | TELECONFERENCED | |
| + | HB 74 | TELECONFERENCED | |
| + | SB 23 | TELECONFERENCED | |
| + | TELECONFERENCED |
CS FOR SENATE BILL NO. 23(FIN)
"An Act relating to development project financing by
the Alaska Industrial Development and Export
Authority; relating to the dividends from the Alaska
Industrial Development 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."
3:13:30 PM
SARAH FISHER-GOAD, EXECUTIVE DIRECTOR, ALASKA ENERGY
AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, stated that the interior energy plan proposed
in SB 23 would provide low cost, North Slope natural gas
and propane. She testified that the bill was a finance
package that offered by the governor to act as a catalyst
to bring the liquefied natural gas (LNG) and propane
customers together with the private entities that would
construct and operate an LNG delivery system. She relayed
that the partnership and project would be good for the
Alaska Industrial Development and Export Authority, (AIDEA)
and the Alaska Energy Authority (AEA). She shared that SB
23 would provide AIDEA with the opportunity to invest in
the project. She stated that AIDEA was currently
investigating full project feasibility and would only
utilize the authorized tools written into the legislation
if the project proved to make economic sense. She said that
the intention was that AIDEA would take an equity stake in
the project, but would not outright operate or build an LNG
plant or distribution system. She relayed that the project
was typical of other public/private partnerships that AIDEA
had been involved in for decades. She furthered that the
governor's finance package was intended to fund the initial
capacity of the project with future expansion to be funded
by private and community investment.
Co-Chair Stoltze hoped that an explanation of HB 74 could
be integrated into the presentation.
Ms. Fisher-Goad began the presentation, SB 23 AIDEA
Development Project Financing for a Liquefied Natural Gas
Production and Distribution System." She discussed Slide 3,
"Project Goals":
• Provide lowest-cost energy to Interior Alaska
consumers as soon as possible
• Get gas first to the Interior while assuring long-
term access to gas and propane from liquefaction plant
for all Alaskans
• Utilize private sector mechanisms as much as
possible
Ms. Fisher-Goad continued to Slide 4, "Project
Description":
• Natural gas will be liquefied on the North Slope and
trucked to Interior Alaska
• Propane will be produced and delivered to Interior
and Rural Alaskans
• Primary LNG demand anticipated to be Fairbanks and
North Pole
• LNG will be temporarily stored and re-gasified in
Interior Alaska
• Natural gas distribution system with storage to
supply natural gas for heating
3:20:12 PM
TED LEONARD, EXECUTIVE DIRECTOR OF AIDEA, discussed Slide
5, AIDEA Project Analysis Process: Due Diligence." He said
that the funding under SB 23 would come from the
Sustainable Energy Transmission and Supply Plan (SETS)
created by the legislature. He spoke to the chart on the
slide which included 4 phases of the project:
Phase 1 - Project Suitability Assessment
Project Sponsor Submittals
· Proposed information
· Sponsor information
· Estimated costs and timeline
AIDEA Process
· Is project consistent with AIDEA initiatives?
· What is project feasibility?
· What is the proponent's experience and
Capability?
· Is AIDEA right source for financing?
Output
· Project Information Form
· Suitability Report
AIDEA Decision Making
· Project Evaluation Committee
o Authorization to go to Feasibility Analysis
Mr. Leonard relayed that AIDEA had completed Phase 1. He
shared that in December 2012 AIDEA issued a request for
information (RFI) for working on the project, and had
received 16 responses. He said that the project was
suitable for AIDEA. He shared that the mission of AIDEA was
to promote economic development through investment and
financing, and the project would do both for interior
Alaska. He believed that the project would provide for
statewide development as the benefits of LNG rippled across
the state.
3:24:17 PM
Mr. Leonard relayed that AIDEA was in Phase 2 of the
process:
Phase 2 - Feasibility Analysis
Project Sponsor Submittals
Business and financing plan
Preliminary schedule
Execution/development plan
AIDEA Process
Is there a complete and attainable business and financing
plan?
Is there public support?
What is the timing and status on project?
What are the risks?
Output
Reimbursement Agreement
Term Sheet
Risk Analysis
AIDEA Decision Making
Investment Committee
Authorization to go to Deal Structuring and Due Diligence
AIDEA Board
Approve Reimbursement Agreement
Mr. Leonard said that AIDEA had comprised a team of experts
on permitting and site assessment from engineering firms,
as well as MEI Technologies, experts in building
liquefication facilities. He stated that financial advisors
had been brought in to determine the financing of the
project facility and to examine the distribution system.
He believed that AIDEA and ADA's ability to offer a finance
package for the project was the reason they were asked to
participate. He said that the demand would be ready that
would support a production facility, and that the
production facility would guarantee that gas would be there
once it was time to finance the distribution system. He
reiterated that AIDEA was in Phase 2 and that Feasibility
and Due Diligence stage would take approximately two to
three more months. He noted the additional phases on Slide
5, which illustrated that the board would have the final
approval to move the project forward based on the due
diligence that AIDEA and AEA would present. He shared that
the slide was intended to illustrate how important the due
diligence process is to AIDEA and AEA.
Co-Chair Stoltze recognized that Representative Isaacson
had joined the gallery.
3:27:10 PM
Mr. Leonard discussed Slide 6, "Governor's Finance
Package": He noted that the appropriation to the fund
included three separate legs: $150 million in AIDEA bonds,
$50 million in capital appropriation from the General Fund
and $125 million in SETS capitalization.
3:28:01 PM
Mr. Leonard discussed slide 7, "$50 Million General Fund
Appropriation":
•Purpose
•Give AIDEA the needed equity ownership share in
the North Slope LNG plant to ensure project is
executed
•Directly reduce the price of natural gas to
utility customers
•How it Works
•AIDEA owns $50 million share of the plant. This
ownership stake will be an AIDEA asset
•AIDEA will not charge a return on its owned
share from LNG sales to utility customers
•AIDEA can earn a return from LNG sales to non-
utility customers or a sale of the asset
3:29:25 PM
Mr. Leonard discussed Slide 8, "$150 Million AIDEA Bond
Authorization":
•Purpose
•Provide low cost capital for the build out of
the natural gas distribution system
•Make sure the utility demand for LNG is created
in order to ensure the North Slope plant is fully
utilized
•How it Works
•AIDEA floats $150 million in bonds as the
distribution system is built out
•The bond payments are incorporated in the
natural gas utility's rates
•The State of Alaska's moral obligation and the
capital reserve fund reduces the bond's interest
rate, directly lowering the utility price of
natural gas
•3% to 4.5% interest rate (depending on tax-
exempt status of component financed and market
rates)
3:31:40 PM
Mr. Leonard discussed Slide 9, "$125 Million SETS
Capitalization":
•Purpose
•Provide flexible, low cost financing for the
North Slope LNG plant and/or the natural gas
distribution system
•The SETS fund provides flexible repayment terms,
allowing AIDEA to pursue the best business
structure for utility customers
•How it Works
•The existing SETS fund is capitalized with an
additional $125 million
•The non-AIDEA owner(s) of the infrastructure are
directly loaned the funds with an agreed upon
payment plan
•The cost of repaying the SETS loan is included
in the price of the LNG
•3% interest rate (set by SB23)
3:32:34 PM
Mr. Leonard discussed Slide 10, "$30 Million Storage
Credit":
•Purpose
•Reduce the cost to build natural gas/LNG storage
•Directly reduce the price utility customers pay
for natural gas
•How it Works
•$15 million tax credit for each qualifying
storage tank
•The project is expected to have two qualifying
tanks totaling $30 million
•The storage credit was created through previous
legislative action
3:33:33 PM
Mr. Leonard discussed Slide 11, "Potential Finance Options
for Initial Buildout." The slide presented a pie-chart that
broke down potential finance options for initial buildout.
He noted that the capital structure was similar to other
projects. He pointed out that there were two sections to
the project; the first was the LNG plant and would require
$220 million, the second portion would be $205 million and
would cover regasification, storage and distribution.
3:36:37 PM
Ms. Fisher-Goad presented Slide 12, "LNG Lowers Energy
Costs":
Expected Utility Price per Mcf
•Wholesale LNG: $10.15
•Natural Gas to home: $13.42-$17.00 per Mcf
•Delivered price is equal to $1.79 - $2.27 per gallon of
fuel oil
Key Assumptions
•Initial costs associated with a 9 Bcf plant at start up
•Snapshot in time, costs change with expansion
•LNG plant bifurcated into two sections (industry and
utility)
•$50 million capital cost reduction applied to 6.5 Bcf
utility section
Ms. Fisher-Goad explained that AEA had worked with the
Fairbanks community and various stakeholders in order to
determine the best targeted rate for bringing gas to
Fairbanks. She said that some of the assumptions provided
by private partners had been considered as well. She noted
that the slide showed that the anticipation was that the
LNG would lower energy costs. She stated that the plan
would be bifurcated into two sections; industry and
utility, with the assumption that the equity investment
that was in the capital budget would be applied to the 6.5
Bcf utility section of the plant, which would savings to
residential heating customers. She clarified that although
AEA was working through the cost assumptions and as the
engineering teams continued to refine their work, there was
the slight chance that the cost margin could go up, but
actual costs would not increase and there would still be a
50 percent decrease in the cost of heating homes in the
community.
3:40:17 PM
Ms. Fisher-Goad discussed slide 13, "Heating Energy Supply
Comparison." She believed that the slide helped to
demonstrate the cost structure of using different resources
for home heating. She pointed out that electricity would
need to cheaper in Fairbanks in order to be considered a
heating source:
Trucked LNG is the lowest-cost option for Interior
Alaska heating
•Electricity would need to be $0.04 - $0.06 per
kWh to compete with trucked LNG
•Electricity would need to be much cheaper to
compete with fuel oil
Co-Chair Stoltze requested further details on the possible
savings to public utility costs for state and local
agencies.
Ms. Fisher-Goad replied that she would provide the
information.
3:41:59 PM
Ms. Fisher-Goad mentioned slide 14, "Household Heating
Savings":
Typical Home Heating Savings
• $2,900 - $3,750 annually
•43% - 55% reduction in cost
Key Assumptions
•Typical Interior Alaska household will use 225
Mcf of gas per year (equivalent to 1,700 gallons
of fuel oil)
•Does not account for expected improvement in
heating efficiency with natural gas
3:42:48 PM
Ms. Fisher-Goad discussed slide 15: "Air Quality":
Conversion to natural gas should reduce air pollutant
emissions in Fairbanks and North Pole
•Will reduce overall emissions of PM 2.5
•Fairbanks is presently a non-attainment area for
PM 2.5
•Potential public health benefits of natural gas
is substantial
Impact on Federal funding and economic development
•The non-attainment area risks losing Department
of Transportation and Public Facilities funding
if State fails to submit an attainment plan to
EPA
•Federal projects in the area face funding
hurdles while area is non-attainment
•Cleaner, healthier air in Fairbanks will promote
economic development
Ms. Fisher-Goad relayed that the project would help reduce
air pollutant emission in Fairbanks and the North Pole
area. Currently, Fairbanks was in a non-attainment area,
which put federal funding at risk. She stated that the
dollars that had been gathered from the northern region DOT
included $8-10 million in FMATS that could be lost and an
additional $6-8 million of funding in the non-attainment
area that was not in the FMATS area.
Ms. Fisher-Goad continued to slide 16, "Savings for Public
Buildings":
•Fairbanks North Star Borough School District expects
immediate and significant school heating cost savings
•Expect schools to pay back cost of converting in
less than two years
•8 schools will have immediate access to natural
gas, with more switching as the distribution
system builds out
•The first 8 schools will immediately save $25-
$60 thousand dollars a year in heating costs
•Other State and municipal buildings should experience
similar heating cost reductions
3:44:53 PM
Ms. Fisher-Goad turned to slide 17, "Long Term Use of LNG
Plant":
LNG Plant will be used after gas pipeline
•Plant can serve Rural Alaska before gas pipeline
is constructed
•Expect opportunity to sell LNG to new industrial
users both before and after pipeline
•Information in chart is for demonstration only
She explained that the users on the left of the graph would
be served by the pipeline; however, additional users could
have gas trucked or provided on the river system, new
industrial development was also anticipated. She noted that
the facility was modular and could be re-located in a more
convenient location. She noted that AEA was working through
the rural energy program to determine micro-LNG
possibilities. She hoped that the fuel source could be
expanded to serve as many communities as possible.
3:47:05 PM
Ms. Fisher-Goad discussed slide 18, "Project Timeline and
Milestones." She believed that first gas could be delivered
by then end of the calendar year 2015. She mentioned that
HB 74 included a direct financing program of AIDEAs,
unrelated to the interior energy plan.
Co-Chair Stoltze requested further detail about the linking
of the two bills: SB 23 and HB 74.
Mr. Leonard stated that there was no true linkage between
the direct financing portion of HB 74 and the interior gas
project in SB 23. He said that the direct financing was one
of the final tools that could be used by AIDEA.
3:49:04 PM
Co-Chair Stoltze asked if SB 23 contained the tools
necessary to deliver gas by 2015.
Mr. Leonard replied in the affirmative.
3:49:34 PM
Co-Chair Austerman understood that there would be a storage
tank on the North Slope and another in Fairbanks.
Mr. Leonard replied yes. He furthered that the Fairbanks
storage would be more costly because it would allowed the
production from the plant to be stable throughout the
seasons.
Co-Chair Austerman queried the cost of building the two
tanks.
NICK SZYMONIAK, PROJECT ECONOMIST WITH AEA, replied that
the requested $15 million per tank would cover only a
portion of the overall cost.
Co-Chair Austerman asked for the total cost of building the
tanks.
Mr. Szymoniak responded that the tank in Fairbanks could be
approximately $30 million at start up, and could go up to
$70-$100 million, depending on the size of storage needed.
3:52:04 PM
Vice-Chair Neuman asked whether SETS financing could be
used to expand gas availability in the Mat-Su area.
Mr. Leonard stated that SETS funds included transmission
lines for natural gas and other facilities. He said that
under the SETS fund AIDEA was limited to providing
financing for 35 percent of a project. He relayed that the
authorization in the bill allowed AIDEA to provide more
than 35 percent financing for this specific project.
3:54:20 PM
Representative Thompson requested further clarification
regarding the cash grant; the $50 million that AIDEA would
have had as an asset would be reimbursed, and the rest of
the funding was through loans.
Mr. Leonard responded that the $275 million was to provide
AIDEA with the ability to provide direct financing, which
would all be paid back through the purchase of the gas. He
added that the $50 million was an equity investment and
that return on the equity investment would occur through
the industrial side of the stream.
3:56:31 PM
Representative Gara testified in support of the
legislation. He wondered what might prevent the subsidizing
of another gasline through the legislation.
Mr. Leonard stated that the intention of the bill was to
create a production facility to provide LNG for interior
Alaska with the ability to extend the resource to all
Alaskans. He stressed that the pipeline would never be at
the size needed for an in-state pipeline.
Representative Gara understood the intended limitations of
the project in the bill, but wondered where the bill spoke
to the limitation of the plant size.
3:59:11 PM
Mr. Leonard stated that the bill authorized AIDEA to invest
up to $275 million into the LNG project. He said that
existing statute allowed for AIDEA to provide up to one-
third of the financing for a project, with a limited
amount. He stressed that the bill was only a catalyst for
the 9 Bcf plant, and if AIDEA wanted to be involved in a
larger project it could not be funded through the SETS. He
believed the intent of the legislation was clear.
4:01:23 PM
Representative Gara thought that limitations could be
written into the title in order to clarify intent.
Mr. Leonard replied that AIDEA did not have the debt
capacity to build a project the size of HB 4.
4:02:49 PM
Co-Chair Austerman understood that $50 million was a
capital appropriation for AIDEA to invest in the project.
Mr. Leonard said yes.
4:03:32 PM
Ms. Fisher-Goad pointed out that the fiscal notes included
all of the funding pieces. She turned attention to the
summary sheet attached to the fiscal notes, which would
provide committee members with a clearer understanding of
the fiscal impact of the legislation.
Representative Edgmon was pleased with the rural element of
the legislation. He queried the 30 year payback period for
the funding.
4:05:06 PM
Mr. Leonard clarified that the 30 year payback period was
intended for the SETS loan and would be paid off over the
estimated life of the plant.
Representative Edgmon asked about the process of connecting
gas to residential homes.
Ms. Fisher-Goad replied that estimates had been made that
had promised savings to homeowners.
Representative Edgmon understood that the numbers for
residential hook-up had not been considered in the 30 year
model.
Mr. Leonard replied no. He added that the funding would
provide for the production and the pipe for the
neighborhood, but not for conversion.
4:07:58 PM
Representative Wilson asked about the commercial aspect and
how the university would fit in to the project.
Ms. Fisher-Goad replied that the university was looking
into replacing their existing coal fueled, combined heat
and power plant. She said that AEA would continue to work
closely with the university as that project advanced. She
noted that staying with coal would be cheaper for the
university rather than LNG. She said that the 9 Bcf plant
would not be particularly beneficial to people that were
already able to enjoy lower cost fuel.
4:10:39 PM
Co-Chair Stoltze noted that the public testimony would be
taken during Monday's 1:30pm meeting.
Co-Chair Stoltze discussed further housekeeping.
SB 23 was HEARD and HELD in committee for further
consideration.
4:12:25 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB4 Support letters.PDF |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| HB4 Sponsor Statement - CS for SSHB4(RES) VersP.pdf |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| HB4 Sectional CS for SSHB4 (RES) P.pdf |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| HB4 Fact Sheet-CS for SSHB4 (RES) Vers. P.pdf |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| HB4 Explanation of Changes - CS for SSHB4 (RES) P.pdf |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| HB4 Support letters #2.PDF |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| SB 23 Supporting Documents - AIDEAAEA Policy Presentation 3-21-2013.pdf |
HFIN 3/21/2013 1:30:00 PM |
SB 23 |
| SB 23 Supporting Documents - AIDEA Project Analysis Process 2-26-2013.pdf |
HFIN 3/21/2013 1:30:00 PM |
SB 23 |
| SB 23 Supporting Document - Interior Energy Plan.pdf |
HFIN 3/21/2013 1:30:00 PM |
SB 23 |
| SB 23 Assorted Letters of Support - 031413.pdf |
HFIN 3/21/2013 1:30:00 PM |
SB 23 |
| HB 4 Overview for H FIN March 21.pdf |
HFIN 3/21/2013 1:30:00 PM |
HB 4 |
| SB 23 Teamster Letter 3.21.13.pdf |
HFIN 3/21/2013 1:30:00 PM |
SB 23 |