Legislature(2015 - 2016)BARNES 124

04/06/2015 01:00 PM RESOURCES

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Audio Topic
01:32:20 PM Start
01:33:27 PM Confirmation(s): Board of Fisheries
01:42:15 PM HB105
03:29:49 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 1:30 p.m. Today --
+ Confirmation Hearing: TELECONFERENCED
Board of Fisheries
*+ HCR 6 PROCLAIM JULY 2015 AS AK PEONY MONTH TELECONFERENCED
<Bill Hearing Rescheduled to 4/8/15>
+ HB 179 FOOD PROGRAM DONATIONS; FISH AND GAME TELECONFERENCED
<Pending Referral>
-- Invited/Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 105 AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT TELECONFERENCED
Heard & Held
         HB 105-AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT                                                                     
                                                                                                                                
1:42:15 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO  announced that the  final order of  business is                                                              
HOUSE BILL  NO. 105, "An  Act relating  to the programs  and bonds                                                              
of  the  Alaska  Industrial  Development   and  Export  Authority;                                                              
related  to   the  financing  authorization  through   the  Alaska                                                              
Industrial  Development  and  Export   Authority  of  a  liquefied                                                              
natural gas production  plant and natural gas energy  projects and                                                              
distribution  systems in  the state; amending  and repealing  bond                                                              
authorizations  granted to the  Alaska Industrial Development  and                                                              
Export Authority;  and providing for an effective  date."  [Before                                                              
the committee was CSHB 105(ENE).]                                                                                               
                                                                                                                                
1:42:25 PM                                                                                                                    
                                                                                                                                
GENE  THERRIAULT,  Energy  Policy and  Outreach  Director,  Alaska                                                              
Energy Authority  (AEA), Alaska Industrial Development  and Export                                                              
Authority (AIDEA),  Department of  Commerce, Community  & Economic                                                              
Development  (DCCED), turned to  slide 2  to begin the  PowerPoint                                                              
presentation.    He  explained  the first  goal  of  the  Interior                                                              
Energy Project (IEP)  is to supply natural gas  to Interior Alaska                                                              
at the  lowest possible  price to  as many  customers as  possible                                                              
and as  soon as possible.   Another goal  is that IEP  investments                                                              
are supposed  to complement the  eventual delivery of  natural gas                                                              
across  the state  via  large diameter  pipeline.   Investment  in                                                              
infrastructure  is   trying  to  be  made  so  there   will  be  a                                                              
distribution system  and a customer  load in Interior  Alaska when                                                              
a pipeline does  allow for delivery.  Effort is being  made to not                                                              
invest  in infrastructure  that  won't have  the highest  possible                                                              
useful  life  after  pipeline  delivery.     In  addition  to  the                                                              
Interior  price  issue, IEP  is  trying  to address  Interior  air                                                              
quality issues.                                                                                                                 
                                                                                                                                
MR.  THERRIAULT  related that  in  advancing the  Interior  Energy                                                              
Project [slide  3], a supply of  natural gas from the  North Slope                                                              
has been pursued  through a concession agreement  with [MWH Global                                                              
(MWH)].   However,  AIDEA  and  AEA  are now  evaluating  possible                                                              
natural gas supply  for the Interior from Cook Inlet.   This began                                                              
after work  with MWH  through the  concession agreement  indicated                                                              
to the AIDEA/AEA  board of directors that [the  North Slope] price                                                              
may be too high  to get the conversion to gas  use that is needed.                                                              
Currently,  AIDEA is  still working  on the  buildout of  [natural                                                              
gas] distribution  in the Interior because, whether  the gas comes                                                              
from the  North Slope  or another geographic  area, the  piping to                                                              
deliver it to the consumers is going to be the same.                                                                            
                                                                                                                                
1:45:25 PM                                                                                                                    
                                                                                                                                
MR.  THERRIAULT  discussed  the   concession  agreement  with  MWH                                                              
[slide  4], saying  it provided  a legal framework  for a  public-                                                              
private  partnership  to come  together.   Northleaf,  a  Canadian                                                              
investment  firm, was  involved as  a financial  backer and  AIDEA                                                              
was  also  going to  provide  some  financing  and would  own  the                                                              
liquefied natural  gas (LNG) facility.   In the negotiations  with                                                              
that private  partner, some federal  tax considerations  drove the                                                              
infrastructure to be  set up in a particular way.   Both the state                                                              
and  private  partners wanted  to  structure  things that  way  to                                                              
avoid  making a  payment to  the Internal  Revenue Service  (IRS).                                                              
Responding  to  Co-Chair Nageak,  Mr.  Therriault  said  MWH is  a                                                              
worldwide  firm that  builds large-scale  infrastructure all  over                                                              
the world.   The firm's  current chief  executive officer  grew up                                                              
in Alaska  and his father  still lives  in the Anchorage  area, so                                                              
he  had   an  interest  in  trying   to  help  with   the  state's                                                              
infrastructure  needs.   Continuing  on  slide 4,  Mr.  Therriault                                                              
explained  the concession  agreement  set  up conditions  for  the                                                              
financial  close.   He  said AIDEA  was to  have  agreed with  the                                                              
project  costs  and  the  commercial   terms,  MWH  was  providing                                                              
construction and  operating agreements,  and MWH was  to negotiate                                                              
for the secure  LNG sales to  the utilities, which it  spent quite                                                              
a  bit of  time  on in  2014.    Ultimately, the  AIDEA/AEA  board                                                              
determined the  price that was going  to be delivered off  of that                                                              
expected infrastructure  was not going to get  the conversions and                                                              
uptake of  the natural gas in  the community to satisfy  the goals                                                              
of  the IEP.   Thus,  the concession  agreement  was not  extended                                                              
past its termination date of December 31, 2014.                                                                                 
                                                                                                                                
1:47:50 PM                                                                                                                    
                                                                                                                                
NICHOLAS  SZYMONIAK,  Energy Infrastructure  Development  Officer,                                                              
Alaska  Industrial  Development   and  Export  Authority  (AIDEA),                                                              
Department   of  Commerce,   Community   &  Economic   Development                                                              
(DCCED),  explained  that  slide  5 demonstrates  the  process  in                                                              
which  AIDEA evaluates  these projects  and the  process in  which                                                              
the   concession   agreement   was    evaluated   and   eventually                                                              
terminated.    Going forward,  AIDEA  will  follow this  same  due                                                              
diligence process  for any other project under  the IEP, including                                                              
Cook Inlet or  elsewhere.  If it  is not a good investment,  if it                                                              
does not  meet the goals  of the IEP  and the legislative  intent,                                                              
and if  it is also not  a wise investment  for AIDEA, it  will not                                                              
pass the board's due diligence.                                                                                                 
                                                                                                                                
MR. SZYMONIAK  said the  [Twenty-Eighth Alaska State  Legislature]                                                              
passed Senate  Bill 23 in 2013  and set aside financial  tools for                                                              
AIDEA to  pursue the  Interior Energy  Project.   He said  slide 6                                                              
lays  out what  AIDEA  has spent  to  date pursuing  the  Interior                                                              
Energy Project.   Of  the $57.5  million in capital  appropriation                                                              
received by AIDEA,  $12.4 million has been encumbered.   Contracts                                                              
were issued and  closed out, and AIDEA is currently  going through                                                              
the process  of determining  what has been  expended and  what has                                                              
not, so  the actual spend  will likely  be $500,000 to  $1 million                                                              
less.      That   leaves  $45   million   remaining   of   capital                                                              
appropriation.   In addition, AIDEA was appropriated  $125 million                                                              
of sustainable  energy transmission and supply  development (SETS)                                                              
funds with special  provisions to advance the IEP.   So far, those                                                              
SETS  funds  have  been  used  to  finance  the  buildout  of  the                                                              
distribution  system  in  Interior Alaska,  with  two  convertible                                                              
lines of credit  that will turn  to a term loan once  gas arrives.                                                              
One line  of credit is  for $15 million  to Fairbanks  Natural Gas                                                              
(FNG),  LLC.   The first  half of  that  loan was  spent when  FNG                                                              
built  out  34 miles  of  pipeline  in its  existing  distribution                                                              
system  in downtown  Fairbanks.   In 2015  FNG plans  to build  an                                                              
additional 27  miles of pipeline in  its service area.   The other                                                              
line  of credit  is  for $37.8  million  to Interior  Gas  Utility                                                              
(IGU)  for buildout  of  phase 1  of  its distribution  system  in                                                              
2015,  which is approximately  72  miles of pipe  in the  downtown                                                              
North Pole  area.  The pipe has  already been purchased  and is on                                                              
site  and IGU  is  in the  process  of selecting  three  different                                                              
construction firms to put the pipe in the ground.                                                                               
                                                                                                                                
1:50:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  returned to slide 5 and asked  what phase the                                                              
[North Slope]  project was  in when the  decision was made  to not                                                              
go forward.                                                                                                                     
                                                                                                                                
MR. SZYMONIAK  replied [the North  Slope] project made  it through                                                              
probably about  the end of  phase 3.   The deal was  put together,                                                              
but the final  paperwork and final  agreements were not  done.  It                                                              
had  gone as  far  as negotiating  the construction  contract  and                                                              
negotiating the  operating agreement,  and the offtake  agreements                                                              
with  the  Interior  utilities   were  in  the  process  of  being                                                              
negotiated.   At  that point,  however,  the costs  had gotten  so                                                              
high  that  the risks  and  price  associated  with that  did  not                                                              
permit  it  to go  to  phase 4,  which  is  the actual  final  due                                                              
diligence and the closing.                                                                                                      
                                                                                                                                
REPRESENTATIVE TARR  observed it is  written as loans on  slide 6,                                                              
but  understood it  is lines  of credit  that will  turn to  loans                                                              
when the  gas is  delivered.   Regarding when  the line  of credit                                                              
becomes  a   loan,  she  surmised   the  loan  will  be   for  the                                                              
outstanding balance, not the entire line of credit.                                                                             
                                                                                                                                
MR. SZYMONIAK  responded correct.   When gas  shows up,  this line                                                              
of credit -  up to $52.78 million  for both utilities  - will turn                                                              
into  a term  loan  with  a payback  period  of, he  believed,  40                                                              
years.                                                                                                                          
                                                                                                                                
1:52:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  asked whether the IGU distribution  loan of                                                              
$37.78 million was the loan approved in February 2015.                                                                          
                                                                                                                                
MR. SZYMONIAK  answered  the line  of credit  was approved  in two                                                              
stages.   A  line of  credit  of $8.9  million,  he believed,  was                                                              
approved in  2014 to do initial  design and purchase of  pipe.  In                                                              
January  [2015], AIDEA  extended the  line of  credit to the  full                                                              
$37.78 million.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  HAWKER inquired  whether it  is fair  to say  that                                                              
the entire [IEP]  concept is a market driven project,  in that the                                                              
project has  always been presented  as succeeding or  failing upon                                                              
its ability  to meet  a specified hurdle  rate for delivering  gas                                                              
to the burner tip for those customers in Fairbanks.                                                                             
                                                                                                                                
MR. SZYMONIAK agreed that is a fair statement.                                                                                  
                                                                                                                                
REPRESENTATIVE  HAWKER noted  the state  is investing  substantial                                                              
funds in building  out the local distribution infrastructure.   He                                                              
understood,  however,  that it  is  not known  for  certain as  to                                                              
whether a project is had which meets that hurdle rate.                                                                          
                                                                                                                                
MR. SZYMONIAK  replied [AIDEA] does not  know if it has  a project                                                              
to supply gas in  the near to mid-term.  If that  gas is supplied,                                                              
AIDEA has done  the financial analysis to ensure  that the utility                                                              
can charge rates that pay back the loan AIDEA has made.                                                                         
                                                                                                                                
REPRESENTATIVE  HAWKER said  his question  was not  answered.   He                                                              
asked whether AIDEA  is certain it has a project  that can deliver                                                              
that  gas at  that hurdle  rate  of $15  at  the burner  tip.   He                                                              
further asked  whether buildout is  occurring before it  is really                                                              
known that there is a project.                                                                                                  
                                                                                                                                
MR. SZYMONIAK  agreed AIDEA  does not yet  have a project  that is                                                              
certain in  an absolute  term.  However,  he continued,  there are                                                              
multiple  proposals out  of Cook  Inlet,  including from  Hilcorp,                                                              
from WestPac, and  from Cook Inlet Energy, to  provide natural gas                                                              
to the Interior.   He offered his belief that while  the gas isn't                                                              
there and  the infrastructure isn't  built out, there is  a fairly                                                              
high  degree  of  confidence  that  natural gas  or  LNG  will  be                                                              
available for this system.                                                                                                      
                                                                                                                                
1:55:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  understood there is a great  deal of public                                                              
concern with  the damage to  real property  that is being  done in                                                              
this initial phase of pipeline buildout in North Pole.                                                                          
                                                                                                                                
MR. THERRIAULT responded  he talked to Representative  Wilson this                                                              
morning about  the concern she  is hearing from  her constituents.                                                              
He said  he was  also in  touch last  week with  IGU personnel  in                                                              
Fairbanks asking them  to get in touch with the  governor's office                                                              
in Fairbanks  to be prepared  to respond.   He understood  IGU has                                                              
been encouraged  by Representative  Wilson to have  its contractor                                                              
double its  efforts when doing advance  work, such as  going door-                                                              
to-door and  leaving flyers to  let people know  that right-of-way                                                              
clearing for pipe  placement will be happening this  summer.  Last                                                              
fall surveyors  were out during the  day when people might  not be                                                              
home and  it cannot be  told from the  flagging what  is intended.                                                              
He said he thinks  what is happening in North Pole  is that people                                                              
have had  their homes for a  long time and haven't  paid attention                                                              
to where their  property exactly ends and where  the right-of-ways                                                              
are  located.   After  providing  examples  of this  happening  to                                                              
himself and  others, he  said he  thinks Representative  Wilson is                                                              
asking that  the contractors  doing the  right-of-way clearing  be                                                              
as sensitive  as they can.   Contractors actually crossing  over a                                                              
right-of-way  line  could be  subject  to  paying damages  to  the                                                              
property owner.                                                                                                                 
                                                                                                                                
1:58:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NAGEAK  inquired whether the  issuing of loans  means the                                                              
distribution  system in Fairbanks  or North Pole  is on  the verge                                                              
of being built.                                                                                                                 
                                                                                                                                
MR. THERRIAULT  answered the loans  are for distribution  buildout                                                              
in  the  Fairbanks   area  where  FNG  currently   has  a  service                                                              
territory and  then in the outlying  area starting in the  city of                                                              
North  Pole  where   IGU,  a  separate  utility,   has  a  service                                                              
territory granted  to it  by the  Regulatory Commission  of Alaska                                                              
(RCA).   It is wanted  for those two  systems to eventually  be as                                                              
fully  integrated  as possible  to  get  economies of  scale,  but                                                              
starting as two separate distribution systems.                                                                                  
                                                                                                                                
CO-CHAIR NAGEAK  asked whether  negotiations have started  between                                                              
AIDEA and possible contractors.                                                                                                 
                                                                                                                                
MR. THERRIAULT  replied the  contractors  doing the placement  for                                                              
the pipe  are contractors of  IGU and FNG.   But, since  the state                                                              
is providing  money  for the work  to be  done, [AIDEA]  certainly                                                              
tries to keep abreast of the actual work going on in the ground.                                                                
                                                                                                                                
1:59:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TALERICO  understood North  Pole  is  one of  the  worst                                                              
areas of  non-attainment for  air quality  in the Fairbanks  North                                                              
Star Borough.                                                                                                                   
                                                                                                                                
MR.  THERRIAULT  responded correct,  explaining  it  is colder  in                                                              
North  Pole and  during inversions  the  colder temperatures  trap                                                              
everything  closer to the  ground.   Additionally, people  in that                                                              
area are really  struggling with the cost of energy.   A number of                                                              
them have  gone to wood heat  outdoor boilers and some  stoke with                                                              
coal, resulting in some bad particulate matter conditions.                                                                      
                                                                                                                                
2:00:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON inquired  how the financing  is being  done.                                                              
He  offered  his  belief  that when  ENSTAR  Natural  Gas  Company                                                              
(ENSTAR) expanded  in the Anchorage and Kenai  Peninsula areas the                                                              
expansions  were  done  in  all   cases  by  a  local  improvement                                                              
district where  the homeowner or  business owner shared  a portion                                                              
of the  cost, which  was paid  through their  energy bills  over a                                                              
number of years.                                                                                                                
                                                                                                                                
MR. SZYMONIAK  answered  that, at  this point,  each stage  of the                                                              
buildout might  be financed differently.   This initial  stage for                                                              
FNG and IGU  is financed through  direct loans to the  utility, so                                                              
the cost  of building  out to  customers in  the FNG buildout  and                                                              
phase 1 of  the IGU buildout  will be repaid through  their rates.                                                              
There will  be no fee  to a homeowner  beyond the connection  line                                                              
to the system, but  the pipe going down a homeowner's  street will                                                              
be paid through the homeowner's cost of gas.                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON  said he didn't think the  Anchorage or Kenai                                                              
Peninsula expansions  were price driven like the  [Interior Energy                                                              
Project] appears to  be.  He asked what happens if  people are not                                                              
agreeable to the IEP price.                                                                                                     
                                                                                                                                
MR. SZYMONIAK  confirmed it  is not the  same system as  the local                                                              
improvement districts  (LIDs).  If the conversions  to natural gas                                                              
don't  happen  the utilities  will  still  be mandated  to  adjust                                                              
their prices  to recover the rates.   If the utilities  are unable                                                              
to sign  up enough customers  to pay the  rates, AIDEA is  at risk                                                              
of non-repayment.                                                                                                               
                                                                                                                                
REPRESENTATIVE  OLSON asked what  the response  has been  from the                                                              
communities.                                                                                                                    
                                                                                                                                
MR. THERRIAULT  replied  AIDEA has  done a number  of surveys  and                                                              
focus  groups working  in conjunction  with  IGU to  see what  the                                                              
level of interest  is.  A professional conversion  report was done                                                              
and  AIDEA  ran   the  numbers  on  what  this   enterprise  would                                                              
ultimately  turn out  to be  based upon  about 75  percent of  the                                                              
individual residents  hooking up, given not everyone  is likely to                                                              
sign  up.  The  indication  is that if  the gas  can be  delivered                                                              
within  AIDEA's  range of  around  $15,  customers will  sign  up.                                                              
Also, AIDEA  has provided  information on how  gas delivered  at a                                                              
certain  price  will,  compared  to fuel  oil,  save  customers  a                                                              
certain amount  on a  yearly basis.   However,  there would  be an                                                              
internal conversion  cost for the appliances in a  home that could                                                              
be  anywhere from  $2,500 to  $11,000.   Therefore AIDEA  provided                                                              
information to  show how quickly  that cost would be  recouped and                                                              
how payment  could be stretched  out over  time.  Even  with that,                                                              
the response from the public has been pretty positive.                                                                          
                                                                                                                                
2:04:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON expressed  his concern  that AIDEA  will be                                                              
left "holding  the bag."  In the  areas that he is  familiar with,                                                              
rather  than just  expressions of  interest,  people committed  to                                                              
putting in  a system  via a  vote and  then assessments  were made                                                              
[if the  vote approved  the project].   He inquired  whether AIDEA                                                              
considered having local improvement districts that would vote.                                                                  
                                                                                                                                
MR.  THERRIAULT responded  the financing  tools  that were  passed                                                              
several years  ago did  not require that.   He believed,  however,                                                              
that  for  outlying  areas  where  the  economics  are  even  more                                                              
challenged it is  likely that forming local  improvement districts                                                              
will be a  requirement if people  want the pipe extended  to them.                                                              
The initial  financing is for the  core of the city  of Fairbanks,                                                              
the  North Pole  area,  and immediately  outside  the city  limits                                                              
where there  is the greatest density.   Under requirements  of the                                                              
financing  that  was provided,  [FNG  and  IGU] must  get  AIDEA's                                                              
approval  before starting  preliminary work  on phase  2 so  AIDEA                                                              
can  see what  is the  price, the  conversion, and  the number  of                                                              
customers  that  are coming  forward  and  signing  up.   The  air                                                              
quality  issue is  something the  borough cannot  escape and  must                                                              
deal  with, and  AIDEA believes  that  providing this  alternative                                                              
source of fuel is ultimately the long-term solution.                                                                            
                                                                                                                                
2:07:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON  asked what has been contributed  thus far by                                                              
Fairbanks, North Pole, and the borough.                                                                                         
                                                                                                                                
MR. THERRIAULT  answered it has  just been in-kind support  of the                                                              
formation of IGU  at this point, and [the IGU]  board of directors                                                              
is volunteers.   The Fairbanks North Star Borough  supplied a line                                                              
of credit originally  to the IGU,  which IGU has not used  at this                                                              
point.   Also,  AIDEA is  working  with the  local governments  on                                                              
conversion  mechanisms.    The  borough  has  indicated  it  would                                                              
finance  the stretching  of customer  payments  on the  customer's                                                              
utility bills  for the  conversion of individual  homes.   He said                                                              
AIDEA believes  there would  be a very  low default rate  on that,                                                              
but lenders  bringing money  to that game  might want  those loans                                                              
to be  backstopped and the borough  mayor has indicated  that that                                                              
is likely to be a task of local governments.                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON concluded  the only  entity having  money in                                                              
the game at this point is the state through AIDEA.                                                                              
                                                                                                                                
MR. THERRIAULT answered that that is substantially true.                                                                        
                                                                                                                                
2:08:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER referred  to the risk  assessment  of IGU's                                                              
strengths and  weaknesses that was  included in the  memorandum to                                                              
AIDEA's board  members for the IGU  distribution loan.   The first                                                              
identified  threat  was  long-term  gas  supply  availability,  he                                                              
observed, and  the second  threat was  rate-making oversight.   He                                                              
asked why  rate-making oversight is  a threat to this  project and                                                              
something  to be  considered when  making the  loan.   He said  he                                                              
unaware of  any other public utility  in the state, at  least in a                                                              
major  metropolitan  area,  that isn't  subjected  to  rate-making                                                              
oversight.                                                                                                                      
                                                                                                                                
MR. SZYMONIAK  replied the IGU has  elected not be  rate regulated                                                              
through the  Regulatory Commission of  Alaska (RCA), so  the rates                                                              
will  be set  by the  IGU board.   He  believed the  rates may  be                                                              
approved by  the borough, but  said they will  at least be  set by                                                              
the municipal  entity at  the Fairbanks  North Star Borough  board                                                              
level or the IGU  board level and not overseen or  not approved by                                                              
the RCA.   That was  simply to put  in there that  moving forward,                                                              
AIDEA, as the  lender on the distribution system,  needs to ensure                                                              
the mechanisms  are in place  that rates are  set by the IGU  at a                                                              
level capable of paying back AIDEA under the terms of the loan.                                                                 
                                                                                                                                
REPRESENTATIVE  HAWKER posed  a  scenario in  which  there are  no                                                              
local  improvement districts,  no  community  buy-in that  assures                                                              
the entire  community shall become  invested in this  project, and                                                              
on a certain street  40 people were expected to sign  up, but only                                                              
one does.   He inquired whether  that one person will  be expected                                                              
to  pay the  cost for  all 40,  given the  understanding that  IGU                                                              
will be charging enough to pay back the state's loans.                                                                          
                                                                                                                                
MR.  SZYMONIAK responded  the  rates  will be  set  by the  entire                                                              
service area,  not street  by street.   Under the impending  AIDEA                                                              
acquisition  of  FNG  and  the  extent  that  [IGU  and  FNG]  are                                                              
integrated, that  cost to a street  might be shared by  the entire                                                              
community.  But,  yes, it is correct that AIDEA  expects the rates                                                              
will be  set at a  level to pay  back the  AIDEA loan.   The AIDEA                                                              
loan was  made in  a way  such that  the payments  are low  in the                                                              
early years to allow  demand to grow before the  payments kick in.                                                              
In making  that loan, AIDEA  chose to take  the risk based  on its                                                              
work and analysis  of the expected conversion rates.   The risk of                                                              
not enough  conversions was  an educated risk  that AIDEA  made in                                                              
order to advance the Interior Energy Project.                                                                                   
                                                                                                                                
2:12:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  said  the aforementioned  answer  has  now                                                              
caused  him greater  concern in  that an  individual person  could                                                              
end up paying  for the entire  project, not just the  person's own                                                              
street, if  there are not  enough conversions.   He said  he would                                                              
be really  uncomfortable if he lived  in North Pole right  now and                                                              
had this  coming at him.   The whole  point of rate  regulation is                                                              
to protect the  consumer from excessive or  inappropriate business                                                              
decisions made on  behalf of a dominant public utility.   He asked                                                              
whether AIDEA  thinks that  the consumers  would benefit  by rate-                                                              
making authority.                                                                                                               
                                                                                                                                
MR. SZYMONIAK answered  he is speculating given  AIDEA hasn't seen                                                              
the actual  financial model moving  forward with  the conversions,                                                              
but he  suspects not  being rate regulated  would be  an advantage                                                              
in  the  aforementioned  scenario.    If  the  conversions  aren't                                                              
there, AIDEA is  in a position to be flexible when  loan repayment                                                              
is expected  in three to six  years.  Whereas,  the rate-regulator                                                              
route would  be less flexible and  more formulaic, so  those rates                                                              
would more likely be borne by the customer.                                                                                     
                                                                                                                                
REPRESENTATIVE  HAWKER said  that would  seem to  work as  long as                                                              
the state was willing  to provide that subsidy and  did not expect                                                              
to  be  repaid  in  accordance  with  the  terms  that  are  being                                                              
presented to the committee as part of AIDEA's transaction.                                                                      
                                                                                                                                
MR.  SZYMONIAK replied  such  a  scenario would  be  a handful  of                                                              
years out  and based  on a  handful of  things happening  by then.                                                              
He reiterated  his expectation that  AIDEA would be  flexible with                                                              
the repayment  of its  terms in order  to benefit the  communities                                                              
of  North   Pole  and   Fairbanks  as  is   the  intent   of  this                                                              
appropriation to begin with.                                                                                                    
                                                                                                                                
MR. THERRIAULT added  that IGU was advised that  having that extra                                                              
flexibility  would be  beneficial to  it initially  and he  thinks                                                              
this  advice was  given by  some  RCA commissioners.   That  extra                                                              
flexibility  is  probably  needed  in those  initial  years  until                                                              
overall volume and number of customers gets up high.                                                                            
                                                                                                                                
2:15:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR inquired  whether opportunities  such as  the                                                              
Alaska  Housing Finance  Corporation's (AHFC)  Home Energy  Rebate                                                              
Program would  be available to help  accelerate the rate  at which                                                              
conversion might take place.                                                                                                    
                                                                                                                                
MR. THERRIAULT  responded the Local  Conversion Working Group  - a                                                              
combination  of local government,  individuals  from FNG  and IGU,                                                              
mechanical contractors  in Fairbanks, local lenders  in Fairbanks,                                                              
[and  AIDEA]  - have  looked  at  the suite  of  things  currently                                                              
available  or that  could be available  and the  AHFC Home  Energy                                                              
Rebate Program can  assist individuals in converting  their homes.                                                              
Converting  fuel  oil appliances  to  more efficient  natural  gas                                                              
appliances qualifies  as an energy efficiency step,  so would lend                                                              
itself to individual  homeowners who convert.  Also,  there is on-                                                              
bill financing,  which is  an agreement  between the customer  and                                                              
the utility  to help  finance those  conversion costs  spread over                                                              
time.  A separate  piece of legislation for  business conversions,                                                              
the Property  Assessed Clean Energy  (PACE) financing,  would help                                                              
businesses  perform energy  efficiency  acts  on their  structures                                                              
and converting to  natural gas heat would qualify.   The state can                                                              
help  with some  of  the mechanisms,  and  the  PACE financing  in                                                              
particular is asking  the legislature to create  the mechanism for                                                              
local  governments  to use  and  is a  zero  fiscal  note for  the                                                              
state.   The AHFC  rebate, if that  is going to  be a  portion, is                                                              
reliant on the monies that have been appropriated to AHFC.                                                                      
                                                                                                                                
2:17:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   HAWKER  inquired   whether  Mr.  Therriault   had                                                              
earlier  said the  RCA  recommended  against rate  regulation  and                                                              
asked whether there is a docket on this recommendation.                                                                         
                                                                                                                                
MR. THERRIAULT  answered he had  a personal conversation  with one                                                              
or two of the  RCA commissioners about whether it  is better for a                                                              
municipal  entity to  be  rate regulated  or  not rate  regulated.                                                              
The  advice he  received was  that, initially,  the utility  would                                                              
probably  need some  extra  flexibility and  then  later it  could                                                              
consider whether  to be  fully rate regulated  and come  under the                                                              
auspice of the RCA.                                                                                                             
                                                                                                                                
REPRESENTATIVE HAWKER  asked whether the aforementioned  answer is                                                              
to be taken as authoritative counsel on behalf of the RCA.                                                                      
                                                                                                                                
MR. THERRIAULT replied no.                                                                                                      
                                                                                                                                
REPRESENTATIVE  HAWKER  regarding Representative  Tarr's  question                                                              
about  what  it  will  take  to  make  this  work,  noted  AIDEA's                                                              
response was all  about receiving more government  largess to make                                                              
it work.  He  asked whether AIDEA has done any  financial analysis                                                              
to the point that  it can credibly state what the  natural rate of                                                              
conversion will be  at varying oil prices, given  this whole thing                                                              
has  been driven  by retail  heating  fuel prices.   For  example,                                                              
what the  conversion level  would be  at any  given oil  price and                                                              
what the additional  government subsidy is going to  have to be to                                                              
incentivize the  necessary conversions  to get the  buildout ratio                                                              
needed to make this project work at any given price of oil.                                                                     
                                                                                                                                
MR.  THERRIAULT responded  the conversion  report  he referred  to                                                              
earlier  will  answer   that  question.    Consumers   were  asked                                                              
questions about whether  they would convert if  their savings were                                                              
"X" in  various scenarios:   the  difference between the  existing                                                              
oil price  and the natural gas  price and as that  difference gets                                                              
squeezed either  because fuel  oil comes down  or the  natural gas                                                              
price goes up.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  HAWKER inquired  at what  price of retail  heating                                                              
fuel the  conversion ratio  becomes acceptable  to making  AIDEA's                                                              
project work without additional subsidy for those conversions.                                                                  
                                                                                                                                
MR. THERRIAULT answered  the survey was done when fuel  oil was at                                                              
$4  [per gallon],  which  equates to  an oil  price  of $100  [per                                                              
barrel].   The survey indicated  that within the range  of $15-$16                                                              
a  conversion  rate  of  75 percent  was  a  realistic  number  to                                                              
expect.  Consumers  indicated they didn't think  today's low price                                                              
of oil would  be the prevailing  price going forward.   The survey                                                              
showed that  at $17-$18  the conversion  rate would be  negatively                                                              
impacted.   He said he will provide  the committee with  a copy of                                                              
the sophisticated chart included within the report.                                                                             
                                                                                                                                
2:22:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON  recalled that  Mr. Therriault served  in the                                                              
Alaska State Legislature when oil was at about $9 per barrel.                                                                   
                                                                                                                                
MR. THERRIAULT replied  yes, he was co-chair of  the House Finance                                                              
Committee.                                                                                                                      
                                                                                                                                
2:22:52 PM                                                                                                                    
                                                                                                                                
FRED  PARADY, Deputy  Commissioner,  Office  of the  Commissioner,                                                              
Department   of  Commerce,  Community   &  Economic   Development,                                                              
resumed  the  presentation,  turning to  slide  7.   He  said  the                                                              
question  before the  committee  is that  AIDEA  is exploring  the                                                              
[LNG]  alternatives   in  Cook  Inlet.    The   premise  for  this                                                              
exploration is  simply that Alaska's  natural gas and  LNG markets                                                              
have changed  in the  last two  years and  new information  is now                                                              
available  that  influences  the   best  course  of  action  going                                                              
forward.   In 2013 Cook Inlet  utilities were actively  developing                                                              
import  plans amidst  gas supply  fears.   The existing  proposals                                                              
for  the North  Slope  LNG option  indicated  lower capital  costs                                                              
than what proved  to be true, and  AIDEA has not selected  a North                                                              
Slope  developer  or  project  design.   In  2015  the  concession                                                              
agreement work  that was done  revealed a  high cost of  the North                                                              
Slope  LNG  project.   The  Cook  Inlet  "renaissance,"  which  is                                                              
largely  a credit  to  the tax  work  that has  been  done by  the                                                              
legislature, provides  an opportunity for lower cost  natural gas.                                                              
Additionally, the  downturn in global  LNG markets may  reduce the                                                              
price for conventional LNG equipment.                                                                                           
                                                                                                                                
MR. PARADY  compared the North Slope  and Cook Inlet  for projects                                                              
[slide 8].  In  terms of gas supply, Cook Inlet  is uncertain, but                                                              
the  indications  are positive.    The  North Slope  has  abundant                                                              
supply at low cost  and existing contracts in place,  but the cost                                                              
of getting  that gas to  market is substantial.   In terms  of LNG                                                              
plant costs,  constructing and operating  an LNG plant  is cheaper                                                              
"off the  shelf" in  Southcentral Alaska than  in the  North Slope                                                              
because of  the expense  to design and  construct for  North Slope                                                              
conditions.   In regard  to trucking  and rail  options, there  is                                                              
lower trucking  cost, larger  trailer options,  and a  rail option                                                              
coming  from  the south  as  opposed  to  coming down  the  Dalton                                                              
Highway.    Storage and  distribution  is  essentially  equivalent                                                              
between  the  Cook  Inlet  and   the  North  Slope,  there  is  no                                                              
significant change  in design and costs.  The  conclusion is that,                                                              
if affordable  natural gas is available,  a Cook Inlet  project is                                                              
favorable.                                                                                                                      
                                                                                                                                
2:25:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  recalled  Mr.  Szymoniak  earlier  stating                                                              
that  AIDEA is  entertaining multiple  proposals  for natural  gas                                                              
out of  Cook Inlet.   He asked how  that is possible  when AIDEA's                                                              
request for proposals  (RFP) for gas and supply is  not yet on the                                                              
street.   He  further  asked  whether  AIDEA is  negotiating  with                                                              
people and making commitments without having released an RFP.                                                                   
                                                                                                                                
MR.  SZYMONIAK responded  AIDEA  is not  negotiating with  people.                                                              
Re-stating  himself, he  said  he intended  to  say that  multiple                                                              
Cook Inlet  providers are proposing  to provide LNG  to Fairbanks.                                                              
Providers can propose  to provide LNG to Fairbanks  and North Pole                                                              
without AIDEA's involvement  and they have.  They've  had meetings                                                              
and  presentations  in the  community  and, he  believed,  they've                                                              
also  had presentations  in  Juneau.    Thus, interest  was  shown                                                              
prior to AIDEA issuing its RFP for liquefaction and gas supply.                                                                 
                                                                                                                                
REPRESENTATIVE  HAWKER maintained  he is  now getting an  entirely                                                              
different answer  to his previous  question in that  Mr. Szymoniak                                                              
previously  assured  him  that  AIDEA  was  entertaining  multiple                                                              
proposals out of Cook Inlet.  He said he is troubled by this.                                                                   
                                                                                                                                
2:27:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER addressed  the statement  on slide  8 about                                                              
LNG plant  costs being cheaper  "off the  shelf."  He  offered his                                                              
understanding  that the  current burner  tip cost  of gas  in Cook                                                              
Inlet through ENSTAR  is about $10 at the burner  tip, about $7.75                                                              
for  the gas  and about  another  $2 or  so in  distribution.   He                                                              
inquired whether that  is a fair statement for what  it is costing                                                              
burner tip in Anchorage at this time.                                                                                           
                                                                                                                                
MR. SZYMONIAK  answered yes, AIDEA's  calculations show  that when                                                              
all distribution and  variable and fixed costs are  included it is                                                              
about $10  to the  burner tip  for a  residential customer  on the                                                              
ENSTAR system outside of Homer.                                                                                                 
                                                                                                                                
REPRESENTATIVE  HAWKER understood  the stipulated  hurdle rate  in                                                              
Fairbanks for consumer delivery of gas is $15 at burner tip.                                                                    
                                                                                                                                
MR. SZYMONIAK replied correct.                                                                                                  
                                                                                                                                
REPRESENTATIVE HAWKER  noted [the burner  tip cost] being  paid in                                                              
Anchorage  is $10,  and  $15 is  needed in  Fairbanks.   He  asked                                                              
whether AIDEA  thinks it is  economically achievable to  meet that                                                              
objective in the Fairbanks market place.                                                                                        
                                                                                                                                
MR. SZYMONIAK  responded AIDEA believes  it is possible,  although                                                              
not certain,  based on  AIDEA's analysis  and initial  discussions                                                              
with providers.   That cost of gas to ENSTAR's  customers is based                                                              
on  a  series  of historic  prices,  he  pointed  out,  not  newly                                                              
negotiated contracts.   Additionally, the gas service  required by                                                              
ENSTAR  will be different  than  the gas service  required  by the                                                              
Interior  Energy Project.   So,  AIDEA does not  know for  certain                                                              
whether  it will  get there,  but  early indications  are that  an                                                              
opportunity is there  and it is potentially possible  and AIDEA is                                                              
exploring that through the RFP process.                                                                                         
                                                                                                                                
REPRESENTATIVE  HAWKER  inquired what  AIDEA  thinks  will be  the                                                              
potential consequences  when the Hilcorp  price cap is  removed at                                                              
the time the anti-trust agreement expires.                                                                                      
                                                                                                                                
MR. SZYMONIAK  answered AIDEA  doesn't know  what that  price will                                                              
be  and  said  he  doesn't  think  anyone  knows  other  than  the                                                              
utilities and  the natural  gas providers in  Cook Inlet  that are                                                              
currently  in   the  middle   of  confidential  negotiations   and                                                              
advancing gas supply  agreements.  He added AIDEA  is looking into                                                              
that process and  trying to achieve the lowest  gas price possible                                                              
for Interior  customers and  to determine  whether that  gas price                                                              
is sufficient to meet the goals of the IEP.                                                                                     
                                                                                                                                
2:30:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON requested  that a copy  of AIDEA's  analysis                                                              
of Cook Inlet gas be forwarded to the committee.                                                                                
                                                                                                                                
MR.  SZYMONIAK replied  some upcoming  slides will  touch on  that                                                              
and the analysis can be talked about at that point.                                                                             
                                                                                                                                
REPRESENTATIVE  OLSON  clarified   he  is  asking  for  the  whole                                                              
analysis, not a one-page summary.                                                                                               
                                                                                                                                
MR. SZYMONIAK responded  that that's where things are  at with the                                                              
analysis  - AIDEA hasn't  written  anything up.   There have  been                                                              
extensive  conversations, but  summary notes  from meetings  could                                                              
be provided to the extent that they aren't confidential.                                                                        
                                                                                                                                
REPRESENTATIVE  OLSON  remarked he  is  now confused  because  the                                                              
analysis was  mentioned as  if it  was a real  document.   He said                                                              
his definition of  an analysis is something that  is performed for                                                              
pay  by a  person or  an organization  to  provide information  to                                                              
another group.                                                                                                                  
                                                                                                                                
MR. SZYMONIAK answered  there is not a formal  document that AIDEA                                                              
has put together;  AIDEA has had a series of  discussions with the                                                              
Department of  Natural Resources  (DNR) which had  formal analysis                                                              
of gas  reserves left  in Cook  Inlet.   Most of AIDEA's  meetings                                                              
were  done  confidentially  with  Cook Inlet  gas  providers,  and                                                              
AIDEA's  notes  on  those meetings  constitute  an  analysis,  but                                                              
which  AIDEA  probably cannot  share.    He  allowed there  is  no                                                              
report or formal analysis that AIDEA can provide.                                                                               
                                                                                                                                
2:31:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   HAWKER  stated  he   has  the  same   concern  as                                                              
Representative Olson.   He maintained  it was very  clearly stated                                                              
that  there  was  a  study,  documents  and  analysis,  that  were                                                              
available and  now it  is being  found out that  there isn't.   He                                                              
offered his understanding  that what is being heard  is that AIDEA                                                              
is stepping into  the marketplace and negotiating  the procurement                                                              
of gas in  the Cook Inlet and  negotiating gas at a  cheaper price                                                              
for the  IEP on behalf  of the utility,  a private  company, which                                                              
is supposed  to be  operating in Fairbanks.   He inquired  whether                                                              
he is correct in his understanding.                                                                                             
                                                                                                                                
MR.  PARADY,  noting  he is  the  lead  on  the gas  supply  team,                                                              
replied that  the role  of the  state team  is threefold:   assess                                                              
the viability of  achieving the IEP goals with  Cook Inlet natural                                                              
gas,  initiate  the  commercial   process  through  a  formal  and                                                              
competitive  solicitation,  and conduct  preliminary  negotiations                                                              
with Cook  Inlet producers  on behalf  of the Interior  utilities.                                                              
Through these  roles, [the team]  hopes to streamline  the process                                                              
and support  the goals of Senate  Bill 23, which is  the provision                                                              
of  affordable energy  into Fairbanks.    Saying today's  critical                                                              
scrutiny  is appreciated,  he requested  the view  be lifted  to a                                                              
"30,000 foot  view" of the original  legislation, which is  to use                                                              
the state's  tools to  attempt to deliver  gas into  the Fairbanks                                                              
market  at an  affordable price.    He made  clear, however,  that                                                              
neither  the State  of Alaska, nor  AIDEA, will  purchase  or take                                                              
custody of natural gas on behalf of any utility.                                                                                
                                                                                                                                
MR. THERRIAULT  drew attention  to the letters  of support  in the                                                              
committee  packet  from  Furie Operating  Alaska,  LLC,  and  Cook                                                              
Inlet  Energy,   LLC,  two  potential  suppliers   in  Cook  Inlet                                                              
interested in  the possibility of  supplying the  Interior market.                                                              
He said they  are aware of  the price target, what  AIDEA believes                                                              
the  delivered price  into  the  community needs  to  be, for  the                                                              
demand to actually  present itself.  They obviously  believe there                                                              
is a chance that  they could potentially deliver  natural gas into                                                              
the beginning of that delivery stream that could satisfy that.                                                                  
                                                                                                                                
2:34:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  addressed Mr. Parady's  response, remarking                                                              
that  Mr. Parady  was definitely  ready to  recite that  response.                                                              
Calling  attention   to  Administrative  Order  (AO)   272,  dated                                                              
January  16, 2015,  he noted it  directs the  commissioner  of the                                                              
Department of Commerce,  Community & Economic Development  to take                                                              
the  lead in  facilitating  collaboration  and coordination  among                                                              
government  and other  entities  involved in  the Interior  Energy                                                              
Project.   He said he doesn't  see the commissioner  involved much                                                              
in the IEP.   He further noted the AO also  directs the Department                                                              
of Natural  Resources to  work with  AIDEA on assessing  potential                                                              
natural gas supplies  for Interior Alaska.   Representative Hawker                                                              
maintained  that  [Mr.  Parady's]  statement did  not  include  an                                                              
interest  in   assessing  potential   gas  supplies,   but  rather                                                              
participating  in that procurement.   He argued  the AO  was clear                                                              
that  it  was  to  assess  and   identify  potential  natural  gas                                                              
supplies for Interior Alaska.                                                                                                   
                                                                                                                                
MR. PARADY  apologized for any  misunderstanding he may  have left                                                              
on   Representative  Hawker's   part   and   stated,  "Of   course                                                              
Administrative  Order 272  directed the  commissioner of  commerce                                                              
to  coordinate  at the  highest  level  of the  administration  to                                                              
support both  consumer energy  statewide  and the Interior  Energy                                                              
Project."   Continuing, he  said that  includes the assessment  of                                                              
Cook  Inlet gas  supply, which  has  a working  team comprised  of                                                              
himself, Mr.  Szymoniak, and Paul Decker  and Ed King of  DNR; the                                                              
team has  been working with a  weekly phone call to  continue that                                                              
assessment process  of natural gas.   He confirmed he  is prepared                                                              
for  the committee's  questions, saying  he would  be ill  advised                                                              
not to  be.  He noted  that the first  bullet point he  offered to                                                              
the committee was  to assess the viability of  achieving the goals                                                              
of IEP  with Cook  Inlet natural  gas and  said the foundation  of                                                              
that analysis rests  on an assessment of those  resources and that                                                              
work is ongoing.                                                                                                                
                                                                                                                                
2:36:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  said he is  listening between the  lines of                                                              
Mr. Parady's  answer.   He asked  whether "third floor  personnel"                                                              
are  actively involved  in  pursuing  these gas  sources,  meaning                                                              
people who  are not part of  AIDEA or the Department  of Commerce,                                                              
Community & Economic Development.                                                                                               
                                                                                                                                
MR.  PARADY replied  a  representative  of the  governor's  office                                                              
participates  in the team  meetings, but the  meetings are  led by                                                              
himself.  The  active geological assessment work is  being done by                                                              
the Department of Natural Resources.                                                                                            
                                                                                                                                
REPRESENTATIVE HAWKER  inquired whether anyone in  [the governor's                                                              
office]  is  actively  procuring  LNG  facilities  or  negotiating                                                              
leases  or  the potential  ability  to  identify resource  in  the                                                              
ground that could be utilized for this project.                                                                                 
                                                                                                                                
MR. PARADY  responded  no and offered  his belief  that that  work                                                              
was curtailed a month ago.                                                                                                      
                                                                                                                                
REPRESENTATIVE  HAWKER  respectfully  suggested  he  is  receiving                                                              
different information.                                                                                                          
                                                                                                                                
MR.  PARADY thanked  Representative  Hawker  for that  information                                                              
and said he will continue to pursue it.                                                                                         
                                                                                                                                
2:38:00 PM                                                                                                                    
                                                                                                                                
MR.  SZYMONIAK resumed  the presentation,  explaining slides  9-12                                                              
are visual representations  of the North Slope  LNG project versus                                                              
a Cook Inlet  option that AIDEA  would be able to pursue  with the                                                              
passage of HB 105.   Addressing the North Slope  value chain shown                                                              
on slide  9, he said  there are two  existing contracts  for North                                                              
Slope  natural   gas  supply,  both   signed  by   local  Interior                                                              
utilities and  assigned to the IEP.   The liquefaction  plant that                                                              
was being considered  for LNG production was under  the concession                                                              
agreement   with  MWH.     Trucking  off   the  North   Slope  was                                                              
anticipated to  happen by private  contractors; AIDEA  did explore                                                              
potentially financing  some trailers, but not the  trucking or the                                                              
trucking  operation  itself.     In  regard  to  LNG  storage  and                                                              
regasification, AIDEA  made loans to  FNG and IGU for  buildout of                                                              
a distribution  system.   Turning to the  value chain  depicted on                                                              
slide  10 for  LNG sourced  out  of Cook  Inlet, he  said the  big                                                              
difference  is  in  gas  supply  - AIDEA  would  be  working  with                                                              
utilities  to  pursue  gas  supply   agreements  with  Cook  Inlet                                                              
producers.  In the  end it would be the utilities  themselves that                                                              
would be  signing those agreements.   The LNG production  would be                                                              
with  a third  party developer,  not AIDEA  buying, designing,  or                                                              
operating  a plant.   The third  party developer  would work  with                                                              
AIDEA  to partner  on  financing  or to  partner  as  part of  the                                                              
larger IEP planning.   Presently the base case  for transportation                                                              
is  trucking,  but  using  the   Alaska  Railroad  is  an  option.                                                              
Trucking  of the  LNG  would be  done by  the  private sector  and                                                              
AIDEA would  be open to purchasing  or financing the  LNG trailers                                                              
or the  ISO containers  if on the  railroad.   If propane  is made                                                              
available through  legislation or through a proposal,  AIDEA could                                                              
invest  in the  propane transportation.    If a  pipeline is  made                                                              
available  or  a  pipeline proposal  moves  forward,  AIDEA  could                                                              
invest in  the pipeline  transportation, but  at this point  it is                                                              
LNG  trucking.   Storage  and regasification  for  the Cook  Inlet                                                              
alternative would remain the same [as for the North Slope].                                                                     
                                                                                                                                
2:40:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   OLSON  asked  whether   Golden  Valley   Electric                                                              
Association (GVEA)  will have a  conflict with its restart  of the                                                              
Healy coal project.                                                                                                             
                                                                                                                                
MR. THERRIAULT  answered GVEA is  going ahead with restart  of the                                                              
Healy coal  project.  However, within  its system, GVEA  needs the                                                              
ability to  firm up the  Eva Creek wind  project, but  GVEA cannot                                                              
do that  with a coal  plant because coal  cannot be ramped  up and                                                              
down that  quickly.   So, GVEA  has an  LM6000 generator  in North                                                              
Pole.   Part  of the  reason why  the IGU  distribution begins  at                                                              
North Pole  is because IGU would  partner with GVEA for  LNG to be                                                              
stored  there  and  made  available  directly  to  GVEA  for  that                                                              
LM6000.   Conversion  of that  plant  has been  factored by  GVEA.                                                              
When  it was  initially  built the  thought  was  that a  pipeline                                                              
would  be delivering  gas into the  community,  so it was  sourced                                                              
and built  with the  idea of  converting it  over to natural  gas.                                                              
That particular  generator still is a  load base, it has  a demand                                                              
for fuel that can be switched over to LNG.                                                                                      
                                                                                                                                
2:41:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER said  he  has areas  of concern  [regarding                                                              
the Cook Inlet  LNG alternative].   The chart on slide  10 shows a                                                              
third  party LNG  developer in  the  LNG production  part of  this                                                              
process, yet  on February  12, 2015,  AIDEA provided an  extensive                                                              
presentation  to  the  Legislative   Budget  and  Audit  Committee                                                              
regarding  its potential  purchase  of the  Pentex Alaska  Natural                                                              
Gas Company,  LLC (Pentex),  which includes  an LNG facility  that                                                              
the  state would  own  and operate.   He  inquired  whether he  is                                                              
missing something.                                                                                                              
                                                                                                                                
MR. SZYMONIAK  replied the  state would also  own an  agreement to                                                              
sell that asset  to Harvest Alaska, LLC, a subsidiary  of Hilcorp,                                                              
to own and operate the existing LNG plant owned by Pentex.                                                                      
                                                                                                                                
REPRESENTATIVE  HAWKER understood  the  State  of Alaska,  through                                                              
its  attorney general,  has  opposed  that sale.    He asked  what                                                              
AIDEA's intention is to do with that $50 million plant.                                                                         
                                                                                                                                
MR.  PARADY  said  Mr.  Ted  Leonard,   AIDEA  Executive  Director                                                              
Emeritus,  is on  line and  might be  best suited  to answer  that                                                              
question.  [Mr. Leonard was unavailable to answer.]                                                                             
                                                                                                                                
MR.  THERRIAULT  explained the  existing  one billion  cubic  foot                                                              
plant is a  proposed part of the  Pentex purchase, but  there is a                                                              
contractual  obligation to sell  that to  Hilcorp and  AIDEA would                                                              
be contractually obligated to follow through on that sale.                                                                      
                                                                                                                                
2:44:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER presumed  that if  the attorney general  is                                                              
overridden and  the sale goes through,  AIDEA has no  intention of                                                              
withdrawing  that sales  commitment.   He understood  the sale  of                                                              
that particular  LNG plant comes with  a 10 year absolute  take or                                                              
pay commitment  on behalf of  FNG to purchase  gas for  its entire                                                              
existing requirement  today at $15  per thousand cubic  feet (MCF)                                                              
at city gate,  which is not delivery  to the burner tip  and which                                                              
doesn't  meet  AIDEA's  hurdle   rate.    He  inquired  how  FNG's                                                              
customers in  Fairbanks can  be committed to  $15 city  gate while                                                              
AIDEA is  telling the committee  today that  there is no  need for                                                              
rate regulation to protect consumers.                                                                                           
                                                                                                                                
MR.  PARADY answered  the  $15 on  the  first  billion cubic  feet                                                              
(BCF) makes  it tough to achieve  a lower cost over  the ramped-up                                                              
volume.  He  said Representative Hawker is correct  in identifying                                                              
that  as an  issue,  but  added that  those  issues  remain to  be                                                              
worked out as work continues forward on this deal.                                                                              
                                                                                                                                
REPRESENTATIVE  HAWKER  said  he  is concerned  about  creating  a                                                              
situation in  Fairbanks of  two classes of  consumers:   those who                                                              
are a discriminated  class that got into the deal  early and those                                                              
who benefit  later because  the state  has put  a great  deal more                                                              
money into the project.                                                                                                         
                                                                                                                                
2:46:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER addressed  slide 10,  recalling an  earlier                                                              
statement   that  AIDEA   would   be  helping   and   facilitating                                                              
agreements  that do  not involve  AIDEA taking  ownership of  gas.                                                              
He said  he has a  community that  sits on the  Cook Inlet  and he                                                              
has  a  gas  utility  that negotiates  by  itself  with  the  same                                                              
providers of  gas that  AIDEA would be  going to and  interjecting                                                              
the  state  in a  competing  role  with  his  utility.   He  asked                                                              
whether it  is fair to have the  state competing on behalf  of the                                                              
Fairbanks  utilities when  his utilities  are being  disadvantaged                                                              
by that activity.                                                                                                               
                                                                                                                                
MR.  PARADY offered  his perspective,  saying that  the supply  of                                                              
gas  into the  Fairbanks market  is relatively  small compared  to                                                              
the Anchorage  market.  Additionally,  the increase in  gas supply                                                              
availability  in the Cook  Inlet in recent  years has  created the                                                              
potential that  there is  room for both  markets.  Finally,  there                                                              
is the combining  of FNG and LNG utilities to  create a sufficient                                                              
and reasonable  economy of  scale.  From  the "30,000  foot view,"                                                              
Senate  Bill  23  offers  a  package  of  $332  million  in  state                                                              
support, of which  20 percent is grants and 80 percent  is debt to                                                              
be borne by those  consumers, albeit in the form  of state patient                                                              
capital that  isn't required  to meet a  12.5 percent  hurdle rate                                                              
for a rate  of return.  It is  trying to deploy those  assets in a                                                              
way that  allows becoming  a player in  that market  without being                                                              
destructive   to  the  core   market  of   Anchorage;  these   are                                                              
discussions  that he has  had personally  with ENSTAR's  president                                                              
and which  he believes can be  achieved as this process  is worked                                                              
through.   He said Representative  Hawker's concern is  well taken                                                              
and something to be worked on as work continues forward.                                                                        
                                                                                                                                
REPRESENTATIVE  HAWKER agreed  this is what  negotiations  are all                                                              
about, but  said he would like to  have answers that are  far more                                                              
clear and  certain before  committing the  state's resources  on a                                                              
long-term basis  to a project  that is  going to be  requiring gas                                                              
from the  Cook Inlet for  30 years when  his own utilities  cannot                                                              
get more than a three-year contract today.                                                                                      
                                                                                                                                
2:49:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NAGEAK  recalled testimony several weeks  ago from Doyon,                                                              
Limited, and  Ahtna, Incorporated,  that there is  the possibility                                                              
of finding natural  gas closer to Fairbanks, in which  case all of                                                              
this may  be moot  because it would  be a  lot cheaper  going from                                                              
Nenana  to   Fairbanks.    So   much  is  happening   with  energy                                                              
exploration  that  AIDEA may  come  back  saying  it has  found  a                                                              
cheaper way.  He asked whether AIDEA has thought about that.                                                                    
                                                                                                                                
MR. THERRIAULT responded  AIDEA has certainly kept  abreast of the                                                              
developments of Doyon  in the Nenana region.  At  this point Doyon                                                              
has not  found a  commercial supply  of gas, but  that could  be a                                                              
possibility  in  another  decade  or  so if  a  big  line  doesn't                                                              
happen.   It would  still give AIDEA  the opportunity,  though, to                                                              
get  the infrastructure  for  distribution  built  out and  source                                                              
initial gas  perhaps out  of Cook  Inlet or  off the North  Slope.                                                              
Something  to be kept  in mind  is that  the name Interior  Energy                                                              
Project denotes  a geographic  area that is  larger than  just the                                                              
Fairbanks North Star  Borough.  Although it is  the second largest                                                              
metropolitan area  it is still a  relatively small demand,  but it                                                              
would anchor  whatever infrastructure  was  developed to  get that                                                              
product flowing  for use in  Glennallen, Tok, Mentasta,  Northway,                                                              
and other  communities in that  larger geographic area;  that bulk                                                              
demand would bring down that overall per-unit price.                                                                            
                                                                                                                                
2:52:34 PM                                                                                                                    
                                                                                                                                
MR. SZYMONIAK continued  the presentation, moving  to slides 11-12                                                              
and  comparing  a  North  Slope  project map  with  a  Cook  Inlet                                                              
project map.  For  the North Slope project (slide  11) the natural                                                              
gas supply would  be sourced on the North Slope,  liquefied on the                                                              
North Slope, and  trucked to Interior Alaska.  For  the Cook Inlet                                                              
(slide 12)  the natural gas  supply would  be sourced out  of Cook                                                              
Inlet, liquefied  in Southcentral,  and trucked  or railed  to the                                                              
Interior.   The  two  are functionally  the  same  project with  a                                                              
different source  of gas,  they have the  same financing  tools by                                                              
AIDEA, and  they have the same  approach by AIDEA to  find private                                                              
developers to do  the operation and advancing of  the project with                                                              
AIDEA financing and participation.                                                                                              
                                                                                                                                
MR. SZYMONIAK said  slide 13 demonstrates why AIDEA  is optimistic                                                              
about a Cook  Inlet gas supply opportunity.   It's well documented                                                              
that a Cook  Inlet gas supply at  the volumes and price  needed is                                                              
not  certain, but  AIDEA believes  there is  an opportunity  there                                                              
and is  going through the process  of using commercial  and market                                                              
mechanisms to determine  what that price and availability  is.  If                                                              
it is at a  price and availability that achieves  the goals of the                                                              
Interior  Energy Project,  AIDEA  hopes to  be able  to pursue  it                                                              
with the passage of  HB 105.  The chart on the left  side of slide                                                              
13 was produced  by the Department of Natural Resources.   The bar                                                              
on the  left of  the chart depicts  the remaining  1P and  2P Cook                                                              
Inlet gas  reserves, so  does not  include undiscovered  resources                                                              
or fields  in development like those  by Furie and  the BlueCrest/                                                              
WestPac Cosmopolitan  Project.  The middle bar on  the chart shows                                                              
the last  10 years  of LNG  exports and  the right  bar shows  the                                                              
next 10 years of  Interior gas [demand].  It can  be seen from the                                                              
bars  that while  the  IEP would  be additional  use  of the  Cook                                                              
Inlet  reserves, the  order of  magnitude  of that  use is  fairly                                                              
small compared to the reserves and non-Southcentral uses.                                                                       
                                                                                                                                
2:54:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER asked  why the situation  was so  different                                                              
two  years ago  when  the importing  of LNG  into  Cook Inlet  was                                                              
being looked at.                                                                                                                
                                                                                                                                
MR. SZYMONIAK  answered there are  probably multiple  reasons, the                                                              
primary  one being  a paradigm  shift  in Cook  Inlet from  larger                                                              
producers to  smaller producers and  as those producers  moved out                                                              
the production  from their  fields began to  drop.   Production in                                                              
Cook Inlet  may also  have been dropped  because of  the impending                                                              
end of the  existing LNG export  license.  But, the  reserves were                                                              
there and the fears of having to import LNG didn't materialize.                                                                 
                                                                                                                                
REPRESENTATIVE  HAWKER argued  there  are no  clear and  empirical                                                              
answers  as  to why  two  short  years  ago  his town  was  having                                                              
brownout drills  for the lack of  gas.  Yet, the entire  energy of                                                              
Fairbanks  will be bet  for the  next 30  years on something  that                                                              
hasn't been  studied and a determination  made as to  what changed                                                              
over the last two  years and whether there could  be a change back                                                              
just as easily over the next two years.                                                                                         
                                                                                                                                
MR.  PARADY  replied  he  would   characterize  some  elements  of                                                              
Representative   Hawker's   descriptions   somewhat   differently.                                                              
There  is the  consequence of  tax incentives  that have  produced                                                              
additional gas out  of the Cook Inlet; it didn't  occur in a magic                                                              
24 months,  it has occurred  over a period  of time as  those have                                                              
come to fruition  and projects continue  to come on line  from the                                                              
smaller producers  that have been  attracted to the inlet.   While                                                              
Representative  Hawker was present  in the  Senate Bill  23 debate                                                              
and he was  not, he said his  understanding of the IEP  is that it                                                              
is a bridge to  the future when the big pipeline  is put in place.                                                              
That is why the  IEP is a trucking-based project,  not a pipeline-                                                              
based project, although  those questions continue  to be evaluated                                                              
in the  context of  Senator Micciche's  inquiries.   The point  of                                                              
slide 13  is to say  that the demand  to meet the  Fairbanks piece                                                              
of the  market over  a period of  a decade  is a relatively  small                                                              
draw on that trillion cubic feet of reserve.                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  maintained   it  is  the  significant  gas                                                              
cushion  provided by  the Cook  Inlet Natural  Gas Storage  Alaska                                                              
(CINGSA) facility  that is  keeping his  community lit  during the                                                              
coldest months of  the winter, not necessarily  the tax structure.                                                              
At least  one of the  significant tax  benefits being  referred to                                                              
will expire  next year, the  rest expire in  2021, and there  is a                                                              
great deal  of conversation in  this building about  not extending                                                              
those  credits.  He  inquired whether  Mr. Parady  can assure  him                                                              
that  those  credits   will  be  extended  and   that  the  robust                                                              
renaissance in the Cook Inlet will be continued.                                                                                
                                                                                                                                
MR.  PARADY  responded "of  course  not  and  your point  is  well                                                              
taken" and that  is why the evaluation of gas  supply alternatives                                                              
continues to  include North  Slope based options.   A  complex set                                                              
of interactions  must  be threaded  through to  meet the goals  of                                                              
Senate Bill 23, which were set for AIDEA by this body.                                                                          
                                                                                                                                
2:58:56 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NAGEAK noted  barges go  back and forth  in the  summer,                                                              
especially  on the  Yukon River  and along  the coast.   He  asked                                                              
whether  any studies  have  looked  at barging  LNG  on the  Yukon                                                              
River from Fairbanks.                                                                                                           
                                                                                                                                
MR.  THERRIAULT answered  that  language in  a  piece of  pipeline                                                              
legislation  passed last  year  charged AEA  with  looking at  the                                                              
economics  of delivering  more  cost effective  energy  statewide.                                                              
This  indicated  planning  ahead  for  how  to  spread  access  to                                                              
natural  gas molecules  off of a  big trans-Alaska  pipeline  to a                                                              
larger geographic  area, including delivery via  freshwater system                                                              
on barges.  Barging  LNG is a little more difficult  than fuel oil                                                              
because LNG is a  cryogenic fuel, it is at a  temperature of minus                                                              
262 degrees  Fahrenheit.  As  instructed, AEA is  putting together                                                              
a body of work  to be delivered to the legislature,  he thinks, in                                                              
January 2017.                                                                                                                   
                                                                                                                                
3:01:17 PM                                                                                                                    
                                                                                                                                
MR. SZYMONIAK resumed  the presentation, drawing  attention to the                                                              
chart on  the right side  of slide  13.  He  said the left  bar on                                                              
the chart  depicts the 2014  demand of  Cook Inlet gas  in billion                                                              
cubic feet per  year, the middle bar depicts  the potential demand                                                              
if the Agrium  plant is restarted,  and the right bar  depicts the                                                              
Interior demand at full buildout.                                                                                               
                                                                                                                                
MR. PARADY moved  to slide 14, explaining HB 105  would give AIDEA                                                              
the flexibility to  use the Senate Bill 23 financing  tools with a                                                              
non-North Slope  liquefaction location.   He said HB 105  does not                                                              
increase  funding   for  the  IEP,   does  not  increase   AIDEA's                                                              
investment authority  beyond giving AIDEA geographic  flexibility,                                                              
does not  alter AIDEA's policy  of supporting the  private sector,                                                              
and does not change the intent or goals of the IEP.                                                                             
                                                                                                                                
3:02:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  inquired whether  HB 105, as  written, will                                                              
give  AIDEA sufficient  resources  to conduct  itself through  the                                                              
full buildout  of the  Interior  Energy Project,  not just  the 20                                                              
percent  being started  with today,  or  will AIDEA  have to  come                                                              
back to the well for the other 80 percent.                                                                                      
                                                                                                                                
MR. PARADY  replied there is  no coming  back to the  well because                                                              
there is  no well.   The  plain fact  is that  AIDEA must  use the                                                              
tools that were  delivered to it for this purpose  to achieve this                                                              
purpose,  and that  is what AIDEA  is working  diligently  to find                                                              
the answer to.                                                                                                                  
                                                                                                                                
REPRESENTATIVE HAWKER  understood Mr. Parady to be  saying that if                                                              
HB 105  passes as written,  AIDEA will  be able to  accomplish the                                                              
entire buildout  of the  IEP - not  just the  20 percent  for FNG,                                                              
but the entire 100  percent buildout - without coming  back to the                                                              
state for additional subsidy.                                                                                                   
                                                                                                                                
MR. PARADY deferred to the project manager.                                                                                     
                                                                                                                                
BOB   SHEFCHIK,  Consultant/Project   Manager,   Interior   Energy                                                              
Project,  Alaska  Industrial  Development   and  Export  Authority                                                              
(AIDEA),   Department   of   Commerce,    Community   &   Economic                                                              
Development  (DCCED),  replied Senate  Bill  23 funds  were  never                                                              
sufficient  to do  an entire  buildout of  the complete  community                                                              
and  provide  a liquefaction  chain  that  would meet  the  entire                                                              
community's needs.   It likely will provide sufficient  funding to                                                              
build the liquefaction  chain, finish the buildout on  the core of                                                              
town, and build  the core out in the North Pole/Badger  Road area.                                                              
Financing for phases  4, 5, and 6 buildout has been  put off until                                                              
there is  cash flow for the  entire system to develop  a financing                                                              
mechanism for  that, which could  involve revenue bonds,  or local                                                              
participation  as discussed  earlier,  or  bonding through  AIDEA.                                                              
Despite  Representative Hawker's  offer  of it  when  "we" met  at                                                              
Legislative  Budget   and  Audit   Committee,  there  is   not  an                                                              
expectation the  state will be in  a position to do more  than has                                                              
already been done through Senate Bill 23.                                                                                       
                                                                                                                                
3:05:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  recalled  that  when Senate  Bill  23  was                                                              
being discussed  the representation  to the  legislature  was that                                                              
this  was all  that  Fairbanks  needed  to accomplish  the  entire                                                              
Interior  Energy  Project  goals.   He  said  that seems  to  have                                                              
changed substantially  now that a North Slope  project isn't being                                                              
looked at.                                                                                                                      
                                                                                                                                
MR. SHEFCHIK responded  that the representations were  made by the                                                              
Parnell Administration.   He said his recollection is  that it was                                                              
described  as being  a  good start  and  would  get the  community                                                              
kick-started  to low cost  energy.  There  was not an  expectation                                                              
that  the loan  and appropriation  package was  sufficient to  put                                                              
together a  North Slope plant, a  North Slope supply chain,  and a                                                              
complete buildout of the distribution system even at the time.                                                                  
                                                                                                                                
REPRESENTATIVE  HAWKER  remarked  "fascinating"  and  pointed  out                                                              
that  the  now emeritus  head  of  AIDEA  is  part of  the  Walker                                                              
Administration.    He said  if  the blame  is  being  laid on  Mr.                                                              
Leonard he would like to hear Mr. Leonard's response.                                                                           
                                                                                                                                
MR. SHEFCHIK  answered it was  no blame,  it was a  description of                                                              
there  was enough  money to  make  a good  start and  that is  the                                                              
effort AIDEA continues to do.                                                                                                   
                                                                                                                                
3:06:29 PM                                                                                                                    
                                                                                                                                
MR. PARADY returned  to the presentation.  Turning  to slide 15 he                                                              
said AIDEA  board resolution G15-02  approved the  expenditures to                                                              
evaluate   the  alternatives   to  the   North  Slope   Concession                                                              
Agreement.    Passed  by  the board  on  [January  14,  2015,]  it                                                              
includes  $500,000 in  SETS  funds and  $200,000  in AIDEA  funds.                                                              
The  purpose is  to assess  non-North Slope  alternatives to  meet                                                              
the  goals  of IEP.    Moving  to slide  16  he  said a  total  of                                                              
$295,000 has  been expended  to date and  was used for  plant cost                                                              
estimate,   the   liquefaction   RFP,   transportation   modeling,                                                              
distribution  and  storage  design,  web  site  outreach,  project                                                              
management, and legal expenses.                                                                                                 
                                                                                                                                
3:07:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  inquired whether  a change occurred  in Mr.                                                              
Parady's  interpretation  of what  was  going to  be  accomplished                                                              
under AIDEA Resolution G15-02.                                                                                                  
                                                                                                                                
MR.  PARADY replied  he senses  a  deeper question,  but said  his                                                              
first answer  is no.   He requested  Representative Hawker  to ask                                                              
the next part of the question.                                                                                                  
                                                                                                                                
REPRESENTATIVE  HAWKER paraphrased from  Resolution G15-02:   "the                                                              
staff  of  the  Authority  is proposing  that  the  Authority  re-                                                              
position  the  Interior  Energy   Project  by  evaluating  several                                                              
potential  sources of  natural gas  combined  with utilization  of                                                              
methods to finance  the infrastructure needed to  supply energy to                                                              
the  Interior.    These alternatives  may  include,  but  are  not                                                              
necessarily  limited  to, obtaining  natural  gas  from the  North                                                              
Slope, Cook  Inlet, or  other locations."   Representative  Hawker                                                              
recalled previous testimony  in which it was stated  that this was                                                              
a  study.    However,  he  said,  an  upcoming  chart  in  today's                                                              
presentation  says it  is not  a study.   He  asked what  happened                                                              
that it ceased being  a study.  He further believed  it was stated                                                              
in  previous testimony  that AIDEA  would have  answers and  would                                                              
present them  to the  legislature this summer.   Now,  however, it                                                              
seems the  money is being  used to advance  a specific  Cook Inlet                                                              
project   rather  than   to   identify  different   projects   for                                                              
consideration as to what might be the most efficacious.                                                                         
                                                                                                                                
MR.  PARADY responded  it is  both things  said by  Representative                                                              
Hawker:   to  complete  the assessment  and  to  move the  project                                                              
forward.                                                                                                                        
                                                                                                                                
3:09:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER paraphrased  from  the  next paragraph  [in                                                              
Resolution G15-02]:   "a process-driven evaluation  of alternative                                                              
means of supplying  energy to Interior Alaska."  He  said he would                                                              
have been  more comfortable  with testimony  that had  said, "Yes,                                                              
we were going to  look at alternate means but we've  decided we've                                                              
... got this  other project and  we think the money can  be better                                                              
spent there."   He asked what other alternatives  are being looked                                                              
at other than what is being presented today.                                                                                    
                                                                                                                                
MR. PARADY deferred to Mr. Shefchik.                                                                                            
                                                                                                                                
MR.  SHEFCHIK answered  that the  evaluation  will consider  North                                                              
Slope proposals as  well as Southcentral proposals.   Two or three                                                              
entities have  put forward propane  solutions.  As AIDEA  puts out                                                              
an  RFP the  expectation  is that  it  will look  to  liquefaction                                                              
capacity and also  entertain other alternatives.   The RFP process                                                              
will  competitively solicit  proposals from  private entities  for                                                              
evaluation  down to two  or three  that will  get more  effort and                                                              
scrutiny and negotiation from which one will be picked.                                                                         
                                                                                                                                
REPRESENTATIVE  HAWKER  remarked  that  he likes  looking  at  the                                                              
alternatives and  studying them  so that everyone  has information                                                              
upon which  to make the  best decisions  possible.  But,  he said,                                                              
today's presentation  is all about how  great one is and  why this                                                              
bill needs  to be passed to get  running with one conception.   It                                                              
is not about  studying alternatives, he argued,  given nothing has                                                              
been heard in  today's presentation about studying  an alternative                                                              
to anything.                                                                                                                    
                                                                                                                                
3:11:55 PM                                                                                                                    
                                                                                                                                
MR.  PARADY resumed  the presentation.    Turning to  slide 17  he                                                              
said the components  of the project include  supply, liquefaction,                                                              
transportation,  storage  and  regasification,   distribution  and                                                              
conversion.    Elaborating  on the  gas  supply  and  liquefaction                                                              
components  he moved  to slide  18,  saying DCCED  is leading  the                                                              
effort  to facilitate  Cook Inlet  natural gas.   Solicitation  to                                                              
all Cook Inlet gas  vendors is in process.  All  current potential                                                              
suppliers will  be invited to  participate in an  open competitive                                                              
process.   The RFP is  to be issued for  LNG capacity.   The focus                                                              
is  on  Cook Inlet,  but  consideration  of  the North  Slope  and                                                              
alternates will  be made, which speaks to  Representative Hawker's                                                              
concerns.    Proposals   will  be  evaluated  that   include  both                                                              
[natural  gas]  supply  and  LNG capacity  and  try  to  establish                                                              
competition  between  private  developers  to achieve  the  lowest                                                              
price using the IEP tools.                                                                                                      
                                                                                                                                
MR. PARADY moved  to slide 19, explaining that  for the components                                                              
of storage and transportation  the use of capital will  want to be                                                              
optimized to meet  IEP goals.  The North Slope  analysis tools are                                                              
applicable  to  these components  as  AIDEA  moves forward.    For                                                              
example,  is it more  economic to  invest in  LNG plant  capacity?                                                              
Trucks?    Or  LNG  storage?   Storage  is  one  of  the  critical                                                              
components  in decision  making  in  this project  going  forward.                                                              
Regarding  transportation logistics  and cost,  there are  serious                                                              
questions to  be answered  in terms  of levelized versus  seasonal                                                              
swing  and establishing  the LNG  storage  size is  driven by  the                                                              
supply chain,  which leads into  evaluating trucking  versus rail,                                                              
the size and capital  cost of the selected plant,  and the cost of                                                              
the seasonal swing versus the cost of storage.                                                                                  
                                                                                                                                
3:13:48 PM                                                                                                                    
                                                                                                                                
MR. PARADY  noted there  has already  been substantial  discussion                                                              
today  regarding  the  distribution   and  conversions  components                                                              
[slide 20].   He said the  conversion study, which  is substantial                                                              
and  detailed, can  be  found on  IEP's web  site.   Gas  trucking                                                              
remains a  transition to piped gas,  which speaks to  the duration                                                              
of the project.   Distribution buildout is required  regardless of                                                              
the  source  and   the  buildout  continues  this   summer.    The                                                              
distribution  adjustments are  expected for  summer 2016  based on                                                              
the  LNG capacity  and what  results  from the  Pentex outcome  as                                                              
work  continues   to  blend   those  two  distribution   utilities                                                              
together.    An  accomplishment  of  the project  to  date  is  to                                                              
rationalize the  delivery of gas  in Fairbanks by  combining those                                                              
two  entities.    The  potential   acquisition  of  Pentex/FNG  is                                                              
ongoing with  due diligence.  If  the acquisition occurs  there is                                                              
potentially a  savings this fall  to current customers as  well as                                                              
long-term  efficiencies to  benefit all residents.   The  approach                                                              
of  AIDEA is  to divest  the  ownership  and operation  structures                                                              
into an integrated FNG and IGU utility.                                                                                         
                                                                                                                                
MR. THERRIAULT  addressed the key  component of conversion  [slide                                                              
20],  reiterating there  is the  existing  Alaska Housing  Finance                                                              
Corporation  (AHFC)  rebate  program,  the  potential  of  on-bill                                                              
financing  for   residential,  and   PACE  financing   should  the                                                              
legislature  allow that  mechanism  to be  in place  to help  with                                                              
businesses.  Interest  has been expressed at the  local level that                                                              
there is probably  a role for local government to  play in helping                                                              
to get those conversion mechanisms in place.                                                                                    
                                                                                                                                
3:15:30 PM                                                                                                                    
                                                                                                                                
MR. PARADY  moved to slide 21,  saying that the IEP's  targets for                                                              
June  30, 2015,  are to  have a  gas  supply agreement  at a  term                                                              
sheet  level,  which   is  not  a  contract  where   there  is  an                                                              
understanding  of  volume,  price, duration,  and  basic  delivery                                                              
terms.                                                                                                                          
                                                                                                                                
REPRESENTATIVE  HAWKER  inquired whether  AIDEA  intends  to be  a                                                              
signatory to the aforementioned term sheet.                                                                                     
                                                                                                                                
MR. PARADY  replied he thinks  the answer is  no.  He  deferred to                                                              
Mr. Szymoniak.                                                                                                                  
                                                                                                                                
MR. SZYMONIAK  concurred, stating AIDEA  would not be  a signatory                                                              
of that term  sheet, AIDEA would  be a facilitator and  would have                                                              
no commitment to buy the gas.  It would be the utilities.                                                                       
                                                                                                                                
REPRESENTATIVE  HAWKER asked  who  AIDEA anticipates  will be  the                                                              
signatories to that term sheet.                                                                                                 
                                                                                                                                
MR. SZYMONIAK responded  the signatory on the term  sheet would be                                                              
GVEA, IGU, and FNG.   Pending AIDEA acquisition of  FNG, AIDEA may                                                              
temporarily be a signatory through its role as the FNG owner.                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER inquired  whether AIDEA  has a supplier  on                                                              
this term sheet.                                                                                                                
                                                                                                                                
MR. SZYMONIAK answered no, not yet.                                                                                             
                                                                                                                                
MR. PARADY added the solicitation hasn't been published yet.                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  understood the  intention is for  this term                                                              
sheet  to be  between  whoever  is going  to  supply  gas for  the                                                              
project and the utilities that will be consuming the product.                                                                   
                                                                                                                                
MR. PARADY replied yes.                                                                                                         
                                                                                                                                
REPRESENTATIVE HAWKER  asked what  term of commitment  is expected                                                              
on the term sheet.                                                                                                              
                                                                                                                                
MR. SZYMONIAK  responded the expectation  is a long-term  contract                                                              
of ten years or longer, with a minimum of five years.                                                                           
                                                                                                                                
3:17:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  inquired how active AIDEA expects  to be in                                                              
the  negotiation   of  this  agreement  between   two  arms-length                                                              
commercial parties.                                                                                                             
                                                                                                                                
MR.  SZYMONIAK answered  he expects  AIDEA  will be  as active  as                                                              
directed by the  utilities; AIDEA will be working  on their behalf                                                              
and  to the  extent that  they sponsor  AIDEA's  activity work  to                                                              
aggregate the gas  supply agreements between three  utilities into                                                              
one commercial process.                                                                                                         
                                                                                                                                
REPRESENTATIVE HAWKER  understood that AIDEA's client  will be the                                                              
utilities and  AIDEA will be  working dedicated to  the utilities.                                                              
He asked how  that relates to AIDEA's responsibility  to the State                                                              
of Alaska as  a whole as well  as to other utilities  in the state                                                              
who may be competing for the same resource.                                                                                     
                                                                                                                                
MR. PARADY replied  he would refer AIDEA to the  original goals of                                                              
the IEP  as set by  Senate Bill  23:  AIDEA's  role is  to support                                                              
the  delivery  of affordable  energy  into  Interior Alaska.    He                                                              
related  there has  been  discussion in  the  past that  Fairbanks                                                              
cannot be handled  in a way that is disruptive to  ENSTAR or other                                                              
utility  entities and  their 139,000  customers  in the  Anchorage                                                              
area.   The  question is  whether there  is enough  room for  both                                                              
operations  within  that  same supply  and  the  potential  answer                                                              
appears to be yes, but the details remain to be worked through.                                                                 
                                                                                                                                
REPRESENTATIVE  HAWKER understood  ENSTAR  has expressed  interest                                                              
in becoming  the operator  of the  potential consolidated  utility                                                              
in Fairbanks.  He  asked what AIDEA's role will  be in negotiating                                                              
a term sheet between the Fairbanks utilities and ENSTAR.                                                                        
                                                                                                                                
MR.  PARADY  responded  that, pending  completion  of  the  Pentex                                                              
process, as the  owner of the FNG utility AIDEA's  role would stem                                                              
from that ownership position.                                                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER  interpreted   Mr.  Parady's  reply  to  be                                                              
"you'll think about it when it happens if it happens."                                                                          
                                                                                                                                
MR. PARADY  answered it's  a tremendously  interesting idea  given                                                              
ENSTAR's  success  as a  progressive,  stable,  long-term  utility                                                              
owner.   However,  ENSTAR is  not  the only  potential partner  in                                                              
that activity and it remains to be seen as it comes forward.                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  remarked he looks forward to  seeing a more                                                              
fleshed out proposal for this entire project.                                                                                   
                                                                                                                                
3:20:00 PM                                                                                                                    
                                                                                                                                
MR. PARADY  returned to the  presentation.  Continuing  with slide                                                              
21,  he said  the June  30 targets  include:   identifying  supply                                                              
chain  partners, [bringing  the  project] to  the  AIDEA Board  in                                                              
terms  of development  agreements  and determining  how to  deploy                                                              
the  state's  capital;  dealing  with the  Pentex  acquisition  in                                                              
regard  to its  resolution  and integrating  Pentex  and IGU;  and                                                              
setting timeline and component pricing.                                                                                         
                                                                                                                                
MR. PARADY  concluded the  presentation by moving  to slide  22 to                                                              
summarize.   He thanked the  committee members for  today's robust                                                              
discussion,  saying that  to  be successful  the  project must  be                                                              
able to  withstand critical  scrutiny.   Noting that this  project                                                              
was set before  [AIDEA] by the  legislature in Senate Bill  23, he                                                              
said diligent  work  is continuing  to accomplish  its goals.   He                                                              
said HB 105  would increase the project's flexibility  and improve                                                              
the  likelihood of  success.   He  added that  AIDEA welcomes  the                                                              
chance to  work with the legislature  and the committee  on moving                                                              
the bill forward.                                                                                                               
                                                                                                                                
3:21:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  understood   AIDEA  has  no  intention  of                                                              
owning  or controlling  the development  and  distribution of  gas                                                              
molecules, that  AIDEA does  not intend to  become a  gas company.                                                              
He  inquired whether  that statement  applies to  all other  state                                                              
entities and  agencies or whether it  is just AIDEA to  which that                                                              
restriction is being  made.  He further inquired  whether there is                                                              
an intent  by the State of  Alaska, through another entity,  to be                                                              
owning or controlling gas that will be used for this project.                                                                   
                                                                                                                                
MR. PARADY replied not to his knowledge.                                                                                        
                                                                                                                                
MR. THERRIAULT concurred.                                                                                                       
                                                                                                                                
MR. SZYMONIAK concurred.                                                                                                        
                                                                                                                                
REPRESENTATIVE  SEATON,  in regard  to the  aforementioned  point,                                                              
noted  that if there  is a  large-scale North  Slope gas  pipeline                                                              
the state  would own  25 percent  of the gas  and he would  expect                                                              
that the state  might be supplying  gas to that utility.   He said                                                              
he wants to make  sure it isn't being said that  [the state] would                                                              
never use  any of the  gas that [the  state] has in  a large-scale                                                              
pipeline to supply  Fairbanks.  He asked whether that  is what Mr.                                                              
Parady was stating.                                                                                                             
                                                                                                                                
MR. PARADY responded no.                                                                                                        
                                                                                                                                
3:22:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON noted  that the  state:   is subsidizing  a                                                              
project for  lower cost  Interior energy;  has subsidized  gas for                                                              
years  through  several  kinds  of credits  into  the  Cook  Inlet                                                              
Basin; has  not had any  realistic production  tax on gas  in Cook                                                              
Inlet  so as  to ensure  that  gas is  the  cheapest possible  for                                                              
Anchorage; and  has put in tax  credits for CINGSA that  must pass                                                              
through  to consumers.   He  said he  is very  concerned that  the                                                              
state not overly  subsidize Fairbanks.  He stated  he doesn't want                                                              
to  get into  the  situation of  where  the legislature  can't  do                                                              
anything without  being criticized  for trying  to have  all parts                                                              
of   Alaska  get   reasonably   priced  energy.      One  of   the                                                              
legislature's  primary goals  -  whether on  the  North Slope,  in                                                              
Western  Alaska,  down the  river  system,  or into  Anchorage  or                                                              
Homer - is  trying to get lower  cost energies available.   As the                                                              
legislature  goes forward,  he said  he wants  to ensure that  the                                                              
discussion is balanced  and that Senate Bill 23  is implemented in                                                              
this administration  under the same kind of terms  the legislature                                                              
would have thought  reasonable previously.  He announced  he has a                                                              
couple of  amendments he plans to  bring forward, one for  a small                                                              
diameter gasline  from Cook  Inlet northward,  as was  included in                                                              
language on  the Senate  side, and one  for a propane/air  mixture                                                              
that would  go into  the pipe distribution  systems coming  out of                                                              
Prince Rupert.                                                                                                                  
                                                                                                                                
3:25:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  opined that the only aspect  of the project                                                              
that  worries him  is  the FNG  purchase  and  the LNG  facilities                                                              
being sold to Hilcorp  with a 10 year take or  pay contract, which                                                              
seems  to put  some  of  those other  alternatives  at  risk.   He                                                              
opined that  worrying about  Anchorage's  supply is unusual  given                                                              
that the  committee  just passed  a tax credit  bill to  encourage                                                              
Agrium to  use a  large amount  of Cook  Inlet gas for  industrial                                                              
product.    He  encouraged  AIDEA   to  provide  members  with  an                                                              
analysis of  what a 10  year take or  pay contract could  mean and                                                              
how that  could be  offset, such as  using that liquefied  natural                                                              
gas to  supply coastal  towns like  Seldovia, Seward,  Kodiak, and                                                              
Cordova.   As  he sees  it,  that could  be  something that  would                                                              
actually confound  the use and  investigation of a  pipeline going                                                              
north as  well as bringing  Prince Rupert  propane by  railroad to                                                              
Fairbanks.   He said looking at  more than one alternative  to get                                                              
cheaper  energy  to Fairbanks  requires  more analysis  than  just                                                              
liquefied natural gas.                                                                                                          
                                                                                                                                
3:28:52 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TALERICO  offered  his appreciation  for  today's  tough                                                              
questions and  the answers  to them.  He  said the  state's second                                                              
biggest municipality  definitely needs  affordable energy  and not                                                              
having it will impact everyone between Ketchikan and Barrow.                                                                    
                                                                                                                                
MR. THERRIAULT  noted that  AIDEA had  engaged in the  discussions                                                              
on the committee  substitute language on the Senate  side that was                                                              
referred to  by Representative  Seaton.   He offered AIDEA's  help                                                              
during the committee's forthcoming work.                                                                                        

Document Name Date/Time Subjects
4.6.15 HRES Board of Fisheries confirmation - Orville Huntington resume.pdf HRES 4/6/2015 1:00:00 PM
4.3.15 HRES Board of Fisheries Confirmation - Alaska Statutes 16.05.221.pdf HRES 4/6/2015 1:00:00 PM
4.6.15 HRES HB 105 Transmittal Letter.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES HB 105 Sectional Analysis.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES HB 105 Fiscal Note.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES HB 105 Fact Sheet.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES HB 105 News Story Hilcorp not worried about Pentex Purchase.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES CSHB 105(ENE), version H.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES CSHB 105(ENE) Ver H Sectional Analysis.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 CSHB 105(ENE) Explaination of changes version A to version H.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES HB 105 - Furie, LLC LOS.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES HB 105 Cook Inlet Energy LOS.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES HB 105 HRES Fairbanks Chamber LOS.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES HB 105 HRES Fbks Economic Development Corp. LOS.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES HB 105 HRES Fbks North Star Borough Resolution R2015-08 - LOS.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES HCR 6 version A.pdf HRES 4/6/2015 1:00:00 PM
4.6.15 HRES HCR 6 Research Report UAF SNRAS Peonies An Economic Background for Alaska Flower Growers 6-09.pdf HRES 4/6/2015 1:00:00 PM
4.6.15 HRES HCR 6 - P Holloway Alaska Peony Industry Statistics 2-13-15.pdf HRES 4/6/2015 1:00:00 PM
4.6.15 HRES HCR 6 - M Ver Hoef LOS.pdf HRES 4/6/2015 1:00:00 PM
4.6.15 HRES HCR 6 - B Waite LOS.pdf HRES 4/6/2015 1:00:00 PM
4.6.15 HRES HCR 6 Rita Jo Shoultz LOS.pdf HRES 4/6/2015 1:00:00 PM
4.6.15 HRES HB 105 - Lisa Harbo LOS.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4 6 15 HRES - HB 105 AIDEA Presentation.pdf HRES 4/6/2015 1:00:00 PM
HB 105
4.6.15 HRES HB 105 - T Paragi LOS.pdf HRES 4/6/2015 1:00:00 PM
HB 105