Legislature(2017 - 2018)BELTZ 105 (TSBldg)
01/25/2018 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| SB125 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 125 | TELECONFERENCED | |
SB 125-EXTEND BOND AUTH FOR INTERIOR ENERGY PROJ
3:34:42 PM
CHAIR BISHOP announced SB 125 was the only order of business
today, [SB 125, version 30-LS1004\A was before the committee].
3:35:36 PM
SENATOR KELLY, sponsor of SB 125, Senate District A, Alaska
State Legislature said this measure would extend the allowable
time for the Alaska Industrial Development and Export Authority
(AIDEA) organization to issue bonds for the Interior Energy
Project (IEP) by five years to June 30, 2023. This is just an
extension of a sunset date.
He explained that the Interior suffers from the most volatile
costs of energy of any community on the Railbelt. Most Interior
residents rely on heating oil for their homes and businesses,
which is subject to dramatic fluctuations. Furthermore, when the
price of heating oil is high and its cold outside, many
residents augment their heating with wood, but due to the
climate and geography of the area, wood burning at low
temperatures contributes to problematic air quality issues for
Fairbanks and North Pole, specifically. Both are part of the PPM
2.5 non-attainment area, which has led to federal and
environmental regulations that have placed restrictions on the
selling of homes with non-compliant stoves and regulation of
wood sellers.
Due to these issues, Senator Kelly said, this body passed SB 23
in 2013 which expanded the availability of clean and affordable
gas for Interior Alaska. The goal of the IEP is to bring natural
gas to the Interior at the lowest price possible to as many
residents and businesses as possible, as quickly as possible.
3:37:50 PM
While some of Fairbanks is served by natural gas and given that
many of the current customers are commercial in nature and
interruptible due to the limited storage capacity and other
infrastructure they have only laid 70 miles of pipe. This makes
it challenging to create an expanded distribution network for
other Interior residents and businesses. For a community that
supports two major military installations and many commercial
entities, the volatility of energy prices has presented a
significant impediment to economic development.
SENATOR KELLY said SB 23 had several financing mechanisms: a
$57.5 million capital grant, a $125 million SETS loan, and a
$150 million AIDEA bonding authority, which is essentially the
extension date before the committee.
SENATOR KELLY said the AIDEA team overseeing the IEP had been
diligently deploying the original financial packages to advance
the development of the consolidated investment-grade local gas
utility. Unfortunately, the authorization for the critical $150
million bond is set to expire June 30, 2018 now that they are
finally able to deploy it. It is necessary for increasing the
production capacity of the LNG plant at Point Mackenzie and
further expansion of the gas distribution lines in Fairbanks.
He emphasized that this bonding authorization can only be used
on the IEP due to amendments to the financing package that was
created in 2015 through passage of HB 105. The bonding can also
only be used for financing investment-grade utility
infrastructure due to covenants included in the agreement signed
by AIDEA and the Interior Gas Utility (IGU).
3:39:59 PM
He related a little history: In 2014/15 the natural gas
distribution system covering nearly all of Fairbanks and core
North Pole was built out. In 2015, AIDEA purchased Pentex assets
including the LNG production facility at Point MacKenzie, as
well as LNG trailers and local distribution infrastructure. Last
year, PACE was passed that will assist in commercial conversion
to natural gas.
Last September, AIDEA secured a gas supply from Hilcorp and
adopted a qualified plan of development (POD) for the rest of
the project and in December followed up with the signing of
agreements to consolidate the Fairbanks Natural Gas Company
(FNG) and the Interior Gas Utility (IGU) into a single entity to
distribute investment-grade utility infrastructure through sale
of the Pentex assets to IGU. Construction is now under way on a
5.2 million-gallon LNG storage facility in south Fairbanks that
will support future customer growth of the combined utility
systems.
SENATOR KELLY said even with the recent fall in the price of
heating oil, the need for a long-term clean and affordable
energy alternative for the Interior is needed. On its present
schedule, first expanded gas availability with the potential to
transition current interruptible customers to firm service is
expected in the late fall or winter of 2019. Many of the
agreements and purchases have been made to make it possible. The
only thing that remains is to extend the sunset date for use of
the AIDEA bonds.
SENATOR GARDNER asked if there is any opposition to this issue.
SENATOR KELLY answered it has been debated quite a bit and has
stood up to it. He noted that the chairman of the Finance
Committee would also get a chance to review it.
SENATOR KELLY said he likes the way this project has evolved;
essentially core areas are set up with infrastructure through a
utility. Then as economics allow, it can expand to other areas.
It will take a while, but others will benefit from having gas
because the price will be lower, plus many of the companies that
have looked at investing in Fairbanks require the city to have
uninterruptible natural gas.
SENATOR MACKINNON asked what the gas will cost consumers. And on
page 1, line 8, it says the "authority" and she asked if that
refers to the IEP.
3:44:35 PM
JOE BYRNES, staff to Senator Kelly, Alaska State Legislature
Juneau, Alaska, answered within this section of the bill
"authority" refers to AIDEA. The projected cost of gas to the
consumer in the quarterly report issued on January 5, 2018 to
the legislature is $20.20/mcf.
SENATOR KELLY said he envisioned $15 up to the city gate, but
conversion would take that number up to $20.
SENATOR KELLY said a company in Houston is trying to get into
the mix on this and has talked about even lower prices.
3:46:34 PM
GENE THERRIAULT, AIDEA, Fairbanks, Alaska, agreed that
"authority" refers to AIDEA. With regards to the question of
price, under the requirements of HB 105, passed in 2015, the
AIDEA board has an obligation to certify the "HB 105 plan." That
was done in September after securing a source of gas. The plan's
initial price is $20.10/mcf. Once the infrastructure is in place
and can start to serve more customers, spreading fixed costs
over more users, those costs come down. So, by 2020, the price
will go down to $17.31. In 2023, will go down to $15.11/mcf.
Currently, fuel oil is $2.40/gallon that converts to about $18
natural gas. So, as they are able to serve more customers, it is
anticipated they will beat the current fuel oil price, and the
target at the time the financing package was put in place, was
to try and deliver to a residential customer at $15/mcf, which
is equivalent to $2/fuel oil.
CHAIR BISHOP asked Senator Kelly to provide him with the scale
he referenced.
3:49:11 PM
SENATOR MACKINNON asked the source of the gas.
MR. THERRIAULT replied that the provider is Hilcorp.
SENATOR MACKINNON asked if Hilcorp will transport the fuel to
Fairbanks.
MR. THERRIAULT replied that the natural gas comes from Hilcorp
production in Cook Inlet. It is liquified at an existing plant
in the Point MacKenzie area, then trucked to Fairbanks. They
continue to work with the Alaska Railroad (ARRC) to squeeze out
handling costs, so that ultimately as volume goes up and lends
itself more to bulk shipment via rail that that could be a
potential.
SENATOR MACKINNON asked how long the contract with Hilcorp is.
MR. THERRIAULT replied three years with provisions for
extensions. He added that as the two utilities were
consolidating, they asked the AIDEA board to consider a contract
with a shorter duration, which would allow them the flexibility
to look for potential supply sooner rather than later that might
be at a more advantageous cost.
SENATOR MACKINNON asked if any anchor tenants will come on line
right away at the $20 price point.
MR. THERRIAULT answered that his temporary office in Fairbanks
is at FNG since AIDEA owns the Pentex assets, and he has been
surprised at the number of individuals asking the utility for
gas. The month that the AIDEA board took the step of adjusting
rates up by 3 percent a representative from the Bentley Mall
came in and said they were in the process of doing some
renovations on one of their satellite buildings and were going
to make it a dual fuel capability remodel immediately, and he
wanted to know how soon they can switch over. When Mr.
Therriault asked about the price, his response was that his
maintenance person told him it was just a no brainer, because of
the increased efficiency of equipment that is fired with natural
gas. Plus, the out-of-state owner wants to get rid of any buried
fuel tanks on the property, and he is interested in switching
over the main mall building - even at the current price of
$20/mcf.
3:52:44 PM
SENATOR MACKINNON asked if the military is satisfied with its
coal-fired plant as they look for ways of lowering operating
costs.
MR. THERRIAULT replied that the military is interested in this
project and is watching to see what the delivered price would
be. Most of the space heating on the base is actually done
through distribution of hot water and steam; it's actually a
combined plant with their power generation. He can't even hope
to compete against the price of coal per btu. However, they have
some housing that is across the river that is not hooked up to
that distributed heat loop and they are very interested in
heating with natural gas there as well as other in facilities on
the base. The past chairman of the AIDEA board used to be the
facilities manager for all of Fort Wainwright, so he is very
tied into what the potential may be. In addition, about a year
and a half ago, the Department of Defense at Fort Greely put out
an RFP expressing interest in who could potentially serve them
with natural gas. FNG responded letting them know that they were
working on this project but couldn't give them a target price.
But now with starting to deploy the funds and build
infrastructure they are able to firm up a potential price for
them. Again, having that potential volume would help.
SENATOR MACKINNON asked if storage is an issue and if the state
had backed another storage project.
MR. THERRIAULT replied that storage is the limiting factor in
Fairbanks. Unless they can pledge that they can serve a firm
customer in the dead of winter and meet it they cannot sign up
another customer. They have "pulled the trigger" on sizing up
storage. Once that is in place, which will be mid-summer 2019,
they will be able to get more production out their current
limited LNG production. The FNG expansion of storage in
Fairbanks is the only project he is aware of.
CHAIR BISHOP commented that it's hard to sell a product when you
don't have it, and when you actually get the product, there will
be a lot more interest.
MR. THERRIAULT agreed and added that unfortunately the
negotiations for the consolidation of the two utilities took
longer than was anticipated. But combining the consumers from
both utilities was critical. The contractual documents were
signed in December and they are on track to paper that deal and
get to close by the end of May.
3:58:28 PM
JIM DODSON, President, Fairbanks Economic Development
Corporation (FEDC), Fairbanks, Alaska, supported SB 125 saying
that the IEP project was started in his corporation a couple of
years ago. He believes that affordable energy is one of the key
components causing the lack of diversification of Alaska's
economy and is necessary for the economic fix we need today.
He said FEDC established the $15/mcf goal of the IEP, and that
$20 today after AIDEA purchased FNG is lower than their price
when they were operating as FNG. So, while customers are paying
the equivalent amount of diesel fuel, but just a few years ago
Fairbanks was suffering under a $4/gallon diesel fuel cost. The
average home owner in Fairbanks uses about 1,000 gallons a year
to heat their home and at $4/gallon, it was devastating. They
estimated the cost of home heating was taking about $600
million/year out of the economy and needs to be corrected.
Keeping the project moving forward is absolutely essential. The
project doesn't start out at $15/mcf, but that is where it will
be at when there is a 10,000-customer base. Today, the FNG lines
service about 900 customers.
Others before him have talked about increasing the distribution
through storage and obviously if FNG can transport natural gas
to Fairbanks 12 months a year rather just a few months they can
add more customers. That would bring in an additional 400-500
customers. Today, with the help of the AIDEA bonds, the LNG
plant and distribution lines can be expanded adding to the
7,000-customer number.
4:03:06 PM
JOMO STEWART, General Manager, Interior Gas Utility (IGU),
Fairbanks, Alaska, supported SB 125. He said Mr. Therriault, Mr.
Dodson, and Senator Kelly did an excellent job of characterizing
the issue. He thanked the committee for hearing the bill.
CHAIR BISHOP said SB 125 would be held in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 125 (version A).PDF |
SCRA 1/25/2018 3:30:00 PM |
SB 125 |
| SB 125 - Sponsor Statement.pdf |
SCRA 1/25/2018 3:30:00 PM |
SB 125 |
| SB 125 - SCRA Hearing Request Memo.pdf |
SCRA 1/25/2018 3:30:00 PM |
SB 125 |
| 2018 01 22 Letter of Support from Jim Dodson (FEDC).pdf |
SCRA 1/25/2018 3:30:00 PM |
SB 125 |
| 2018 01 22 Letter of Support from Mayor Kassel (FNSB).pdf |
SCRA 1/25/2018 3:30:00 PM |
SB 125 |
| Baird - AIDEA clears path for natural gas (FDNM Sept. 22, 2017).pdf |
SCRA 1/25/2018 3:30:00 PM |
SB 125 |
| Bohman - Work on natural gas storage project for Fairbanks under way (FDNM Dec. 29, 2017).pdf |
SCRA 1/25/2018 3:30:00 PM |
SB 125 |