Legislature(2013 - 2014)BARNES 124

03/17/2014 01:00 PM RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 367 DIESEL FUEL STORAGE TAX CREDIT TELECONFERENCED
Heard & Held
*+ HB 325 OIL SPILL PREVENTION FUND TELECONFERENCED
Heard & Held
*+ HCR 22 IN-STATE REFINERIES TELECONFERENCED
Heard & Held
+ SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
<Pending Referral>
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         March 17, 2014                                                                                         
                           1:03 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Eric Feige, Co-Chair                                                                                             
Representative Dan Saddler, Co-Chair                                                                                            
Representative Peggy Wilson, Vice Chair                                                                                         
Representative Mike Hawker                                                                                                      
Representative Craig Johnson                                                                                                    
Representative Kurt Olson                                                                                                       
Representative Paul Seaton                                                                                                      
Representative Scott Kawasaki                                                                                                   
Representative Geran Tarr                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE CONCURRENT RESOLUTION NO. 22                                                                                              
Urging  the governor  to take  all action  necessary to  keep in-                                                               
state  oil  refiners  in  operation  and  to  keep  oil  refining                                                               
operations in the state competitive.                                                                                            
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
HOUSE BILL NO. 325                                                                                                              
"An  Act  increasing  the  balance   of  the  oil  and  hazardous                                                               
substance  release  prevention  and  response  fund  required  to                                                               
suspend  the  surcharge levied  on  oil  produced in  the  state;                                                               
increasing the amount of the  surcharge levied on oil produced in                                                               
the  state that  may be  appropriated  to the  oil and  hazardous                                                               
substance  release  prevention  account;  and  providing  for  an                                                               
effective date."                                                                                                                
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
HOUSE BILL NO. 367                                                                                                              
"An Act  creating a diesel  fuel storage facility tax  credit for                                                               
public utilities; and providing for an effective date."                                                                         
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HCR 22                                                                                                                  
SHORT TITLE: IN-STATE REFINERIES                                                                                                
SPONSOR(s): REPRESENTATIVE(s) T.WILSON                                                                                          
                                                                                                                                
02/26/14       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/26/14       (H)       RES                                                                                                    
03/17/14       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
BILL: HB 325                                                                                                                  
SHORT TITLE: OIL SPILL PREVENTION FUND                                                                                          
SPONSOR(s): REPRESENTATIVE(s) MUNOZ                                                                                             
                                                                                                                                
02/21/14       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/21/14       (H)       RES, FIN                                                                                               
03/17/14       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
BILL: HB 367                                                                                                                  
SHORT TITLE: DIESEL FUEL STORAGE TAX CREDIT                                                                                     
SPONSOR(s): REPRESENTATIVE(s) ISAACSON                                                                                          
                                                                                                                                
02/26/14       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/26/14       (H)       RES, FIN                                                                                               
03/17/14       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE TAMMIE WILSON                                                                                                    
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Introduced HCR 22 as sponsor.                                                                            
                                                                                                                                
LYNN KENT, Deputy Commissioner                                                                                                  
Office of the Commissioner                                                                                                      
Department of Environmental Conservation (DEC)                                                                                  
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions on HCR 22 and HB 325.                                                                 
                                                                                                                                
JOHN HUTCHINS, Assistant Attorney General                                                                                       
Oil, Gas & Mining Section                                                                                                       
Civil Division (Juneau)                                                                                                         
Department of Law (DOL)                                                                                                         
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions regarding HCR 22.                                                                     
                                                                                                                                
JOE BALASH, Commissioner Designee                                                                                               
Office of the Commissioner                                                                                                      
Department of Natural Resources (DNR)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions regarding HCR 22.                                                                     
                                                                                                                                
REPRESENTATIVE CATHY MUNOZ                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Introduced HB 325 as sponsor.                                                                            
                                                                                                                                
ANDY ROGERS, Deputy Director                                                                                                    
Alaska State Chamber of Commerce                                                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during discussion of HB 325.                                                                   
                                                                                                                                
CHRISTOPHER CLARK, Chief of Staff                                                                                               
Representative Cathy Munoz                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions regarding HB 325 on                                                                   
behalf of Representative Munoz, sponsor of the bill.                                                                            
                                                                                                                                
TOM CHERIAN, Director                                                                                                           
Division of Administrative Services                                                                                             
Department of Environmental Conservation (DEC)                                                                                  
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during discussion of HB 325.                                                                   
                                                                                                                                
REPRESENTATIVE DOUG ISAACSON                                                                                                    
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Introduced HB 367 as the sponsor of the                                                                  
bill.                                                                                                                           
                                                                                                                                
MEERA KOHLER, President and CEO                                                                                                 
Alaska Village Electric Cooperative                                                                                             
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 367.                                                                          
                                                                                                                                
LUKE HOPKINS, Mayor                                                                                                             
Fairbanks North Star Borough                                                                                                    
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 367.                                                                          
                                                                                                                                
COREY BORGESON, President & CEO                                                                                                 
Golden Valley Electric Association (GVEA)                                                                                       
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 367.                                                                          
                                                                                                                                
LYNN THOMPSON, Vice President for Power Supply                                                                                  
Golden Valley Electric Association                                                                                              
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified during discussion of HB 367.                                                                   
                                                                                                                                
ANNA ATCHISON                                                                                                                   
Kinross Fort Knox Mine                                                                                                          
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 367.                                                                          
                                                                                                                                
JOMO STEWART, Energy Project Manager                                                                                            
Fairbanks Economic Development Corporation                                                                                      
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 367.                                                                          
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:03:05 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  DAN   SADDLER  called  the  House   Resources  Standing                                                             
Committee meeting to order at  1:03 p.m.  Representatives Seaton,                                                               
Kawasaki, Olson, Feige,  and Saddler were present at  the call to                                                               
order.   Representatives  Johnson,  Hawker, Tarr,  and P.  Wilson                                                               
arrived as the meeting was in progress.                                                                                         
                                                                                                                                
                   HCR 22-IN-STATE REFINERIES                                                                               
                                                                                                                                
1:03:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  announced that the  first order of  business is                                                               
HOUSE CONCURRENT RESOLUTION  NO. 22, Urging the  governor to take                                                               
all action necessary  to keep in-state oil  refiners in operation                                                               
and to keep oil refining operations in the state competitive.                                                                   
                                                                                                                                
1:03:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TAMMIE  WILSON, Alaska  State Legislature,  as the                                                               
sponsor,  stated that  HCR  22  urges the  governor  to take  all                                                               
action necessary to  keep in-state oil refiners  in operation and                                                               
to keep  oil refining operations  in the state competitive.   She                                                               
referenced the  possibility for  the closure  of the  Flint Hills                                                               
Refinery  and its  search for  a buyer.   She  reported that  the                                                               
Flint Hills Refinery was supplying  clean drinking water to local                                                               
residents during the problems with  contaminated water, and would                                                               
continue to  do so  throughout.  She  declared that  currently it                                                               
was more  affordable to import  fuel than for  in-state refining.                                                               
She said  that, as this  could change with time,  the legislature                                                               
needed to determine  the value for maintaining  refineries in the                                                               
Interior and throughout the state.   She stated "for right now we                                                               
aren't competitive globally."  She  questioned the results should                                                               
there be  a disaster, noting  that the  State should be  as self-                                                               
sufficient as  possible.   She emphasized  that it  was important                                                               
for the  governor to  move quickly in  negotiating a  royalty oil                                                               
contract  with  a potential  new  buyer  and  to ensure  who  was                                                               
responsible for the aforementioned  contamination.  She expressed                                                               
that her biggest concern was for  closure of the refinery and the                                                               
necessity  of  new  permits.   She  declared  that  the  proposed                                                               
resolution addressed the need for maintenance of self-                                                                          
sufficiency, an ability to refine  other imports, and use for its                                                               
best capacity.                                                                                                                  
                                                                                                                                
1:06:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  referenced page  1,  lines  14-16 of  the                                                               
proposed bill, and inquired how  a royalty-in-kind contract would                                                               
be negotiated that would help the in-state refineries.                                                                          
                                                                                                                                
REPRESENTATIVE T.  WILSON replied  that the current  contract was                                                               
$2.15 over the  price of the North Slope, as  the law states that                                                               
we get the most for the  value.  She explained that Department of                                                               
Natural Resources (DNR)  would account for the  import cost which                                                               
included many  pieces, and  not just  the price.   She  said that                                                               
this  was  all  "within  the realm  of  the  administration  when                                                               
they're negotiating the contract."   She suggested that there was                                                               
a  possibility for  contract  negotiation to  other  uses at  the                                                               
plant.                                                                                                                          
                                                                                                                                
1:07:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  directed attention back to  lines 14-16,                                                               
and referenced  a recent  royalty oil  contract with  Flint Hills                                                               
Resources.  He asked if  Representative T. Wilson was considering                                                               
a new  contract with another  party, and  he asked, if  there was                                                               
not another party, how this would be possible.                                                                                  
                                                                                                                                
REPRESENTATIVE  T. WILSON  offered her  understanding there  were                                                               
"some other players  at the table."  She declared  that, as Flint                                                               
Hills would  no longer  have this  contract as  of June  1, 2014,                                                               
this was  not a re-negotiation  of the contract for  Flint Hills.                                                               
She  stated that  Flint Hills  had made  it quite  clear that  it                                                               
would not be  the owner and operator.  However,  they did want to                                                               
ensure  that this  would be  more economical  for another  party.                                                               
This contract would  be for the potential buyer  with which Flint                                                               
Hills was currently negotiating.                                                                                                
                                                                                                                                
REPRESENTATIVE   KAWASAKI   suggested   that,   during   contract                                                               
negotiation, "it's good to know  who we're negotiating with."  He                                                               
questioned the theory  that the state would get a  good deal from                                                               
this negotiation.                                                                                                               
                                                                                                                                
REPRESENTATIVE T. WILSON  replied that, although there  was a lot                                                               
of concern  to get the  most money  for a resource,  there should                                                               
also be consideration  for the other ancillary pieces.   She said                                                               
that the  proposed resolution  asked for all  these points  to be                                                               
taken  seriously,   and  that  there  should   be  some  possible                                                               
negotiations.                                                                                                                   
                                                                                                                                
1:09:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR asked  whether the  proposed resolution  was                                                               
being sent to other individuals in addition to the governor.                                                                    
                                                                                                                                
REPRESENTATIVE   T.   WILSON   replied  that   "these   kind   of                                                               
negotiations is  done by the  administration and the  governor is                                                               
the one who is in charge."                                                                                                      
                                                                                                                                
1:10:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER,  acknowledging  that the  Interior  refineries                                                               
were  "a  hot  topic  in   the  news,"  asked  why  the  proposed                                                               
resolution did not include refineries in other areas of Alaska.                                                                 
                                                                                                                                
REPRESENTATIVE  T. WILSON  replied that  the proposed  resolution                                                               
focused on in-state refineries, as  they had different issues and                                                               
a  different mechanism.   She  pointed out  that the  Flint Hills                                                               
plant  was  being  shut  down.   She  acknowledged  that  it  was                                                               
important to include all the refineries.                                                                                        
                                                                                                                                
CO-CHAIR  SADDLER  expressed  his  agreement that  there  was  no                                                               
attempt to disparage the other refineries in Alaska.                                                                            
                                                                                                                                
CO-CHAIR  SADDLER directed  attention  to page  1,  line 14,  and                                                               
asked if  this should be a  "Resolved" statement as opposed  to a                                                               
"Whereas" statement.                                                                                                            
                                                                                                                                
REPRESENTATIVE T. WILSON expressed her agreement.                                                                               
                                                                                                                                
CO-CHAIR  SADDLER   asked  if  she  would   accept  a  conceptual                                                               
amendment to make this change.                                                                                                  
                                                                                                                                
REPRESENTATIVE T. WILSON expressed her agreement.                                                                               
                                                                                                                                
CO-CHAIR  SADDLER moved  to adopt  Conceptual Amendment  1, which                                                               
would, on  page 1, line  14, delete  "Whereas" and insert  "Be It                                                               
Resolved that" with conforming changes.                                                                                         
                                                                                                                                
REPRESENTATIVE JOHNSON asked if this was a motion.                                                                              
                                                                                                                                
1:12:18 PM                                                                                                                    
                                                                                                                                
There being no objection, Conceptual Amendment 1 was adopted.                                                                   
                                                                                                                                
REPRESENTATIVE  KAWASAKI directed  attention to  page 2,  line 1,                                                               
and asked for  the current timeline for the cleanup  and how this                                                               
proposed   resolution  could   impact  the   decisions  made   at                                                               
Department of Environmental Conservation (DEC).                                                                                 
                                                                                                                                
1:13:23 PM                                                                                                                    
                                                                                                                                
LYNN  KENT,  Deputy  Commissioner, Office  of  the  Commissioner,                                                               
Department  of Environmental  Conservation, explained  that state                                                               
law made owners and operators  of a contaminated property jointly                                                               
and separately  liable for  the contamination.   She  stated that                                                               
although DEC had  been working primarily with Flint  Hills as the                                                               
current  owner,  the Department  of  Law  had recently  initiated                                                               
action  to  bring  both  Williams  and  Flint  Hills  forward  as                                                               
responsible  parties to  work out  the allocation  of cost.   She                                                               
directed attention  to the cleanup standards,  acknowledging that                                                               
this standard had to be based  on and supported by sound science.                                                               
She  relayed  that  the  level  set  by  the  Division  of  Spill                                                               
Prevention  & Response  was being  appealed by  Flint Hills,  and                                                               
that it was unknown for how  long this appeal process could take.                                                               
She  returned attention  to the  question of  liability, and  she                                                               
offered her belief that not  having the allocation of cost figure                                                               
would not  have any impediment  to sale  of the facility,  as the                                                               
state  administration had  offered  to enter  into a  prospective                                                               
purchaser agreement with a new buyer,  so the new buyer would not                                                               
have any  liability for pre-existing contamination.   She offered                                                               
her  belief that  neither  the  final clean  up  standard or  the                                                               
allocation of costs was necessary  to have clarified prior to the                                                               
purchase and operation of the facility.                                                                                         
                                                                                                                                
REPRESENTATIVE  SEATON asked  for  clarification that  reasonable                                                               
clean-up standards supported by science  would not have an impact                                                               
on the decisions that were currently under appeal.                                                                              
                                                                                                                                
MS. KENT  replied that  the clean-up  standard was  under appeal,                                                               
although it did not  have to hold up the sale  of the refinery to                                                               
a new operator.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  SEATON  asked if  the  language  in the  proposed                                                               
resolution  to   "expeditiously  set  up  a   reasonable  cleanup                                                               
standard supported by  science" would impact what  DEC would look                                                               
at as the cleanup standard which it suggested.                                                                                  
                                                                                                                                
MS. KENT deferred to the Department  of Law, and opined that this                                                               
language would not influence any appeal.                                                                                        
                                                                                                                                
1:16:42 PM                                                                                                                    
                                                                                                                                
JOHN  HUTCHINS, Assistant  Attorney  General, Oil,  Gas &  Mining                                                               
Section,  Civil  Division  (Juneau),  Department  of  Law  (DOL),                                                               
expressed his agreement with the testimony from Ms. Kent.                                                                       
                                                                                                                                
1:17:58 PM                                                                                                                    
                                                                                                                                
JOE   BALASH,  Commissioner   Designee,  Department   of  Natural                                                               
Resources,  in response  to  Representative  Seaton, pointed  out                                                               
that  restriction of  the  terms  for a  refinery  to within  the                                                               
boundaries  of the  North  Star Borough  would  only include  two                                                               
operations, and would  exclude two others on the  North Slope and                                                               
"two  south of  the  range."   He  noted  that further  expansion                                                               
raised  questions  regarding  the   legislative  intent  for  the                                                               
actions by  the administration.   He observed that there  was the                                                               
ability  to  transfer the  upcoming  Flint  Hills contract  to  a                                                               
prospective  buyer,  should  a   buyer  be  identified,  as  that                                                               
contract  had   already  been  reviewed   and  approved   by  the                                                               
legislature.  He  cautioned the committee about using  price of a                                                               
royalty  contract  as  the  sole   means  to  make  any  refinery                                                               
competitive in  Alaska with other  imported products.   He opined                                                               
that  there  were  other  ways  to achieve  this,  and  that  the                                                               
governor  had convened  a subset  of his  cabinet, including  the                                                               
commissioners of  DEC and DNR,  as well as the  Attorney General,                                                               
to consider  ways to  assist any prospective  buyer of  the Flint                                                               
Hills facility.   They were also having  extensive discussion for                                                               
the importance of maintaining the  existing refineries.  He noted                                                               
that  there  was a  concern  for  losing  other refineries.    He                                                               
acknowledged that offering the royalty  for sale at some discount                                                               
had been considered, although there  was concern that discounting                                                               
a fraction  of the royalty  would lead to requests  for discounts                                                               
to the  remaining royalty.  He  noted that pricing of  West Texas                                                               
Intermediate (WTI) versus Alaska  North Slope (ANS) would realize                                                               
a difference of almost $150 million  of royalty to the state.  He                                                               
offered his belief that there  were more efficient ways to ensure                                                               
Alaska  based refining,  and that  the  governor was  considering                                                               
other recommendations.   He noted that some of  this $150 million                                                               
value  would go  to the  producers  of the  royalty, whereas  the                                                               
administration  would  prefer to  find  a  solution to  keep  the                                                               
refineries healthy and keep the  benefits to those refineries and                                                               
the consumers in Alaska.                                                                                                        
                                                                                                                                
1:23:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  T. WILSON  stated that  she had  not intended  to                                                               
preclude the other refineries, and  that there were other issues,                                                               
as well,  that needed to be  resolved.  She said  "all refineries                                                               
are very important  and I don't want  to step on any,  but I just                                                               
want  it  done fast."    She  requested  to have  the  resolution                                                               
brought back to  the committee in a short time.   She stated that                                                               
she  would talk  with the  committee members  to ensure  that any                                                               
other questions were answered.                                                                                                  
                                                                                                                                
1:24:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER held over HCR 22.                                                                                              
                                                                                                                                
1:24:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER requested  that  the  sponsor ensure  that                                                               
Flint Hills concurred with the proposed resolution.                                                                             
                                                                                                                                
REPRESENTATIVE T.  WILSON replied that,  as she wanted  to ensure                                                               
that  no  refineries  would  be closed,  she  would  broaden  the                                                               
proposed  resolution, and  make  sure that  Flint  Hills and  the                                                               
other refineries were in support.                                                                                               
                                                                                                                                
REPRESENTATIVE  HAWKER   offered  his   desire  to   have  formal                                                               
endorsements to the resolution from the refineries involved.                                                                    
                                                                                                                                
REPRESENTATIVE T. WILSON expressed her agreement.                                                                               
                                                                                                                                
1:25:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON requested  that  the  commissioner of  DNR                                                               
report  whether a  new contract  would delay  the opening  of the                                                               
Flint Hills refinery,  as the legislature would  not be available                                                               
to approve  a royalty in-kind  contract which was  different than                                                               
the existing contract.                                                                                                          
                                                                                                                                
                HB 325-OIL SPILL PREVENTION FUND                                                                            
                                                                                                                                
1:26:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  announced that  the next  order of  business is                                                               
HOUSE BILL  NO. 325, "An  Act increasing  the balance of  the oil                                                               
and  hazardous substance  release  prevention  and response  fund                                                               
required to suspend  the surcharge levied on oil  produced in the                                                               
state;  increasing the  amount  of the  surcharge  levied on  oil                                                               
produced in  the state that  may be  appropriated to the  oil and                                                               
hazardous  substance release  prevention  account; and  providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
1:26:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CATHY  MUNOZ,  Alaska State  Legislature,  stated                                                               
that she had  chaired the budget subcommittee  for the Department                                                               
of  Environmental Conservation  (DEC)  operating  budget for  the                                                               
past two years  and that the committee had  closely reviewed long                                                               
term options to maintain the  oil and hazardous substance release                                                               
prevention and response funding.   She reported that the fund had                                                               
originally  been  established to  provide  a  reliable source  of                                                               
payment  to the  expenses  incurred  by DEC  in  responding to  a                                                               
release  or threatened  release of  oil or  hazardous substances.                                                               
In the  wake of the  Exxon Valdez oil  spill in 1989,  the Alaska                                                               
State  Legislature  had  passed  a  bill  which  levied  a  $0.05                                                               
surcharge on  each barrel of  crude oil  produced in Alaska.   In                                                               
1994, there was legislation to  establish two separate funds, the                                                               
prevention  fund  and  the  response  fund.    In  2006,  as  oil                                                               
production  was declining,  there was  legislation to  change the                                                               
division  of  the  receipts  so   that  $0.04  would  go  to  the                                                               
prevention fund to  pay for DEC activities for  the prevention of                                                               
oil spills,  and $0.01  would be dedicated  to the  response fund                                                               
for  major oil  spill response.    She relayed  that the  current                                                               
$0.04  surcharge  for  prevention activities  raised  about  $6.5                                                               
million each  year with  additional interest  income of  about $1                                                               
million  and  income  from  fines and  penalties  of  about  $1.5                                                               
million.                                                                                                                        
                                                                                                                                
REPRESENTATIVE MUNOZ said  that current law applied  the $0.01 to                                                               
the response  fund savings account  until the fund was  valued at                                                               
$50 million, and  then the $0.01 would be  suspended.  Currently,                                                               
that  response fund  account  was  valued at  $49  million.   She                                                               
reported that in  Fiscal Year 2016, the  prevention account would                                                               
operate at  a $6.5 million  deficit, which, due to  declining oil                                                               
production, would increase to almost $8  million by FY 2022.  She                                                               
acknowledged that this did not  take into account new production,                                                               
as it was  based on current revenue forecasts.   She relayed that                                                               
the subcommittee  had adopted intent language  which directed the                                                               
administration  to  present  viable,   long  term  ideas  to  the                                                               
legislature  for financing  and  managing the  oil and  hazardous                                                               
substance  prevention and  response fund.   In  response to  this                                                               
intent language, DEC suggested the  use of general funds to cover                                                               
the projected deficit.   She declared that proposed  HB 325 would                                                               
begin a discussion for a solution  to the long term shortfall for                                                               
activities  by the  Division of  Spill  Prevention and  Response.                                                               
She stated  that the bill had  two components.  Sections  1 and 2                                                               
would maintain  the $0.01 surcharge  in place until  the response                                                               
fund  was valued  at $75  million.   The  second component  would                                                               
increase  the $0.04  surcharge for  the prevention  activities to                                                               
$0.07, an increase of about $4.5  million in annual revenue.  She                                                               
referenced a  letter from  the Chamber  of Commerce  [Included in                                                               
members' packets]  which stated  that prevention  fund activities                                                               
reached across industries  that were primarily funded  by the oil                                                               
industry.  She shared that  the budget subcommittee had discussed                                                               
ways  to  spread  the  prevention   costs,  including  a  refined                                                               
products tax.   She pointed  out that  the proposed bill  did not                                                               
fully fund the  projected deficits, and that  amendments would be                                                               
considered for a broader application.                                                                                           
                                                                                                                                
REPRESENTATIVE  MUNOZ  mentioned  that   the  Division  of  Spill                                                               
Prevention and Response had operated  efficiently, with an annual                                                               
growth over  the past 10 years  of 1.5 percent, and  the addition                                                               
of only  two full  time positions  during that  time frame.   She                                                               
reported that  DEC had cut  back considerably  on its use  of the                                                               
prevention  account,  noting  that  the  department  had  stopped                                                               
requesting  capital  appropriations  for the  clean-up  of  state                                                               
owned sites in FY  2011.  She said that a  loan and grant program                                                               
for the removal of underground  storage tanks was also withdrawn.                                                               
She  declared that  the core  mission of  the prevention  account                                                               
remained to  pay for operational  costs and  readiness activities                                                               
within the Division of Spill  Prevention and Response and to work                                                               
toward preparedness  and prevention  of large  and small  oil and                                                               
hazardous  substance spills.   She  shared that,  with increasing                                                               
exploration  activity,  it was  important  to  maintain a  robust                                                               
spill prevention and response capacity.                                                                                         
                                                                                                                                
1:32:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   KAWASAKI  expressed   his   agreement  for   the                                                               
difficulty to obtain funding, especially  with the decline in oil                                                               
production and  an aging infrastructure.   Referencing the letter                                                               
from the Chamber of Commerce, he  asked if there was a better way                                                               
to do this.                                                                                                                     
                                                                                                                                
REPRESENTATIVE MUNOZ  suggested that  amendments to  the proposed                                                               
bill  could consider  a  broader  application across  industries,                                                               
although it had not been included in the proposed bill.                                                                         
                                                                                                                                
1:34:14 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  directed attention to  the pages in  the pamphlet                                                               
that referenced the spills and  corresponding volume by industry,                                                               
and asked if  there was a directly proportional  cost between the                                                               
size of the spill and the cleanup.                                                                                              
                                                                                                                                
REPRESENTATIVE MUNOZ deferred to DEC.                                                                                           
                                                                                                                                
1:36:02 PM                                                                                                                    
                                                                                                                                
LYNN  KENT,  Deputy  Commissioner, Office  of  the  Commissioner,                                                               
Department of Environmental Conservation,  replied that there was                                                               
no direct proportional increase between  the size and the cost of                                                               
a  spill clean-up.    She said  that variables  such  as type  of                                                               
material  spilled and  location of  spill greatly  influenced the                                                               
costs.                                                                                                                          
                                                                                                                                
1:37:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER opened public testimony on HB 325.                                                                             
                                                                                                                                
1:37:18 PM                                                                                                                    
                                                                                                                                
ANDY ROGERS,  Deputy Director, Alaska State  Chamber of Commerce,                                                               
referenced  the   aforementioned  letter  from  the   Chamber  of                                                               
Commerce, which expressed its concerns  for the proposed increase                                                               
to the  per barrel tax and  to the cap  for the fund.   He stated                                                               
that the business  community had ideological opposition  to a fee                                                               
targeted  at  one  specific  industry,  but  used  to  distribute                                                               
services to a larger community.   He referenced the audit numbers                                                               
for the fund from 2005  - 2007, which listed administrative costs                                                               
for contaminated sites of 53  percent, while administrative costs                                                               
for prevention and emergency response  were more than 72 percent.                                                               
He offered  his belief  that the projected  deficit for  the fund                                                               
could  indicate the  increase to  the administrative  costs.   He                                                               
noted the concern of the  business community for the targeting of                                                               
a single  industry to  fund operations to  police a  much broader                                                               
audience.   He questioned the  necessity of an  increase, opining                                                               
that the business community would like  to have the intent of the                                                               
fund  addressed  if  a  potential   increase,  or  decrease,  was                                                               
proposed to the per barrel tax  levied against the producers.  He                                                               
stated  that these  should be  driven  by the  cost necessary  to                                                               
support  the  intent  of  the   fund,  and  not  by  an  assigned                                                               
percentage increase.   He asked  about the use of  technology for                                                               
clean-ups,  and  how  legislation  had refined  the  wording  for                                                               
liability borne by  spillers.  He suggested that  the state could                                                               
mitigate  some of  its responsibility  to have  funds on  hand to                                                               
deal with  spills.   He suggested  that there  should be  a basis                                                               
beyond "things get more expensive over  time as an argument for a                                                               
potential increase."  He again  referenced the comments contained                                                               
in  the letter  the  chamber  had submitted.    He expressed  his                                                               
desire for more information during  the upcoming discussions.  He                                                               
stated that  the chamber had  significant concerns  for immediate                                                               
percentage increases to the fund and to its cap.                                                                                
                                                                                                                                
REPRESENTATIVE  KAWASAKI   asked  whether  Mr.  Rogers   had  any                                                               
suggestions for the most appropriate way to manage the fund.                                                                    
                                                                                                                                
MR. ROGERS replied that  he did not know if he  was or ever would                                                               
be qualified to  offer a better way to  perform spill remediation                                                               
because he  was not in  the industry.   However, he  stated, when                                                               
the business community  reviewed a fund with  a specified purpose                                                               
and  a  single funding  mechanism  that  did not  solely  address                                                               
problems created by the industry, there was concern.                                                                            
                                                                                                                                
1:45:33 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  asked how other  states managed to  share these                                                               
expenses for funding.                                                                                                           
                                                                                                                                
1:45:47 PM                                                                                                                    
                                                                                                                                
CHRISTOPHER CLARK,  Chief of  Staff, Representative  Cathy Munoz,                                                               
Alaska   State   Legislature,    explained   that,   during   the                                                               
presentations on  the spill  response fund,  they had  asked what                                                               
other states were doing.  He  noted that the history of this fund                                                               
in Alaska was  unique, as it was created prior  to the 1989 Exxon                                                               
Valdez oil  spill, and  "then significantly  tweaked thereafter."                                                               
He  said that  he was  unsure if  there were  any similar  funds,                                                               
although  there had  been discussions  for the  way other  states                                                               
addressed the means for levying fees on industry.                                                                               
                                                                                                                                
1:46:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  announced  that  he  had  three  proposed                                                               
amendments:   one  specifically addressing  a restriction  to the                                                               
usage of the  fund, another for diversifying  the funding source,                                                               
and a third regarding fees for a review of contingency plans.                                                                   
                                                                                                                                
1:47:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  asked if there  had been any  consultation with                                                               
the Alaska  Oil and Gas  Conservation Commission (AOGCC)  for its                                                               
perspective.                                                                                                                    
                                                                                                                                
MR. CLARK replied that there had not been any discussions.                                                                      
                                                                                                                                
REPRESENTATIVE SEATON clarified  that he was also  on the finance                                                               
subcommittee for DEC.                                                                                                           
                                                                                                                                
REPRESENTATIVE  P.  WILSON  shared  that  she  was  also  on  the                                                               
subcommittee, and that it had  been evident that it was necessary                                                               
to increase the  availability of funds, as it  was functioning on                                                               
a deficit.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  HAWKER  suggested  that  another  option  was  to                                                               
review the use  of the money, and whether it  was only being used                                                               
for its  designation.  He offered  his belief that the  money was                                                               
being  used for  "things  that absolutely  are  unrelated to  the                                                               
purpose for which  it's being put in there, a  material amount of                                                               
the money."                                                                                                                     
                                                                                                                                
REPRESENTATIVE  OLSON   questioned  whether  this   included  the                                                               
cleaning up for soy bean spills or general training.                                                                            
                                                                                                                                
REPRESENTATIVE HAWKER  expressed his agreement for  "that kind of                                                               
thing  as   well  as  the   commissioner's  office,   I  believe,                                                               
administrative costs, it's  not hard to track, just  look at fund                                                               
sources in  the short  form of  the budget."   He  suggested that                                                               
people would be amazed at where  this money was going.  He stated                                                               
that this  was taking  money from  the oil  industry "to  pay the                                                               
faults of  all the  other industries,  as well  as administrative                                                               
costs that  just really, in  my opinion, should not  be allocated                                                               
to this fund."                                                                                                                  
                                                                                                                                
REPRESENTATIVE  JOHNSON   requested  that  DEC  report   on  what                                                               
percentage  of the  bills  was  not recovered.    He offered  his                                                               
belief  that   this  was  an   emergency  fund  that   should  be                                                               
reimbursed,  and questioned  what portion  was not  reimbursed by                                                               
industry.   He  suggested that  a fund  that was  reimbursed only                                                               
needed "enough money in the pot to respond."                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON reported  that  there  was an  ongoing                                                               
cleanup  effort  which  could  not  be  discussed  because  of  a                                                               
lawsuit, with the possibility that  the state could end up paying                                                               
"an absolute huge amount."                                                                                                      
                                                                                                                                
REPRESENTATIVE  JOHNSON clarified  that he  was not  as confident                                                               
that the  state was truly on  the hook for expenses  as the other                                                               
parties both had deep pockets.                                                                                                  
                                                                                                                                
1:52:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  asked for an  update on the  legacy projects                                                               
at contaminated sites, and an  update on the administrative costs                                                               
at DEC  as the numbers  cited by  Mr. Rogers differed  from those                                                               
which  she   remembered  from  a   presentation  to   the  budget                                                               
subcommittee.                                                                                                                   
                                                                                                                                
MS. KENT replied she did not  know where the Alaska State Chamber                                                               
of Commerce got its percentages.   She said that she did not have                                                               
them with her, but she would supply them to the committee.                                                                      
                                                                                                                                
1:54:25 PM                                                                                                                    
                                                                                                                                
TOM  CHERIAN,  Director,  Division  of  Administrative  Services,                                                               
Department of Environmental Conservation,  said that he would get                                                               
back to the committee with an answer.                                                                                           
                                                                                                                                
REPRESENTATIVE  TARR asked  for  more  information regarding  the                                                               
legacy sites.                                                                                                                   
                                                                                                                                
MS. KENT, in response to Representative  Tarr, said that a lot of                                                               
the contaminated  sites in  which DEC  was involved  were federal                                                               
sites, so federal  grant funding was used for the  clean-up.  She                                                               
said that  the funding by  the response fund from  the prevention                                                               
account for  oversight was used  for other privately  owned sites                                                               
and state owned  sites.  Whenever possible, DEC  tried to recover                                                               
the costs.  She said that  the state had stopped using prevention                                                               
account  funds  for clean-up  of  state  owned or  state  managed                                                               
orphan    sites,   and,    instead,   requested    general   fund                                                               
appropriations  through  the capital  budget.    She opined  that                                                               
there  could still  be open  budgets funded  from the  prevention                                                               
account,  although new  money  had not  been  requested from  the                                                               
prevention account for several years                                                                                            
                                                                                                                                
CO-CHAIR SADDLER  asked if Representative  Tarr was  referring to                                                               
the Bureau of Land Management (BLM) legacy wells.                                                                               
                                                                                                                                
REPRESENTATIVE TARR  asked if there  were a number of  sites that                                                               
still  needed  to  be  cleaned  up,  although  the  projects  had                                                               
finished  decades before,  versus  projects  that were  currently                                                               
active but would need a clean-up should there be a spill.                                                                       
                                                                                                                                
CO-CHAIR FEIGE requested an estimate  of the revenues, as well as                                                               
a range of revenue under  various scenarios, that would be raised                                                               
under  the proposed  amendments to  be offered  by Representative                                                               
Seaton.   He directed a  question to  DEC, and inquired  what the                                                               
different types  of contaminants  were in  each of  those earlier                                                               
spills  in  order to  more  equitably  spread  the costs  to  the                                                               
offending industry.                                                                                                             
                                                                                                                                
1:58:33 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER held  over  HB 325  and  kept public  testimony                                                               
open.                                                                                                                           
                                                                                                                                
             HB 367-DIESEL FUEL STORAGE TAX CREDIT                                                                          
                                                                                                                                
1:58:44 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  announced that the  final order of  business is                                                               
HOUSE  BILL NO.  367,  "An  Act creating  a  diesel fuel  storage                                                               
facility tax  credit for public  utilities; and providing  for an                                                               
effective date."                                                                                                                
                                                                                                                                
1:59:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DOUG  ISAACSON, Alaska State  Legislature, offered                                                               
some of  the history to the  introduction of the bill,  its need,                                                               
and  its  broader application.    He  reported that  the  closure                                                               
announcement by  Flint Hills Refinery revealed  an adverse effect                                                               
to   the  consumer   as  the   availability   of  fuel   storage,                                                               
specifically  HAGO (heavy  atmospheric gas  oil) and  LAGO (light                                                               
atmospheric  gas oil),  to Golden  Valley  Power for  electricity                                                               
generation  would  now   be  limited.    He   explained  that  an                                                               
agreeable, competitive  lease price  between Golden  Valley Power                                                               
and Flint  Hills would  be necessary to  forego the  necessity of                                                               
building new tanks  for the storage of five to  ten days of fuel.                                                               
He  shared   that  the   Alaska  Village   Electric  Cooperative,                                                               
Incorporated  (AVEC)  had submitted  a  letter,  dated March  17,                                                               
2014, detailing  its needs and  its support of the  proposed bill                                                               
[Included in members' packets].   He reported that AVEC owned and                                                               
operated  47  bulk fuel  tank  farms,  about  half of  which  had                                                               
benefited from  the Denali  Commission funding  for improvements.                                                               
He declared that it was necessary  to address the "woeful need of                                                               
upgrades and expansion."  He noted  that it was not his intention                                                               
to keep Alaska  indentured to diesel fuel, although  it was clear                                                               
that  diesel  would  be  around   for  decades  to  come  as  its                                                               
infrastructure was  already in place.   He explained that  HB 367                                                               
would offer  a tax credit  similar to the previously  offered gas                                                               
storage credits.   Although the proposed bill would  allow for up                                                               
to  $15 million  in credit,  it was  more likely  to be  about $5                                                               
million,  or 50  percent  of  the cost.    He  declared that  the                                                               
proposed  bill  was  not  trying  to  incentivize  other  refined                                                               
products to  Alaska, but  to offer the  lowest delivered  cost to                                                               
the  consumer  in  Alaska.   Therefore,  the  beneficiaries  were                                                               
restricted to Alaska  regulated utilities, and he  noted that the                                                               
attached  fiscal note  [Included  in  members' packets]  revealed                                                               
there were  not a lot  of these.   He declared that  the proposed                                                               
bill would  offer the possibility  for substantial relief  to the                                                               
affected communities  in the service  districts and  minimize the                                                               
economic  impact on  communities dependent  on Flint  Hills fuel.                                                               
He said that encouraging industry  and affordable power should be                                                               
of great importance to the state.                                                                                               
                                                                                                                                
2:05:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  noted  that  these  tax  credits  had                                                               
originally  been   intended  for  small   communities  throughout                                                               
Alaska, but  this proposed  bill would now  offer this  credit to                                                               
much larger communities and would set a different precedent.                                                                    
                                                                                                                                
REPRESENTATIVE  ISAACSON, in  response,  said that  AVEC had  not                                                               
been  a past  recipient  and  its 55  community  members had  not                                                               
received storage  credits of  this nature.   He pointed  out that                                                               
the proposed bill restricted this  to Alaska regulated utilities.                                                               
He said that the Golden  Valley Electric Association region would                                                               
continue to  need HAGO  and LAGO fuel  until an  alternative fuel                                                               
could  be found  for  its antiquated  diesel  driven turbines  in                                                               
North  Pole.   He  described  the maximum  usage  from the  other                                                               
electric generation  in the  area.  He  stated that  the proposed                                                               
bill  would  allow  the  opportunity  for  fuel  storage  to  the                                                               
Fairbanks  and North  Pole area  in addition  to the  other small                                                               
communities.                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON pointed out  that her community  "is in                                                               
the same boat  certain times of the year."   She relayed that the                                                               
community paid extra when it was necessary to use diesel fuel.                                                                  
                                                                                                                                
REPRESENTATIVE ISAACSON  replied that there was  currently a fuel                                                               
surcharge on each  monthly bill in his region, and  it was always                                                               
in excess of the cost to  generate power.  He declared that there                                                               
was  not a  firm supply  of  hydro power  or natural  gas in  the                                                               
Fairbanks region.                                                                                                               
                                                                                                                                
REPRESENTATIVE P.  WILSON said  that she  still had  concerns for                                                               
the proposed bill.                                                                                                              
                                                                                                                                
REPRESENTATIVE ISAACSON  explained that there were  Golden Valley                                                               
Electric Association representatives  to specifically address any                                                               
of her concerns.                                                                                                                
                                                                                                                                
2:10:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ISAACSON,   in  response  to   Co-Chair  Saddler,                                                               
explained that HAGO  and LAGO were specific cuts  in the refining                                                               
tower,  as   different  products  were  distilled   at  different                                                               
temperatures.                                                                                                                   
                                                                                                                                
CO-CHAIR SADDLER asked what HAGO stood for.                                                                                     
                                                                                                                                
REPRESENTATIVE ISAACSON  said that  he would  report back  to its                                                               
meaning.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  OLSON offered  his understanding  that the  Healy                                                               
Coal plant  would be coming  on line in  the near future,  and he                                                               
asked for  clarification that this  excess capacity would  not be                                                               
sufficient to replace the aforementioned generators.                                                                            
                                                                                                                                
REPRESENTATIVE ISAACSON replied that  this was his understanding,                                                               
and he  deferred to Golden  Valley Electric Association  for more                                                               
information.                                                                                                                    
                                                                                                                                
2:12:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  requested a  spreadsheet to  the breakdown                                                               
in  price per  kilowatt from  Golden Valley  Electric Association                                                               
versus the remote villages included in the proposed bill.                                                                       
                                                                                                                                
REPRESENTATIVE ISAACSON  offered his belief that  AVEC and Golden                                                               
Valley could each supply this to the committee.                                                                                 
                                                                                                                                
CO-CHAIR FEIGE shared that the  power company in his district was                                                               
Matanuska   Electric,  a   public   utility   and  a   non-profit                                                               
corporation.    He questioned  whether  the  public utility  paid                                                               
taxes, and  asked what tax  liability the public  utilities would                                                               
write this refundable  credit against, as most of  them were non-                                                               
profits.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  ISAACSON,  in  response,  directed  attention  to                                                               
Section 1,  lines 8-9, which  covered both scenarios  and allowed                                                               
for a payment in lieu of a tax credit.                                                                                          
                                                                                                                                
CO-CHAIR FEIGE  asked for clarification  that if there was  not a                                                               
tax liability there would be a payment.                                                                                         
                                                                                                                                
REPRESENTATIVE ISAACSON expressed his agreement.                                                                                
                                                                                                                                
REPRESENTATIVE  SEATON requested  an explanation  to the  uses of                                                               
the  oil and  gas tax  credit  fund mentioned  on page  2 of  the                                                               
fiscal note analysis [Included in  members' packets] and asked if                                                               
this could deplete that fund.                                                                                                   
                                                                                                                                
REPRESENTATIVE ISAACSON  replied that he  would get back  with an                                                               
answer.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  TARR  said  that  she would  hold  her  questions                                                               
regarding the  fiscal note  until someone  from DNR  could answer                                                               
them.                                                                                                                           
                                                                                                                                
2:15:32 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER opened public testimony.                                                                                       
                                                                                                                                
2:15:51 PM                                                                                                                    
                                                                                                                                
MEERA  KOHLER,   President  and  CEO,  Alaska   Village  Electric                                                               
Cooperative, noted that  AVEC served 55 villages  which were very                                                               
dependent on diesel  fuel for energy.  She said  that most of the                                                               
tank farms were a little  bigger than 100,000 gallons, with about                                                               
22 of the  tank farms still in  need of upgrades.   She said that                                                               
this  opportunity for  a  tax credit  for half  of  the cost  for                                                               
refurbishing the  tank farms was  "extremely attractive  and very                                                               
important because  otherwise the  only opportunity we  would have                                                               
is to  take out loans that  simply adds costs to  very, very high                                                               
cost of electricity already."                                                                                                   
                                                                                                                                
REPRESENTATIVE  TARR  asked if  the  22  tank  farms in  need  of                                                               
upgrades were  each a separate  entity to apply for  the proposed                                                               
tax credit.                                                                                                                     
                                                                                                                                
MS.  KOHLER,  in  response,  said  that the  22  tank  farms  all                                                               
belonged  to the  Alaska Village  Electric Cooperative,  although                                                               
there may be other public  utilities that were looking to improve                                                               
diesel  fuel storage  facilities.   She  said that  the State  of                                                               
Alaska was making an updated assessment  of tank farms, as it had                                                               
not been done  since the late 1990s, and that  this would give an                                                               
idea  of the  continuing  need.   She  explained  that the  local                                                               
utility  in a  small  village  could be  run  by  the local  city                                                               
government or the  local tribal corporation, which  often did not                                                               
have a  lot of  borrowing capacity.   She  stated that  even with                                                               
this  credit,  it would  still  be  necessary  for them  to  find                                                               
outside financing to  supplement the remainder of the  cost.  She                                                               
questioned the demand  from these small villages  because of this                                                               
cost.   She reported  that utilities similar  to AVEC  which were                                                               
funded  through loans  from the  Rural  Utility Collaborative  or                                                               
private lenders had  the ability to leverage the  money from this                                                               
tax fund.  She  stated that AVEC did pay a  gross receipts tax as                                                               
a cooperative,  which was a  modest tax back  to the state.   She                                                               
said  that the  tax break  was  not a  significant component  for                                                               
AVEC.                                                                                                                           
                                                                                                                                
CO-CHAIR SADDLER  asked if there was  an estimate to the  cost of                                                               
the upgrade to the aforementioned 22 tank farms.                                                                                
                                                                                                                                
MS. KOHLER,  in response, explained that  a small tank farm  in a                                                               
village  scenario  would cost  about  $12-$13  per gallon  for  a                                                               
capacity  of about  150,000  to 200,000  gallons;  however, in  a                                                               
larger tank  farm, 500,000 gallons  to a few million  gallons, it                                                               
would cost  about $2-$2.50  per gallon.   She  said that  a major                                                               
refurbishment  of the  existing  tank  farms, salvaging  whatever                                                               
tanks possible, would cost about  $1 million for a 150,000 gallon                                                               
tank farm.   She  estimated a total  investment of  about $70-$75                                                               
million to refurbish all 22 tank farms.                                                                                         
                                                                                                                                
REPRESENTATIVE  TARR asked  if AVEC  could apply  for the  credit                                                               
from all the projects it was working on.                                                                                        
                                                                                                                                
MS.  KOHLER offered  her  belief  that this  would  be the  case,                                                               
although she  opined that the intent  of the bill was  to support                                                               
facilities  which began  work  after the  effective  date of  the                                                               
bill.   She said  that AVEC did  not work on  more than  2-3 tank                                                               
farms  each year,  which would  be an  investment of  about $5-$7                                                               
million each year for tank farm upgrades and refurbishments.                                                                    
                                                                                                                                
2:24:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON,  referring  to  page 2,  line  4  of  the                                                               
proposed bill, read that a  storage facility would not qualify if                                                               
it  had been  in  operation  as a  diesel  fuel storage  facility                                                               
before the effective  date of the proposed bill.   He offered his                                                               
belief  that the  proposed  bill was  only  referencing new  tank                                                               
farms and new tanks, and not refurbishments or upgrades.                                                                        
                                                                                                                                
MS. KOHLER offered  her understanding that the intent  was to not                                                               
include facilities  which were completed  prior to  the effective                                                               
date,  but  that an  existing  tank  farm  of more  than  100,000                                                               
gallons   would  qualify   for  funding   toward  a   substantial                                                               
refurbishment.                                                                                                                  
                                                                                                                                
CO-CHAIR SADDLER  offered his belief  that the  proposed language                                                               
said that if the facility, and  not a specific tank, were used as                                                               
a diesel facility, it would not qualify.                                                                                        
                                                                                                                                
REPRESENTATIVE ISAACSON  replied "that's one of  the tweaks we'll                                                               
bring back to you."                                                                                                             
                                                                                                                                
MS. KOHLER,  in response to  Co-Chair Feige, said that  AVEC tank                                                               
farms were  under US Coast  Guard and EPA jurisdiction,  and were                                                               
inspected two  to three times  each year, with  minor maintenance                                                               
performed   throughout  the   year.     She  reported   that  EPA                                                               
requirements would  necessitate stricter  testing to  ensure tank                                                               
integrity.  She  acknowledged that it was an  ongoing struggle to                                                               
add extra  cost to an already  expensive bill to pay  for upgrade                                                               
projects.  She said that AVEC  spent about $1 million annually on                                                               
tank  farm operations,  and that  there was  not very  much money                                                               
left.  She called it "a hand to mouth existence."                                                                               
                                                                                                                                
CO-CHAIR  FEIGE asked  how  much  money did  AVEC  set aside  for                                                               
programmed replacement of  tanks, or were they  simply looking to                                                               
the State of Alaska for capital money for replacements.                                                                         
                                                                                                                                
MS. KOHLER  replied that AVEC had  never looked to the  state for                                                               
funds  to replace  tank farms,  as it  had never  been available.                                                               
She said  that the  funding from the  Denali Commission  had been                                                               
the  first time  that any  significant  money had  been put  into                                                               
major upgrades  to the  tank farms.   She  shared that  the gross                                                               
revenue  from non-fuel  sources was  about $18  million annually,                                                               
which  paid  for  generation maintenance,  overhauls,  tank  farm                                                               
operations and  maintenance, spill response,  and administration,                                                               
noting that  "there has never been  a lot available."   There had                                                               
not been  a lot  of investment since  the initial  investments in                                                               
tank farms  40 years  prior.   She reported  that there  would be                                                               
$100,000  - $150,000  on  an  individual tank  farm  for a  major                                                               
refurbishment on a  couple of locations on an annual  basis.  She                                                               
pointed out  that this  only addressed  the electric  utility and                                                               
did not  address the remaining  75 percent  of tank storage  in a                                                               
village which was non-utility.                                                                                                  
                                                                                                                                
CO-CHAIR  SADDLER asked  that she  report back  to the  committee                                                               
with "a clear idea  of the total cost that what  it might take to                                                               
refurbish the tanks that your co-operatives rely on."                                                                           
                                                                                                                                
REPRESENTATIVE  P.   WILSON  noted   that  page  2   stated  that                                                               
qualification  for the  credit in  this section  required that  a                                                               
diesel  fuel storage  facility must  have a  diesel derived  fuel                                                               
volume of  at least 100,000  gallons.   She pointed out  that, as                                                               
there had been  testimony to a need for  smaller facilities, this                                                               
should be adjusted.                                                                                                             
                                                                                                                                
2:32:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER opened public testimony on HB 367.                                                                             
                                                                                                                                
2:32:59 PM                                                                                                                    
                                                                                                                                
LUKE  HOPKINS, Mayor,  Fairbanks  North Star  Borough, said  that                                                               
ensuring that the  borough and the surrounding  region had enough                                                               
diesel fuel  storage for electrical  generation was  an important                                                               
piece   for  financial   relief  to   the  electric   cooperative                                                               
association.                                                                                                                    
                                                                                                                                
2:34:19 PM                                                                                                                    
                                                                                                                                
COREY  BORGESON,  President  and   CEO,  Golden  Valley  Electric                                                               
Association (GVEA), said that the  potential closing of the Flint                                                               
Hills Refinery  brought a significant  number of issues  to GVEA,                                                               
and that  fuel storage  was one  of them.   He  acknowledged that                                                               
Flint Hills  had control of  a significant amount of  storage, on                                                               
what was considered  a very contaminated site.   He declared that                                                               
it was essential for GVEA to  have its own storage facilities for                                                               
HAGO and  LAGO from the North  Pole refinery.  He  said that HAGO                                                               
could  not  be  transported  into Alaska,  as  it  needed  warmer                                                               
temperatures for  transportation.  He remarked  that an alternate                                                               
fuel  source, even  with the  Healy Coal  plant and  LNG trucking                                                               
project, would  always be needed  in the community.   He declared                                                               
that the fuel storage was very important to the utility.                                                                        
                                                                                                                                
REPRESENTATIVE OLSON  asked for  the approximate price  for power                                                               
generated by the  two generators at Flint Hills  versus the price                                                               
for coal at the Healy plant.                                                                                                    
                                                                                                                                
MR.  BORGESON explained  that these  were  measured in  different                                                               
ways.    In  kilowatt  hours  when  dispatching  the  power,  the                                                               
generators had  a cost of $0.23  per kilowatt hour for  HAGO fuel                                                               
and $0.16 per  kilowatt hour for naphtha fuel.   He reported that                                                               
the utility  spent about $61  million on naphtha and  $13 million                                                               
for HAGO.                                                                                                                       
                                                                                                                                
CO-CHAIR SADDLER asked about the coal cost.                                                                                     
                                                                                                                                
MR. BORGESON replied  that the cost was about  $0.65 per kilowatt                                                               
hour for fuel, although including  labor would be about $0.12 per                                                               
kilowatt hour.                                                                                                                  
                                                                                                                                
MR. BORGESON, in response, said  that the turbines at Flint Hills                                                               
generated about  180 megawatts  and the  coal plant  generated an                                                               
additional 50 megawatts.                                                                                                        
                                                                                                                                
REPRESENTATIVE P. WILSON asked for  the amount of tank storage at                                                               
the Flint Hills facility.                                                                                                       
                                                                                                                                
2:42:12 PM                                                                                                                    
                                                                                                                                
LYNN  THOMPSON, Vice  President for  Power Supply,  Golden Valley                                                               
Electric  Association (GVEA),  said that  GVEA had  50,000 gallon                                                               
storage tanks each for HAGO and  naphtha, and that GVEA relied on                                                               
the  Flint Hills  refinery to  pipe in  product for  the turbines                                                               
when they were being operated.                                                                                                  
                                                                                                                                
2:42:52 PM                                                                                                                    
                                                                                                                                
ANNA ATCHISON,  Kinross Fort  Knox Mine, said  that the  mine was                                                               
the largest gold producer in Alaska,  and that it was the largest                                                               
customer to GVEA, as  it took a lot of power  and fuel to produce                                                               
gold from a low  grade ore body.  She relayed  that the mine used                                                               
about 24  million kilowatt hours  each month, the  second largest                                                               
non-labor cost.   She  pointed out  that the  mine was  the fifth                                                               
largest private  employer in the  borough, and, as  its employees                                                               
also  lived  in  the  area,   they  were  also  affected  by  the                                                               
uncertainty  for  the  future of  energy,  especially  since  the                                                               
announcement for  the closure of  the Flint Hills Refinery.   She                                                               
declared support  for HB 367  and the  efforts of GVEA  to reduce                                                               
and stabilize power costs for all rate payers.                                                                                  
                                                                                                                                
MS. ATCHISON,  in response to Representative  Seaton, offered her                                                               
belief  that the  mine paid  about  $0.19 per  kilowatt hour  for                                                               
electricity  to the  mine, although  she  could get  back to  the                                                               
committee with an exact number.                                                                                                 
                                                                                                                                
2:45:00 PM                                                                                                                    
                                                                                                                                
JOMO   STEWART,  Energy   Project  Manager,   Fairbanks  Economic                                                               
Development Corporation, spoke in support  of HB 367, noting that                                                               
energy was  "a big, big  deal" when people  live in a  cold, dark                                                               
metropolitan area.  He said that  it was a necessary component of                                                               
the  economy  and  that   its  availability,  affordability,  and                                                               
reliability impacted  all the other  aspects of the economy.   He                                                               
directed attention to  earlier efforts by the  state to recognize                                                               
this  necessity for  energy storage.   He  listed state  programs                                                               
which  included participation  with  the  Denali Commission,  and                                                               
various energy  and LNG  storage tax  credits including  the Cook                                                               
Inlet  tax incentives  and credits.   He  reiterated support  for                                                               
proposed HB 367.                                                                                                                
                                                                                                                                
2:47:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER closed public testimony and held over HB 367.                                                                  
                                                                                                                                
2:47:34 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 2:47 p.m.                                                                 

Document Name Date/Time Subjects
HB325 AP Stories.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325 Conservation Surcharge on Oil Statutes.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325 DEC Budget Sub Presentation.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325 DEC Budget Sub Slide.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325 DEC Oil & Haz Prev Account Report.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325 Sectional Analysis.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325 Sponsor Statement.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325 Version A.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325-DEC-RFA-03-14-14.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325-DOR-TAX-3-14-14.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB367 AVEC Letter.pdf HRES 3/17/2014 1:00:00 PM
HB 367
HB367 GVEA Letter.pdf HRES 3/17/2014 1:00:00 PM
HB 367
HB367 Sponsor Statement.pdf HRES 3/17/2014 1:00:00 PM
HB 367
HB367 Version C.pdf HRES 3/17/2014 1:00:00 PM
HB 367
HB367-DOR-TAX-03-14-14.pdf HRES 3/17/2014 1:00:00 PM
HB 367
HCR 22 ADN Article i.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 ADN Article ii.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 ASRC White Paper.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 Clarion Article i.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 EIA FAQ.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 Cook Email.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 Hazardous Substances Statutes.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 News-Miner Article i.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 News-Miner Article ii.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 News-Miner Article iii.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 News-Miner Article iv.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 Proposed Sale.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 Sponsor Statement.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 Sulfolane Investigation.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR22-LEG-SESS-3-15-14.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 DNR Document i.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 DNR Document ii.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HCR 22 DNR Document iii.pdf HRES 3/17/2014 1:00:00 PM
HCR 22
HB325 Alaska Chamber Letter.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325 Version A.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325 DEC Response 3.26.14, Doc 1.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325 DEC Response 3.26.14, Doc 2.pdf HRES 3/17/2014 1:00:00 PM
HB 325
HB325 DEC Response 3.26.14, Doc 3.pdf HRES 3/17/2014 1:00:00 PM
HB 325