Legislature(2013 - 2014)BARNES 124
02/08/2013 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing: || Department of Labor & Workforce Development, Commissioner | |
| HB74 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 74 | TELECONFERENCED | |
HB 74-AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
3:53:01 PM
CHAIR OLSON announced that the final 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."
3:53:05 PM
TED LEONARD, Executive Director, Alaska Industrial Development &
Export Authority (AIDEA), Department of Commerce, Community, &
Economic Development (DCCED), introduced himself.
MARK DAVIS, Deputy Director, Alaska Industrial Development &
Export Authority (AIDEA), Department of Commerce, Community, &
Economic Development (DCCED), introduced himself.
3:53:53 PM
MR. LEONARD stated that HB 74 consists of three parts. The
first part would allow Alaska Industrial Development and Export
Authority (AIDEA) to provide financing for a project it does not
intend to own or acquire. The bill would allow AIDEA to
continue work with the legislature, and the administration in
modernizing its tools. This bill would allow AIDEA to leverage
more of its investment by encouraging private sector
development. He explained this would also allow AIDEA to own a
project through a limited liability corporation (LLC), which
would give AIDEA more protection on its natural resources
projects. To summarize, this bill would provide AIDEA with the
least amount of risk when financing a project in which AIDEA is
lending money but will not own the project. In conclusion, this
tool could help protect AIDEA's assets as a lender and part
owner, especially as AIDEA becomes more involved in helping to
finance natural resources' projects.
3:54:48 PM
MR. LEONARD said the second part of HB 74 would assist and make
technical amendments to the dividend statutes. The Governmental
Accounting Standards Board (GASB) has changed its definition of
terminology and financial reporting statutes. This means that
in order to provide the highest and maximum dividend, AIDEA must
change its statutes so AIDEA's terminology matches GATSB's
terminology. For example, AIDEA's definition for net position
must match the GATSB's definition of net position, he said.
Additionally, AIDEA has two funds: the Revolving fund for
normal projects, and with passage of Senate Bill 25 in 2012, the
Sustainable Energy Transmission and Supply Development Fund
(SETS). Thus, AIDEA is asking the legislature for the authority
to calculate dividends on each individual fund separately
instead of the current netted calculation process. He explained
this is necessary so if SETS fund suffers a loss, it would not
affect AIDEA's revolving fund. Thus far AIDEA has distributed
$345 million in dividends since 1998, he said.
3:56:40 PM
MR. LEONARD explained that the third part of HB 74 would allow
AIDEA to participate in the development and financing of a
liquefied natural gas (LNG) plant and a natural gas distribution
system in Interior Alaska. He explained this would allow AIDEA
to work through the $355 million financing package the governor
is recommending to the legislature and also utilize the SETS
energy financing tools. In essence, one portion would authorize
AIDEA to lend to the project more than one-third of the cost of
the project. Under SETS, AIDEA can only participate up to one-
third of the capital cost of the project. This change would
give AIDEA the authority to invest more and to issue bonds to
help finance the project.
3:57:55 PM
CHAIR OLSON asked for clarification on the cap, whether it is a
dollar cap or a percentage.
MR. LEONARD answered that the new limit is based on one-third of
the capital cost.
MR. DAVIS answered that legislative approval necessary for
loans.
MR. LEONARD clarified that legislative approval necessary for
bonding, too.
3:59:00 PM
CHAIR OLSON asked where else AIDEA would foresee using this
capacity.
MR. DAVIS answered that the AIDEA has been working on
implementing the SETS. He reported the agency has developed
regulations, which have gone out for public comment and should
be in place by the end of March. He envisioned using this
program to support energy projects in rural Alaska, such as
propane gas distribution in the Gulf of Alaska communities of
Cordova and Yakutat. Additionally, AIDEA is considering whether
this process could be used for wind farm development. He
suggested these projects would be projects sold into the grid
and would not be stand-alone projects. He remarked that the
additional funding authority could be used for transmission
lines.
4:00:16 PM
MR. DAVIS offered to provide a sectional analysis of HB 74. He
referred to page 3 to proposed Section 2 of HB 74, would allow
AIDEA to provide development project financing. Currently,
under AS 48.88.070 (2), AIDEA can own and operate projects;
however, this proposed section would extend the authority to add
development project financing. He characterized the change as
being more of a private sector approach. This change also
corresponds to language on page 9 of HB 74 by amending AS
44.88.172 (a), to allow project financing for development
projects that the authority does not intend to own or operate,
such as the Skagway Ore terminal. This provision would ask the
legislature for the authority to use AIDEA's revolving fund to
provide development project financing as Mr. Leonard previously
mentioned. Thus, this would allow the current $480 million in
the AIDEA's revolving fund to be used for financing. He
clarified this doesn't mean AIDEA would not own projects, nor is
this a change in direction, but it would simply give AIDEA
another tool to use.
4:02:39 PM
REPRESENTATIVE MILLETT referred to page 4, line 7 of HB 74. She
asked the reason for the change from "Alaska" to "state" since
this term seems interchangeable.
MR. DAVIS answered this change is a technical change requested
by the Department of Law (DOL). In further response, he said he
was unsure if the changes would be made to all statutes; however
it would specifically change the term in this instance. He
characterized the change as a reconciling format.
4:03:53 PM
MR. DAVIS turned to payment of dividends on page 8. He stated
that AIDEA defines three terms in AS 44.88.088(b). While the
term "base fiscal year" would stay the same, new standards would
be added under the GASB board for "net income" and "unrestricted
net income." In essence, this would allow the dividend to
increase, he said.
4:05:23 PM
MR. DAVIS referred to page 7, to another technical amendment,
which would allow AIDEA to pay a dividend from the current AIDEA
revolving fund and the new SETS fund. He explained AIDEA was
originally intended to pay a single dividend; however, the AIDEA
accounting staff suggested it would be better to pay the
dividend from each of the two funds. Thus if one fund was not
making money the other fund wouldn't be tapped, and different
rates of return from each fund could occur, which is consistent
with energy projects. He suggested that this makes sense. He
pointed out changes on page 7 that affect AIDEA's Revolving fund
and on page 8 for the SETS fund. This concludes the substantive
legal issue changes in the bill, he said.
4:06:21 PM
MR. DAVIS turned to page 10, to proposed Section 10, which would
amend the uncodified law. He said this is designed to make a
one-time change - a waiver - which would allow AIDEA to provide
financing more than one-third of the loan for the size of
project contemplated. Additionally, he advised that AIDEA is
required by statute to request authority bonding in excess of
$10 million so this bill would request authority to issue bonds
of $150 million.
4:07:41 PM
MR. DAVIS said while this provision would give AIDEA additional
legal tools, in essence, the bill would support the governor's
Interior energy plan. The governor's Interior energy plan
consists of four components: $150 million in bonding authority;
an appropriation authority from the SETS fund in the amount of
$125 million at an approximately rate of 3 percent; a one-time
general fund appropriation to AIDEA for $50 million specifically
for the LNG plant construction; and existing gas storage credits
of $30 million - which passed the legislature last session. To
summarize, the entire governor's plan for the project would
total $355 million, he said. This would allow AIDEA an
opportunity to pursue the possibility of building a small LNG
plant on the North Slope, truck the gas to Fairbanks, and place
the gas into a natural gas distribution system. Although a
small natural gas distribution system currently exists, the
aforementioned $150 million would be used to build out the
natural gas distribution system in Fairbanks, he stated.
4:08:58 PM
MR. DAVIS explained that the rest of funds - the $125 million
SETS loan, and $50 million appropriation for AIDEA - would be
used to support the construction of the LNG plant itself. The
goal would be to provide gas delivered to Fairbanks at
approximately $10.32 per [thousand cubic feet] Mcf. He related
that AIDEA is currently undergoing a process to ensure it is
possible to do so. He explained that on December 8, AIDEA sent
out a request for interest, received 16 responses, and reviewed
the responses internally. He related AIDEA plans hire an
engineering firm with expertise in LNG plants, and will expect
AIDEA's project manager - Jim Strandberg - and the consultant
team to begin the process to consider the feasibility of the
project, including the process and cost of a building an LNG
natural gas distribution system, along with possible locations.
In fact, AIDEA has received turnkey offers in the responses,
meaning that the companies already have the pad, and are
offering to build it. Additionally, other firms offered to work
with AIDEA to accomplish the project.
4:10:32 PM
MR. DAVIS pointed out that if HB 74 passes it doesn't
necessarily mean funds will be spent since AIDEA will comply
with the standard process it uses on all projects. First, the
AIDEA board would want to ensure the project meets its statutory
authority and goals. In this instance, the determination has
already been made since AIDEA is authorized to build a
gasification project under the SETS funding. Next, AIDEA would
perform the necessary due diligence to make certain the project
will pencil out to ensure AIDEA can make a return, as well as
for the private sector. However, the proposed LNG plant cannot
be built solely from funds authorized in this bill. In fact, it
will be necessary for AIDEA to reach out to obtain private
capital to make this project work. "That's how AIDEA works," he
said.
4:11:16 PM
REPRESENTATIVE MILLETT recalled he mentioned $150 million for
distribution in Fairbanks. She asked whether money is set aside
for a study first and the funding would be used for the natural
gas distribution system.
MR. DAVIS answered that AIDEA has resources available it can use
to invest in projects. Thus AIDEA would use internal funds to
conduct the study; however, the $150 million represents AIDEA's
best estimate for costs to build a natural gas distribution
system for the core and middle-density areas of Fairbanks. He
offered his belief this represents the best opportunity to
supply gas to the maximum amount of people at the best cost. In
further response, Mr. Davis said he was unsure of the number of
homes that would be served.
4:12:44 PM
GENE THERRIAULT, Deputy Director, Statewide Energy Policy
Development, Alaska Energy Authority (AEA), Department of
Commerce, Community, & Economic Development (DCCED), explained
that two proposals are planned in Fairbanks for the build out:
Fairbanks Natural Gas, the existing operator of the small
distribution system, plans to push out and cover 16,000 homes;
and the Fairbanks Economic Development Corporation (FEDC),
previously received state money to consider how far the natural
gas distribution system could be built out. He reported the
FEDC has estimated it may be able to serve 22,000 homes. He
reiterated that this would represent the core dense area and the
secondary area, but would cover as much of the Interior housing
and business community as possible.
REPRESENTATIVE MILLETT asked whether homeowners would incur any
costs to connect to the natural gas distribution system.
MR. DAVIS agreed various ways to construct hookups exist, but he
envisioned AIDEA's design would be to lower the actual cost or
finance hookup costs. He reiterated various models exist, but
obviously the lower cost or best financing for homeowners is an
important consideration. He said he personally worked on the
Girdwood gas conversion 20 years ago so he is sensitive to
people's concerns about hookup costs.
4:14:50 PM
REPRESENTATIVE MILLETT asked whether the 16,000 or 22,000
homeowners have any "buy in" for the project if costs are
associated with a necessary conversion to LNG.
MR. DAVIS answered that the best sales plan for homeowners is
AIDEA's work to supply gas to Fairbanks at $10.32 Mcf with
delivery estimates ranging from $13 to $17.29. He said this is
based on models that the Alaska Energy Authority (AEA) has
performed using various assumptions and parameters. He
concluded that LNG service should result in a 40 to 50 percent
reduction in heating cost bills to the Fairbanks' homeowners,
compared to current diesel fuel cost of $3.90 per gallon.
Accordingly, if diesel fuel costs increase, this would only
improve the viability of the project, he said.
4:16:15 PM
REPRESENTATIVE MILLETT asked how it would impact Fairbanks if
the state invests $355 million for thermal heat and then
competing projects in Anchorage are subsequently built. She
suggested this would make electricity cost effective and
wondered if residents would then need to convert from liquefied
natural gas to electric heat. She acknowledged this project -
the LNG and natural gas distribution system project to serve
Fairbanks - sounds good now, but expressed concern about what
might happen if a lower cost solution arrives later.
MR. LEONARD acknowledged a proposed in-state pipeline is
certainly a potential project; however, AIDEA believes such a
project would be compatible with the proposed LNG project in
Fairbanks. He advised that prior to building out the natural
gas distribution system, a guarantee must exist to ensure gas is
available to serve the customers. He pointed out that AIDEA
believes the $150 million in bonding would sufficiently build
out the distribution system to accommodate gas. Granted, the
natural gas distribution system would be built in sections, but
AIDEA would not need to issue bonds as a whole; instead, AIDEA
would issue bonds as needed to build out the natural gas
distribution system. Further, one of AIDEA's roles has been to
determine whether projects pencil out to benefit consumers. In
fact, this project was designed by the governor to provide low-
cost financing and the only pure state grant funding request is
the $50 million equity funding since the rest of the project
would be financed with private sector and utility funds. He
pointed out determining cost effective availability of
electricity goes beyond AIDEA's ability so he deferred to Mr.
Therriault to answer that question. However, he reiterated that
AIDEA believes synergy exists between the two projects.
4:19:42 PM
REPRESENTATIVE MILLETT said she is hopeful that the Healy Clean
Coal Project (HCCP) will provide another opportunity for low-
cost electricity to the Railbelt. She surmised coal would be
the most cost effective energy.
MR. LEONARD said AIDEA also hopes that HCCP will be up quickly;
however, he understood that HCCP would not replace heating in
Fairbanks. While Golden Valley Electric Association (GVEA)
could explain this more fully, GVEA anticipates one of its
turbines could be switched to gas. In conclusion, AIDEA
believes that HCCP coming online will help reduce electrical
costs in Fairbanks, but will not replace using gas for heating.
4:21:06 PM
REPRESENTATIVE JOSEPHSON recalled the GVEA said it would take
$400 to 600 million and more than 22,000 homes to do so. He
assumed that number of homes would serve about 60,000 people.
He asked whether the LNG project and natural gas distribution
system would cover everyone.
MR. DAVIS said this project is not designed to cover everyone,
but the natural gas distribution system would cover the most
cost effective areas. He understood the proposed project would
produce a two-percent stream of propane, which could provide
heating for approximately 2,200 additional homes. He reiterated
a natural gas distribution system typically serves core areas.
For example the Matanuska-Susitna valley service is an example
of this.
4:22:34 PM
MR. DAVIS suggested AIDEA believes this project would be a
bridge to the gas pipelines, albeit an important one, since any
pipelines would be designed to provide greater coverage. For
example, the Alaska Stand Alone Pipeline (ASAP) study covers
substantially more customers than this project, he said.
MR. LEONARD cautioned that $355 million does not represent the
full build out natural gas distribution system in Fairbanks, but
would provide the core build out of the system. Thus, the core
build out of the natural gas distribution system would provide
the catalyst to expand the natural gas distribution system. He
recalled the full natural gas distribution system build out
would cost $400 to 500 million and the initial distribution
plant would cost $220 million for nine billion cubic feet (BCF)
system. He explained the system could be expanded in 4 Mcf
segments up to 20 BCF. He reiterated the $355 million would not
cover a full build out or a full maximum capacity plant;
however, the LNG plant and natural gas distribution system is
meant to be the core and catalyst to provide cheaper energy to
Fairbanks. Additionally, AIDEA believes this project would
provide the basis to finance the additional build out of the
natural gas distribution system. He reiterated the $355 million
represents the core amount to get the project going. Even so,
he did not anticipate AIDEA coming to the state for additional
funds, he said. Instead, he stated that once the project is
operational, the natural gas distribution system will be built
on the success of getting the highest and medium sections built.
4:24:49 PM
REPRESENTATIVE JOSEPHSON asked for scalability to large or small
gas lines and whether the proposed LNG and natural gas
distribution system to Fairbanks has value to the proposed
natural gas projects.
MR. LEONARD answered that the way the projects merge together is
that first AIDEA would provide gas to Fairbanks and then build
out the natural gas distribution system. Meanwhile, the state
must decide which gasline will come to Fairbanks. Once the
natural gas flows to Fairbanks, demand from the LNG plant exists
either by moving the LNG plant to Fairbanks and using the
natural gas pipeline to serve Interior Alaska or the LNG will be
used in mines. For example, AIDEA is currently working on the
proposed road to Ambler. However, once built, the mines in the
Ambler area would need an estimated at 180 megabytes of energy
and anticipates using natural gas as feedstock for these plants.
He reiterated AIDEA believes trucking LNG to Fairbanks is an
interim solution that would help promote the natural gas
distribution system once a natural gas pipeline is built to
Fairbanks, the LNG plant could be used for another purpose.
MR. DAVIS interjected that is important since the life of the
proposed LNG plant is beyond the anticipated use for Fairbanks.
Therefore, by finding residual uses for the plant, which AIDEA
believes exists, would allow AIDEA to amortize the plant over
the appropriation life of the plant and therefore reduce the
debt service.
4:27:29 PM
CHAIR OLSON asked for investment by Fairbanks, Fairbanks Natural
Gas, Fairbanks North Star Borough (FNSB), the Fairbanks North
Star Borough School District since this will allow for
significant savings.
MR. DAVIS answered that AIDEA anticipates traveling to Fairbanks
in the near future, and that contracts will need to be in place
for financing since financing can't occur without commitments.
Again, this represents a finance package and not anything beyond
the normal AIDEA process. Currently, AIDEA will examine the
benefits of the engineering that offered by other groups, which
is part of the due diligence process. He acknowledged that
AIDEA is on a fast track to get this done since people need a
solution; however, the LNG project will also provide a bridge to
a natural gas pipeline. He offered his belief long-term markets
exist for trucked LNG to areas that cannot be served by a
pipeline. He said some uses are industrial, such as for mines.
In fact, mines prefer trucking in LNG rather than using diesel
in terms of cost. Further, LNG has less environmental impact,
which is also important to mining. Finally, LNG can also be
used for other residential uses so it provides a flexible plan
to work with pipeline.
4:29:30 PM
CHAIR OLSON asked specifically what Fairbanks Natural Gas, LLC,
(FNG) will bring to the table.
MR. DAVIS related that FNG has made a proposal which is
confidential so he is not at liberty to disclose the specifics.
He added that AIDEA is current meeting with FNG, but it doesn't
mean an agreement will be reached. Additionally, GVEA has also
made a proposal and AIDEA will meet with them, too.
4:30:17 PM
MR. DAVIS concluded AIDEA is very pleased with the idea that
good proposals have been received. He said that AIDEA's job as
the state investment bank is to review proposals and determine
which one will best meets the governor's stated goal: to
substantially lower the cost of energy in Fairbanks. In
response to a question, he suggested that within the next three
weeks AIDEA should be able to advise the legislature on the
assessment of the proposals before them.
CHAIR OLSON asked how the legislature could make such a major
decision since it does not currently have a lot of information.
MR. DAVIS clarified that AIDEA is requesting an appropriation
from the legislature which would not be used unless AIDEA meets
its goals. He reiterated that the project cannot move forward
unless AIDEA determines the project is viable.
CHAIR OLSON questioned this since once the money is available an
expectation occurs that the project will be built. He said he
personally needs more information on the proposals.
4:31:49 PM
REPRESENTATIVE REINBOLD commented everyone wants solutions to
the energy problems and legislators are aware of Interior
Alaska's needs for relief; however, she did not want anything
remotely like the price tag - the $500 million on the Alaska
Gasline Inducement Act (AGIA) project. She asked whether AIDEA
has checked with the private sector to determine if this project
fits into a long-term energy plan.
MR. DAVIS answered yes. He explained that the request for
information to the private sector was sent to assess interest.
Further, the proposed LNG project and natural gas distribution
system is intended to be a public private partnership (P3) with
AIDEA. Initially, AIDEA would like to drive rates down to help
consumers, but the long-term plan for the proposed LNG plant is
to sell LNG commercially. Therefore, AIDEA has been checking
demand with the private sector market for the proposed plant.
He envisioned two streams for the proposed LNG plant: one
consisting of regulated utility stream directed to a natural gas
distribution system in Fairbanks; second, a stream directed to
industrial uses at a different, non-regulated price.
4:33:13 PM
REPRESENTATIVE REINBOLD stated she wanted to make sure that the
project fits in with long-range energy plans. She said, "I'm
going to be cautiously listening to the long-term solution for
the energy plan and making sure it fits into that."
MR. DAVIS responded that AIDEA invests in projects for a return
and supports energy plans, which is the reason AIDEA is working
with the Alaska Energy Authority (AEA). The advantage of having
AEA as a partner is that AEA can provide the policy side to
ensure consistency and AIDEA can provide the financing side.
The AIDEA considers this project as compatible with a pipeline
so project planning is based on another source of gas that will
subsequently supplant the LNG. Thus AIDEA will determine whether
the LNG project pencils out in the short run, and if natural gas
becomes available whether the plant can be used, and if AIDEA
can obtain a rate of return sufficient to repay the debt
service. He concluded by stating that is the process AIDEA has
been using.
4:34:31 PM
REPRESENTATIVE JOSEPHSON asked expressed concern that other gas
projects will supplant the LNG project.
MR. DAVIS acknowledged it may have been due to his choice of
syntax. He clarified, with respect to the LNG and natural gas
distribution system in Fairbanks, that a natural gas pipeline
would be an excellent way to supply gas to major city; however,
in terms of residual use the LNG could also be supplied to
industrial and residential users outside of Fairbanks.
4:35:19 PM
REPRESENTATIVE JOSEPHSON asked him to describe the mobility of
the LNG plant, and whether it could be relocated from the North
Slope.
MR. DAVIS related that the request for interest specified the
proposed LNG plant must have a moveable capability sufficient to
traverse the Dalton highway. Thus the proposed LNG plant could
be moved to any location on the road system, he stated.
Currently, AIDEA is considering Fairbanks as a potential LNG
plant location to support the Ambler district mining, but an LNG
plant could be moved to Southcentral Alaska if gas needs exist
in that area. Naturally, any business plan would examine all
the parameters, including any market changes; however, his job
is to ensure AIDEA builds a project with a rate of return built
into it that works for the private sector.
4:36:37 PM
REPRESENTATIVE JOSEPHSON asked him to compare his bill to
another AIDEA bill before the legislature introduced by
Representative T Wilson.
MR. DAVIS responded that the aforementioned bill, HB 58,
proposes to provide funding for the LNG plant, but not for the
rest of the natural gas distribution system. While AIDEA has
not developed an opinion on that bill, HB 74 places the LNG to a
source, which is probably a good business plan. Of course, the
first question the bond market must ask is the source of gas to
put into the distribution system. Alternatively, to build an
LNG plant, the bond market will ask who will purchase the gas.
He explained that HB 74 would build using a tandem process so
the financial questions are answered on both sides of the
equation.
4:37:35 PM
CHAIR OLSON invited Representative T. WILSON to join the table.
4:37:46 PM
REPRESENTATIVE JOSEPHSON offered his belief that this begs the
question in terms of production and distribution. He suggested
the committee would need to hear more about the proposed natural
gas supply.
MR. DAVIS answered that two of the proposals of interest have
contracts in place with one of the North Slope producers;
however, the details remain confidential.
4:38:40 PM
MR. LEONARD reiterated that AIDEA's involvement is due to
project financing capability. The governor's finance package is
based on a private sector model of low cost financing. In fact,
one of AIDEA's main roles is to provide access to low-cost
capital for projects. Further, the request for state
appropriation is limited to a $50 million catalyst, with the
rest of the financing - the bonds and the $125 million SETS
loan- would be repaid over the life of the LNG plant.
4:39:42 PM
REPRESENTATIVE T. WILSON asked whether AIDEA has projected
specifically how other communities would benefit.
MR. LEONARD answered that AIDEA will assess other demands as
part of due diligence process. He said AIDEA believes that the
LNG plant would be used by more than just Fairbanks, especially
once a natural gas line connects to Fairbanks AIDEA would fund
alternative demands. He concluded that AIDEA is currently
undertaking this process.
REPRESENTATIVE T. WILSON said she would not go so far as to
characterize the project in HB 74 as being a statewide project;
however, she acknowledged that Fairbanks is not the only
community with energy needs. She offered her belief that this
project could answer some of the rural communities, as well as
some of the Railbelt communities.
CHAIR OLSON pointed out AIDEA previously mentioned providing LNG
to villages and mining areas.
4:41:15 PM
MR. LEONARD pointed out that AIDEA also assesses economic
development. He said AIDEA believes this plant provide mines
with an alternative to the high cost of energy needs. He
emphasized that the cost of energy would play a vital part in
determining feasibility of developing any mine.
MR. DAVIS remarked that AIDEA has been asked to develop an
industrial road for the Ambler mining district and through this
process AIDEA has identified a need for energy, and internally
identified LNG as the best source, confirmed by the mines. Even
though this doesn't mean these mines will be built, AIDEA has
begun the environmental process and the mines are working on a
memorandum of understanding (MOU) to develop their mines.
Perhaps the two will come together, and if they do, at a certain
point the mines will need a lot of energy.
4:42:48 PM
JOMO STEWART, Energy Project Manager, Fairbanks Economic
Development Corporation (FEDC) stated he wished to speak in
support of the bill, the process, and the policy decision the
bill represents. He said the FEDC energy believes that energy
is a necessary component and fundamental underpinning. The
availability and affordability of energy impacts all other
aspects of the economy, and it either acts as a lubricant for
the economy or drains the well of financial capital and sapping
the economic vitality of a community. In fact, in Alaska this
is true on a statewide basis; however, in Fairbanks the
challenge has been the affordability of energy. Thus, while
plenty of energy is available in Fairbanks, energy costs are
pricey and is draining the well of financial capital, he said.
At the same time, Anchorage and the Cook Inlet have experienced
energy at a good price, but as the decline curve begins to kick
in, these communities are also facing an availability challenge.
4:44:48 PM
MR. STEWART, in response to Representative Millett's concern,
related that in 2011, the legislature funded a $500,000 gas
distribution study in Fairbanks. Although Fairbanks wanted to
transition to gas, and a number of proposals - either a bullet
line or the large diameter line - were proposing pipelines
transiting Fairbanks, the community did not have any
distribution system infrastructure. In fact, that study was
completed in 2012 and reported to the legislature. In
Fairbanks, there is broad agreement that the governor's proposal
represents a good start. The FEDC understood that large scale
grants would not likely be forthcoming, but FEDC wanted to
explore ways to help community to transition to gas under a
payback system. He offered his belief this bill provides that
system. He said FEDC believes the policy decisions were made
several years ago with the power project fund and the SETS funds
were created to allow for project financing. The question is
whether the state will use those mechanisms in earnest to help
communities transition to fuels that would allow energy to be an
underpinning and fuel for the engine of growth rather than a
drain on community finances.
4:46:34 PM
MR. STEWART recalled Representative Millett mentioned
electricity and asked whether a Susitna Hydroelectric project
might come along and make the LNG plant obsolete. He then
answered that question, relating the FEDC started with the goal
of bringing affordable energy to as many residences and
businesses as possible, as quickly as possible. The FEDC chose
as a target $15 per million metric British thermal units (MMBtu)
to the structure, whether it was a home or a business. However,
to use electricity the cost would need to be $.05 per kilowatt
hour (kWh). Currently, Fairbanks electricity runs $.23 per kWh,
with $.13 representing GVEA's overhead. Even if fuel was free,
Fairbanks's cost would be double the target amount of $15 MMBtu,
he said. In fact, it would be comparable to current fuel costs.
MR. STEWART discussed the feasibility of the proposed LNG plant.
Actually, the bullet line economics requires a fully built out
Fairbanks, using 19 - 21 billion cubic feet (Bcf) of gas.
Currently, Fairbanks uses about 1 Bcf of gas. In essence, the
LNG plant would allow the community to build out its
infrastructure. He characterized this as a chicken and egg
concept, in that gas becomes available but the community does
not have a natural gas distribution system or the distribution
system exists without any gas to feed it. He emphasized that
moving forward an LNG facility with a natural gas distribution
system allows Fairbanks to build out its infrastructure to feed
larger projects, such as a bullet line or the major gas line to
the coast.
4:48:55 PM
MR. STEWART pointed out that the LNG could have a longer life
even when larger projects come on line. Once LNG is on a truck
it can go anywhere via the road system, such as Healy, Denali,
Glennallen, or Talkeetna. While Fairbanks is first at the gate
since it has been working on these issues for some time, the
utility of having LNG to serve other communities will still
remain. Finally, in terms of grant versus financing issues,
Fairbanks is financially challenged since fuel oil costs have
been sucking $200 to 400 million per year from the community,
which has placed a serious drain on Fairbanks's economy.
However, the FEDC still believes it has the means to provide
payback. Initially, FEDC considered creating a revolving loan
fund so rather than give money to a project the state would make
funds available to a project, the project would repay the fund
so the funds would be available for other communities who are
ready to begin to transition into the lower-cost paradigm. He
conceded that the FEDC believes HB 74 takes a step in that
direction.
4:51:05 PM
REPRESENTATIVE T. WILSON, Alaska State Legislature, said she
would like to answer a few questions she has heard asked in the
building. According the Environmental Protection Agency (EPA),
Fairbanks has an air quality problem. In fact, Fairbanks has
become a non-attainment area, subject to transportation funding
losses, in particular for any potential troops. As a result,
Fairbanks must find an affordable, alternative source of energy.
Currently, wood, coal, oil, or gas represent potential choices,
but fuel oil is currently $4.10 per gallon. Additionally, the
average temperature in November and December was minus 30
degrees. Luckily the temporary is zero today. Although her
first choice would be to have a private company provide energy,
Fairbanks is too small to attract a private company, she said.
However, the community can only grow if it has an economical
source of energy. Once again, this creates the chicken and the
egg circumstance since the community can only attract affordable
energy if it grows and it can't grow without affordable energy.
She offered her belief the LNG project in HB 74 is not limited
to Fairbanks. Granted, the Fairbanks community would initially
benefit the most; however, the LNG could also serve the rural
residents who have been moving from the rural communities into
Fairbanks and Anchorage areas since affordable energy is not
available in rural Alaska. In fact, rural Alaska's costs are
worse than what Fairbanks is experiencing. Naturally, she is
excited a pipeline project will come to Fairbanks; however,
Fairbanks can't wait ten years for it to arrive due to economics
and the looming negative impacts from the EPA.
4:53:38 PM
REPRESENTATIVE T. WILSON suggested that Fairbanks is comparing
affordable gas to oil. She pointed to the University of Alaska
Fairbanks and its desire to put in a coal plant since even
natural gas is not as affordable as coal. Specifically, for
sake of the Fairbanks community, the LNG project would be an
interim measure and not a competing project. In short, the
proposed gaslines must undergo substantial permitting processes,
while the EPA insists Fairbanks use cleaner energy. She said,
"I know. I don't get it either. We're under those two guns at
this point." At the present time, AIDEA is going after the next
step, which is what to do when Fairbanks does not need the LNG
any longer. Fortunately, Alaska has mines in areas that the gas
line will not serve. In fact, the gas line will not get to
other parts of the state first. Therefore, AIDEA has been
considering ways to ensure the proposed LNG is usable in 25
years. In conclusion, she said that Fairbanks appreciates the
governor's plan so Fairbanks will make it work; however, the
proposed LNG plant is not just for Fairbanks. Further, she
acknowledged some communities have felt the stress even longer
than Fairbanks has.
4:55:11 PM
REPRESENTATIVE REINBOLD asked for clarification on the cost.
She remarked that many people are afraid of another AGIA, in
which the state is awaiting the private sector, which turns out
to be false hope, even though it is a $500 million project.
Granted, the financing is different, she said.
CHAIR OLSON interjected it is a different $500 million.
REPRESENTATIVE REINBOLD emphasized the legislature wants a long-
term energy plan and wants a solution; however, she would like
to know how this fits together, what other communities will
invest, and whether it is truly a plan that is worth investing
in.
REPRESENTATIVE T. WILSON answered that Fairbanks is definitely
worth investing in. In fact, Fairbanks will not continue to
exist if it does not obtain affordable energy.
4:56:36 PM
REPRESENTATIVE T. WILSON compared the proposed funding for the
LNG project with AGIA. First, the state would not be giving
Fairbanks $500 million to see what might happen in a 10- to 20-
year timeframe. At the onset, this is broken down into specific
parts, including storage tanks the legislature funded through
tax credits. Second, the infrastructure would be built from
loans or bonds and not an appropriation. Specifically, the $50
million for the proposed LNG project requires AIDEA to undergo
its due diligence process for bonding, which means AIDEA must
determine the project pencils out. If not, loans would need to
make up the $200 to $225 million necessary for the project.
Therefore, additional natural gas distribution system funds
won't be spent unless the proposed LNG plant is in place. With
AGIA, the state funded millions of dollars for permitting;
however, that type of permitting is not required for the
proposed LNG plant, she said.
4:57:59 PM
REPRESENTATIVE REINBOLD asked whether the local owners are on
board for the necessary conversions.
REPRESENTATIVE T. WILSON related the legislature is considering
a bill that would create a low-interest loan program for
homeowners who improve or replace their home heating systems.
Additionally, homeowners can apply for rebates. She said, "They
are absolutely buying in. We're having them buy in even on the
wood stove change out program." She continued by stating that
Fairbanks is changing its system from wood stoves to meet the
EPA's air quality requirements. She emphasized that Fairbanks
cannot continue to use diesel fuel oil, even if prices dropped
slightly; however, the alternative energy is primarily wood.
She offered her belief that Fairbanks cannot meet the EPA's
requirements without using gas. In fact, the state stands to
risk losing its transportation funds if Fairbanks cannot meet
attainment, she said. In further response, Representative T.
Wilson answered that it fits into the long-range energy plan,
and is not a competing plan. The federal government requires so
much permitting and it takes so long to go through the process,
she said.
4:59:55 PM
REPRESENTATIVE T. WILSON characterized the proposed LNG project
as an interim project; however, what makes the project more
feasible is the proposed LNG will be available for mining;
districts and Fairbanks is already seeking partnerships. She
reiterated that $50 million is the requested state appropriation
and the rest of the financing would be in loans and bonds. In
fact, if it needs to come from the capital budget she would
endorse it as worthwhile.
5:00:32 PM
CHAIR OLSON commented the most compelling argument he heard
today is the life and safety issue. He emphasized that people
need to be reminded how bad the situation is for Fairbanks in
terms of air quality. He stated that public testimony would be
held open on HB 74.
[HB 74 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| Commissioner DOLWD - Blumer #2.pdf |
HL&C 2/8/2013 3:15:00 PM |
Resume DBlumer |
| HB74 ver A.pdf |
HL&C 2/8/2013 3:15:00 PM |
HB 74 |
| HB74 Fiscal Note-1-2-011613-CED-Y.PDF |
HL&C 2/8/2013 3:15:00 PM |
HB 74 |
| HB74 Hearing Request.pdf |
HL&C 2/8/2013 3:15:00 PM |
HB 74 |
| HB74 Sectional Analysis.pdf |
HL&C 2/8/2013 3:15:00 PM |
HB 74 |
| HB74 Transmittal Letter.pdf |
HL&C 2/8/2013 3:15:00 PM |
HB 74 |