Legislature(2011 - 2012)BELTZ 105 (TSBldg)
01/24/2012 03:30 PM COMMUNITY & REGIONAL AFFAIRS
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* first hearing in first committee of referral
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SB 154-NATURAL GAS CONVERSION PROGRAM/FUND 3:36:04 PM CHAIR OLSON announced the consideration of SB 154. 3:36:29 PM SENATOR JOE THOMAS, sponsor of SB 154, said the bill would create a low interest loan program for Alaskan families to replace their oil, coal or wood home-heating appliances with natural gas. He said the Fairbanks Borough was anxiously awaiting the arrival of more natural gas and that current supplies were limited. He said in addition to Prudhoe Bay, Interior Alaska was hopeful the Cook Inlet subsidized rigs strike gas and expand supply via truck or pipeline. He said SB 154 would give families the ability to plan ahead for low cost energy when access to gas was made available. He said the home heating change-out mechanism would create a more robust gas distribution system in the Kenai Peninsula, Anchorage and Matanuska-Susitna Valley areas where gas is currently distributed. He said the recent propane conversions to natural gas in the Kenai Peninsula had a dramatic cost savings impact. He said Fairbanks' Golden Valley Electric Association and Flint Hills Resources' North Pole Refinery were considering natural gas supplied from Prudhoe Bay for their own uses and potentially for distribution to homes; a decision would be made by September, 2012. He said Flint Hills Resources' North Pole Refinery would be able to lower production costs and provide the state with lower priced fuels. 3:39:17 PM SENATOR THOMAS said the Fairbanks Borough would be able to get a handle on its air quality problem by changing over an estimated 12,000 homes to natural gas. He said it would also spark the economy, create local jobs all across the state and keep more money circulating in Alaska rather than being spent on energy costs. He noted that developers in the Fairbanks area have dealt with outside companies where projects were cancelled due to high fuel costs. 3:40:42 PM GRIER HOPKINS, staff to Senator Thomas, said the impetus for SB 154 was to create a stronger, more economic instate market for a natural gas pipeline or delivery program for the Fairbanks Borough and Southcentral communities. He said having access to natural gas would not be helpful if homeowners were unable to use it. He said any natural gas delivery system would help build a more robust gas market, vitalize local economies and keep more local jobs in the communities. He said rural homeowners unable to access natural gas would indirectly benefit from nearby natural gas supplied regions where businesses pass along savings from lower energy costs. He noted that the Fairbanks Borough was studying its current natural gas distribution system to plan for future infrastructure build out. He said SB 154 would make available a $7,500 furnace replacement loan, at 1 percent interest, to be paid back over 10 years through the Alaska Housing Finance Corporation (AHFC). Eligible candidates must own a noncommercial, single occupancy or duplex home, demolition was not eminent, substantially complete construction and has access to natural gas within their community. He noted that connection costs would be the homeowners' responsibility. 3:44:33 PM MR. HOPKINS said the new furnace must become the home's primary source of heat and participation is not subject to any income limitations. He said the state's Energy Efficient Rebate Program was used as a model for the loan program. He said an individual homeowner applicant would contact AHFC, request an Energy Rater to for a change out estimate and submit the report to Alaska USA, AHFC's participating program lender. He said SB 154 would also address Fairbanks' air quality problem linked to smoke from wood burning, a less expensive alternative to heating with oil. He noted that homeowners can save up to 50 percent by burning wood versus heating oil. The Fairbanks Borough hired Sierra Research to do an air quality study and found that 12,000 homes would have to be converted to natural gas to meet the Environmental Protection Agency's (EPA) air quality mandate. 3:47:06 PM MR. HOPKINS said the Fairbanks' current natural gas market is at capacity with 1108 customers. He noted that Senator Wagoner inquired about possible federal programs available for natural gas conversion and that a recent $1500 federal tax credit expired in 2010. 3:48:37 PM CHAIR OLSON asked how many homes would participate the first year and during the life of the loan program. 3:48:56 PM SENATOR THOMAS answered that 1000 homes would participate for initial hook-up starting with Fairbanks' high density neighborhoods. He noted that Fairbanks Natural Gas had a distribution system setup in the borough but could not add customers due to a lack of supply. 3:49:46 PM CHAIR OLSON said 1000 homes borrowing $7500 each was a fair amount of money going out as capital. SENATOR THOMAS agreed. CHAIR OLSON said a 1 percent interest rate was a low return on investment. SENATOR THOMAS agreed. 3:50:24 PM CHAIR OLSON asked if there were similar state programs to SB 154. SENATOR THOMAS answered that there may be several current and suggested programs. 3:51:00 PM MR. HOPKINS answered that the Alaska Energy Rebate Program was available, it had distributed $90 million to over 14,600 homeowners who saved up to 33 percent in energy costs. He said SB 154 was not a grant program and allowed the state to get some return on investment. Other programs include the AHFC's rebate on buying a five star plus energy rated home, weatherization assistance for low-income renters and homeowners, and the Alaska Second Mortgage Program for Energy Conservation. 3:52:33 PM CHAIR OLSON commented that the Weatherization Assistance Program was statewide and that SB 154 would only concentrate on Southcentral and Fairbanks. SENATOR MENARD asked if AHFC had addressed adding staff to run the program in SB 154. CHAIR OLSON said further testimony would answer Senator Menard's question and asked if homeowners who have already converted to natural gas would benefit. 3:53:35 PM MR. HOPKINS answered no. He said a homeowner could receive funds to upgrade their home heating appliance or access the current Energy Efficient Rebate Program. SENATOR WAGONER asked if SB 154 strictly covers the cost of replacing the heating appliance. MR. HOPKINS answered yes. He said running a gas line to a home is not covered. SENATOR MENARD asked what the homeowner's costs would be to run gas line to their home. MR. HOPKINS answered that NorthStar Gas in the Fairbanks currently charges $17.64 per foot for the main line to get close to the home and $930 for the first 100 feet of feeder line from the main line to the home plus an additional charge per foot if required. 3:56:06 PM CHAIR OLSON asked if the loan program accommodated home businesses. MR. HOPKINS answered that the program was strictly for single occupancy homes and duplexes, but up to 25 percent could be used for commercial purposes. CHAIR OLSON asked if a summer home residence would qualify. MR. HOPKINS answered only for an owner-occupied home, but he would ask AFHC to verify. 3:57:22 PM DAN FAUSKE, CEO, Alaska Housing Finance Corp., said the following details need to be worked out: loan terms, program management, distribution development and the home conversion process. He said there are approximately 30,000 potential home conversions in the Fairbanks area which equates to $200 million in required capital. CHAIR OLSON asked where funding would come from at 1 percent interest. He noted management costs were not included. 3:59:50 PM MR. FAUSKE answered that SB 154 would have to be a state-funded program. 4:01:06 PM JEFF JACOBSON, Chief of Staff, Fairbanks North Star Borough, said SB 154 would assist households that are burdened by high fuel prices. He said the borough has used state grant funds to conduct a natural gas distribution study to determine the economics of expanding its limited natural gas distribution system. He said in the event natural gas was delivered by truck, bullet-line or pipeline, the borough residents need the means to convert their homes. He said the EPA designated Fairbanks as a Nonattainment Area for Particulate Matter (PM-2.5) and mandated an air quality improvement plan to be in place by 2014. He said SB 154 helps the borough meet EPA's air quality goals by allowing residents to switch away from heating oil and wood. MR. JACOBSON said natural gas supplied to the Interior's two refineries would lower their operating costs and ultimately provide Alaskans with lower priced fuel. 4:04:54 PM CHAIR OLSON asked about the distribution plan for the 12,000 home conversions needed to meet EPA air quality standards and the hookup accessibility for the 30,000 homes. MR. JACOBSON answered that if nothing else was done but convert 12,000 homes to natural gas, the borough would meet the EPA mandated air quality attainment standards. He said Fairbank's distribution plan combines direct pipelines to high density neighborhoods and independent distribution to remote areas. He said along with natural gas conversion, the borough would continue to educate the population, assist homeowners to burn drier wood and offer the Wood Stove Exchange Program to replace wood stoves and boilers with qualified heating devices. 4:07:06 PM CHAIR OLSON asked what the anticipated infrastructure costs were. MR. JACOBSON answered that data from the Fairbanks Distribution Study would provide preliminary information. 4:07:36 PM SENATOR WAGONER said NorthStar Gas did a study on a pipeline installation project in Homer; the cost was $3.5 million. He said Fairbanks was 10 times the size of Homer and asked if the borough had a good start on distribution line installation. SENATOR THOMAS answered yes. MR. JACOBSON answered yes. 4:08:14 PM JOMO STEWART, Energy Project Manager, Fairbanks Economic Development Corp., said he was in charge of the Fairbanks Gas Distribution System Report and concurred with prior testimony. He said SB 154 would be a useful and welcomed component to allow the borough to tap into the benefits of natural gas when it becomes available. 4:09:51 PM SENATOR THOMAS commented on cost concerns and said the intent was to keep the project cost as low as possible. He said the proposed loan interest rate might not be high enough to cover administrative costs and conceded that 1 percent was a starting point. He said the appliance cost of converting fuel oil to natural gas is relatively close to projections, but wood burning system conversion and gas-line installation was a different situation. 4:10:54 PM CHAIR OLSON said he would hold SB 154 in committee.