Legislature(2017 - 2018)BARNES 124

02/26/2018 03:15 PM LABOR & COMMERCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved HB 340 Out of Committee
-- Public Testimony --
Moved HB 342 Out of Committee
-- Public Testimony --
Moved HB 343 Out of Committee
-- Public Testimony --
Heard & Held
-- Public Testimony --
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled 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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
[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