Legislature(2013 - 2014)SENATE FINANCE 532
02/28/2013 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB23 | |
| SB21 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 23 | TELECONFERENCED | |
| + | SB 21 | TELECONFERENCED | |
SENATE BILL NO. 23
"An Act relating to development project financing by
the Alaska Industrial Development and Export
Authority; relating to the dividends from the Alaska
Industrial and Export Authority; authorizing the
Alaska Industrial Development and Export Authority to
provide financing and issue bonds for a liquefied
natural gas production system and natural gas
distribution system; and providing for an effective
date."
Co-Chair Meyer MOVED to ADOPT the proposed committee
substitute for CS SB 23 (FIN) Work Draft 28-GS1738\C
(Bailey, 2/16/13).
Senator Olson OBJECTED for the purpose of discussion.
9:10:23 AM
AT EASE
9:11:41 AM
RECONVENED
Senator Olson wondered what changes were proposed in the
committee substitute. Co-Chair Kelly replied that the
changes were mostly technical changes.
Senator Olson WITHDREW his OBJECTION. There being NO
OBJECTION, the proposed committee substitute was ADOPTED.
SARAH FISHER-GOAD, EXECUTIVE DIRECTOR, ALASKA ENERGY
AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, introduced herself.
NICK SZYMONIAK, PROJECT ECONOMIST, ALASKA ENERGY AUTHORITY,
introduced himself.
TED LEONARD, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY, introduced himself.
Ms. Fisher-Goad discussed the PowerPoint, "SB 23 AIDEA
Development Project Financing for a Liquefied Natural Gas
Production and Distribution System." She highlighted slide
2, "Interior Energy Plan."
-Opportunity to provide Alaskans with low-cost North
Slope natural gas and propane
-Governor's finance package acts as a catalyst,
bringing together LNG and propane customers with the
private entities that will construct and operate the
system
-AIDEA is investigating project feasibility and will
only utilize their authorized finance tools if the
project makes economic sense
-AIDEA will take an equity stake in project but will
not outright build or operate the LNG plant or
distribution system
-Governor's finance package is targeted at funding the
initial capacity with future expansion funded by
private/community investment
Ms. Fisher-Goad looked at slide 3, "Project Goals."
-Provide lowest-cost energy to Interior Alaska
consumers as soon as possible
-Get gas first to the Interior while assuring long-
term access to gas and propane from liquefaction plant
for all Alaskans
-Utilize private sector mechanisms as much as possible
Ms. Fisher-Goad highlighted slide 4, "Project Description."
-Natural gas will be liquefied on the North Slope and
trucked to Interior Alaska
-Propane will be produced and delivered to Interior
and Rural Alaskans
-Primary LNG demand anticipated to be Fairbanks and
North Pole
-LNG will be temporarily stored andre-gasified in
Interior Alaska
-Natural gas distribution system with storage to
supply natural gas for heating
9:18:20 AM
Mr. Szymoniak looked at slide 6, "LNG Lowers Energy Costs."
Expected Utility Price per Mcf
-Wholesale LNG: $10.15
-Natural Gas to home: $13.42-$17.00 per Mcf
-Delivered price is equal to $1.79 -$2.27 per gallon
of fuel oil
Key Assumptions
-Initial costs associated with a 9 Bcf plant at start
up
-Snapshot in time, costs change with expansion
-LNG plant bifurcated into two sections (industry and
utility)
-$50 million capital cost reduction applied to 6.5 Bcf
utility section
Mr. Szymoniak highlighted slide 7, "Heating Energy Supply
Comparison."
Trucked LNG is the lowest-cost option for Interior
Alaska heating
-Electricity would need to be $0.04 -$0.06 per
kWh to compete with trucked LNG
-Electricity would need to be much cheaper to
compete with fuel oil
Mr. Szymoniak looked at slide 8, "Plant Use and Expansion."
Plant Expansion
-LNG plant will expand as the demand for natural gas
increases
-Size or timing of expansion is driven by demand
-Customer count includes residential and commercial
users
-Second expansion is possible based on pipeline timing
9:24:55 AM
Vice-Chair Fairclough wondered if there was a consideration
of the University related to future demand. Mr. Szymoniak
responded that there were discussions with the University
regarding the use of LNG, and was not included as an
explicit line item. Ms. Fisher-Goad furthered that there
were discussions with the University of Alaska Fairbanks
(UAF) about replacing the combined power plant, but the
project was merely a possibility.
Vice-Chair Fairclough remarked that she was looking for a
holistic plan to address the energy needs in the area, and
the state was approached for a significant amount of money
for the co-generation plant at UAF.
9:28:05 AM
Ms. Fisher-Goad remarked that AIDEA was incorporating what
UA's issues and their potential plans into the discussion.
She agreed that there should be a holistic approach, but
felt that it was not as simple to address.
Senator Dunleavy wondered if the high end cost was
incorporated into the gas the costumer purchased. Mr.
Szymoniak replied in the affirmative.
Senator Dunleavy looked at slide 9, and wondered if there
was going to be a gas conditioning plant on the slope that
was not included in the plan. Mr. Szymoniak replied that
the plant proposal was included in the LNG.
Senator Dunleavy wondered if the plant was located as a
sub-set of the LNG. Mr. Szymoniak responded in the
affirmative.
Mr. Szymoniak looked at slide 9, "Capital Cost Breakdown."
-Based on "Mid Cost" scenario
-Economies of scale achieved in LNG plant as
additional 4.5 Bcf trains are added
-Costs for expansions are cumulative
-Does not include trucking capital
Mr. Szymoniak highlighted slide 10, "Household Heating
Savings."
Typical Home Heating Savings
-$2,900 -$3,750 annually
-43 percent -55 percent reduction in cost
Key Assumptions
-Typical Interior Alaska household will use 225
Mcf of gas per year (equivalent to 1,700 gallons
of fuel oil)
-Does not account for expected improvement in
heating efficiency with natural gas
9:33:40 AM
Mr. Szymoniak discussed slide 11, "Reduce Fuel Price
Uncertainty."
Reduced price variability
-Small portion of delivered LNG price is natural
gas cost
-Fuel oil prices are much more volatile than
trucked LNG
-Trucked LNG is cheaper even when oil prices drop
Key Assumptions
-Fairbanks fuel oil price is based on linear
regression analysis
-Natural gas price uses publicly available
information on LNG supply contracts
Mr. Szymoniak looked at slide 12, "Air Quality."
Conversion to natural gas should reduce air pollutant
emissions in Fairbanks and North Pole
-Will reduce overall emissions of PM 2.5
-Fairbanks is presently a non-attainment area for
PM 2.5
-Potential public health benefits of natural gas
is substantial
Impact on Federal funding and economic development
-Alaska risks losing Department of Transportation
and Public Facilities funding if State fails to
submit an attainment plan to EPA
-Federal projects in the area face funding
hurdles while area is non-attainment
-Cleaner, healthier air in Fairbanks will promote
economic development
9:38:00 AM
Mr. Szymoniak highlighted slide 13, "Long Term Use of LNG
Plant."
LNG Plant will be used after gas pipeline
-Plant can serve Rural Alaska before gas pipeline
is constructed
-Expect opportunity to sell LNG to new industrial
users both before and after pipeline
-Information in chart is for demonstration only
Senator Hoffman remarked that there should be a
demonstration project for the river and highway system.
Senator Bishop felt that there were people in Fairbanks
that needed propane soon.
Senator Dunleavy remarked that the LNG concerns were across
the state. He wondered if the cost dealt with the main or
to a residence. Mr. Szymoniak responded that the cost
included from the main, but did not include the meter at
the residence, and he agreed to provide that information.
9:45:58 AM
Senator Dunleavy surmised that there could be a main, but
the resident may not be able to afford to get the gas. Mr.
Szymoniak replied that it was an aspect that AIDEA was
examining, and announced that there were a variety of
different programs that could help fund that.
Mr. Leonard stated that a proposal declared that a hookup
would cost $300 to $400 for the family, with a conversion
of the appliances at an additional cost. He felt that there
would be an overall savings.
9:51:03 AM
Mr. Leonard looked at slide 15, "Governor's Finance
Package."
$50 million General Fund appropriation
-Directly reduces the cost of LNG
$150 million AIDEA bonds
-3 percent to 4.5 percent interest rate (depending on
tax-exempt status of component financed and market
rates)
-$125 million SETS capitalization
-3 percent interest rate (set by SB23/HB74)
-Flexibility to provide optimal commercial structure
$325 million total 2013 package
$30 million natural gas storage credit
-$15 million tax credit per qualifying storage tank
-Created through previous legislative action
-$355 million total Governor's package
Co-Chair Meyer asked for a description of the SETS program.
Mr. Leonard responded that the SETS program was the
Sustainable Energy Transmission and Supply Development
Fund.
9:57:50 AM
Co-Chair Meyer noted that the money to fund the program
came out of the general fund. Mr. Leonard responded that.
the original loan participation fund started with an
original amount that had grown 200-300 and was to grow the
fund as more loans were issued. He stated that the interest
back from the loan went to the state.
Co-Chair Meyer noted that there was a charge association
with the debt service and inquired how it was factored into
the loans. Mr. Leonard replied that if they issued bonds on
loan participation there would also be interest revenue
from the
Co-Chair Meyer stated that he understood the program itself
and noted that the fiscal note did not show all the
financing that as being proposed. Ms. Fisher-Goad agreed to
provide more information.
10:03:49 AM
Co-Chair Meyer felt that the fiscal note should reflect the
different financing. Mr. Leonard responded that // He
stated that slide 16 reflected that concern.
10:07:46 AM
AT EASE
10:07:58 AM
RECONVENED
Co-Chair Kelly handed the gavel to Co-Chair Meyer.
Vice-Chair Fairclough looked at slide 2, and then slide 9.
She surmised that the low cost startup was projected at
$368 million, and the high cost startup was $481 million.
Mr. Leonard agreed, and furthered that he hoped that the
number would be narrowed soon. He explained that the
numbers were based on the proposals from the letters of
requests for interest.
10:10:51 AM
Vice-Chair Fairclough assumed that, if the state was
providing $355 million at a low cost scenario, carrying 95
percent of the risk. Mr. Leonard agreed, but looked at
slide 16. He shared that there would be $70 million from
the private sector. He stressed that AIDEA had provided an
explanation of their process and analysis that is
undertaken to determine the different phases.
Vice-Chair Fairclough remarked that there needed to be
equal insurance between the public sector contribution and
the state's investment. Mr. Leonard responded that the
state would be involved in the initial build out and
distribution. He explained that AIDEA's risk would only be
involved in the original startup.
10:19:48 AM
Vice-Chair Fairclough noted that the state would have an
equity interest at 86.4 percent, and a private sector
investment of 3.7 percent. Mr. Leonard replied that one
must look at the difference of the distribution system. He
explained that AIDEA would not have an equity position in
the distribution system, but it would have an equity
position in the plant.
Vice-Chair Fairclough wanted the interior of Alaska to have
low-cost energy, but remarked that the state was going "all
in" on this investment. She pointed out that it was
mitigated through bond packages and state structures. She
queried the qualifications of the private investors,
because their risk was mitigated by the state's investment.
Mr. Leonard responded that AIDEA conducted a due diligence,
to verify that the investors had the financial capacity to
maintain their side of the deal with expertise to run a
proposed plant.
Co-Chair Meyer commented that the state's storage credit
was $30 million, the state appropriation was $50 million,
and the SETS loan was $125 million, with total general fund
capital at $205 million. He felt that those numbers should
be outlined in the fiscal note.
10:25:49 AM
Senator Hoffman looked at slide 7, and commented that the
risk should be analyzed based on what the users were
currently paying with the probability of the cost of oil in
Fairbanks exceeding $5 or falling below $2. He felt that
the economy and the Fairbanks residents would suffer, if
action was not taken quickly.
Mr. Leonard looked at slide 17, "SETS Loan Interest Rate."
SETS Loan interest rate has minimal impact on LNG
Price
-Assumes 30-year loan term
-Reduces natural gas price by $0.25 per Mcf
10:34:01 AM
Mr. Leonard discussed slide 18, "Project Timeline and
Milestones." He stated that AIDEA was embarking on the
feasibility phase of the project, and planned to have that
phase complete by June 2013. He explained that the end goal
was to provide gas by the second quarter of 2015.
Vice-Chair Fairclough surmised that AIDEA could take no
more than one-third equity interest. Mr. Leonard explained
that the SETS program had a limitation that stated that
without legislative approval, AIDEA could not participate
in direct financing of a project under SETS. He remarked
that AIDEA could participate in direct financing in other
projects from between 23 percent to 100 percent ownership.
Co-Chair Meyer handed the gavel to Co-Chair Kelly.
10:39:35 AM
MERRICK PIERCE, SELF, NORTH POLE (via teleconference),
testified in support of SB 23. He furthered that the bill
should be amended to ensure that AIDEA was required to
complete full due diligence in the best possible method for
delivering natural gas to Fairbanks. He felt that LNG
trucking was not the best method. He stressed that LNG had
many problems including high out backs, it was the most
dangerous method for transporting LNG, gas contracts would
link the gas to the price of oil, and there was no propane
availability.
LUKE HOPKINS, MAYOR, FAIRBANKS NORTH STAR BOROUGH (via
teleconference), testified in support of SB 23. He
commented that AIDEA had approached the legislation
appropriately. He remarked that the legislation was
important, because it backed a project that had viability.
He remarked that the build out of the LNG plant and
distribution was important to the community of Fairbanks.
10:45:13 AM
BRIAN ROGERS, CHANCELLOR, UNIVERSITY OF ALASKA FAIRBANKS,
explained that UAF had a 50-year-old power plant that
provided most of its heat and electricity. He stated that
there were approximately 250 universities in the country
that had similar combined heat and power plants, and most
of them were gas. He explained that UAF spent $9.8 million
on heat and power for the campus.
Vice-Chair Fairclough was concerned about the operating
costs and remarked that there would be $0.5 million in
operating costs annually. She stressed that she wanted to
find an overall solution, rather than an incremental
solution.
Vice-Chair Fairclough stressed that the federal government
tended to postpone coal plant permits. Chancellor Rogers
understood that risk. He stressed that the plant would be a
replacement plant, so it would reduce emissions. He also
pointed out that it was lower than the regulatory limit.
SB 23 was HEARD and HELD in committee for further
consideration.
10:50:24 AM
RECESSED
1:34:24 PM
RECONVENED